tag:theconversation.com,2011:/fr/topics/sovereign-wealth-fund-1915/articlesSovereign wealth fund – The Conversation2021-02-09T16:17:20Ztag:theconversation.com,2011:article/1531792021-02-09T16:17:20Z2021-02-09T16:17:20Z5 ways Norway leads and Canada lags on climate action<figure><img src="https://images.theconversation.com/files/383095/original/file-20210208-19-1scbjxf.jpg?ixlib=rb-1.1.0&rect=144%2C89%2C2931%2C2613&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Norway's Prime Minister Erna Solberg greets Prime Minister Justin Trudeau at the G7 leaders summit in La Malbaie, Que., in June 2018.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Justin Tang</span></span></figcaption></figure><p>As major oil and gas producers and exporters, Norway and Canada <a href="https://doi.org/10.1080/14693062.2020.1763900">share a particular</a> responsibility for confronting the planet’s existential climate threat. However, their different political, economic and cultural features have resulted in major differences in their climate policy track records.</p>
<p>Overall, Norway is a leader on climate change performance and Canada is a laggard. The 2021 <a href="https://germanwatch.org/en/19686">Climate Change Performance Index</a> ranks 61 countries on their progress in reducing greenhouse gas emissions, energy consumption, renewable energies and climate policy. Norway ranked eighth overall, while Canada was near the bottom in 58th place.</p>
<p>Both countries face epic challenges in weaning themselves from petroleum dependence — and putting an end to exporting carbon emissions. Canada is a long way from winding down the oil and gas industry and implementing a green and inclusive recovery. </p>
<p>One of the advantages Norway holds is the high degree of equality and inclusivity in the policy process, which translates into a healthier democracy than Canada’s. This is something Canada can learn from and improve upon.</p>
<h2>Our way or the Norway</h2>
<p>Canada produces <a href="https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064#L2">4.7 million barrels</a> of oil per day — 80 per cent of it from Alberta — and <a href="https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064">exports 79 per cent to the United States</a>. The carbon emissions from the consumption of those <a href="https://www.policyalternatives.ca/newsroom/news-releases/canadas-fossil-fuel-exports-threat-global-climate-study">fossil fuel exports are almost four times greater than the emissions produced in their extraction and processing</a>. These emissions aren’t attributed to Canada, even though it’s responsible for making them available. </p>
<p>Norway produces <a href="https://www.norskpetroleum.no/en/production-and-exports/exports-of-oil-and-gas/">1.7 million barrels of oil daily</a> and, since the country runs mainly on hydroelectricity, <a href="https://www.norskpetroleum.no/en/production-and-exports/exports-of-oil-and-gas/">exports almost all of it</a>, largely to Western Europe. Norway <a href="http://priceofoil.org/2017/08/09/the-skys-limit-norway-why-norway-should-lead-the-way-in-a-managed-decline-of-oil-and-gas-extraction/">exports 10 times more emissions</a> than it produces domestically. </p>
<p>Norway’s exit ramp from oil dependence is bumpy. Despite some contradictory climate actions, Norway’s progress exceeds that of virtually all petro-states, with Canada trailing behind.</p>
<p>Norway has committed to <a href="https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Norway%20First/Norway_updatedNDC_2020%20(Updated%20submission).pdf">reducing its greenhouse gas emissions by 50-55 per cent compared to 1990s levels by 2030</a>, largely through domestic actions. Norway is the <a href="https://www.theguardian.com/environment/2021/jan/05/electric-cars-record-market-share-norway">world leader in electric vehicle sales</a>; by 2025, all new cars sold will be zero-emission vehicles. Only <a href="https://electricautonomy.ca/2020/08/26/canadian-ev-sales-data-q2-2020/">3.3 per cent of passenger vehicles sold in Canada</a> during the first half of 2020 were electric. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/mdsPvbSpB2Y?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A satirical GM Super Bowl commercial recognizes Norway’s leadership in electric vehicle sales.</span></figcaption>
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<p>Norway participates in the European Union’s <a href="https://www.oecd.org/environment/tools-evaluation/emissiontradingsystems.htm">Emissions Trading System</a>, <a href="https://ec.europa.eu/clima/policies/ets_en">the world’s largest carbon market</a>, and has spent billions on international offsets in developing countries through its <a href="https://www.oecd.org/dac/evaluation/Norad-Factsheet-interactive-final.pdf">REDD+ program</a> to maintain and expand their forests as carbon sinks.</p>
<p>Canada recently <a href="https://parl.ca/DocumentViewer/en/43-2/bill/C-12/first-reading">introduced legislation</a> to meet or exceed a 30 per cent reduction in carbon emissions by 2030 compared to 2005, in part by boosting its carbon tax, but continues to heavily <a href="https://www.energypolicytracker.org/country/canada">subsidize fossil fuel production</a>. Since early 2020, Canada has allocated US$14.6 billion to support fossil fuel energy and an equivalent amount on clean energy.</p>
<p>Norway also spends a lot on its fossil fuel industry — at least <a href="https://www.energypolicytracker.org/country/norway">US$11.76 billion since 2020</a>. And with an economy that runs largely on renewable energy, it allocated only US$382 million to renewables.</p>
<h2>The good, the bad and the ugly</h2>
<p>Neither Canada nor Norway has achieved absolute emissions reductions. Industry in both countries downplays this reality, choosing to focus instead on their progress in reducing carbon intensity — emissions per barrel of oil. </p>
<p>Neither country has committed to a production endgame either. Denmark is the first major oil-producing country to commit to terminating state-approved oil exploration in the North Sea and <a href="https://www.washingtonpost.com/world/europe/denmark-phaseout-oil-production/2020/12/04/c5559eb4-35b0-11eb-9699-00d311f13d2d_story.html">ending all oil extraction by 2050</a>.</p>
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<a href="https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A chart ranking countries by their performance on addressing climate change, with Canada near the bottom of the list." src="https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=819&fit=crop&dpr=1 600w, https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=819&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=819&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1029&fit=crop&dpr=1 754w, https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1029&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/383130/original/file-20210208-17-xirrdx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1029&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Climate change performance index (2021). The first three positions are blank because no country scores high enough. Canada is ranked among the worst performing countries and fell three spots in 2021.</span>
<span class="attribution"><a class="source" href="https://ccpi.org/ranking/">(Germanwatch 2020)</a></span>
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<p><a href="https://www.canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html">Canadian carbon emissions</a> increased 20.9 per cent between 1990 and 2018, mostly driven in turn by a five-fold expansion of oilsands emissions. <a href="https://www.cer-rec.gc.ca/en/data-analysis/canada-energy-future/2020/canada-energy-futures-2020.pdf">Canada’s energy regulator</a> predicts oil production overall will grow 41 per cent from 2018 to 2040. </p>
<p><a href="https://www.regjeringen.no/contentassets/22242455513549449fe30c2a835da953/t-1569e.pdf">Norway’s emissions increased three per cent</a> between 1990 and 2018, and it <a href="https://thebarentsobserver.com/en/2019/11/un-warning-norway-growing-oil-production-inconsistent-climate-efforts">continues to sell oil leases for offshore drilling</a> including in the Barents Sea and the Norwegian Sea. Canada has imposed a moratorium on Arctic offshore drilling.</p>
<h2>Divergent paths</h2>
<p>Canada and Norway’s paths to carbon zero have, for the most part, diverged, with Canada falling behind badly.</p>
<ol>
<li><p>In Norway, the <a href="https://www.equinor.com/en/how-and-why/sustainability.html">state-controlled company, Equinor</a>, and the government jointly determine climate policy. In Canada, <a href="https://www.penguinrandomhouse.ca/books/621948/the-new-corporation-by-joel-bakan/9780735238848">petroleum corporations have more leverage on climate policy because they control their production and investment decisions at home and abroad</a>, and are accountable only to their shareholders. </p></li>
<li><p>Norway is a unitary state giving the government <a href="https://tspace.library.utoronto.ca/handle/1807/101303">uncontested jurisdictional authority over climate policy</a>. As a federal state with divided jurisdictions, the Canadian federal government is in a much weaker policy-making position.</p></li>
<li><p>There is a high degree of <a href="https://www.policyalternatives.ca/publications/reports/petro-path-not-taken">political stability on climate action</a> in Norway. Even the right-wing Progress Party acknowledges the climate threat and supports the government’s climate plan. In Canada, wide swings on climate policy over the past 40 years have thwarted sustained advances. While a majority of Canadians now support decisive action on climate change, there are <a href="https://www.hilltimes.com/wp-content/uploads/2021/01/011121_ht.pdf">splits along party lines</a> and geography, with most Conservative provincial governments opposing a carbon tax. </p></li>
<li><p>In Canada, especially under Conservative governments, there has been very little consultation with labour unions and NGOs on climate policy, whereas in Norway these <a href="https://tspace.library.utoronto.ca/handle/1807/101303">consultations are viewed as essential</a> in shaping policy, regardless of the government in power. Additionally, Norway’s <a href="https://www.e-ir.info/2016/12/10/how-inequality-undermines-democracy/">lower levels of economic inequality and stronger social safety net</a> reinforce its robust democracy.</p></li>
<li><p>Alberta squandered its oil wealth on low provincial taxes and corporate giveaways. The province created the Alberta Heritage Fund in the 1970s, but it currently contains only US$12 billion. Norway on the other hand, created a sovereign wealth fund in 1996 to retain the bulk of economic rent from the oil and gas extraction. The <a href="https://www.swfinstitute.org/profile/598cdaa60124e9fd2d05b9af">fund now holds US$1.3 trillion in global investments</a>, which facilitates its climate transition. The <a href="https://www.cnbc.com/2020/02/27/norway-wealth-fund-earned-a-record-180-billion-in-2019.html">fund’s return on these investments</a> in 2019 was US$180 billion, and in 2020 it <a href="https://www.vox.com/22256192/norway-oil-gas-investments-fossil-fuel">sold the last of its money-losing investments in foreign fossil fuel companies</a>. The <a href="https://www.norskpetroleum.no/en/economy/governments-revenues/">Norwegian government is still highly dependent on the petroleum sector</a>, but fiscal rules allow it to draw up to four per cent annually from the sovereign wealth fund returns if net petroleum transfers fall short of spending requirements. </p></li>
</ol>
<h2>Political leadership is crucial</h2>
<p>There is plenty of room for Canada to increase taxes on the wealthy and corporations. It can also <a href="https://www.project-syndicate.org/commentary/central-banking-green-transition-climate-change-by-mariana-mazzucato-et-al-2020-12">strengthen its public investment banks and expand the Bank of Canada’s “quantitative easing” efforts</a>, namely holding government-issued debt to provide the necessary resources for an equitable and sustainable transition. </p>
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Read more:
<a href="https://theconversation.com/the-throne-speech-must-blaze-a-bold-new-path-including-imposing-a-wealth-tax-145747">The throne speech must blaze a bold new path — including imposing a wealth tax</a>
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<p>Governing the decentralized Canadian federation is complex. This puts more weight on political leadership in all parties, in all regions, to acknowledge the truth about the climate crisis and build the necessary consensus to meet the challenge. </p>
<p>Political leadership is the art of persuasion: learning from the past, building coalitions, taking bold action. As a major carbon emitter, Canada must fulfil its global responsibility in helping to stop this <a href="https://www.cbc.ca/radio/ideas/the-2004-cbc-massey-lectures-a-short-history-of-progress-1.2946872">runaway train</a>. </p>
<p>Denial, delay and division are no longer an option. Leadership that fails avoid a cataclysmic future will be judged harshly by our descendents.</p><img src="https://counter.theconversation.com/content/153179/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Campbell a volunteer board member with the Rideau Institute for International Affairs and the Group of 78; and the Canadian Centre for Policy Alternatives Steering Committee. He is a research collaborator on the SSHRC Grant, York University, Adapting Work and Workplaces to Climate Change.
