Daniel Haberly

Strategic Sovereign Wealth Fund Investment and the New Alliance Capitalism: A Network Mapping Investigation

Sovereign wealth funds (SWFs) have grown rapidly in recent years both in value and in number. Despite a great deal of popular debate, very little scholarly attention has centered on the ‘strategic use’ of SWFs by states, that is, as tools to promote national development. Using a ‘network mapping’ approach, I investigate two case studies involving extensive strategic SWF investment: Qatar, Abu Dhabi, and Dubais use of SWFs to promote the development of their aerospace sectors; and the deployment of the China Investment Corporation as an instrument of Chinese raw materials and energy policy. Strategically oriented SWF investment can be seen as a state-adaptive strategy under contemporary conditions of globalization and financialization. The viability of such a strategy, however, hinges on the manner in which it feeds into the strategies of firms and states at the receiving end of investment.

Regional Blocks and Imperial Legacies: Mapping the Global Offshore FDI Network

While FDI is generally assumed to represent long-term investments within the “real�? economy, approximately 30-50% of global FDI is accounted for by networks of offshore shell companies created by corporations and wealthy individuals for tax and other purposes. To date, there has been limited systematic research on the global structure of these networks. Here we address this gap by employing Principal Component Analysis (PCA) to decompose the global bilateral FDI anomaly matrix into its primary constituent sub-networks. We find that the global offshore FDI network is highly globalized, with a centralized “Network Core�? of offshore jurisdictions in Northwest Europe and the Caribbean exercising a largely homogeneous influence over economies worldwide. To the extent that the network is internally differentiated, this appears to primarily reflect a historical layering of social and political relationships. We identify four primary offshore FDI sub-networks, bearing the imprint of four key processes and events: European, particularly UK colonialism, the post-WWII hegemonic alliance between the US and Western Europe, the fall of Soviet communism, and the rise of Chinese capitalism.

Regional Blocks and Imperial Legacies: Mapping the Global Offshore FDI Network: Regional Blocks and Imperial Legacies

abstract While foreign direct investment (FDI) is generally assumed to represent long-term investments within the real economy, approximately 30–50 percent of global FDI is accounted for by networks of offshore shell companies created by corporations and individuals for tax and other purposes. To date, there has been limited systematic research on the global structure of these networks. Here we address this gap by employing principal component analysis to decompose the global bilateral FDI anomaly matrix into its primary constituent subnetworks. We find that the global offshore FDI network is highly globalized, with a centralized core of jurisdictions in Northwest Europe and the Caribbean exercising a largely homogenous worldwide influence. To the extent that the network is internally differentiated, this appears to primarily reflect a historic layering of social and political relationships. We identify four primary offshore FDI subnetworks, bearing the imprint of four key processes and events: European, particularly UK colonialism, the post–WWII hegemonic alliance between the United States and Western Europe, the fall of Soviet communism, and the rise of Chinese capitalism. We also find evidence of qualitative, but not quantitative, variation in offshore FDI based on national rule of law and communist history.

White Knights from the Gulf: Sovereign Wealth Fund Investment and the Evolution of German Industrial Finance

Abstract The period leading up to and following the global financial crisis has been characterized by rising global financial diversity and multipolarity, a process underscored by the growth of so-called sovereign wealth funds (SWFs). To date there has not been any systematic examination of the interactions between this rising global financial diversity and national economic institutional diversity. Here I apply an institutional “comparative capitalisms” perspective to the analysis of Gulf Cooperation Council (GCC) SWF investment in German industry since the onset of the global financial crisis. The evidence demonstrates that a growing number of German industrial firms—particularly the major automotive firms at the heart of German industry—have recruited long-term GCC SWF investment as an adaptive response to the stresses of financial restructuring, most importantly the appearance of hostile takeovers as a feature of the German corporate governance landscape. These patterns lend partial support to “varieties of capitalism” (VOC) arguments that institutional complementarity and comparative institutional advantage are likely to produce path dependent trajectories of national institutional evolution. They also lend partial support to critiques of VOC, emphasizing, on the one hand, the importance of the Polanyian “double movement” of market expansion and containment and, on the other, the transnational foundations of national institutional diversity. I conclude that to fully explain these patterns, both VOC theories of institutional complementarity and comparative advantage, and Polanyian theories of the double movement, must be grounded in a “generalized Darwinian” analysis of population-level selection dynamics.

Earth Incorporated: Centralization and Variegation in the Global Company Network

abstract Over the past twenty years, a widening gulf has appeared between the increasingly internationalized financing arrangements of the world’s leading corporations and the persistence of nationally compartmentalized approaches to the study of corporate control. In lieu of direct empirical evidence on corporate control at the global level, the most widespread assumption is that the globalization of ownership has taken the form of an expansion of arm’s-length, market-based arrangements traditionally prevailing in the Anglo-American economies. Here, however, we challenge this assumption, both empirically and conceptually. Empirically, we show that three-quarters of the world’s 205 largest firms by sales are linked to a single global company network of concentrated (5 percent) ownership ties. This network has a hierarchically centralized organization, with a dominant global network core of US fund managers ringed by a more geographically diverse state capitalist periphery. Conceptually, we argue that the this architecture can be broadly explained through a Polanyian variegated capitalist model of contradictory market institutionalization, with the formation of the global company network actually a counterintuitive product of global financial marketization. In order to understand this process of network formation, however, it is necessary to extend Polanyi’s model of a double movement, mediated through political interventions in the market, to incorporate Veblenian processes of evolutionary institutional change, mediated through the market.

