Strategic SWFs and Alliance Capitalism

Ashby Monk

Friend of the show Daniel Haberly has a new paper coming out in Environment & Planning A entitled, “Strategic Sovereign Wealth Fund Investment and the New Alliance Capitalism: A Network Mapping Investigation.” It’s a remarkable piece of scholarship that is well worth half an hour of your time, as Haberly offers a conceptual framework that explains (or just helps us better understand) the behavior of certain SWFs he deems to be strategically oriented:

“I define strategically oriented SWFs as those which evaluate the success of at least some (not necessarily all) of their investments not only from the perspective of shareholder, but also of national stakeholder value; i.e. individual investments are leveraged to build and reinforce specific relationships of significance to national interests.”

Haberly looked at close to 50 SWFs to determine which among them were strategically oriented. The results are demonstrated in the chart below (click for larger version). The white circles offer no evidence for strategic behavior. The funds with black circles are openly strategic. And the gray funds, in Haberly’s words, “do not officially pursue strategic/developmental objectives as part of their investment mandate, but appear to in practice based on an analysis of their investment patterns.”

Clearly, the gray bubble hovering over Beijing screams out for more investigation and discussion. And Haberly doesn’t disappoint:

“CIC has been advertised by China as a normal financially-oriented institutional investor, operating according to global commercial standards, and independently of political interference. In practice, however, it has not conformed to these claims. While formally autonomous from state interference, CIC is in fact tightly controlled by the Chinese political leadership, and often applied to specific political tasks…Network mapping lends weight to widespread suspicions that CIC is being employed strategically in the raw materials and energy sectors….Until CIC‘s announcement of a joint venture with Intel in early 2010, 100% of non-financial sector direct investments identified by the author were in the resource extractive and energy sectors. Officially, CIC‘s emphasis on these sectors is motivated by a desire to hedge against inflationary pressures. While there is no reason to doubt this motivation, given China‘s massive holdings of inflation-exposed fixed income foreign securities, the specific pattern of CIC‘s investments evidences additional considerations.”

And here’s the network mapping exercise that led Haberly to the conclusions above:

The real question, then, is what motivates this strategic behavior. Haberly’s interpretation is that it is part of a new ‘state-led global alliance capitalism’ in which states forge relationships with foreign firms:

“What defines state-led global alliance capitalism is the ability of states to project themselves into the realm of multinational private enterprise institutionally, while retaining the capability to leverage their unique command over many sorts of territorially bound resources (such as raw materials, or domestic taxation powers).”

There’s no way to do justice to the conceptual aspects of this paper in a single blog post. If you’re really interested in Haberly’s explanations, you should probably read it.

It’s possible that this paper will roil some of the folks over at the CIC, as the Chinese SWF has been quite adamant about its commercial orientation and rejection of strategic interests. However, the CIC may actually welcome some of Haberly’s arguments. For example, he describes some benefits enjoyed by the target firms and countries:

“Investment by CIC brings with it the promise of not only being connected to abundant Chinese state financing, but also preferential market access in China—usually in the form of lucrative long-term contracts with Chinese state firms, and in at least one case superior Chinese extractive technology.”

And Haberly takes a couple of shots at the Santiago Principles, which may also please some of the more strategically oriented SWFs:

“The Santiago principles can be seen as a direct reflection of the prevailing neoliberal ideological consensus. Ultimately, however, they are primarily based on just that—ideology—and do not necessarily reflect the practical interests of host states or firms for SWF investment.”

Anyway, Haberly’s paper is fresh, insightful and thought-provoking. Check it out.

 

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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