</span></em></p>Canada and Norway face epic challenges in weaning themselves from petroleum dependence.Bruce Campbell, Adjunct professor, Faculty of Environmental Studies, York University, CanadaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1388732020-06-01T15:55:05Z2020-06-01T15:55:05ZGreen income trusts could accelerate Canada’s energy transition<figure><img src="https://images.theconversation.com/files/338455/original/file-20200529-51467-hh9ga0.jpg?ixlib=rb-1.1.0&rect=0%2C50%2C4200%2C2244&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The sun is setting on oil and gas. Creating green income trusts could give private investors incentives to massively scale up investments in new low-carbon energy technologies — and help the province of Alberta.</span> <span class="attribution"><span class="source">(Pixabay)</span></span></figcaption></figure><p>Canada has a great opportunity to accelerate its energy transition and <a href="https://www.canada.ca/en/environment-climate-change/services/climate-change/expert-panel-sustainable-finance.html">create a thriving low-carbon economy</a>. </p>
<p>How? </p>
<p>By creating green income trusts with the same federal tax benefits that prevailed in the early 2000s, therefore giving private investors incentives to massively scale up investments in new low-carbon energy technologies. <a href="https://www.universityaffairs.ca/features/feature-article/the-complexities-of-carbon-capture-and-storage/">These could range from hydrogen, geothermal, wind and solar to carbon capture and storage</a>. </p>
<p>An added benefit would be to assist Alberta’s economic diversification and build on the province’s strengths at a time when oil hasn’t even been worth the barrel it’s sitting in. </p>
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Read more:
<a href="https://theconversation.com/oil-crash-explained-how-are-negative-oil-prices-even-possible-136829">Oil crash explained: How are negative oil prices even possible?</a>
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<p>Time is not on Canada’s side. Other <a href="https://thehill.com/opinion/energy-environment/476783-us-leads-new-wave-of-carbon-capture-and-storage-deployment">North American jurisdictions are well ahead of us</a>. Can Canada catch up?</p>
<h2>Minimized corporate taxes</h2>
<p>Although income trusts were used by many industries in the early 2000s, they were particularly <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3554101">vital for the capital-intensive energy sector</a>. They worked by minimizing corporate taxes.</p>
<p>Each income trust was structured so that a corporation’s business income was paid to the trust, mainly in the form of deductible interest payments. The cash was then distributed to the trust’s unit-holders, reducing the underlying corporation’s taxes to zero and maximizing investor payouts.</p>
<p>This arrangement was eliminated in <a href="https://www.theglobeandmail.com/globe-investor/investment-ideas/tsx-surges-back-above-halloween-massacre-close/article1329492/">what has become known as the Halloween Massacre</a>. The federal government announced on Oct. 31, 2006, that all income trusts would be taxed at rates similar to corporations. </p>
<p>Investors in energy trusts were particularly hard hit, <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12101?casa_token=m62r8Ym3t60AAAAA%3Anijd07QuKASpXk7Sxaac__xiveYv9vSKhjpPd13VhPFwCcUDhGWNYkXrev_L60ba-gMf1mTWEn_mGDP">with income trusts losing 17.85 per cent in value over the next 10 days</a>.</p>
<p>But reviving tax breaks for income trusts today to specifically help <a href="https://www.ecb.europa.eu/pub/economic-research/resbull/2019/html/ecb.rb191127%7E79fa1d3b70.en.html">low-carbon energy technologies attract much-needed equity capital</a> would be a relatively simple measure for the federal government to undertake. It would not require direct infusions of cash at a time when the government faces expensive demands for bailouts, instead relying on market forces to achieve its goals.</p>
<h2>Ample returns</h2>
<p>These tax breaks would be amply returned through the development of new companies and industries, based on existing technologies, creating new sources of tax revenue. The need for this measure could be reassessed after 30 years, or when Canada achieves a net-zero carbon economy, ensuring the long-term stability needed to attract private investment. In the short term, temporary measures will not do the trick.</p>
<p>Green income trusts could be particularly useful in helping <a href="https://www.cesarnet.ca/blog/hydrogen-can-make-canada-energy-superpower-again">spark the birth of a hydrogen industry in Alberta</a> that could potentially promote new, low-carbon uses for the province’s vast oil and gas reserves, unlocking major competitive advantages for the province in North American and world markets. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/338576/original/file-20200529-78875-1c6vinb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Green income trusts could fuel a hydrogen industry in Alberta.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Early-stage companies, such as <a href="https://www.sciencemag.org/news/2020/02/company-harvest-green-hydrogen-underground-oil-fires#">Calgary-based Proton Technologies</a>, are already working on commercializing such technology. Even a big oil company like <a href="https://globalnews.ca/news/5307292/shell-quest-carbon-capture-milestone/">Shell Canada, as part of its Quest commercial-scale pilot project near Edmonton</a>, is using large-scale carbon capture and storage to produce hydrogen from natural gas without CO2 emissions.</p>
<p>It will likely take at least five years to bring new clean, renewable and carbon-capture technologies to a sound commercial footing. The exceptions are wind and solar, which are already profitable. However, federal changes to tax policy must take place now in order to encourage forward-looking investors to finance loss-making ventures with the intention of selling or converting the businesses to income trusts once they become profitable.</p>
<h2>Adding to the existential crisis</h2>
<p>The COVID-19 pandemic, and the <a href="https://www.reuters.com/article/us-global-oil-saudi-russia-analysis/saudi-arabia-gets-physical-with-russia-in-underground-oil-bout-idUSKBN22222U">Russia-Saudi Arabia oil price war</a>, have badly affected Canada’s oil and gas industry. </p>
<p>But they have only added to an ongoing existential crisis as the world slowly transitions to a low-carbon economy — a move driven by everything from anti-pipeline protests impelled by the need to limit climate change to <a href="https://www.nationalobserver.com/2019/06/27/news/swiss-insurance-giant-divests-oilsands">the refusal of large international insurance companies to cover oilsands projects</a>. </p>
<p>The continued viability of oil and gas development in Canada is becoming an open question, not least because of the increasing importance of environmental, social and governance (ESG) factors in influencing financing decisions.</p>
<p>The recent decision by the Norwegian sovereign wealth fund <a href="https://business.financialpost.com/commodities/energy/why-the-worlds-largest-sovereign-wealth-funds-divestment-from-the-oilsands-could-trigger-a-bigger-fund-exodus">to divest from Canadian oilsands companies is just the beginning</a>. Going forward, attracting capital will become more and more difficult.</p>
<h2>Deep reservoir of talent</h2>
<p>Besides its energy riches, Alberta has a deep reservoir of talent and expertise created by decades of large-scale oil and gas developments. Why not put these skills to new uses, potentially creating new industries within the energy sector and slowly easing the province away from the traditional oil-and-gas rollercoaster? </p>
<p>The recent <a href="https://www.thinkgeoenergy.com/canadian-oil-service-sector-joins-forces-to-support-emerging-canadian-geothermal-industry/">alliance between unemployed oil well drillers and Clean Energy Canada to explore drilling for geothermal energy</a> suggests that such workers do not see oil and gas as an implacable foe of clean and renewable energy.</p>
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<img alt="" src="https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/338578/original/file-20200529-78891-ifdclc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A wind farm is shown near Pincher Creek, Alta., in March 2016.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
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<p>Can Canada catch up? </p>
<p>It can indeed, if federal encouragement of private investment in green energy takes place now. The research behind income trusts shows that they helped to increase investments in oil and gas before the Halloween Massacre of 2006. The same formula could work again, but this time targeted towards low-carbon technologies.</p><img src="https://counter.theconversation.com/content/138873/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yrjo Koskinen is an advisory board member at the Institute of Sustainable Finance. His research is being funded by the Social Sciences and Humanities Research Council (SSHRC).</span></em></p><p class="fine-print"><em><span>J. Ari Pandes and Nga Nguyen do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research into income trusts shows that they once helped increase investments in oil and gas. They could do so again — but this time targeted towards low-carbon technologies.Yrjo Koskinen, Professor of Finance, Associate Dean of Research, University of CalgaryJ. Ari Pandes, Associate Professor of Finance, University of CalgaryNga Nguyen, PhD Candidate, Finance, University of CalgaryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1109572019-02-06T11:42:59Z2019-02-06T11:42:59ZAutocracies that look like democracies are a threat across the globe<figure><img src="https://images.theconversation.com/files/256887/original/file-20190201-103164-to7fhl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A rally celebrating the second anniversary of Russia's annexation of Crimea, March 18, 2016. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Russia-Crimea/d572a67ffa844324a14d389cbbaa6ac5/27/0">AP/Ivan Sekretarev</a></span></figcaption></figure><p><a href="https://www.nytimes.com/interactive/2018/09/20/us/politics/russia-interference-election-trump-clinton.html">Russia’s successful interference</a> in the 2016 U.S. presidential election may inspire other countries to do the same. </p>
<p>These other countries don’t look threatening. They look like democracies. But they’re not. </p>
<p>They’re a special kind of autocratic regime that masquerades as a democracy. And what looks like benevolent conduct by these countries can quickly change into aggressive, politically charged behavior. </p>
<p>Autocracies, often known as “authoritarian regimes,” maintain power through centralized control over information and resources. Political opposition is either forbidden or strongly curtailed and individual freedom is limited by the state.</p>
<p>Autocracies that look like democracies are different because their leaders permit political opponents to run for election – even though they rarely win.</p>
<p>These countries’ capitalist systems have some of the trappings of liberal democracies in the West. But these regimes use capitalism to further their authoritarian rule.</p>
<p>These so-called “dominant party authoritarian regimes” have surged in number from around 13 percent of all countries before the end of the Cold War to around <a href="https://doi.org/10.1017/9781108186797">33 percent today</a>. </p>
<p>Most are located in Africa, the Middle East and Asia. They are also present in Eastern Europe and in the Americas. Russia is one of them; so are Turkey, Malaysia, Singapore and Venezuela. </p>
<p>These regimes often engage in the same kinds of bad behavior as other autocracies. But their behavior is critically different in both the motivations and methods used to further authoritarian ends, as detailed in my new book “<a href="https://doi.org/10.1017/9781108186797">Authoritarian Capitalism</a>.”</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/256890/original/file-20190201-108334-dhuupg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The Russian military intelligence service building; 12 of its officers hacked into the Clinton presidential campaign.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Russia-US-Trump-Probe/39c1c0cf812c4522b3152d7b348c664d/1/0">AP/Pavel Golovkin</a></span>
</figcaption>
</figure>
<h2>Political control</h2>
<p>Part of the danger with dominant party authoritarian regimes is that their veneer of democracy permits political opponents to run for election. But when incumbent rulers face a threat to their power, the autocrats often respond by targeting political dissidents and taking aggressive actions toward foreign enemies to bolster popular support.</p>
<p>For example, Russian leader Vladimir Putin faced an unprecedented challenge from <a href="https://en.wikipedia.org/wiki/2011%E2%80%932013_Russian_protests">citizen protests during the 2012 presidential election</a>. The protests continued into 2013.</p>
<p>Putin punished the protesters. New York Times correspondent <a href="https://www.nytimes.com/2013/01/06/world/europe/in-russia-a-trendy-activism-against-putin-loses-its-moment.html">Ellen Barry reported in 2013</a> that “new laws prescribe draconian punishments for acts of dissent. … Mr. Putin … embraced a new, sharply conservative rhetoric, dismissing the urban protesters as traitors and blasphemers, enemies of Russia.”</p>
<p>Shortly afterward, Russia’s foreign activities became even more <a href="https://www.banking.senate.gov/imo/media/doc/McFaul%20Testimony%209-6-18.pdf">belligerent than during the Soviet period</a>. This accomplished just what Putin wanted: Following his annexation of Crimea in 2014, his approval ratings <a href="https://www.washingtonpost.com/news/worldviews/wp/2015/06/24/putins-approval-ratings-hit-89-percent-the-highest-theyve-ever-been/?utm_term=.cdbd4c686102">skyrocketed</a>. </p>
<p>Another recent example is Turkish leader Recep Tayyip Erdogan’s repression of <a href="https://www.theguardian.com/world/2016/nov/05/erdogan-cumhuriyet-turkey-journalists-arrested-detained-dissent">domestic political dissidents</a> following the failed July 2016 coup against him. According to The Guardian, the regime arrested or suspended “more than 110,000 officials, including judges, teachers, police and civil servants.”</p>
<p>Erdogan went after foreign-based dissidents too, allegedly orchestrating a plot to kidnap opposition leader <a href="https://www.newsweek.com/mueller-investigating-michael-flynn-plot-kidnap-turkish-opposition-leader-708053">Fetullah Gulen</a> from Pennsylvania.</p>
<p>And while he won the presidential election in June 2018, Erdogan’s foreign-based critics remain concerned about his threats. <a href="https://www.nytimes.com/2019/01/09/sports/kanter-knicks-erdogan-turkey.html">Enes Kanter</a>, a Turkish NBA star, declined to travel to London in January 2019 out of fear that Turkish spies might kill him.</p>
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<a href="https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=808&fit=crop&dpr=1 600w, https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=808&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=808&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1016&fit=crop&dpr=1 754w, https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1016&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/256888/original/file-20190201-127151-199bf61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1016&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Turkish NBA star Enes Kanter curtails foreign travel for fear of kidnapping by the Turkish government.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Mavericks-Knicks-Basketball/627009ce8b004df39b8c836df302337b/10/0">AP/Kathy Willens</a></span>
</figcaption>
</figure>
<h2>Information control</h2>
<p>Another distinction that characterizes dominant party authoritarian regimes is how they exploit Western legal and financial systems against Western media outlets critical of the regime.</p>
<p>Normally, <a href="http://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-3">autocrats control information and resources</a> to retain power. But rather than relying on the typical autocrat’s crude hostile attacks or outright censorship, dominant party authoritarian regimes use legal or financial methods regarded as legitimate by the West.</p>
<p>In other words, they sue the media or they buy them.</p>
<p>A slew of foreign news organizations – including <a href="http://www.nytimes.com/2010/03/24/opinion/global/24iht-opednote.html">The New York Times</a>, <a href="http://www.wsj.com/articles/SB122791989311765753">Wall Street Journal</a>, <a href="http://www.nytimes.com/2010/04/04/opinion/04pubed.html">Bloomberg</a> and <a href="http://www.nytimes.com/2010/04/04/opinion/04pubed.html">The Economist</a> – were sued by the Lee family, autocratic rulers of Singapore, for political and financial reporting after the 2008 global financial crisis. </p>
<p>The family maintained the coverage defamed them. As the Wall Street Journal’s <a href="https://www.wsj.com/articles/SB122791989311765753">editors wrote in 2008</a>, “We know of no foreign publication that has ever won in a Singapore court of law. Virtually every Western publication that circulates in the city-state has faced a lawsuit, or the threat of one.”</p>
<p>Malaysian political authorities deployed similar tactics when their rulers felt threatened.</p>
<p>Following the Asian financial crisis of 1997, and in the months leading up to the November 1999 general election, wealthy ruling party supporters in Malaysia filed a flurry of <a href="http://www.ipsnews.net/1999/05/rights-malaysia-on-a-media-suing-spree/">defamation lawsuits</a> against foreign journalists and media organizations, such as the Asian Wall Street Journal and Dow Jones.</p>
<p>Russia’s means of pressuring foreign media are slightly different, but they also involve taking advantage of Western legal-financial systems.</p>
<p>Russia has engaged in <a href="https://www.csis.org/analysis/kremlin-playbook">disinformation campaigns</a> that exploit weaknesses in the West’s freedom of speech protections, as documented by experts at the Center for Strategic and International Studies and at the Center for the Study of Democracy. </p>
<p>And Russian companies have acquired sufficiently large <a href="https://www.csis.org/analysis/kremlin-playbook">ownership stakes</a> in foreign media companies to influence their operations. </p>