Fragile Renegades: Offshore Banking Centers in the Global Financial Crisis

Lying at the heart of offshore finance is a basic contradiction. On the one hand, offshore finance is fundamentally driven by the desire to protect private property from the state; on the other hand, this property is itself ultimately dependent on the protection of the state. This dilemma has recently been highlighted by crises in Iceland, Ireland, and Cyprus in particular; however, there has to date been no systematic research into its implications for the stability of the global offshore system. Here we seek to fill this gap, by theoretically and empirically problematizing the geographically uneven impact of the global financial crisis on the worldwide offshore banking network. Our results indicate that the shift from territorial to nationality-based regulation under Basel encouraged a shift, in the 1990s and early 2000s, from risk-externalizing to risk-internalizing offshore banking center development. This saw a relative decline in the traditional staple of foreign bank booking — wherein the costs of backstopping a potential crisis were shifted to other states — and a concomitant growth of national banks backstopped by offshore states themselves. This growth interacted with the international geography of currency usage to produce an uneven pre-crisis landscape of offshore banking vulnerability, which materialized following the shock of the global financial crisis. In the aftermath of the crisis, the most resilient offshore centers were those which had either: 1) preserved the traditional foreign bank booking model, 2) pursued a “state capitalist” offshore banking model, wherein national bank foreign currency liabilities are hedged by sovereign foreign currency reserves, or 3) developed an exceptionally diverse and robust network of foreign funding sources.

Sovereign Networks in the Space of Flows: The Political Geography of Offshore Banking

The rise of offshore financial centers in many respects epitomizes the ability of transnationally mobile private capital to undermine state economic sovereignty. As recent crises in Iceland, Ireland, and Cyprus have demonstrated however, this undermining of state sovereignty poses a paradox which calls into question the stability, as opposed to simply the civic responsibility, of the offshore financial network. On the one hand, the core rationale for offshore finance is the protection of private property from the state; on the other, private property is itself ultimately dependent on state protection. Moreover, even while undermining some aspects of state sovereignty, the construction of offshore centers is fundamentally an expression of this sovereignty. Here we analyze the co-evolution of the international offshore and onshore banking systems from 2005 to 2012 in terms of the interplay between multiple modalities of state economic sovereignty. Contrary to the common perception of an inexorable growth of offshore finance, the international offshore banking network in fact withered substantially following the global financial crisis. This occurred, however, in an uneven manner. Ironically, the most resilient sections of the network were those most securely rooted in state economic sovereignty, most importantly currency sovereignty as exercised by central banks.

Sovereign Wealth Funds: Legitimacy, Governance, and Global Power By Gordon L. Clark , Adam D. Dixon , and Ashby H. B. Monk . Princeton, NJ : Princeton University Press , 2013

Over the past decade, a gap has appeared between the traditional emphasis of financial geographers on developed world-based, mostly Anglo-American private investors, and the rising influence of state financial actors, predominantly based in the developing world. Lying at the center of this shift are so-called sovereign wealth funds (SWFs), or state-owned institutional investors. Sovereign Wealth Funds: Legitimacy, Governance, and Global Power is the first book-length work on this topic to emerge from economic geography, and as such it is of significance to the subfield’s broader academic and policy influence. Conceptually, the book situates SWFs within long-standing debates on the relationship between globalization, financialization, and the state. As a succession of increasingly severe financial crises has demonstrated, global financial markets have come to significantly undermine many aspects of state economic sovereignty. However, states have not only incentives but also significant, albeit uneven, capacities to manage these disruptions through institutional innovation. The authors argue that SWFs are fundamentally an attempt to resolve the contradictions between global financial markets and state sovereignty. By imitating the form of private global investors, states hope to co-opt the power of finance so as to preserve their political autonomy from it. Even while relieving contradictions between state and market, however, SWFs create new tensions within and between states. The central object of investigation of the book is the nature and resolution of these tensions in particular situations, analyzed in terms of the interplay between institutional form, institutional function, and domestic and international political legitimation. Defining what constitutes an SWF is notoriously difficult. The authors propose a definition of SWFs as government-owned and controlled investment funds, with no external liabilities to parties other than the sponsoring government, a definition that has important implications for the politics of SWF investment. On the one hand, SWFs express a technocratic impulse to transcend politicized economic policy making. However, in the absence of the narrow contractual constraints imposed by direct liabilities, SWF mandates are inherently discretionary and malleable. Consequently, they have become foci for domestic and international political contestation. The form of these conflicts both depends on and shapes SWF investment mandates and governance structures, as well as the nature of the states in which they are embedded. The authors propose a twofold classification scheme to describe the diversity of SWFs. From the standpoint of broad function and funding source, SWFs can be classified as reserve investment corporations established for national self-insurance against financial crises, commodity funds buffering national budgets and economies from the dislocations of commodity export dependence, and pension reserve funds established in anticipation of future unfunded pension obligations. Overlapping with this typology, the authors identify five politically defined SWF categories. Postcolonial SWFs are established by weak, newly independent states to engage with multinational firms and more powerful states. Rentier SWFs preserve resource rents, and thus the power of ruling elites, into the future. Productivist SWFs extend the state’s reach internationally into global production networks, while territorialist SWFs implement domestic industrial policies. Finally, moralist SWFs seek to advance corporate social responsibility. 459 BO O K R EV EW