Globalisation was supposed to mean the worldwide triumph of the market
economy. Yet some of the most influential players are turning out to be states,
not private actors. States play a dominant role in ownership and production of
raw materials, notably oil and gas. Now states are also emerging as owners of
wealth. This is creating widespread concern. Does that narrow focus make sense?
The broad answer is No.
Fevered attention is currently focused on so-called "sovereign wealth funds". As Standard Chartered shows in an intriguing analysis, carried out with input from Oxford Analytica*, these are not a new phenomenon: the oldest dates back to 1953. But today there are more funds, with far more money at their disposal than before. In all, they control some $2,200bn, with
$2,100bn in the top 20 funds. The seven biggest belong (in order of estimated
size) to Abu Dhabi ($625bn), Norway ($322bn), Singapore - GIC ($215bn), Kuwait
($213bn), China ($200bn), Russia ($128bn) and Singapore - Temasek
How large are these funds? They account for approximately 1.3 per cent
of the world's stock of financial assets (stocks, bonds and bank deposits). But
the total of $2,200bn is, notes the Standard Chartered report, bigger than the
sums invested in hedge funds (at $1,000bn-$1,500bn) and private equity funds (at
$700bn$1,100bn). Nevertheless, it is dwarfed by the $53,000bn controlled by
mature institutional investors.
How is the money used? Here the report distinguishes funds by their
transparency and by the active, or strategic, nature of their approach to
investment (see chart). Norway's fund is conventionally invested (with widely
distributed ownership) and transparent. Singapore's funds are defined as
transparent, but look for large ownership positions. Qatar's fund is defined as
non-transparent and strategic, as is China's. But Lou Jiwei, chairman of the
China Investment Corporation, insists that the new fund will operate on
Is there any reason, then, to be concerned about the emergence and
likely growth of such funds? As a general proposition, the answer is No. If a
government operates a fund transparently and on normal commercial lines, with a
wide range of investments and no dominant positions, as does Norway, one can
only welcome its emergence as an investor. Questions should be raised only if a
fund sought a controlling interest in a strategic company. Then two issues would
arise, neither of them specific to sovereign funds: the first is whether the
fund is a "fit and proper person" to control a company; the second is whether
ownership might threaten a public interest.
My broad recommendation, then, is to consider the emergence of these
funds as part of the integration of countries that accept a bigger role of the
state in markets than western countries do today. So be it. It is better for
such countries to prosper inside the market system than glower outside it. It is
absurd to take a country's exports of oil and refuse to allow it to buy assets,
All this to be taken with a grain of piquant salt!!!