Sovereign Wealth Funds and Global Justice

| January 2014
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Dozens of countries have established sovereign wealth funds (SWFs) in the last decade or so, in the majority of cases employing those funds to manage the large revenues gained from selling resources such as oil and gas on a tide of rapidly rising commodity prices. Rather than using those revenues for day-to-day government expenditure, sovereign wealth funds ring-fence them for longer-term investments or to smooth expenditure over time in the light of impending pension crises. In building diverse portfolios on international stock and real estate markets, states also reduce their vulnerability to fluctuating exchange rates, volatile commodity prices, or the likely exhaustion of natural resource supplies in the decades to come.

The existence and activities of such funds, however, have prompted a number of ethical discussions: how should SWFs be organized in order to ensure that their governance is at least minimally legitimate? Should fund managers avoid investing in ecologically-damaging or otherwise dubious industries overseas? When foreign SWFs provide much-needed sources of investment for countries such as the United States, should this raise concerns about national security and political independence? And though they have received far less attention to date, there are equally important questions about what these funds are for—about how the money in SWFs should eventually be distributed, and to whom. Some funds, as in the well-known Alaskan example, have been used to generate a (modest) basic income for all citizens. A few others are intended to ease shortfalls in pension entitlements. These cases, though, are rather exceptional. Most SWFs, rather than ameliorating inequalities or subsidizing the consumption of the poor, for example, are intended to finance unspecified future infrastructure projects, or, in some high-profile cases, to finance prestige projects for ruling families.

Insofar as ethical debates have begun to touch on how the assets of such funds should be distributed, they have tended to ask how these should be distributed internally, to citizens of the countries in question. Sovereign wealth funds are the creation of sovereigns, after all, and we might think that the first duty of a sovereign is to its people. What, though, of the claims of global justice? The money in the bulk of these SWFs is derived from selling natural resources, usually of the petrochemical variety. But the distribution of natural resources has frequently been thought to raise issues of global justice. Isn’t the distribution of natural resource wealth across the globe simply arbitrary, from a moral point of view? Is it just that some communities should be so hugely advantaged simply because they have plentiful supplies of valuable resources? Would the proceeds of these funds not be better used to attack global poverty, or to reduce global inequalities?

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Category: Article, Issue 27.4

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