<p>This has involved both the manipulation of their coverage and a reduction in media freedoms of the country in which they are located. </p>
<p>For example, <a href="https://www.csis.org/analysis/kremlin-playbook">Delyan Peevski</a> is a controversial member of the Bulgarian Parliament who advocated for pro-Russian policies. Peevski built and sustained a media empire that controls around 40 percent of Bulgaria’s print sector and 80 percent of the newspaper distribution with loans from a partially Russian-owned bank.</p>
<h2>Resource control</h2>
<p>In contrast to firms located in other types of autocracies, state-controlled businesses in dominant party authoritarian regimes often comply with international financial regulations. This helps them gain access to Western countries’ corporate and financial systems.</p>
<p>Under cover of legitimate business operations, their autocratic leaders can pursue political objectives with less scrutiny. </p>
<p>Malaysia’s state-owned investment fund, <a href="https://www.theguardian.com/world/1mdb">1MDB</a>, engaged in <a href="http://www.theedgemarkets.com/article/why-malaysians-should-be-worried-about-1mdb%E2%80%99s-debts">aggressive investment tactics</a> with corrupt practices – including “abnormally high payback” for investment bankers – that extended across the globe. </p>
<p>The U.S. accuses former Prime Minister Najib Razak’s <a href="https://www.theguardian.com/world/2016/jul/28/1mdb-inside-story-worlds-biggest-financial-scandal-malaysia">family friend</a> of masterminding the theft of US$2 billion from the fund. And its capital was also <a href="https://www.cnbc.com/2015/12/28/wsj-reports-malaysia-pm-najib-razak-used-700m-donation-to-win-2013-elections.html">channeled to politicians and projects</a> to help the ruling party win the 2013 elections.</p>
<p>Russia has also used <a href="https://www.csis.org/analysis/kremlin-playbook">state-linked companies</a> to gain influence over Hungary, Serbia and Bulgaria’s crucial energy sectors via purchases of ownership stakes in listed companies.</p>
<p>This granted the Russian state access to other key sectors of these economies, such as finance and telecommunications. <a href="https://www.csis.org/analysis/kremlin-playbook">Russia then was able to influence government policies</a>. </p>
<p>In one case, the Serbian government <a href="https://www.ft.com/content/ac12dd62-c881-11e7-ab18-7a9fb7d6163e">chose not to enforce the European Union’s sanctions against Russia</a>. That was a risk for Serbia, because it has wanted to qualify for European Union membership by 2025.</p>
<p>Even bolder actions occurred with Russia’s interference in the U.S. 2016 presidential election.</p>
<p>Michael McFaul, the former U.S. ambassador to Russia, told the Senate in September 2018 that never before had the Kremlin violated American sovereignty so <a href="https://www.banking.senate.gov/imo/media/doc/McFaul%20Testimony%209-6-18.pdf">“illegally, aggressively and audaciously”</a> – even during the high-stakes rivalry of the Cold War.</p>
<p>It is now common knowledge that <a href="https://www.justice.gov/opa/pr/grand-jury-indicts-thirteen-russian-individuals-and-three-russian-companies-scheme-interfere">Russian-controlled agencies and businesses</a> played a strategically vital role in the election interference.</p>
<h2>Resisting influence</h2>
<p>Can democracies defend themselves against such aggressive regimes?</p>
<p>The “<a href="https://www.csis.org/analysis/kremlin-playbook">Kremlin Playbook</a>,” written by Heather A. Conley, James Mina, Ruslan Stefanov and Martin Vladimirov, is an extensive study of Russian influence in Hungary, Slovakia, Bulgaria, Latvia and Serbia. It provides a detailed list of policy recommendations to resist Russian influence that can be applied to other dominant party authoritarian regimes.</p>
<p>They include strengthening intelligence gathering and cooperation between the U.S. and its allies; increasing U.S. and allied governments’ assistance to vulnerable countries; and stronger protections for and enforcement of transparency measures.</p>
<p>But I believe an important addition to this list is the need to monitor the strength of the ruling party’s hold on power. That’s because aggressive, politically charged activities are most likely to occur when incumbent rulers face an elevated threat. </p>
<p>With its attack on the U.S. 2016 election, Russia showed that it’s possible to interfere destructively in the most powerful Western democracy. I expect that other autocracies that look like democracies will follow suit – across the globe.</p><img src="https://counter.theconversation.com/content/110957/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Carney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Almost one-third of countries around the world are authoritarian regimes with the trappings of democracy. Their bad behavior poses a threat to real democracies, as the United States recently learned.Richard Carney, Professor, China Europe International Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1018592018-08-21T10:35:03Z2018-08-21T10:35:03ZHow sovereign wealth funds are inflating the Silicon Valley bubble<figure><img src="https://images.theconversation.com/files/232860/original/file-20180821-149484-1jawcyy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Elon Musk has spoken to Saudi Arabia's sovereign wealth fund about taking Tesla private.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/nvidia/16660212029">NVIDIA / flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Elon Musk jolted markets and shareholders when he tweeted his intention to take his electric car company, Tesla, private. Saudi billions, he proposed, could help the company escape the pressures of being publicly listed. In a <a href="https://www.tesla.com/blog/update-taking-tesla-private">blog post</a>, Musk said that “the Saudi Arabian sovereign wealth fund [had] approached [him] multiple times about taking Tesla private”.</p>
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<p>Oil wealth meets futuristic electric cars may sound like an odd mix. But there is growing precedent for this kind of investment from sovereign wealth funds, which are motivated by social as well as financial aims. So much so that they are disrupting how capital markets work.</p>
<p>The result could be calamitous. A look at the history of large inflows into specific asset classes does not bode well for the venture capital industry. When petrodollars were funnelled into the eurodollar market in the 1960s, it drove asset spikes <a href="https://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-are-eurodollars-and-eurodollar-base-money-is-shrinking/">and then resets</a>. Similarly, Japanese investment in American real estate fuelled a spectacular bubble – and then crash – <a href="http://articles.latimes.com/1992-02-21/business/fi-2537_1_japanese-real-estate">in the early 1990s</a>. US investment bank lending in Latin American debt in the 1980s ultimately culminated in a <a href="https://www.federalreservehistory.org/essays/latin_american_debt_crisis">“decade of lost growth”</a>. </p>
<p>A typical refrain is that “this time it’s different”. But it’s never different. We argue that the global rise of sovereign wealth fund investments into venture capital is driving a similar cycle of asset inflation that will end in tears. </p>
<h2>Huge sums of money</h2>
<p>The reason that sovereign wealth fund money could prove destabilising for venture capital (VC) comes from the nature of the way VC works. Traditionally, nimble investment firms, led by experienced partners with technical and operational expertise, would identify potentially disruptive technologies and then work with the fledgling firms on strategy, hiring and product. This “smart money” is said to have catapulted Silicon Valley technology firms <a href="https://americanaffairsjournal.org/2018/08/building-the-venture-capital-state/">into global powerhouses</a>. </p>
<p>But the small scale and scrappy nature of venture capital is a relic of the 20th century. Today, VC funds are backed by some of the world’s largest investors, including funds like Saudi Arabia’s Public Investment Fund (PIF) and Singapore’s GIC. Sovereign wealth funds are investing huge sums of money, both as limited partners in VC funds and as venture capitalists themselves. </p>
<p>The entrance of sovereign wealth funds into the previous cottage industry of venture capital has fuelled <a href="http://docs.preqin.com/quarterly/pe/Preqin-Quarterly-Private-Equity-Update-Q1-2018.pdf">unprecedented levels of “dry powder”</a> (money that the VCs need to invest). With more money at their disposal than ever before, VC managers are investing more money in each deal, and making more deals. Recent quarters have seen a <a href="https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/04/kpmg-venture-pulse-q1-2018.pdf">previously unforeseen number and size</a> of “mega deals” (deals worth more than US$1 billion). </p>
<p>This all means that when – as historical precedent shows is likely – the VC bubble bursts, the fallout will be massive. And in the wake of such a bubble burst, there will be scant capital available for the many start-ups that have raised early-stage funding on hefty valuations. Investors, including the sovereign wealth funds, will be burned by the big losses, and so unwilling to invest in risky start-ups, or in venture capital funds, for years.</p>
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<p>The increasing exposure of sovereign wealth funds to venture capital comes with national development strategies and the revival of industrial policy. State-owned investment funds have started to embrace disruptive technology investment from AI to biotech. Countries with big funds, <a href="https://www.reuters.com/article/us-usa-trade-china-policy-factbox/factbox-made-in-china-2025-beijings-big-ambitions-from-robots-to-chips-idUSKBN1HR1DK">such as China</a>, have made clear their determination to move up in the global value chain in order to keep growing.</p>
<p>In a similar fashion, big oil exporters like Saudi Arabia are keen to diversify their economies <a href="https://theconversation.com/saudi-arabias-liberal-crown-prince-is-a-year-into-his-tenure-how-is-he-doing-99743">away from oil</a>. Saudi Arabia’s Vision 2030 strives to position the oil kingdom as a global technology and financial hub.</p>
<p>Leading the charge is Saudi Arabia’s Public Investment Fund. PIF made a US$45 billion investment in SoftBank’s mammoth US$100 billion venture capital <a href="https://www.wsj.com/articles/softbanks-vision-fund-hiring-deutsche-banks-chief-for-saudi-arabia-1533055230">Vision Fund</a> launched in 2017, and in June 2016, directly invested <a href="https://www.ft.com/content/a7e31c58-282c-11e6-8b18-91555f2f4fde">US$3.5 billion in Uber</a>. More recently, in March 2018, it led a late-stage VC investment of <a href="https://www.wsj.com/articles/saudi-arabia-goes-high-tech-in-approach-to-investing-1534325402">nearly US$1 billion</a> in augmented reality startup Magic Leap. Now it is in talks with Musk about <a href="https://www.wsj.com/articles/elon-musk-saudi-fund-asked-about-taking-tesla-private-1534166024">taking Tesla private</a>.</p>
<h2>Beware of the burst</h2>
<p>With the billions of dollars suddenly flowing in from sovereign wealth funds, the size of VC funds is ballooning – and so are the cheques they are writing. Early-stage, seed-round investments, which were typically US$500,000 can now be up to US$5m. </p>
<p>With so much money to invest, there is a sharp drop in the number of deals in which multiple funds participate and less of a need for start-ups to go public. This results in fewer brains being on hand to offer advice. It also means that decisions are made more quickly, with less input from multiple sources. This can be both good (decisions can be made more quickly) and bad (there are fewer checks and balances).</p>
<p>When previous floods of capital proved irresponsible, a diversification of investment opportunities – geographically and in terms of asset class – could have helped reduce the systemic risk. </p>
<p>But measures can be put in place today to neutralise the rollercoaster that sovereign wealth fund investment in venture capital is propelling, so that the global exuberance for supporting start-ups around the world proves sustainable. </p>
<p>Funds should be modest in their VC investment activity, for example, placing small bets in line with the workings of the VC industry, rather than deploying cheques in line with the size of their funds. Their appeal as buy-out partners, as Elon Musk claims, is not simply an easy alternative to the demands of being publicly listed. The long-term health of Silicon Valley and aspiring Silicon Valleys around the world depends on their discretion.</p><img src="https://counter.theconversation.com/content/101859/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Talk of Saudi Arabia helping Elon Musk take Tesla private is the latest example of a long line of sovereign wealth fund investments.Robyn Klingler-Vidra, Lecturer in Political Economy, King's College LondonJuergen Braunstein, Postdoctoral Fellow Harvard Kennedy School, Harvard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/999062018-07-16T10:39:53Z2018-07-16T10:39:53ZTrade war could chill China’s growing investment in US economy<figure><img src="https://images.theconversation.com/files/227706/original/file-20180715-27042-fhkag9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. is the biggest destination for Chinese foreign investment.</span> <span class="attribution"><span class="source">Jason Lee/Pool Photo via AP</span></span></figcaption></figure><p>The U.S. and China are currently engaged in an <a href="https://www.brookings.edu/blog/unpacked/2018/07/12/unpacked-the-us-china-trade-war/">ever-escalating trade war</a> with no end in sight. While the focus of the dispute has centered on tariffs, the consequences <a href="https://www.independent.co.uk/news/business/analysis-and-features/trade-war-explained-tariffs-donald-trump-us-china-imports-exports-a8434626.html">are expected to spill</a> well beyond imports and exports to other aspects of the countries’ complex relationship. </p>
<p>One such area is what economists call foreign direct investment, in which companies invest in businesses in another country. The United States’ ability to draw investments from around the world has been a <a href="http://www.areadevelopment.com/LocationUSA/2017-US-inward-investment-guide/importance-of-FDI-to-US-economy.shtml">significant driver</a> of its economic growth. Indeed, the U.S. was the <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">top destination</a> for foreign investment in 2016, as it usually is. </p>
<p>China’s investments in the U.S., however, remain relatively paltry, despite the country’s growing clout on the world stage. And while most have been small and low-profile, a few bigger deals have made headlines and even been blocked over “national security” concerns. </p>
<p><a href="https://scholar.google.com/citations?user=eubX-aYAAAAJ&hl=en&oi=ao">I research</a> the international political economy of China’s rise. Even though most Chinese investment in the U.S. has little to do with national security, I believe the current tense environment will put a chill on Chinese-American deals – with severe long-term consequences. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tesla CEO Elon Musk greets new owners of his company’s Model S sedans in Beijing in 2014. China’s Tencent took a 5 percent stake in Tesla in 2017.</span>
<span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span>
</figcaption>
</figure>
<h2>A snapshot of China FDI in the US</h2>
<p>The reality is that the vast majority of the <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">232 investments</a> made by Chinese companies in the United States since 2005 have little to do with national security. </p>
<p>A typical example is <a href="https://www.theguardian.com/technology/2004/dec/08/business.china">Beijing-based Lenovo’s acquisition</a> of IBM’s personal computer business in 2004 for US$1.75 billion, which raised little fanfare or objection. Or consumer electronics company <a href="https://www.scmp.com/business/companies/article/2116486/chinas-haier-has-plan-help-continue-turnaround-ge-appliances">Haier’s purchase</a> of General Electric’s home appliance unit in 2016 for $5.6 billion, again without a fuss. </p>
<p>In more recent years, Chinese companies have taken stakes in some well-known Silicon Valley companies. For example, last year, Chinese tech and media investment firm Tencent <a href="https://www.reuters.com/article/us-snap-tencent-stake/chinas-tencent-takes-12-percent-stake-in-snap-as-shares-plunge-idUSKBN1D81G3">acquired</a> a 12 percent stake in the owner of the messaging app Snapchat and <a href="https://www.bloomberg.com/news/articles/2017-03-28/tencent-buys-1-8-billion-tesla-stake-ahead-of-musk-s-model-3">5 percent</a> of Elon Musk’s Tesla. Also in 2017, China’s sovereign wealth fund invested $100 million in room-sharing service Airbnb. </p>
<p>Overall, China remains a minor U.S. investor – and the data suggest the president’s <a href="https://abcnews.go.com/Politics/10-times-trump-attacked-china-trade-relations-us/story?id=46572567">rhetoric on the campaign trail</a> may have already had a disruptive impact. Last year, China <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">invested</a> $24 billion in the U.S., down from $54 billion in 2016, excluding deals under $100 million in size. </p>
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<p>While that’s a sharp rise from just $5 billion a decade ago, it’s barely a drop in the bucket for the U.S. economy. <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">China’s cumulative investments</a> in 2016 made up less than 2 percent of all $3.7 trillion invested in the U.S., ranking it 11th, a fraction of the U.K.’s $598 billion and Canada’s $454 billion, the top sources of funding.</p>
<p>California and New York alone <a href="https://www.bloomberg.com/news/articles/2017-04-25/chinese-investment-creates-and-protects-u-s-jobs-rhodium-says">received</a> the lion’s share of China’s $171 billion in investments from 2005 to 2017, or 51 percent. All but 14 states have received at least one investment in the period. </p>
