Countries buying companies

There was relatively little alarm in Washington last month when a government-owned corporation from Dubai bought almost 20 per cent of Nasdaq, the New York-based stock exchange. In part, the mild reaction reflected the fact that the deal was clearly sound economically – and that Dubai gets only 5 per cent of the voting rights in Nasdaq, says the Washington Post.

But what if it had been communist-run China, instead of Dubai, buying into a major financial exchange? Hugo Chavez's Venezuela? Or Vladimir Putin's Russia? Such questions are no longer purely hypothetical because of the rise of "sovereign wealth" funds: huge piles of investment capital being assembled in Beijing, Caracas, Moscow – and many other capitals around the globe.

  • Morgan Stanley projects that sovereign wealth funds could grow from their current total of $2.5 trillion to $12 trillion by 2015.

  • As it happens, China, which has an estimated $300 billion to invest, has already bought a 10 per cent share in Blackstone, the private equity company.

    There is nothing new about foreign investors "recycling" their earnings from trade or oil production through the machinery of international capitalism, says the Post:

  • We saw it with Arab oil exporters in the 1970s and Japanese real estate buyers in the 1980s.

  • Norway's government has long used its proceeds from North Sea oil to purchase assets around the globe.

  • Even the oil-rich state of Alaska has a sovereign wealth fund, of sorts: the Alaska Permanent Fund.

    Still, sovereign wealth funds pose tough issues for advocates of free-flowing international capital. The case for foreign investment in the United States assumes that companies and individuals have an interest in deploying their resources where they will be most productive economically – and that they should be free to pursue profit around the world. Sovereign wealth funds, however, offer governments a way to take over businesses for political as well as economic purposes, says the Post.

    Source: Countries Buying Companies: The rise of sovereign wealth funds is nothing to fear – if they operate out in the open, Washington Times, October 25, 2007.

    For text:

    For more on International Issues:

    FMF Policy Bulletin/ 30 October 2007
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