More Concern over Sovereign Wealth Funds

The United States is concerned over the investments of Sovereign Wealth Funds in the United States. (See my post of February 26, “Bad Policies Eventually Catch Up With You.”) We now learn that the European Union is looking into voluntary codes of behavior for Sovereign Wealth Funds who invest in European companies. (See the February 28 article in the Wall Street Journal: http://online.wsj.com/article/SB120411561508896669.html?mod=todays_us_page_one.)

Yes, the problem is now being recognized, but the bull has already been released into the china store. The question is “Will these funds voluntarily behave over time or will nations have to legislate how Sovereign Wealth Funds should behave, and thereby put up barriers to free and open global trade?“ The Wall Street Journal article says that “Germany said yesterday it would push ahead with its own legislation aimed at shielding companies from unwanted foreign takeovers.” The United States has prevented some investment into areas that are related to national security. These may seem to be minor efforts, but once begun they can always be used as examples to push legislation a little further and then even a little further.

There is one important question and one fact that needs to be assessed relative to the situation the United States now finds itself in. The question is: “If globalization is good for our expansion throughout the world shouldn’t globalization be allowed to return to our shores with the expansion of other countries into the United States?” The fact is: the United States is now a ‘small country’ in terms of economics and finance and cannot just follow any fiscal or monetary path that it desires. Other sizeable countries in the world learned this about themselves in the 1980s and 1990s. The United States is learning this right now!