Ashby H.B. Monk

Recasting the Sovereign Wealth Fund Debate: Trust, Legitimacy, and Governance

Sovereign Wealth Funds (SWFs) are the subject of intense debate. While these financial institutions are hard to define in precise terms, all agree they are government-owned investment funds operating in private financial markets. Their relevance to the evolving economic, political and financial landscape cannot be overstated, as they challenge the received notions of practice and governance embodied in traditional, Western financial institutions. This has resulted in distrust-more accurately labeled as illegitimacy-by Western policymakers about SWF intentions. Indeed, several countries are considering new, protectionist policies designed to minimize perceived SWF threats. In this article, I seek to evaluate the SWF phenomenon by making three contributions: clarifying what a SWF is and is not; analyzing the concerns of policymakers; and examining the role of governance in these concerns. This papers theoretical contribution is a conceptualization of the interplay between organizational legitimacy and institutional governance. This is done through an interrogation of available literatures, reference to close-dialogue interviews with elites, and two brief case studies.

The Knot of Contracts: The Corporate Geography of Legacy Costs

Burdensome past commitments are threatening a concentrated group of industries and communities, predominantly in the U.S. Midwest. Beginning with the bankruptcy of Delphi Corporation, this article documents the crisis for “old-economy firms” with significant legacy costs. To understand the root causes of this legacy crisis, the analysis builds on previous research in economic geography and the results of a widely subscribed and unique “expert opinion” survey highlighting the corporate impacts of defined benefit pensions in the private sector. The result is a conceptual framework that describes the corporate geography of legacy costs: the “knot of contracts.” Specifically, the knot of contracts conceptualizes the role of intergenerational commitments in restricting corporate evolution and innovation, while underscoring time as a central component of the nature of the firm. Developing this framework requires linking microeconomic theories of the firm with the institutional aspects of firms geographies. While referring to specific cases and proprietary data throughout, the article is principally concerned with understanding legacy costs. In addition, the intent is to uncover managerial and governmental behavior that tightened this knot of contracts and to expose the current managers attempts to manage their firms through the adverse affects of the knot of contracts. The explanations in this article serve as a useful bridge between the realities faced by firms and their surrounding communities and the more abstract notions of the firm and competitiveness in the context of globalization.

The Geography of Pension Liabilities and Fund Governance in the United States

If finance is the engine driving economic and geographic change, then pensions are its primary vehicle. On the one hand, pension-plan assets, which approached US

Rethinking the Sovereign in Sovereign Wealth Funds

18 trillion in 2005 for OECD countries, are having global impacts on financial markets. On the other hand, pension-plan liabilities, larger than the assets in nominal terms, are also having dramatic impacts on plan sponsors. If assets are not properly managed, pension liabilities can threaten the financial solvency of plan sponsors. Consequently, owing to the enormous and growing financial and political importance of pension plans, I contend that the procedures governing these institutions are of increasing importance for economic geographers. In this paper the effectiveness of the current governance system is tested through a widely subscribed ‘expert survey’. Then, the relationship between pension-fund governance and economic geography is demonstrated through case study. I conclude that the current governance model remains inadequate. Moreover, poor pension-fund governance, in addition to having an economic cost, is shown to have tangible geographic impacts.

Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance

Nation states are increasingly sharing sovereignty, both with other states and with supranational and non-governmental institutions. In large part, this is the result of a long period of economic and financial globalization, which has undercut territorial notions of sovereignty and varieties of capitalism. In trying to understand this phenomenon, we are drawn to sovereign wealth funds (SWF), as they offer a unique and powerful lens into the changing dynamics of contemporary capitalism, global economic integration and state sovereignty. Indeed, the SWF provides governments a tool for both engaging with new spatial forms as well as resisting them. While politicians may conceptualize the objective of such funds in the most practical terms, they serve an under-appreciated role in maintaining state sovereignty in a globalized (i.e. deterritorializing) world. In this paper, we build on emerging interdisciplinary scholarship concerning the rise of SWFs by broadening the interpretation of the utility of SWFs for the sponsoring government in relation to the practice and constitution of sovereignty. To this end, we offer an innovative, stylized typology of SWFs in relation to the state and its sovereignty. The objective is to better understand the potential long-term significance of SWFs and the factors that might underpin further development of new SWFs in different countries in the future. Moreover, we believe SWFs can be differentiated according to the role they play in sovereignty and what underlies their claims to legitimacy within their respective nation state. As such, by understanding the rise and purpose of SWFs, we hope to better understand the sovereign in SWFs.