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<p>By sector, the biggest chunk has gone into property investments – such as prime real estate in New York along Park Avenue – which tallied $26 billion, or 15 percent, in the period. Financial firms such as BlackRock took in the next largest share of 14 percent, while 13 percent went to technology businesses like IBM and Motorola. </p>
<h2>National security and politics</h2>
<p>Two of the reasons Chinese investment in the U.S. isn’t higher are national security and politics. A number of high-profile deals have rung alarm bells among U.S. officials and politicians and ended up getting killed as a result. </p>
<p>For example, in 2003, Hong Kong conglomerate Hutchison Whampoa <a href="https://www.wsj.com/articles/SB105168669140493600">withdrew</a> from a joint bid for fiber-optic carrier Global Crossing after the <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">Committee on Foreign Investment</a> opened an investigation of the deal as some defense officials grew concerned the company’s chairman was too close to Chinese government officials. </p>
<p>Two years later, China oil producer CNOOC <a href="https://www.wsj.com/articles/SB112295744495102393">dropped its effort</a> to buy U.S. rival Unocal for $18.5 billion. In this case, it was lawmakers in Congress who managed to scuttle the deal. CNOOC <a href="https://www.wsj.com/articles/SB112298888643902543">blamed</a> a “political environment.”</p>
<p>The Committee on Foreign Investment, <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">established</a> by President Gerald Ford in 1975, has the power to veto investments if they might damage U.S. national security. Proposed Chinese investments get reviewed more often than those from any other country. Though the launch of an investigation is often enough to stop a deal – as was the case with Hutchison – the committee has only vetoed five deals, four of which involved China. </p>
<p>One came in 2012, when <a href="https://www.nytimes.com/2012/09/29/us/politics/chinese-company-ordered-to-give-up-stake-in-wind-farms-near-navy-base.html">President Barack Obama cited the committee’s recommendation</a> as he ordered Ralls Corp., a U.S. company owned by Chinese nationals, to divest its interests in wind turbines being built close to a Navy military site in Oregon. It was the first time the power was used since 1990, when President George Bush blocked the sale of an American aircraft manufacturing company to a Chinese agency. </p>
<p>And last year, President Donald Trump <a href="https://www.reuters.com/article/us-lattice-m-a-canyonbridge-trump/trump-bars-chinese-backed-firm-from-buying-u-s-chipmaker-lattice-idUSKCN1BO2ME">prevented</a> Chinese investment firm Canyon Bridge Capital Partners from acquiring U.S. chipmaker Lattice Semiconductor. </p>
<p>And the president <a href="https://www.nytimes.com/2018/06/27/us/politics/cfius-expansion-trump.html">supports a bipartisan bill</a> in Congress that would grant the Committee on Foreign Investments even more power. </p>
<h2>FDI as foreign policy</h2>
<p>While China may not make up a significant portion of the U.S. total, its spending there makes up the <a href="https://www.aei.org/wp-content/uploads/2018/01/China-Tracker-Jan2018.pdf">largest share</a> of Chinese outbound FDI by country. </p>
<p>From 2005 to these days, China invested $171 billion of its $1.87 trillion in total foreign investment in the U.S. </p>
<p><a href="https://www.cambridge.org/core/journals/business-and-politics/article/dissuasive-effect-of-us-political-influence-on-chinese-fdi-during-the-going-global-policy-era/34345FFDB008BD612F7469857CBCA10C">My own research</a> into China’s investments shows that state-owned companies are very sensitive to the government’s foreign policy goals. An agency known as the <a href="https://www.bloomberg.com/news/videos/2018-04-12/sasac-s-xiao-on-soe-reform-china-soe-investment-in-u-s-video">State-owned Assets Supervision and Administration Commission</a> of the State Council coordinates all foreign investments by major Chinese businesses. </p>
<p>Any drop in investments to the U.S. will probably be compensated by more spending in other destinations, especially those countries that are part of the <a href="https://theconversation.com/us/topics/one-belt-one-road-33049">One Belt, One Road</a> initiative such as Australia, Singapore and Vietnam. </p>
<h2>Going forward</h2>
<p>And in fact, the current trade dispute between the U.S. and China will most likely lead to less Chinese investment as deals will encounter increased scrutiny and resistance. </p>
<p>The president has said he <a href="https://www.express.co.uk/news/world/986966/trump-news-trade-war-us-china-tariffs">launched</a> the trade war because Chinese companies <a href="https://www.wsj.com/articles/china-started-the-trade-war-not-trump-1521797401">have a track record</a> of “stealing” Western technology and not respecting intellectual property. Hence, the administration will likely block investments that look along these lines or threaten national security.</p>
<p>But politics will also play a role as members of Congress and others <a href="https://www.bbc.com/news/av/world-us-canada-42405458/trump-china-and-russia-rivals-in-new-era-of-competition">regard China</a> warily as a growing rival that must be confronted. One risk is that <a href="http://www.pewglobal.org/2013/07/18/chapter-3-attitudes-toward-china/">anti-China sentiment</a> in the U.S. increases and makes it harder for the country to use “soft power” via cultural and economic means to achieve its ends – which is preferable to hard power at the end of a bayonet. </p>
<p>It’s unfortunate because <a href="https://dash.harvard.edu/bitstream/handle/1/3450062/helpman_tradewars.pdf?sequence=4">years on international political economy research</a> suggest trade wars and discouraging investment <a href="http://www3.nccu.edu.tw/%7Elorenzo/Ikenberry%20Rise%20of%20China.pdf">are exactly the wrong ways</a> for the U.S. to deal with China’s rise. The U.S. can find other strategies to challenge any unfair trading or business practices without jeopardizing good economic relations, which <a href="https://www.cambridge.org/core/books/renegotiating-the-world-order/B0878F74F44B1F08F3C7535019FBAEE3">have always been</a> the best way to prevent clashes and even war among great powers. </p>
<p>Beyond that, deeper business ties lead to better relations and stronger economies. Economic interdependence raises the costs of direct confrontation, leading to a more peaceful international system.</p>
<p>What concerns me from the current trade war is that it could make geopolitical clashes between China and U.S. stronger and more frequent in the long run.</p><img src="https://counter.theconversation.com/content/99906/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francisco Urdinez does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese investment in the US has never been high, but the ongoing trade war could dampen it further, with significant long-term repercussions.Francisco Urdinez, Professor of International Political Economy, Universidad Católica de ChileLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/865922017-11-05T12:53:06Z2017-11-05T12:53:06ZQatar blockade and Saudi Arabia: could there be a power shift in Doha?<p>When it erupted <a href="https://theconversation.com/qatar-saudi-arabia-is-taking-a-chance-and-iran-could-be-the-ultimate-winner-79478">in June 2017</a>, the “Qatar crisis” drew immediate speculation that the emirate’s enemies, who accuse it of sponsoring terrorism and destabilising the region, were preparing for some sort of military action. </p>
<p>After all, since the inconclusive resolution to an earlier dispute with Qatar in 2014, Saudi Arabia and the UAE have been determined to take a bolder and more assertive stance, bloodily intervening in Yemen and, according to <a href="http://www.middleeasteye.net/news/saudi-arabia-came-close-conquering-qatar-new-leaked-emails-show-1491607860">recently leaked emails</a> purportedly sent by the UAE’s ambassador in Washington, at one point even coming “pretty close to doing something in Qatar”.</p>
<p>Whereas Barack Obama was highly unlikely to ever support such action against Doha, later hinting that he would no longer reflexively side with Saudi Arabia in its squabbles, Donald Trump’s administration seemed at first to re-open the door to more drastic measures.</p>
<p>Trump pointedly chose Saudi Arabia for his first official overseas visit, on which he signed several <a href="https://theconversation.com/trump-saudi-arabia-and-yet-another-arms-deal-78072">big-ticket arms deals</a>. And just hours after Riyadh severed relations with Doha, he <a href="http://www.telegraph.co.uk/news/2017/06/06/donald-trump-says-isolation-qatar-may-beginning-end-horror-terrorism/">tweeted</a> that, when it comes to terrorism funding, “all reference was pointing to Qatar” and that “perhaps this will be the beginning of the end to the horror of terrorism”.</p>
<p>But the White House was soon apprised of the full extent of the US’s military facilities in Qatar, including the difficult-to-move forward headquarters of <a href="http://edition.cnn.com/2017/06/05/middleeast/qatar-us-largest-base-in-mideast/index.html">US Central Command</a> (CENTCOM), and the secretary of state, Rex Tillerson, hurriedly attempted to <a href="https://www.theguardian.com/world/2017/jul/21/rex-tillerson-says-qatars-gulf-neighbours-should-lift-blockade">strike a more conciliatory tone</a>. For a moment, it seemed any immediate danger to Doha had subsided. Indeed, as recently reported, Trump had apparently given an emphatic “no” to any military action, preferring to leave the quarrelling Gulf states to their own devices.</p>
<p>Nonetheless, even as the days dragged into weeks and then months, it seemed that Saudi Arabia and the UAE, along with their allies in the “Anti-Terror Quartet”, Bahrain and Egypt, were gaining the upper hand. </p>
<h2>Stalemate</h2>
<p>While Qatar received aid and public support from both Turkey and Iran, the Quartet-led economic blockade was undoubtedly beginning to bite. By the end of July, Doha had already had to plough more than US$40bn of its US$340bn <a href="https://www.bloomberg.com/gadfly/articles/2017-09-14/handbags-at-dawn-for-qatar-and-saudi-arabia">sovereign wealth fund</a> into local banks, while simultaneously selling off stakes in several foreign companies. Facing further downgrades by ratings agencies and now a negative credit outlook, Qatar’s position is still very shaky; the Quartet can probably afford to sit it out and wait for Doha to come to the table.</p>
<p>The accompanying mud-slinging contest being fought out in the international media by the two camps seems unlikely to tip the balance any time soon. The Quartet’s siege-like position seems relatively strong and its members are apparently impervious or indifferent to reputational assaults. That much was clear from their recent <a href="http://english.alarabiya.net/en/News/middle-east/2017/09/19/Arab-quartet-meet-in-New-York-to-discuss-new-approach-to-Qatar-crisis.html">ministerial meeting in New York</a>, where they concluded there would be no dialogue with Qatar until all “demands and principles” were met.</p>
<p>And yet, there are now strong signs that Riyadh has also begun preparing a parallel “Plan B”: a campaign to promote the replacement of Doha’s current ruler, Emir Tamim bin Hamad al-Thani, with a more compliant, pro-Quartet client. </p>
<p>With the Saudi crown prince, and king-in-waiting, Mohammed bin Salman al-Saud probably impatient for quicker results than the blockade can deliver, a coup d’état must be appealing. The Saudis need some sort of decisive victory to distract from their disastrous Yemen campaign – and Salman is currently embarked on a “night of the long knives” at home, locking up a whole <a href="https://www.hrw.org/news/2017/09/15/saudi-arabia-prominent-clerics-arrested">range of political opponents</a> in the name of reform and “returning to moderate Islam”. A diplomatic (or forceful) victory abroad would be just the thing to defuse the domestic tension.</p>
<h2>Vain hopes</h2>
<p>Even if it is bloodless, beyond the White House such a coup might not fully suit the US’s broader interests – its military facilities could be affected and a <a href="http://www.globalpolicyjournal.com/blog/05/05/2017/us-iran-relations-nuclear-deal-renewed-tensions">delicate balancing game between Saudi Arabia and Iran</a> could be disrupted. But barring any high-profile defections in the Qatari military, or a sudden collapse in the current emir’s popularity – perhaps triggered by severe economic hardship – a coup does not yet seem a credible prospect. </p>
<p>Any moves that have been made in public aren’t cutting much ice. September saw a strange “Qatar opposition” <a href="http://www.arabnews.com/node/1160991/world">conference</a> held in London – it only seemed to feature one prominent Qatari and mostly featured Western speaker-circuit regulars espousing vague notions of bringing democracy to Doha. Whatever its intended purpose, the conference made close to zero discernible impact.</p>
<p>In another odd move, the Saudis recently decided to <a href="https://www.bloomberg.com/news/articles/2017-08-20/little-known-qatari-sheikh-embraced-by-saudi-in-surprise-move">publicly endorse and elevate</a> two hitherto obscure Qatari ruling family members: the uncle-nephew team of Abdullah bin Ali al-Thani and Sultan bin Suhaim al-Thani. Based in London and Paris, they have only a distant claim to the throne and rarely feature in Qatari public life. Until Abdullah’s apparently successful “negotiation” to allow Qatari pilgrims to travel to Mecca this summer, most in Doha had either never heard of him or simply forgotten who he was.</p>
<p>If anything, this particular Saudi strategy is backfiring. In <a href="https://www.cbsnews.com/news/qatars-emir-stands-defiant-in-face-of-blockade/">his first televised interview since the crisis began</a>, Emir Tamim struck a defiant and confident tone. Indubitably, most Qataris seem well aware that a Doha under the control of such characters would probably end up little more than a Bahrain-like Saudi vassal state, with all of the attendant downsides: complete loss of control over foreign affairs, censorship, and of course significant repression.</p><img src="https://counter.theconversation.com/content/86592/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Davidson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There are strong signs that Riyadh has begun a campaign to promote regime change. But the Saudi strategy appears to be backfiring.Christopher Davidson, Associate Professor of Middle East Politics, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/768342017-04-27T16:21:50Z2017-04-27T16:21:50ZThe Conversation quiz #9: what fraction of researchers around the world are women?<figure><img src="https://images.theconversation.com/files/167049/original/file-20170427-15112-dxuvyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-scientist-looking-through-microscope-laboratory-529380244?src=yKNFMuj5jzx5tbbZGFUiCQ-1-19">Likoper/Shutterstock</a></span></figcaption></figure><iframe id="quizWidget-408222" width="100%" height="700px" frameborder="0" border="none" src="https://www.qzzr.com/widget/quiz/fi9xdWl6emVzLzQwODIyMg"></iframe><img src="https://counter.theconversation.com/content/76834/count.gif" alt="The Conversation" width="1" height="1" />
Fingers on buzzers.Gemma Ware, Head of AudioFiona Lally, Section AssistantLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/757412017-04-27T13:36:16Z2017-04-27T13:36:16ZNorway’s oil fund is a tarnished gold standard for sustainable investment<figure><img src="https://images.theconversation.com/files/166970/original/file-20170427-15110-15gonw8.jpg?ixlib=rb-1.1.0&rect=266%2C6%2C1407%2C889&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/time-to-look/29951666326/in/photolist-4UMDbf-oaBBh6-7Yhjxo-4U1Hy4-J868em-pk17LZ-bswxxX-L6kt6j-pk16Gz-5wSbnZ-5wSbsB-5wSbx6-3kJgRQ-9BSRrt-ov213-7p2My3-9dBbBp-9dBb1g-cuh7mU-6sweGG-x73m3Y-9dEgAu-9dEiDd-MCJ7U7-vZwswA-4UHpTr">Ted McGrath/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The largest sovereign wealth fund in the world, Norway’s US$930 billion <a href="https://www.nbim.no/en/the-fund/">Government Pension Fund Global</a>, is seen as the <a href="http://www.futurepolicy.org/common-wealth/divestment/norway-government-pension-fund/">epitome of socially responsible finance</a>. But if this is the best the investment world can offer, it offers scant hope that sustainability can be achieved through the influence of investors. </p>
<p>The fund, which owes its size to profits from Norway’s oil and gas industry, has become a powerful player in global markets since getting <a href="https://www.nbim.no/en/the-fund/the-history/">its first injection of capital</a> in 1996. Despite its deep links to the fossil fuel industry, it has managed to foster a benign reputation thanks to a set of <a href="http://etikkradet.no/files/2017/04/Etikkraadet_Guidelines-_eng_2017_web.pdf">ethical guidelines</a> and its <a href="http://etikkradet.no/en/council-on-ethics/">Council on Ethics</a>. </p>
<p>The Council can recommend the fund sells stakes in companies that violate the guidelines – <a href="https://www.nbim.no/en/responsibility/exclusion-of-companies/">or can place companies on an observation list</a>. The Bank of Norway makes the final decisions. Companies – <a href="https://www.theguardian.com/business/2006/jun/07/supermarkets.asda">Walmart</a> <a href="https://www.nbim.no/en/responsibility/exclusion-of-companies/">among them</a> – can be excluded if they deal in products like tobacco or weapons, or if their conduct leads to things like environmental damage or human rights violations. <a href="http://www.swfinstitute.org/swf-article/52-coals-companies-to-be-excluded-from-norways-sovereign-wealth-fund-universe/">Exclusions</a> are made public, with a written explanation. </p>
<h2>Tolerance levels</h2>
<p>It is a thorough, but slow, process. It has also been criticised for being based on a so-called <a href="http://www.sciencedirect.com/science/article/pii/S1462901109001671">“overlapping consensus” approach</a>. This means the Council might only assesses a case if, for example, a massive media reaction indicates the people of Norway find a company’s conduct intolerable.</p>
<p>In some ways, the ethics focus overshadows the day-to-day management of the fund by <a href="https://www.nbim.no/en/">Norges Bank Investment Management</a> (NBIM). NBIM is mandated to aim for the highest return possible through responsible investment management. The goal is broad diversification and long-term investments which are sustainable in economic, environmental and social terms.</p>
