Symposium: Sovereign Fund Capitalism

Abstract

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 Clark's (2000) ` pension fund capitalism'', Hawley and Williams's (2000) ` fiduciary capitalism'', and even Shiller's (2000) finance-led ` irrational exuberance''. Nonetheless, whatever Symposium: sovereign fund capitalism