Sovereign wealth is a force for stability

207

The political consequences of international trade are different from the political consequences of international investment. Yet the willingness of business to transcend political divisions in pursuit of commercial advantage is basically a force for peace.

Everyone is talking about sovereign wealth funds. There are six countries whose governments are substantial international investors. Three are Middle Eastern ones – the United Arab Emirates, Kuwait and Saudi Arabia. Norway and Singapore have large funds. Then there is China. Other sovereign funds are smaller than the bigger pension funds, and the total assets even of the big six are marginal relative to the scale of privately controlled investments.

But the political dimension of sovereign wealth raises passions absent, or less obvious, when the investor is Blackstone, Fidelity or Goldman Sachs. The suspicion and protest that greeted Kuwait’s involvement in BP two decades ago is today applied to its holding in Daimler and Abu Dhabi’s stakes in Citigroup and Sony. The idea that American ports and California’s oil might come under foreign control causes consternation in Congress.

The relationship between international politics and international investment is an issue as old as commerce. But the lesson of history is that the problems are for the investor not the investee. When ownership rights conflict with political authority the latter almost always prevails.

The City of London appears at the mercy of sovereign wealth. Its electricity is supplied by a company controlled by the government of that ancient enemy, France. Perhaps, as one of those interminable discussions among the ministers of Europe reaches deadlock, President Nicolas Sarkozy could order the lights to flicker. That would remind everyone that the source of power is in Paris.

But the scenario is absurd. The switches are in London, and it is their location, not that of the share certificates, that matters. France does derive some minor influence but this is the result of French physical supplies through the cross-Channel interconnector, not French ownership of British electricity companies: trade not investment. Similarly President Vladimir Putin’s influence on European energy comes from Gazprom’s control of assets inside Russia, not its ownership of those outside Russia.

It seems inconceivable today that a political quarrel between Britain and France would lead to a rupture of commercial relations. But such issues did once arise. The industrial landscape is still influenced by the rearrangement of assets in the world wars. That is why there is both a US Merck and a German Merck. It is perhaps ironic that Thomas Cook, the provider of travellers’ cheques, is today German-owned: the business was appropriated by the British government when the Paris headquarters of the company’s then parent fell to the enemy in 1940.

At that time General Motors made military equipment for the US government in the US, for the British government in Britain and for the German government in Germany. The records on which Nazi tyranny was based were maintained by a subsidiary of IBM. Modern writers criticise these companies for complicity in oppression, but they had no other realistic option.

These corporations might justly be censured for pursuing business advantage with too much zeal. The American executive in charge of GM’s European operations was decorated by the Führer for his services. It remains controversial whether the purpose of IBM’s partial disengagement from its German associate was to distance the parent from the Nazis or to make the subsidiary more acceptable to them.

Yet the willingness of business to transcend political divisions in pursuit of commercial advantage is basically a force for peace. But the political consequences of international trade are different from the political consequences of international investment. To make war, you need your own steel production, not your own steel company. Trade across borders binds us together economically by raising the costs of independent action. Investment across borders binds us together by creating actors with much to lose from political tension. The investment that Norway, Singapore and Kuwait have made in global markets is also an investment in global, economic and political stability. We should welcome it if China and Russia make the same commitment.

Print Friendly, PDF & Email