Treasury Secretary Henry Paulson, traveling yesterday in Africa, acknowledged the support of the G-20 nations for a “best practices” code for sovereign wealth funds. There could now be as much as $3 trillion in such vehicles, which are capital pools accumulated by foreign governments for investment abroad. The amount might be five times larger in half a decade.
“How do we actually deal with funds in state hands?” asks German Chancellor Angela Merkel. Her government is already drawing up plans to restrict investments from other countries. Paulson, on the other hand, has adopted a different approach. “I’d like nothing more than to get more of that money,” he said recently.
Do we really want to encourage what amounts to the “cross-border nationalization” of America’s private enterprises? Norway has a sovereign wealth fund thanks to its oil and gas revenues, but nobody is concerned about Oslo’s $350 billion because of its model management practices. Yet even the Norwegians have allowed political views to affect their investment decisions. They did not like Wal-Mart’s union and other labor practices, so the government divested its stock in the gigantic retailer. They did not try to influence Washington by buying up more of the shares so that they could use the Arkansas-based company to promote its views on, say, the war in Iraq.
Hugo Chavez hasn’t gone quite that far. But he has employed Citgo Petroleum to further his ideological goals. Beginning in 2005, the company, acquired by Venezuela two decades ago, has provided tens of millions of gallons of home heating oil at subsidized prices for poor families in several Northeast states as a stunt to embarrass the United States, and especially the Bush administration. Moreover, he has been gutting Citgo’s operations in the United States to support his “oil socialism” policies at home. As the Wall Street Journal reported on Friday, political decisions made in Caracas are ruining the company’s business here. That’s a potential problem because Citgo, which is now run like a police state, owns 5 percent of our nation’s refining capacity. Chavez, should he want to, could throw the American oil market into turmoil merely by turning off the switch.
Our open investment policies are based on the notion that America will prosper as foreign parties participate in the economy. Yet Chavez is beginning to undermine this fundamental assumption, and he is giving no indication that Paulson’s best practices code will deter him. When despots control trillions of dollars in funds, prohibiting investments from autocrats is not protectionist—it’s plain common sense.