<p>In other words, the fund managers are supposed to be incorporating sustainability into decision-making in order to identify systemic risks and make investments accordingly. It does do so to a certain extent. NBIM has divested from more companies on its own initiative, <a href="https://www.nbim.no/en/transparency/reports/2016/responsible-investment-2016/">based on risk assessment</a>, than on advice from the Council on Ethics.</p>
<p>There is a clear and fundamental flaw here, however. The fund’s mandate, investment strategies and guidelines do not acknowledge that broad investment in equities in all markets is unwise when the large majority of companies are simply pursuing a “business as usual” track and ignoring those systemic risks.</p>
<h2>Radical shift</h2>
<p>Simply put, if the investment universe as a whole is headed towards a cliff of environmental, social and economic crises, then the only economically sustainable path for the world’s largest sovereign wealth fund is to use its financial muscle to shift the direction of the investment universe. Through its own investments, and through the example it sets, the fund could be a real game changer.</p>
<p>Instead, the fund illustrates a false dichotomy between the economy and ethics. Human rights, the environment and climate change are bundled together as the responsibility of the Council on Ethics. NBIM has the job of ensuring financial returns for the welfare of future generations of Norwegians.</p>
<p>But on the kind of long-term economic perspective the fund adopts, it is meaningless to hold back on being a wholehearted part of the shift towards sustainability. Working towards this, including staying <a href="http://www.stockholmresilience.org/research/planetary-boundaries/planetary-boundaries/about-the-research/the-nine-planetary-boundaries.html">within planetary boundaries</a>, is a prerequisite for long-term return on investments.</p>
<h2>Setting boundaries</h2>
<p>Climate risk is the clearest example of how this model is failing. “Business as usual” carries the risk of investing in projects which become stranded if the world makes a decisive shift away from fossil fuels and towards renewable energy in line with the goals of the <a href="http://unfccc.int/paris_agreement/items/9485.php">Paris Agreement</a>. </p>
<p>There are several signs that this <a href="https://www.ft.com/content/67b20418-60cc-11e6-ae3f-77baadeb1c93">shift has started to happen</a>. For that reason alone, a focus on fossil fuel projects is a <a href="https://www.ceres.org/our-work/carbon-asset-risk">significant risk</a>. Capital needs to be channelled towards environmentally, socially and economically sustainable projects which <a href="http://www.un.org/sustainabledevelopment/sustainable-development-goals/">enable the world</a> to stave of crises and avoid the risk of societal breakdown, but in creating a gulf between ethics and economics, these crucial issues are ignored.</p>
<p>We can see the result of this flawed thinking in the fund’s involvement with the <a href="https://www.theguardian.com/us-news/2016/nov/03/north-dakota-access-oil-pipeline-protests-explainer">Dakota Access pipeline</a>, the controversial US project to transport oil from fracking sites. The fund has US$1.2 billion of investments in the pipeline companies. </p>
<p>Any project designed to move 470,000 barrels of oil a day would be deeply problematic from a climate perspective, but the pipeline also raises social and environmental issues, including <a href="http://uk.businessinsider.com/north-dakota-access-pipeline-protest-drinking-water-2016-10">risks to drinking water</a> for indigenous people. The Nordic Saami people have <a href="https://www.ipe.com/news/esg/norways-oil-fund-faces-pressure-from-nordic-indigenous-people-over-dakota/10018069.article">reacted strongly</a>, sparking Norwegian media interest. </p>
<p>The issue has been <a href="https://www.theguardian.com/us-news/2017/mar/17/sami-dakota-access-pipeline-norway-pension-fund-divest">perceived as one for the Council on Ethics</a>, rather than a matter of economics. The Council may or may not recommend a divestment, but that will only be clear several months down the line. In the meantime, practically all other Norwegian financial institutions have divested from the pipeline, including the country’s second largest <a href="https://www.theguardian.com/us-news/2017/mar/17/sami-dakota-access-pipeline-norway-pension-fund-divest">pension fund</a>. NBIM has not acted even though two of its three responsible investment focus areas are <a href="https://www.nbim.no/en/responsibility/risk-management/climate-change2/">climate change</a> and <a href="https://www.nbim.no/en/responsibility/risk-management/water-management/">water management</a>.</p>
<p>The problem may not lie primarily with NBIM. The fund managers listen to the Ministry of Finance, and ultimately the Norwegian parliament. NBIM has recently suggested that the fund should be allowed to invest in <a href="https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/">unlisted infrastructure</a>. If this were directed towards renewables projects, it would be an important step towards filling the investment gap in this sector, especially in Africa and Asia. </p>
<p>The Ministry of Finance has recommended that parliament rejects this proposal, despite the prospect of <a href="http://ieefa.org/wp-content/uploads/2017/02/Making-the-Case-for-Investment-in-Renewable-Energy-Infrastructure_February-2017.pdf">very strong returns</a>. It argues that the fund’s focus must be the economic security of future generations, and it <a href="https://www.bloomberg.com/gadfly/articles/2017-04-07/norway-sovereign-wealth-fund-misses-a-green-trick">“should not be used as a tool for foreign or climate policy”</a>. </p>
<p>However, the point is that this is not a question of placing ethics above economics. It is a simple matter of understanding that economic returns – like everything else in the long run – are dependent on stable living conditions on earth.</p><img src="https://counter.theconversation.com/content/75741/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beate Sjåfjell is the Project Coordinator of the research project Sustainable Market Actors for Responsible Trade (SMART) (smart.uio.no), which runs from 1 March 2016 to 29 February 2020. SMART receives funding from the European Union’s Horizon 2020 research and innovation programme under Grant Agreement No 693642. </span></em></p>A false divide between ethics and economics has diluted the immense potential power of the world’s biggest sovereign wealth fund.Beate Sjåfjell, Professor, Department of Private Law, University of OsloLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/679422016-11-01T00:15:10Z2016-11-01T00:15:10ZWestern Australia provides a masterclass in what not to do with a resources boom<p>It wouldn’t be too unkind to suggest that Western Australia is not considered as the national benchmark of sophisticated public policy. Indeed, the state has recently attracted much attention – and derision – for the way its policy making elite squandered the wealth generated by the resources boom.</p>
<p>True, we now have more sports facilities than you can poke a stick at, not to mention a major makeover of the city foreshore – albeit noticeably empty of the promised high profile developments that were supposed to succumb to its irresistible allure. But you can’t accuse the Barnett government of not having big ideas. </p>
<p>Funding them has been another issue. Quite how WA managed to emerge from the once in a lifetime mining boom with an estimated debt burden of $40 billion by 2020 and a projected budget deficit of $4 billion is one of the West’s great mysteries. Or not, if you bother to look at what happened to all the <a href="https://www.academia.edu/27612380/Booms_busts_and_parochialism_Western_Australias_implacable_political_geography">riches the boom generated</a>.</p>
<p>WA Nationals leader Brendon Grylls certainly has, and that’s why he’s launched a rather lonely campaign to make the miners pay more tax. Even though this fiscal horse has long since bolted, he’s got a point. Not only did the big miners pay a measly 25 cents per tonne lease rental* to the WA government – a rate fixed in the early 1960s – but the WA government actually subsidised the miners throughout the boom.</p>
<p>According to the Australia Institute, taxation revenue across Australia in 2013-14 (before the collapse in prices) only accounted for about 5% of government revenues. In WA this situation was made worse by a subsidy regime that gifted the big miners some $6 billion at the height of the boom. No surprise that Grylls is on the warpath given his signature ‘Royalties for Regions’ program has been an early casualty of a more austere era.</p>
<p>Was this wasted opportunity and fiscal failure inevitable? Absolutely not. Not only have we been here before and should have learned similar lessons from the boom and inevitable bust of the 1970s, but other countries have been much cleverer in the way they have handled their good fortune.</p>
<p>Every policymaker in Australia should be made to read Paul Cleary’s excellent analysis of the way Norway handled its boom: <a href="http://www.theaustralian.com.au/arts/review/norway-resources-the-good-oil-on-a-trillion-dollar-miracle/news-story/02c157d020b2e26aa506323ae07803d4">Trillion Dollar Baby</a>. The experience could hardly be more different and the comparison would be laughable were it not for the fact that future generations will come to rue the folly and myopia of our current leaders.</p>
<p>The key lesson that emerges from Cleary’s analysis is that even small states can have a big say in determining what happens to the windfall revenues booms generate - but only if they understand what is happening at present and have a plan for the long term future of the country.</p>
<p>Norway had both. First, they had a capable government and skilled bureaucrats (yes, they are valuable and important) who quickly realised that Norway’s oil boom had to be managed for the benefit of Norway, not the multinational oil companies. This meant not being intimidated by powerful multinational corporations and recognising the inherent bargaining strength of national governments. You can only exploit resources where they are. Host governments can - and should - determine how they are developed.</p>
<p>In contrast to successive state and federal governments in Australia, this is precisely what the Norwegians did. First, they compelled the oil majors to build their required oil platforms in Norway, developing a world class manufacturing capability in the process. Secondly, and in another unflattering and revealing contrast to Australia, they ensured 90% of the windfall revenues derived from the oil boom in Norway remained there. </p>
<p>Norway’s “problem”, unlike ours, has been what to do with the astounding amounts of wealth generated as a direct consequence of its activist and enlightened policies. A third critical innovation was establishing a sovereign wealth fund.</p>
<p>Sovereign wealth funds serve two purposes. First, they put aside the windfall revenues of today for future generations – a possibility our own leaders seem incapable of contemplating given their truncated political horizons. Second, by investing most of the wealth overseas, they put downward pressure on the domestic currency, allowing other domestic industries to survive.</p>
<p>At a time when we are collectively waving farewell to much of the manufacturing sector, this is another sobering lesson – especially for the young who will not benefit from all that squandered wealth and may wonder where they will actually work. </p>
<p>The current debate – such as it is – in the West will likely go nowhere. Kevin Rudd’s demise is a reminder of what happens to politicians in this country who dare to take on the miners. The WA Labor Party is unlikely to be any braver or far-sighted on these issues than its federal counterparts. In short, don’t look to the West for a revolution in public policy. But if you want somewhere spacious and well equipped to kick a footie around…</p>
<p><em>Correction: An earlier version of this story referred to a 25 cent per tonne “royalty” paid by the big miners. In fact the 25 cent charge is a “lease rental” and is paid on top of royalties which are a fixed percentage of the sale price of iron ore.</em></p><img src="https://counter.theconversation.com/content/67942/count.gif" alt="The Conversation" width="1" height="1" />
How WA managed to emerge from the mining boom with an estimated debt burden of $40 billion is one of the West’s great mysteries. Or not, if you bother to look more closely.Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440632015-07-21T13:34:06Z2015-07-21T13:34:06ZHow social wealth funds could tackle inequality<figure><img src="https://images.theconversation.com/files/89027/original/image-20150720-12527-68l324.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/sarflondondunc/5760484545/in/photolist-9M2Zn4-2afUK-b5JNt-8qMRYj-VPwFg-2ARjxu-JfufH-2ARjqh-3pQDJQ-4Cn6FR-9RbJHi-Bpm4X-4RRxtn-rg66-6ruMLr-7pRaaF-iorev-9PN8Qh-39Jr97-ecnLd-ecnLe-ptC8S-dcxGub-vK23-4MdKAu-84SX2X-iovLW-6VkQXC-5i8EtW-7pV4Tm-2E4irm-8Kfr8c-e3jAKT-ebFGH-99onA7-Tk5Gh-6EMLbN-rVDvA-aW6Uh-61tuTH-akfJrU-2aBt6Y-2BJFnW-5WGH1p-9y8FFN-3WDJV1-26QR8f-MUFT8-byfuqd-e3qfSN">Sarflondondunc</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Rising inequality is not just a matter of social justice. It also makes economies much <a href="http://www.neweconomics.org/press/entry/rising-inequality-risks-another-financial-crisis-new-study">more prone to economic crisis</a>. And the most recent evidence shows that the gap between rich and poor is still <a href="http://www.oecd-ilibrary.org/employment/in-it-together-why-less-inequality-benefits-all_9789264235120-en">on the rise</a>. </p>
<p>Despite the growing verbal war against ever-rising inequality, its root cause – the over dominance of private capital in the UK economy and the growing concentration of capital ownership – remains intact.</p>
<p>There are several ways of tackling such concentration. For example, through higher taxation on capital (as proposed by <a href="https://theconversation.com/thomas-piketty-the-next-marx-or-a-malthus-of-our-time-26039">Thomas Piketty</a>). Or by the encouragement of alternative business models – from co-operatives to partnerships – that share the fruits of ownership more widely. But another powerful weapon that has been largely ignored in the UK is the collectively owned <a href="http://www.compassonline.org.uk/publications/tackling-the-power-of-capital-the-role-of-social-wealth-funds/">social wealth fund</a>. </p>
<p>This type of fund aims to capture some of the financial gains from the private ownership of capital and use the proceeds for wider community benefit, such as investment in social infrastructure. By cutting back the growth of private wealth and extending wider opportunities, such funds would also help tackle inequality from both ends.</p>
<p>The creation of one or more social funds would help secure a more even economic balance between collective and private ownership, while the returns to the funds would be shared across the population. By adding over time to the value of public assets, a side of the economy too often ignored, they would also help to improve the overall balance sheet of public finances, providing a counter-weight to the national debt.</p>
<h2>Learning from sovereign wealth funds</h2>
<p>In recent decades more than 50 countries – from Norway to Singapore – have introduced state-owned sovereign wealth funds. These have mostly been resourced through the exploitation of oil. Many are run in a very closed and non-transparent way as investment arms of the state, sometimes without obvious public benefit. But several examples offer a blueprint for a model social wealth fund.</p>
<p>Since the early 1980s for example, <a href="https://www.opendemocracy.net/ourkingdom/karl-widerquist/alaska-model-citizens-income-in-practice">Alaska</a> has operated a highly popular fund which pays an annual dividend to all citizens. Perhaps the most successful and transparent example of these funds is the US$700 billion <a href="http://www.nbim.no/en/">Norwegian Fund</a>. Highly popular with the public, and overseen by an independent ethics committee, it holds 1% of global equities.</p>
<p>While Britain has spurned the opportunity to finance such a fund from part of the proceeds of North Sea Oil, it is not too late to launch one or more funds using alternative revenue. For example, the proceeds of the privatisation juggernaut – itself a key driver of inequality – is set to deliver <a href="https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015">£32 billion</a> in revenue this year alone. Instead of going lock, stock and barrel into the Treasury black hole, it could be paid directly into a public investment fund.</p>
<p>Imagine the shape of the British economy today if such a fund had been established with the sale of British Gas and British Telecom in the mid-1980s. With close to <a href="https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015">£200 billion of sales since then</a>, and part of the fund reinvested, it would have grown to represent a very sizeable chunk of the economy’s overall wealth. This would have provided a powerful balance to private capital. It could have funded a range of socially useful projects aimed at improving opportunity and social mobility, through, for example, tackling youth unemployment.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89024/original/image-20150720-12564-38xr75.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Money in social wealth funds could be put toward more social housing.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/sarflondondunc/2000263161/in/photolist-43KSxT-5bJ8az-a1PukW-KpocM-9LwYFy-b35qJk-2ARjzQ-2a88gc-54o7Nz-bN5rRe-5b5CYu-4ADFtH-8qtpeA-9EEgT-aLKvk-hoVaP-8qMRJU-4KJN8d-9M2Zn4-2afUK-b5JNt-8qMRYj-VPwFg-2ARjxu-JfufH-2ARjqh-3pQDJQ-4Cn6FR-9RbJHi-Bpm4X-4RRxtn-rg66-6ruMLr-7pRaaF-iorev-9PN8Qh-39Jr97-ecnLd-ecnLe-ptC8S-dcxGub-vK23-4MdKAu-84SX2X-qGhuxp-iovLW-6VkQXC-5i8EtW-7pV4Tm-aDKu9e">sarflondondunc</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>The government now argues that the money raised from future sales – from RBS to the student loan book – will help pay down the deficit. Yet it makes little sense to use long term capital assets to finance a temporary revenue gap. The family silver can only be sold once. And although these sales can reduce the cash debt at a given moment, they aggravate the problem of public indebtedness by reducing the value of public assets. </p>
