A new hurricane has appeared on the horizon of the international economic-legal relations in the last few months: how Western countries should deal with the other side of global financial capitalism, which takes capitals from the most disparate sources and channels them or divests them from all kinds of markets, in stock exchanges or directly into firms by way of private equity funds. The challenge posed by the listed funds accumulated by emerging economies thanks to their trade surpluses, either because they export oil or manufactured goods. We are talking about $2,5 trillion that are not part of official reserves (those are mostly invested in US Treasury Bills, keeping the US currency afloat) and are controlled by national development agencies or other kinds of state-run organizations. What’s the perspective taken by investors, when behind them there are national governments? What are the dangers and opportunities for the markets and countries on the receiving end? Their main intent seems to make good investments in terms of foreseeable capital gains and profit dividends. This means diversifying investments and deciding whether to actively manage them directly or instead give a mandate to professional fund managers, as it was the case when China invested $3 billion in the Blackstone private equity fund.
Such investments are coveted by managers, companies and regions of industrialized counties, and the race is on to attract them. But countries who know better have already started fearing that all this money will come with political conditions attached: China or Saudi Arabia are no investors like any other, if only for their sheer economic weight. The investor only looking for financial returns can suddenly change clothing and turn into a politically motivated national power, posing a threat to national security (e.g. the American refusal to let Dubai run US ports or let China acquire Unocal) or trying to influence the policy choices of the recipient country. In fact, the boundaries have blurred between what is an investment made by a foreign government, and a direct private investment made by a state-owned firm, as the recent history of Russian gas and oil companies reminds us. Government-owned operators seem like a throwback to before the age of privations, but it’s also true that ENEL, ENI, EdF remain in public hands.
The US has introduced pre-emptive controls on acquisitions of US companies by entities controlled by foreign governments. In Europe the issue is still open. So far national interest has been invoked more for preoccupations linked to job losses (viz. France and Danone) than for geopolitical concerns. For its part, the Commission has gone against the tendency of national governments to hold on to a “golden share” in major utilities. Now Angela Merkel’s Germany wants to regulate sovereign foreign funds. Shouldn’t be the Union itself deciding on the issue? Isn’t there a risk of economic reprisals? International politics and market rules will determine the outcome of a colossal game that has just started.
by Giorgio Sacerdoti,
Full Professor of international law atUniversità Bocconi