Sovereign wealth funds (SWFs) have grown rapidly in recent years in both number and assets, emerging as significant and sometimes controversial players in global capital markets.
China, through the China Investment Corporation (CIC) has claimed 384,235 acres of American farmland soil, with a single Chinese billionaire owning more than half the property, per NYP.
It has been said that the economic model used by Japan and the South Korean government to grow their national economies in a few decades has been a combination of protectionism, favoritism of several chosen companies by subsidies, loans, and labor laws, and export-focused industrial policy. The goal of these factors were to create a few highly competitive companies to compete in global industries in order to create economic growth even if it came at the cost of domestic competition. The results of this was indeed a sustainable source of foreign currency and economic activity from these companies. However, they have also led to a variety of political issues and unrest because of the mismatched economy and uneven growth that they have caused at home. These companies have turned from private ventures to nationally important institutions. That does not even mention the political influence and corruption invovled during the creation and maintenance of these companies as this was not a completely objective process.
I see these funds as a centralized way to plan the consolidation and use of the economic capital of the nation in order to take advantage of the scale that this consolidation provides. This seems similar to the plan described above except in that they outsource the actual economic activity to another entity. If the citizens do own them in theory, then these funds might have a more equitable outcome in theory instead of the uneven economic growth that resulted in South Korea and Japan. Do you think that the outcome these funds will be anything like the results of South Korea's and Japan's previous economic models?
In addition, the size of these funds and the fact that many are controlled in some way by the national government means that political considerations are included in their use no matter what their official purpose is. I predict that the two short-term consequences of this will be that the funds will be used to support partisan goals and that the fund will be used to support strategic goals. I believe that Norway's fund's intent to invest its funds specifically in goals to promote environmentalism, women's rights, and social justice is an example of this. We already see examples of the second consequence which you have implied in your post. I believe that this will either lead to funds becoming explicitly politicized with their decision making being tied to elections, or their independence will become heavily restricted and tied to only a few avenues in which they can invest. What do you think that the perception of these institutions will be?
Thank you, Bryan, for your insightful comment! You bring up several important points about the economic strategies of Japan and South Korea and their potential parallels with the role and impact of sovereign wealth funds (SWFs).
It's a great callout that these funds are similar to the economic model employed by Japan and South Korea. Their approach was timeless in facilitating the rise of globally competitive conglomerates like Japan's keiretsu and South Korea's chaebols.
I actually believe the outcome of these funds could be surprisingly similar to the results of South Korea's and Japan's previous economic models. Sovereign wealth funds, while distinct in their operation, do share similarities with these models in terms of centralized economic planning and resource allocation. As discussed, by pooling national capital, these funds can leverage economies of scale and invest in a variety of global markets, potentially stabilizing the national economy and providing a buffer against economic volatility. However, even though theoretically citizens "own" them, I believe the limited transparency and accessibility to citizens can further corruption and centralize power within the elites, leading to outcomes similar to those results of South Korea's and Japan's previous economic models.
Your prediction that SWFs could become tools for partisan goals or be restricted in their investment avenues is a real concern. The perception of these institutions will likely depend on their governance structures, transparency, and accountability measures. If SWFs are seen to be managed impartially and for the long-term benefit of the entire nation, they could be viewed positively. However, if they become entangled in political goals or lack transparency (which, given recent developments, seems likely), public trust could erode. Therefore, I believe the perception of these institutions will become more negative and politically charged, especially as countries use them for geopolitical and hegemonic interests. However, that could potentially lead to their independence being diminished and their investments being restricted to only a few areas (some would argue this would be a positive development).
China, through the China Investment Corporation (CIC) has claimed 384,235 acres of American farmland soil, with a single Chinese billionaire owning more than half the property, per NYP.
It has been said that the economic model used by Japan and the South Korean government to grow their national economies in a few decades has been a combination of protectionism, favoritism of several chosen companies by subsidies, loans, and labor laws, and export-focused industrial policy. The goal of these factors were to create a few highly competitive companies to compete in global industries in order to create economic growth even if it came at the cost of domestic competition. The results of this was indeed a sustainable source of foreign currency and economic activity from these companies. However, they have also led to a variety of political issues and unrest because of the mismatched economy and uneven growth that they have caused at home. These companies have turned from private ventures to nationally important institutions. That does not even mention the political influence and corruption invovled during the creation and maintenance of these companies as this was not a completely objective process.
I see these funds as a centralized way to plan the consolidation and use of the economic capital of the nation in order to take advantage of the scale that this consolidation provides. This seems similar to the plan described above except in that they outsource the actual economic activity to another entity. If the citizens do own them in theory, then these funds might have a more equitable outcome in theory instead of the uneven economic growth that resulted in South Korea and Japan. Do you think that the outcome these funds will be anything like the results of South Korea's and Japan's previous economic models?
In addition, the size of these funds and the fact that many are controlled in some way by the national government means that political considerations are included in their use no matter what their official purpose is. I predict that the two short-term consequences of this will be that the funds will be used to support partisan goals and that the fund will be used to support strategic goals. I believe that Norway's fund's intent to invest its funds specifically in goals to promote environmentalism, women's rights, and social justice is an example of this. We already see examples of the second consequence which you have implied in your post. I believe that this will either lead to funds becoming explicitly politicized with their decision making being tied to elections, or their independence will become heavily restricted and tied to only a few avenues in which they can invest. What do you think that the perception of these institutions will be?
Thank you, Bryan, for your insightful comment! You bring up several important points about the economic strategies of Japan and South Korea and their potential parallels with the role and impact of sovereign wealth funds (SWFs).
It's a great callout that these funds are similar to the economic model employed by Japan and South Korea. Their approach was timeless in facilitating the rise of globally competitive conglomerates like Japan's keiretsu and South Korea's chaebols.
I actually believe the outcome of these funds could be surprisingly similar to the results of South Korea's and Japan's previous economic models. Sovereign wealth funds, while distinct in their operation, do share similarities with these models in terms of centralized economic planning and resource allocation. As discussed, by pooling national capital, these funds can leverage economies of scale and invest in a variety of global markets, potentially stabilizing the national economy and providing a buffer against economic volatility. However, even though theoretically citizens "own" them, I believe the limited transparency and accessibility to citizens can further corruption and centralize power within the elites, leading to outcomes similar to those results of South Korea's and Japan's previous economic models.
Your prediction that SWFs could become tools for partisan goals or be restricted in their investment avenues is a real concern. The perception of these institutions will likely depend on their governance structures, transparency, and accountability measures. If SWFs are seen to be managed impartially and for the long-term benefit of the entire nation, they could be viewed positively. However, if they become entangled in political goals or lack transparency (which, given recent developments, seems likely), public trust could erode. Therefore, I believe the perception of these institutions will become more negative and politically charged, especially as countries use them for geopolitical and hegemonic interests. However, that could potentially lead to their independence being diminished and their investments being restricted to only a few areas (some would argue this would be a positive development).