<p>Public debt is much less of an issue if it is balanced in part by a decent and growing asset base. But soon Britain will be all debt and no assets. This is indefensible short-termism that will be paid for heavily by subsequent generations.</p>
<h2>Wider role</h2>
<p>Social wealth funds could also play a much wider role in the economy. For example, the proceeds of right-to-buy, now to be extended to housing association tenants, could be paid into a social housing fund to fund new housing, instead of being colonised by the Treasury. </p>
<p>Another possibility, first advocated by the Nobel Laureate <a href="https://books.google.co.uk/books/about/Efficiency_equality_and_the_ownership_of.html?id=YeDEAAAAIAAJ&redir_esc=y">James Meade in the 1960s</a>, would be to finance such a fund through the dilution of existing capital ownership. This could be achieved through, for example, an additional, modest levy on share ownership (and additional to the existing stamp duty on share transactions). Such an approach would generate a sizeable fund over time, enough to fund a range of social programmes and possibly an annual citizen’s dividend, through a modest contribution from a very privileged social group.</p>
<p>Depending on how they are financed, these funds have the potential to be a powerful weapon in the anti-inequality armoury, they would boost social investment and greatly improve the overall balance sheet of the public finances in the process.</p><img src="https://counter.theconversation.com/content/44063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stewart Lansley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A powerful weapon against inequality that has been largely ignored in the UK is the collectively-owned social wealth fund.Stewart Lansley, Visiting Fellow, Townsend Centre for International Poverty Research, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446402015-07-14T13:45:11Z2015-07-14T13:45:11ZGreece bailout includes a €50 billion asset fund. Here’s how to avoid wasting it<figure><img src="https://images.theconversation.com/files/88270/original/image-20150713-11795-13kdgri.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Greece's asset fund turn into an investing piggy bank or another lost opportunity?</span> <span class="attribution"><span class="source">Piggie bank via www.shutterstock.com</span></span></figcaption></figure><p>Yesterday’s agreement between the Greek government and its creditors includes a condition that requires Greece to sell €50 billion worth of public assets and <a href="http://www.marketwatch.com/story/heres-what-greece-agreed-to-do-to-secure-bailout-funds-2015-07-13">establish</a> a fund to oversee the proceeds. </p>
<p>Half will be used to recapitalize banks, while €12.5 billion will be used to repay part of Greece’s debt and €12.5 billion will be invested internally to generate growth. </p>
<p>While the privatization of inefficiently managed government assets could well serve the interests of the Greek people, it could well go very wrong. </p>
<p>Here’s how and what Greece could do to prevent that from happening.</p>
<h2>Setting the right incentives</h2>
<p>The fund is already off to a bad start by setting a target sales number (the €50 billion). Doing so from the outset can distort incentives. </p>
<p>By that I mean the easiest way to hit that target is to sell assets at whatever price you can get, thus well below their true worth, resulting in a lot of bad deals. Greece could easily end up selling €60 billion to €80 billion of quality assets just to hit the €50 billion target.</p>
<p>I wrote a <a href="http://www.hbs.edu/faculty/Pages/item.aspx?num=49049">Harvard case</a> a while ago of a hotel company that had a target of selling €300 million of hotels per year. But they never specified how many hotels they would sell. Not surprisingly, they ended up selling way too many hotels for way too low a price. They reached their sales target, but at the cost of selling far more of their assets than they needed to. </p>
<p>My point is the following: Greece should carefully design a performance measurement system that makes sure that assets are sold at the maximum price that could be obtained in the marketplace. That should help get around the pitfalls of setting a target up front.</p>
<h2>Timing of sales and use of proceeds</h2>
<p>The Greek economy is in <a href="http://money.cnn.com/2015/07/02/news/economy/greece-crisis-prime-minister-economy/">ruins</a> and the government has a liquidity problem – that is, it’s short on ready cash. These are exactly the wrong conditions in which to sell assets. Fire sales result in deep discounts. </p>
<p>Moreover, they lead to the sale of the easiest-to-sell assets. The easiest assets to sell are the ones that have the most potential buyers. The reason that there are many buyers is that their economics are attractive; these are high-quality assets. </p>
<p>It is very important that the proceeds from disposing of these high-quality assets are invested in the economy rather being used to repay loans that were made to recapitalize banks or previous loans. These loans have below-market interest rates and very long maturities (perhaps even 60 years), so their repayment can wait. Indeed the present value of Greece’s debt is just a <a href="http://www.nytimes.com/2015/02/21/business/dealbook/greek-debt-is-vastly-overstated-an-investor-tells-the-world.html?_r=0">small fraction</a> of its nominal value. </p>
<p>Investing the proceeds in the economy could create the conditions for economic growth, raising the prices of the rest of the government assets that are still in the portfolio.</p>
<p>Lesson: no need to rush the asset sales, and just make sure to use proceeds for something productive. That means there should be an effort to renegotiate so that more of the fund goes toward investment.</p>
<h2>Governance and transparency</h2>
<p>The privatization fund should follow world-class standards in terms of governance and transparency in the bidding process. </p>
<p>The members of the fund’s board of directors should be carefully chosen to protect the interests of the Greek people. Directors should be chosen on the basis of merit and be experts in matters of accounting, finance and valuation so they can effectively oversee the sales of assets. </p>
<p>Greece can follow best-practice governance processes such as those <a href="http://www.imf.org/external/pubs/ft/survey/so/2008/pol070908a.htm">adopted</a> by the Norwegian pension fund that manages the wealth of the Norwegian people from the extraction of oil.</p>
<h2>Choosing the right partners</h2>
<p>Buyers have reputations – good or bad – and the directors should take them into account, along with bid price, when choosing to whom they will sell an asset. </p>
<p>Companies, investment funds or sovereign investment partners who have developed a reputation for responsible business practices and the creation of value for all stakeholders can create more value for the Greek people. Businesses that promote the development of skills, safe working conditions, protection of the natural environment, and product safety and quality will create competitive advantages for the country over time.</p>
<h2>The right framework</h2>
<p>The Greek government uses cash accounting, and therefore does not prepare a balance sheet and does not take inventory of its assets and liabilities. </p>
<p>“You manage what you measure,” and it is obvious in the case of Greece that not measuring assets and liabilities using internationally accepted accounting standards leads to mismanagement of both assets and liabilities.</p>
<p>We need a fresh start and the right framework under which to start creating value for the Greek people. This framework is to <em>measure</em>, <em>analyze</em>, <em>create</em> and <em>communicate</em> value. </p>
<p>Measure the value of the assets and liabilities and the net worth so the measures can be analyzed. Analyze performance over time and relative to other countries in the eurozone so the analysis can be used as an input on what needs to change to create value. Create value by adopting policies that will increase the value of the the assets. Communicate the value creation story to build trust and confidence in the economy and attract investments.</p>
<p>Following some of these guidelines will help ensure that the Greek people get the most out of this fund, and that in turn could bring their economy and livelihoods back to life more quickly.</p><img src="https://counter.theconversation.com/content/44640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Serafeim does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greece must sell €50 billion worth of government assets as part of its latest bailout. It could very well go wrong.George Serafeim, Jakurski Family Associate Professor of Business Administration, Harvard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/407812015-05-15T15:38:20Z2015-05-15T15:38:20ZHow one of the world’s biggest investors might help you keep your job<figure><img src="https://images.theconversation.com/files/81207/original/image-20150511-10269-79rttd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Norway: a flag bearer for ethical investment?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/61508583@N02/13222256714/in/photolist-m9pwgm-mzAmQe-jDEiWo-jaCjC5-hyhUQw-pokaki-p7muwU-q3YjXz-p7mtQd-pDGrVJ-ocv4Yj-oyb9Lx-oqBhdH-nJ3SzG-nCBeKZ-nmE7e7-nJt98S-nJBWnG-nA1HFZ-naQVuL-m9yviR-ifApAn-i3McWU-i3MLsx-hGztSc-hx3tsb-hPES7G-hhqSqm-hhvxXZ-gGHAB8-gD9dvQ-fXqiF5-fGMhCD-fD3v2C-fCjwjL-fCjwTC-fC5dzt-fxsPE4-fB5mQz-fwWdPA-fwWe3d-bzmZh7-iAR9cZ-g7K1gU-eXS4KH-eXS4bT-eXS4DM-eLbyUy-eY4spo-fmXCLT">Butz.2013</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>They are the <a href="http://www.swfinstitute.org/fund-rankings/">giants of the global investment stage</a>. Funded, by and large, with oil and gas money and embodying the financial might of their country of origin, sovereign wealth funds can sometimes seem all-powerful. It is no surprise that they spark questions around their regulation and transparency. However, there is one crucial question that has remained in the shadows: what effect might such a fund have on your job?</p>
<p>Smaller financial players, <a href="https://theconversation.com/the-private-equity-deals-that-fail-to-justify-fast-buck-strategies-34628">such as private equity houses</a>, attract great controversy over accusations that they pursue drastic cost cuts in pursuit of a profit, leading to job losses and a longer term destruction of organisational capabilities. </p>
<p>The scale and scope of sovereign wealth funds mean they could have an even greater impact. They, after all, are in the business of generating returns, just like a private equity investor and in theory, there is little to stop most of them adopting an equally aggressive approach.</p>
<h2>Powerhouses</h2>
<p>Sovereign wealth funds have spread their money across a huge variety of assets in financial markets, from infrastructure projects to major holdings in foreign firms and smaller investments in bonds and stock markets. </p>
<p>Norway’s oil fund <a href="http://www.nbim.no/en/the-fund/market-value/">is the world’s largest</a>. It is currently sitting on assets with a market value of about $900 billion. Other major funds include the United Arab Emirates’ Abu Dhabi Investment Authority, Saudi Arabia’s SAMA Foreign Holdings, the China Investment Corporation and the Kuwait Investment Authority (KIA).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81208/original/image-20150511-10286-1ljhuhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Oil barrels. Wealth creation.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/ifpri/6169707470/in/photolist-apcn5J-apcje9-wG3b7-eNLxMz-6EAPgc-by6tn2-vWfMZ-7oSmuo-q6WtUD-efznRj-52Hji2-36sMmz-6asNRb-4NBYV4-aEZdUu-aNw7hc-5r5m9j-N7Joq-9pXw6Z-4oiCGs-7jk1bW-oSgtGB-5N2DJC-gcqstT-57Y1Jd-mB29D-hza1TV-ej81k-bkbPdw-bkbzUm-8x2oWz-8conDT-dhbUwr-eRj8Am-2vsXCM-dCnfmH-4TkE2V-8x5ox5-bR81WP-a7afhH-doWzjX-advRxN-4B54CR-8crLUY-72DYtT-8cs1yo-72JXdQ-rbJ7p1-8cs5CU-2Baq7A">IFPRI -IMAGES</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>In fact, there are as many as 71 sovereign wealth funds across the globe. They have an <a href="http://www.swfinstitute.org/fund-rankings/">estimated combined value of $7 trillion</a> and with shares in one out of every five companies worldwide, they collectively hold an enormous amount of wealth and power.</p>
<p>Perhaps unsurprisingly given their financial influence, the funds have caused major controversy on numerous occasions. <a href="http://www.bbc.co.uk/news/business-13371084">Accusations have been rife</a> that some investments are motivated by political rather than economic incentives, or that some funds use investments as a means to purchase technological capabilities or intellectual property for their state of origin, with little concern for the physical operations, or the staff, at the companies involved. </p>
<h2>Responsible investment</h2>
<p>Norway’s oil fund is rather different. It has an <a href="http://www.ipe.com/norways-pension-fund-global-to-shift-exclusion-powers-to-norges-bank/10001495.fullarticle">explicitly ethical brief</a>, and emphasises the importance of responsible investment in the management of its funds as well as an active ownership style which means it will lobby company bosses over strategic or ethical issues close to its heart. It means that Norway’s fund is among a handful which score a perfect ten on the standard transparency measure used in the sector. However, <a href="http://www.swfinstitute.org/statistics-research/linaburg-maduell-transparency-index/">more than 20 funds have a score of only five</a> or below on the same scale. </p>
<p>Now, these low scores alone don’t mean that an investment by one of these giant funds in the company you work for will lead to negative effects, such as job cuts and insecurity. If a fund makes a much-needed capital infusion into a struggling firm, then that will in turn benefit employees. It is also plausible that sovereign wealth fund investment has no discernible impact, as <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8683.2011.00848.x/abstract;jsessionid=D83D3A6B4062E88569E9D1ACB70AEB3F">some evidence</a> suggests minimal influence on wages and working conditions. The impact on human resource management is also likely to be diluted given that the funds are rarely sole owners of firms. </p>
<p>One <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8683.2011.00848.x/abstract;jsessionid=D83D3A6B4062E88569E9D1ACB70AEB3F">case study</a> of the Dubai sovereign wealth fund revealed few effects on employment and minimal but detrimental changes in workers’ voice and pensions. But frankly, there is only limited literature that explores these funds’ potential impact on the strategies of investee firms. We have tried to fill that gap in understanding by examining the case of investments by Norway’s oil fund in the UK. </p>
<h2>Job security</h2>
<p>Our focus is on investments which led to the fund owning at least 3% of a firm’s equity from 2008-2013. This gives us 80 UK-listed companies the Norwegian fund invested in. We also identified a suitable control group without sovereign wealth fund investment, but which matched the characteristics of the investee firms. We found control firms for 67 of the 80 companies.</p>
<p>What did we find? As one would expect given the choice of our period of study, there is a general downward trend in employment. However, this is counterbalanced by a significantly positive effect from the Norway investment on firms’ HR practices, specifically in terms of retaining workers. </p>
<p>Keeping everything else fixed, while there were was on average a 4% decrease in employment across all the firms forming part of this study, this decrease was more than counteracted by an 8% increase in employment – and hence a net increase of 4% – in firms with a significant Norwegian stake. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81376/original/image-20150512-22578-1xschfm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Is Norwegian oil keeping you in a job?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/120420083@N05/16163741756/in/photolist-qCkphG-5TViZa-67UECb-5TVjFt-5vqki4-5VMa2j-5VGP3D-rNzgXs-3WTC2i-dUWCDK-eaRAs6-31ehvR-6qkpaQ-nB5Ckm-s3SNcq-5zJyFD-dV3jv5-5srxga-c6h5RJ-8NA2o7-8TFk5a-oDeQQ4-5TVhYi-9QabRK-apjQB-3Vsiqk-eEdWE7-47p9Hs-fJZ4QX-5fKcai-5TZECE-btkVt1-dSr2r-5TVibD-8NA22Q-DaAsn-aR2zZi-M88Fb-6NJ5Ln-5TZEgd-dqBjRy-h2L8Y6-8uHj5u-h2KkgS-5oGPY-cTvJm7-8X22Ha-9Qd4Tm-f6jTjU-eF2BGi">Sarah Tzinieris</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>It is important to note again that this finding has been subject to controls which isolate potential industry-wide effects or the effects of timing. Finally, we have also adjusted for differences in wage costs and productivity, which might explain differences in the demand for labour. </p>
<p>This all leaves the way clear to argue that Norway’s oil fund has an interest in ensuring employment stability and job security in line with its Norwegian ethical values. </p>
<p>Now, you might speculate that investments that reduce workforce downsizing create a subsequently negative effect on firm profitability. However, we do not find that investments have any effect on firm performance, whether positive or negative. </p>
<p>Interestingly, the fund’s average stake is around 4%, with a maximum just below 9%. The implication is that even a relatively small minority stake may impact on HR policy. Clearly, those in charge of human resources policy need to be kept informed of changes in their firm’s shareholding structure if they are to respond appropriately to developments. </p>
<p>Let’s not forget that in the Norway fund’s case, it regularly <a href="http://www.theguardian.com/environment/2015/mar/16/norways-sovereign-wealth-fund-drops-over-50-coal-companies">reviews investments and dumps its stakes</a> if a company fails to meet its criteria, an outcome that could be a financial and reputational headache for the board. </p>
<p>In the case of our research, the Norway oil fund might bring with it demands for an ethical approach to staff, but each sovereign wealth fund is a different beast. It will be crucial for managers to understand the very individual nature and behavioural patterns of their new, giant, investors.</p><img src="https://counter.theconversation.com/content/40781/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc Goergen is a Research Associate of the European Corporate Governance Institute.