The Financial Thesis: Reconceptualizing Globalisation's Effect on Firms and Institutions

Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds (SWFs); governments have been using these special-purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter the transformative forces of global capitalism. Drawing on institutional theory and economic geography, I conceptualize the impetus behind the existence of SWFs, and conclude that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.

Symposium: sovereign fund capitalism

The relationship between globalisation and institutional change is an issue frequently debated in economic geography and the social sciences. Some see firms, whatever their national culture or heritage, as facing common market forces that undermine self-determination and predict convergence towards a global best practice. Others are sceptical, arguing that different country-specific ‘varieties of capitalism’ have market-distorting effects, resulting in path dependence that limits the strength of global incentives to converge at the firm level. Others still are unconvinced by both these arguments. As such, this paper seeks to better understand globalisations impact on institutions and firms by documenting the effect of global finance and its affiliated agents on institutions and firms. Specifically, I examine the experiences of firms in both Japan and the US that sponsor pension funds to see if they have had similar experiences and behaviours in both jurisdictions. I find that American and Japanese pension sponsors, despite clear manifestations of societal differences, have in fact had very similar experiences. So, some of the predictions held by path dependence and the varieties of capitalism are not confirmed in this case. However, because convergence towards a ‘best practice’ corporate pension offering is also rejected, the paper concludes that new research that focuses on the impact of financial markets on institutions and firms offers important insights for explaining the outcomes in both places.

The Political Economy of US—China Trade and Investment: The Role of the China Investment Corporation

Over the past fifty years, there has been a revolution in the way nation-states, institutions, and firms interact with global markets. Through processes we have come to know as financialization and globalization, the fundamental dynamics of economic coordination have been restructured. Indeed, for many years it was argued that, as developed economies exported investment to developing economies, the map of the net financial flows was more important than the map of gross flows. This view of the world suggested that the real economy, comprised mostly of the production and trade of commodities, was the dominant mechanism underpinning global economic integration. While this was perhaps true at one point, by the turn of the 21st century, global financial stocks had overwhelmed the significance of the global `real economy. Indeed, the size of the financial economy was estimated to be roughly three times larger than the real economy in 2007 (Lee et al, 2009). As such, finance and its various agents, institutions, and markets had become incontrovertible forces in the global economy (Monk, 2009a).(1) This is not to say that the real economy had lost all its importance for understanding the global map of economic growth and potential,(2) but its relevance was increasingly discounted in favour of finance. Here we conceive of the transition towards a financialized economy as the result of a 20th-century decision to prefund pension obligations with financial assets. The groundbreaking idea was based on a simple notion: there is an obligation to set aside assets in the present to avoid retirement crises due to insufficient resources in the future. As such, in the postwar years in the West, economic growth was accompanied by the establishment and development of various kinds of savings institutions that, in effect, collected together and invested the retirement savings of many workers and their dependants. This is a story that has been told in a number of ways, including Clarks (2000) ` pension fund capitalism, Hawley and Williamss (2000) ` fiduciary capitalism, and even Shillers (2000) finance-led ` irrational exuberance. Nonetheless, whatever Symposium: sovereign fund capitalism

The Emerging Market for Intellectual Property: Drivers, Restrainers, and Implications

As an emerging economy, China has relied on trade for export-led economic growth, imitating the path taken by its immediate neighbours over the past 25 years and the road taken previously by Germany and Japan. The original deal to normalize relations between the USA and China has been over-taken by the massive surge in Chinese exports to the USA, the tensions occasioned by the global financial crisis and the sense in which the USA, as a debtor country, is now reliant upon China for its long-term future. This article focuses on the China Investment Corporation (CIC) Sovereign Wealth Fund (SWF), which is a product of the original deal and is emblematic of the new status of China in the global economy. It is argued that, as one of the worlds largest sovereign wealth funds, the CIC has eschewed conventional portfolio investment in developed financial markets for strategic investment in resources and jurisdictions deemed essential to Chinas long-term growth. As such, attempts to rein-in its ambitions through the “Santiago Principles” may be circumvented by a very different approach to investment. The CIC has the ability to re-make the rules of engagement in global financial markets, thereby redrawing the nature and scope of the long-term relationship between the two superpowers of the twenty-first century: China and the USA.