Geoffrey Wood - no potential conflicts.</span></em></p><p class="fine-print"><em><span>Geoffrey Wood, Marijana Baric, and Noel O'Sullivan do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sovereign Wealth Funds have about $7 trillion to invest in the companies we work for – and new research shows that the biggest of them brings some extra benefits.Marijana Baric, Lecturer, University of BuckinghamGeoffrey Wood, Dean of Essex Business School, University of EssexMarc Goergen, Professor of Finance, Cardiff UniversityNoel O'Sullivan, Professor of Accounting, Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/311542014-09-02T12:51:29Z2014-09-02T12:51:29ZWhat Malaysia Airlines must do to survive (and maybe even thrive again)<p>Malaysia Airlines was hit with two extraordinary crises this year that have rocked the confidence of customers and left the company struggling to manage the damage. Lone passengers are posting <a href="http://www.news.com.au/world/asia/malaysia-airlines-deserted-by-travellers-and-cabin-crew/story-fnh81fz8-1227038723713">pictures of otherwise empty planes</a> on social media, cabin crew are leaving and commentators are <a href="http://www.news.com.au/travel/travel-updates/higher-commissions-fewer-passengers-the-struggle-to-save-malaysia-airlines-deepens/story-e6frfq80-1227032981979">questioning its ability to survive intact</a>. It is a challenge, certainly, but not an impossible one.</p>
<p>The disasters which befell the airline were extraordinary, shocking events. First, the <a href="https://theconversation.com/uk/topics/flight-mh370">disappearance of flight MH370</a> in March with 239 people on board, then the <a href="https://theconversation.com/uk/topics/flight-mh17">shooting down of MH17 over Ukraine</a> in July with 298 lives lost. Both were mysterious and tragic accidents, from a company with a previously unblemished safety record. And crucially, both incidents brought the airline a mass of criticism over how it responded.</p>
<p>The financial impact has been clear. In March, after MH370 disappeared, the firm came under <a href="http://news.nationalpost.com/2014/03/25/a-storm-of-anger-and-sorrow-mh370-victims-families-descend-on-malaysian-embassy-in-beijing/">fierce pressure from the Chinese victims’ relatives</a> and consequently sales from China plummeted 60%. There has also been a sustained decline in the company’s share price, which lost 21% since August 2013. </p>
<p>To be fair, the airline was already experiencing financial problems with losses of MYR1.17 billion (£222m) in 2013, partly as a result of fierce competition from low-cost operators. But losses in 2014 will be much worse and the airline’s major shareholder, Khazanah Nasional (Malaysia’s sovereign wealth fund) has announced plans to address this by <a href="http://www.bbc.co.uk/news/business-28978881">buying up the remaining 31% of the shares to suspend trading</a>, getting rid of 6,000 staff and appointing a new chief executive.</p>
<h2>Rebuilding response</h2>
<p>It is all a powerful reminder that how a company handles a crisis can determine whether or not the company survives. Union Carbide never overcame the loss of shareholder trust and the cost of damages imposed on it <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/december/3/newsid_2698000/2698709.stm">after the Bhopal disaster in 1984</a>. It was eventually bought out by Dow Chemical. </p>
<p>BP’s share price plummeted by more than 50% in the month after the <a href="https://theconversation.com/deepwater-horizon-four-years-on-and-offshore-safety-remains-questionable-25471">Deepwater Horizon incident</a> in 2010. Costs imposed by US courts have reached nearly £30bn. The company’s crisis response was widely criticised and resulted in the <a href="http://www.bbc.co.uk/news/10360084">sacking of CEO Tony Hayward</a>.</p>
<p>In order to survive, Malaysia Airlines needs to learn from its mistakes. It must develop a flexible crisis response capability; respond to the emotional needs of its public, not just their informational needs; and conduct a post-mortem on how they can handle crises better in future. The company also needs to rebuild the relationship with its global passenger base in order to refill its planes, particularly the Chinese and the Dutch. This requires a careful nurturing of trust first in its domestic market, then in its international markets. </p>
<p>As far as practical measures go, as a state-owned airline, all government business air transport should, from now on, be mandated through Malaysia Airlines, as should that for all employees working on Malaysian government contracts. The airline should then offer favourable rates for volume procurement contracts to other governments. </p>
<p>It should also reward its loyalty card holders and frequent flyers with more favourable rates, but for a fixed time period only. Finally, a special promotional fixed period offer should be made to other volume buyers, including physical and online travel agents, which is more attractive than that of similar competition such as Emirates, Singapore and Cathay Pacific. </p>
<p>The airline should immediately give up all loss-making airport slots and sell off any old planes. However, while tackling supply by lowering costs will help, stoking demand is fundamental in the current climate. This is not a simple process, given that people now associate Malaysia Airlines with danger and tragedy.</p>
<h2>Trust up</h2>
<p>To survive this crisis they need to reposition the brand. They should take advantage of the fact that they are wholly owned by the government, as this should instill a sense of trust with the public in Malaysia at least. In the interim, they need to publicise what degree of responsibility they will bear and the changes they have now made to improve safety. They could, through government contacts, commission a fast but independent audit into their safety record to provide content for promotional messages. </p>
<p>Crucially, Malaysia Airlines must have a better crisis management system in place should disaster strike once again. It faced intense criticism of its communications abilities after MH370 – even <a href="http://www.nydailynews.com/news/world/malaysia-airlines-text-messages-victims-families-bad-news-article-1.1732295">informing relatives families via text message</a> – and things were only marginally better after MH17. Its recovery plans now have to battle through the perceptions created in those days and weeks when planning, transparency, responsibility and decisiveness could have made such a difference. </p>
<p>Repositioning the airline will require a significant communications budget, top global communications agencies, and no small degree of honesty. They might also need to find institutional investment partners if equity gets tight as it struggles with a new supply/demand curve and to fill empty seats. The company should be careful, however, to resist simply discounting prices long-term and across the board, as this would drive a decline in the firm’s image. It won’t be easy, and it will probably take several years before Malaysia Airlines can regain passengers’ esteem on an even footing with rivals.</p><img src="https://counter.theconversation.com/content/31154/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Baines does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Malaysia Airlines was hit with two extraordinary crises this year that have rocked the confidence of customers and left the company struggling to manage the damage. Lone passengers are posting pictures…Paul Baines, Professor of Political Marketing, Programme Director, MSc in Management, Cranfield UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/193942014-02-04T19:41:49Z2014-02-04T19:41:49ZFossil fuel campaigners win support from unexpected places<figure><img src="https://images.theconversation.com/files/40288/original/3b9qbktj-1391152073.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">World Bank President Jim Yong Kim warns investors not to ignore climate risks.</span> <span class="attribution"><span class="source">EPA/Chris Kleponis</span></span></figcaption></figure><p>If you haven’t heard about the growing campaign for fossil fuel divestment, and what it means for both your retirement funds and for the global economy, it’s time to pay attention - because now even the World Bank is on board.</p>
<p>At the recent World Economic Forum in Davos, <a href="http://www.worldbank.org/en/news/speech/2014/01/23/world-bank-group-president-jim-yong-kim-remarks-at-davos-press-conference">World Bank President Jim Yong Kim called</a> for stronger government action to: </p>
<blockquote>
<p>divest and tax that which we don’t want, the carbon that threatens development gains over the last 20 years… Governments must put a price on pollution… through either taxes or market-based instruments.</p>
</blockquote>
<p>Dr Kim also argued that taking climate change risks seriously is something all prudent investors - especially those in business - should be doing by now:</p>
<blockquote>
<p>So-called ‘long-term investors’ must recognise their <a href="http://en.wikipedia.org/wiki/Fiduciary">fiduciary</a> responsibility to future pension holders who will be affected by decisions made today. Corporate leaders should not wait to act until market signals are right and national investment policies are in place.</p>
</blockquote>
<h2>Coal in the firing line</h2>
<p>The World Bank has made a start in practising what it preaches. </p>
<p>Last year the World Bank announced it would not fund any new coal power plants “except in exceptional circumstances”. However, the World Bank is still <a href="http://www.rtcc.org/2013/11/08/world-bank-chief-condemned-for-backing-4000mw-india-coal-plant/">drawing strong criticism</a> for its ongoing support for a coal plant in India. </p>
<p>Similar restrictions on new coal generation investments have now been announced by <a href="http://www.whitehouse.gov/the-press-office/2013/09/04/joint-statement-kingdom-denmark-republic-finland-republic-iceland-kingdo">US, Scandinavian</a>, <a href="http://www.e3g.org/docs/Press_briefing-24-7-2013.pdf">European</a> and <a href="https://www.gov.uk/government/news/uk-urges-the-world-to-prepare-for-action-on-climate-change-and-puts-brakes-on-coal-fired-power-plants">UK</a> development banks.</p>
<p>On Friday last week, <a href="http://www.bloomberg.com/news/2014-01-30/foundations-with-1-8-billion-vow-fossil-fuel-divestment.html">17 US philanthropic groups</a> with combined assets of about US$1.8 billion promised to sell their investments in fossil fuel companies and instead put their money into clean-energy technology.</p>
<p>“The magnitude of the climate crisis requires that we no longer conduct business as usual,” the Wallace Global Fund’s executive director <a href="http://www.bloomberg.com/news/2014-01-30/foundations-with-1-8-billion-vow-fossil-fuel-divestment.html">Ellen Dorsey told reporters</a>. “If we own fossil fuels, we own climate change.”</p>
<p>That US announcement came just days after Norway’s oil-funded sovereign wealth fund - which <a href="http://www.abc.net.au/news/2014-01-09/all-norwegians-become-millionaire-shareholders-in-world27s-big/5191480">owns around 1% of the world’s stocks</a> - revealed that it has already <a href="http://www.reuters.com/article/2014/01/28/norway-sovereignwealthfund-coal-idUSL5N0L21LJ20140128">halved its investments in coal</a>.</p>
<p>The fund’s chief executive Yngve Slyngstad <a href="http://www.reuters.com/article/2014/01/28/norway-sovereignwealthfund-coal-idUSL5N0L21LJ20140128">told a parliamentary hearing</a> on Tuesday last week that, by the end of 2013, coal companies represented just 0.08% or US$405.57 million of the fund’s $US817 billion portfolio. </p>
<p>An opposition-led majority of Norway’s parliament are now pushing to ban the fund from coal completely - though the government does not back the proposal.</p>
<p>The London-based <a href="http://www.worldcoal.org/">World Coal Association</a> has been concerned enough about the coal divestment proposal to put out <a href="http://www.worldcoal.org/extract/wca-highlights-vital-role-of%E2%80%A8-coal-to-global-development-criticises-coal-divestment-proposal-3218/">media releases</a> criticising the move and urging the Norwegian government to talk to industry.</p>
<h2>Calculating climate risk</h2>
<p>Speaking at Davos, Dr Kim also highlighted the need for a new line of policy reform: forcing companies and financial institutions to disclose their climate risk, including the emissions linked to their businesses, and their exposure to climate-related impacts.</p>
<p>Currently there is a wide range of different <a href="http://www.2degrees-investing.org/IMG/pdf/2dii_financed_emissions_short_diff.pdf?iframe=true&width=986&height=616">carbon risk frameworks</a>, which are mostly voluntary and sometimes incompatible. </p>
<p>The United Nations’ Environment Programme’s Finance Initiative is developing an <a href="http://www.ghgprotocol.org/feature/financial-sector-guidance-corporate-value-chain-scope-3-accounting-and-reporting">emissions guidance for investors</a>. However, this work has been relatively marginal in the bigger picture of mainstream economic and climate policy, hardly registering as an issue at most recent UN climate talks.</p>
<p>Instead, the main pressure on investors to reduce the world’s reliance on high-emissions fossil fuels is coming from the community.</p>
<h2>Community pressure</h2>
<p>Fossil fuel divestment campaigners are now directly lobbying universities, religious groups, local governments and foundations to show moral leadership on climate change by selling all stock in coal, gas and oil producers. There are now hundreds of these local campaigns across the US, Australia, New Zealand and Europe, which have attracted <a href="http://gofossilfree.org/commitments/">a growing list of commitments</a> from universities, churches and even cities. </p>
<p>Late last year, <a href="http://www.smithschool.ox.ac.uk/research/stranded-assets/SAP-divestment-report-final.pdf">an Oxford University study</a> compared the fossil fuel divestment campaign with past campaigns against investments in tobacco, apartheid in South Africa, armaments, gambling and pornography. It concluded that the new fossil fuel campaign “has achieved a lot in the relatively short time”. </p>
<p>Coal was found to be the fossil fuel most at risk from the campaign, with some investors like US$74 billion Scandinavian asset manager Storebrand <a href="http://www.agreenerlifeagreenerworld.net/2014/01/uk-exclusive-storebrand-excludes.html">excluding more coal companies from its stocks</a>. The study found that while the divestment push was likely to have only a small impact on fossil fuel companies’ share prices, the reputational damage could prove far more costly:</p>
<blockquote>
<p>The outcome of the stigmatisation process, which the fossil fuel divestment campaign has now triggered, poses the most far-reaching threat to fossil fuel companies and the vast energy value chain. </p>
</blockquote>
<h2>Thinking a generation ahead</h2>
<p>Even if not all investors and retirement funds choose to act on moral terms, surely they can respond to financial risk.</p>
<p>One major difficulty is aligning the long-term investment interests of asset owners - the funds, and ultimately those investing in the funds - with short-term incentives, in particular of their fund managers.</p>
<p>A 2012 <a href="http://www3.weforum.org/docs/GAC/2012/WEF_GAC_RoleBusiness_Report_2012.pdf">World Economic Forum report</a> suggests a range of measures that would help in the case of climate and other long-term policy goals that require redirection of large amounts of capital.</p>
<p>For example, tax incentives promoting long-term share ownership and new governance arrangements could favour longer term decision horizons. While work continues on disclosure frameworks, much greater work is needed on incentives extending the investment horizons of public funds.</p>
<p>But there are at least growing signs of change. As World Bank President Jim Yong Kim said at Davos:</p>
<blockquote>
<p>It’s simple self-interest. Every company, investor, and bank that screens new and existing investments for climate risk is simply being pragmatic.</p>
</blockquote><img src="https://counter.theconversation.com/content/19394/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Swann is a student in the Master of Climate Change program at ANU, spokesperson for the Fossil Free ANU campaign and research assistant at the Australia Institute.</span></em></p><p class="fine-print"><em><span>Richard Denniss is the Executive Director of The Australia Institute, a Canberra based think tank.</span></em></p>If you haven’t heard about the growing campaign for fossil fuel divestment, and what it means for both your retirement funds and for the global economy, it’s time to pay attention - because now even the…Tom Swann, Master of Climate Change Program, Australian National UniversityRichard Denniss, Adjunct professor, Crawford School, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/54502012-02-20T03:01:51Z2012-02-20T03:01:51ZFuture Funds or Future Eaters? The case against a Sovereign Wealth Fund for Australia<figure><img src="https://images.theconversation.com/files/7823/original/5f4c7czh-1329706713.jpg?ixlib=rb-1.1.0&rect=18%2C9%2C968%2C650&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Can greater use of a sovereign wealth fund help share the revenue from the mining boom for future generations?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>There has been growing debate as to whether Australia should make greater use of Australia’s sovereign wealth fund, the <a href="http://www.futurefund.gov.au/">Future Fund</a>, to manage fluctuations in the federal budget balance due to commodity price cycles and the business cycle. </p>
<p>It has also been argued that Australia needs a SWF to better manage the macroeconomic consequences of the “terms of trade” boom, such as the rising Australian dollar and the so-called “<a href="http://www.investopedia.com/terms/d/dutchdisease.asp">Dutch disease</a>”. A SWF has also been advocated as a mechanism for sharing the revenue from the global commodity price boom with future generations. </p>
<p>A SWF can be defined as a pool of state-owned or controlled financial or other marketable assets designed to finance government activities in either the short or the long term. SWFs can be broadly divided into pension and non-pension funds. </p>
<p>Announced in 2004 and in operation by 2006, the Future Fund was notionally designed to pre-fund what would otherwise be unfunded public sector superannuation liabilities. </p>
<p>However, it was also designed to address the problem of what to do with large budget surpluses after the Commonwealth’s net debt had been repaid in April 2006. </p>
<p>With gross Commonwealth debt issuance having fallen to levels that threatened the future liquidity and viability of the government bond market, the Howard government used the Future Fund to recycle budget surpluses into other financial assets instead of engaging in further gross debt redemption, tax cuts, or additional government spending.</p>
<p>Additional ad hoc funds were created by both the Howard and Rudd governments for capital expenditure in the areas of health, education and other infrastructure, which are also managed by the Future Fund but governed by separate legislation.</p>
<p>The Rudd government initially undertook to place any budget surpluses in the Future Fund, but the financial crisis and fiscal stimulus of 2008–09 saw a return to chronic budget deficits and a positive net debt position. No contributions have been made to the Future Fund out of the budget since August 2007. </p>
<p>The Future Fund remains available as a vehicle to warehouse future budget surpluses, although it is unlikely that future governments will again enjoy the series of positive revenue surprises and persistent budget surpluses of the period between 2003 to 2008. </p>
<p>Making greater use of a SWF has gained support from some politicians and commentators because it sounds fiscally responsible and prudent. </p>
<p>However, the returns on the Future Fund are poor compensation for the alternative uses of these funds, including expenditure on productivity-enhancing infrastructure and the elimination of inefficient taxes that raise little revenue but impose significant costs on the Australian economy. </p>
<p>While the Future Fund seeks to invest in such projects, it is not a source of new saving in the financial system. It disintermediates the private sector from saving and investment decisions and risks politicising the process of capital allocation in the economy. </p>
<p>The fungibility of assets in the Future Fund with other sources of revenue and government borrowing means there are no guarantees as to how these funds will be used in future, even under existing legislation.</p>
<p>The Future Fund eases the federal government’s future revenue and borrowing constraint, weakening incentives for responsible long-run fiscal management. The best solution to this dynamic inconsistency problem is to bind future governments in relation to the stock of physical and other assets and to maximise the long-run growth rate of the Australian economy.</p>
<p>A SWF is of little value in promoting macroeconomic, fiscal and exchange rate stabilisation objectives. The Australian economy is well diversified and not dependent on a single, exhaustible resource for its current or future prosperity. </p>
<p>Greater flexibility on the supply side of the Australian economy, including greater openness to foreign labour and capital, is the best policy approach to addressing the economic consequences of the terms of trade boom. </p>
<p>The government also needs to reduce its call on resources and private saving through reductions in government expenditure.</p>
<p>Many of the desirable objectives of a SWF could be achieved through greater use of enforceable fiscal policy rules that would enable politicians to make long-term commitments to responsible fiscal policy outcomes and tie down expectations in relation to the future path of net debt. This is a fundamental feature of many overseas SWFs. For example, the <a href="http://www.apfc.org/home/Content/home/index.cfm">Alaska Permanent Fund</a> operates under constitutionally defined rules than can only be changed by a popular majority vote. </p>
<p>Since 2006, Chile’s SWFs have been governed by a new <a href="http://www.swfinstitute.org/fund/chile.php">Fiscal Responsibility Law</a>. By contrast, the legislation governing Australia’s Future Fund is completely ad hoc, operating outside any well-defined fiscal policy framework. </p>
<p>Only enforceable fiscal policy rules can solve the fungibility problem inherent in a SWF by creating binding revenue and borrowing constraints to guide future government expenditure decisions. Politicians who are unwilling to support such binding fiscal responsibility legislation cannot be trusted with a SWF.</p>
<p><em>This article is based on Robert Carling and Stephen Kirchner’s Centre for Independent Studies Policy Monograph, <a href="http://www.cis.org.au/publications/policy-monographs/article/3969-future-funds-or-future-eaters-the-case-against-a-sovereign-wealth-fund-for-australia">Future Fund or Future Eaters? The Case Against a Sovereign Wealth Fund for Australia</a>.</em></p><img src="https://counter.theconversation.com/content/5450/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Kirchner is a Research Fellow at the Centre for Independent Studies.
This article is based on Robert Carling and Stephen Kirchner’s Centre for Independent Studies Policy Monograph, Future Fund or Future Eaters? The Case Against a Sovereign Wealth Fund for Australia. </span></em></p>There has been growing debate as to whether Australia should make greater use of Australia’s sovereign wealth fund, the Future Fund, to manage fluctuations in the federal budget balance due to commodity…Stephen Kirchner, Senior Lecturer in Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/47402011-12-14T04:12:14Z2011-12-14T04:12:14ZIn Conversation: Senator Arthur Sinodinos<figure><img src="https://images.theconversation.com/files/6433/original/gmmkg8y8-1323832668.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Senator Arthur Sinodinos makes his maiden speech earlier this year.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>Welcome to this In Conversation between Liberal Senator Arthur Sinodinos and Macquarie University politics expert Craig Mark.</p>
<p>Sinodinos is a political paradox: he’s the newest member of the Australian parliament yet also one of the most experienced, having spent 10 years working as chief of staff to John Howard. Before that, he’d been an advisor to Howard during both his stints as opposition leader.</p>
<p>Sinodinos left his role as Howard’s right hand man in 2006 <a href="https://theconversation.com/from-chief-of-staff-to-senator-the-rise-and-rise-of-arthur-sinodinos-2936">having gained the respect</a> of nearly everyone he dealt with, no mean feat in the febrile atmosphere of Federal politics.</p>
<p>But after five years working in the private sector, Sinodinos chose to fill the vacancy in the Senate created by the departure of Helen Coonan.</p>
<p>In the wide ranging and disarmingly frank discussion, Sinodinos explains why he took that decision and offers his take on politics past and present:</p>
<ul>
<li>Why he believes in a “bigger Australia”</li>
<li>His aims in the Senate</li>
<li>How America ignored the lessons of the Asian financial crisis</li>
<li>John Howard’s growth and challenges as Prime Minister</li>
<li>The issues facing Julia Gillard and the ALP<br></li>
</ul>
<hr>
<p><strong>Craig Mark:</strong> Senator Sinodinos, thank you very much for your time. My first question is: why have you decided to return to politics? You were John Howard’s chief of staff, you then went into the banking sector and now you’ve come back and into opposition.</p>
<p><strong>Senator Arthur Sinodinos:</strong> I looked at my career over time and I thought, “what is the missing bit?” and the missing bit was being on the front line and being an advocate rather than just someone who was – important as the role might have been – just an advisor to someone else.</p>
<p>I thought also after discussions with the family that if I was going to do it at the age of 54, coming to the stage where it may well be the last job I have before retirement – and you have think very carefully about what you do then – I thought I will give it a go.</p>
<p>My family were supportive of me doing it and it is consistent with having an interest in public policy, wanting to contribute in a way that makes a difference. I enjoyed the commercial stuff, I would love to still be involved in it, certainly financially it would better for me but I think I enjoy the public policy and the clash of ideas for want of a better phrase and contributing to that whole process.</p>
<h2>A bigger Australia?</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6434/original/9m9tbpdy-1323832816.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The concept of a Big Australia has waxed and waned in political popularity over the decades.</span>
<span class="attribution"><span class="source">AAP/Paul White</span></span>
</figcaption>
</figure>
<p><strong>Mark:</strong> In your maiden speech, which many people have praised for being very positive, you mentioned the importance of your migrant background and what migrants have contributed to Australia, but also the importance of a “Big Australia.”</p>
<p><strong>Sinodinos:</strong> A bigger Australia.</p>
<p><strong>Mark:</strong> A bigger Australia then. Certainly in the 2010 election campaign one of the issues both the Coalition and Labor almost agreed on was that they went away from supporting Kevin Rudd’s Big Australia. How do you stand? </p>
<p><strong>Sinodinos:</strong> I was disappointed that Rudd, having raised the concept, then ran away from it because I had to that point taken it for granted that we want to keep growing the place. We want to make it bigger and the reason for that is not because we want to fill it with people but because there are geo-political, economic, social and cultural reasons why a bigger Australia would be a more dynamic, interesting, vibrant and good place to be.</p>
<p>It would certainly help us to punch even further above our weight in the world. It was [said] in a context where I wasn’t just saying everybody is growing their population therefore we have got to grow.</p>
<p>There’s actually a situation in the West where population is stabilising and except for the US possibly going to tail off. Certainly in many developing countries as they become richer the population stabilises and may even tend to come off.</p>
<p>I wasn’t looking at this in terms of being the irresponsible person who wants to add to the unsustainability of the planet. I thought we could actually do this in a way that is overall better for the planet, if I can put it like that, because we can make a contribution to issues around the planet if we have a stronger voice, given the sort of culture we have and the perspectives that we bring to many global issues.</p>
<p>I want us to have more influence in the world, because if we have more influence in the world, we are in a position where we can better look after our citizens as well. We have just got to realise that the world is a very competitive place and they are not standing still, as I said in the maiden speech, waiting for us to succeed.</p>
<p>We have got to make our own way and the best way to do that particularly in a context where we can’t always rely on our great and powerful friends, they have their own issues, we have got to make our own way in the world as well.</p>
<h2>Dealing with economic crises</h2>
<p><strong>Mark:</strong> We have Eurozone crisis at the moment, GFC Mark II, or some would say the ongoing GFC from 2008. From your perspective, especially considering your experience in the banking industry, what role did the regulation of the Australian banking industry play in leaving us in a better position?</p>
<p><strong>Sinodinos:</strong> I think since we had the GFC, the banks have been required to keep more capital aside to meet their loan and other obligations, so that is making them more conservative. It is going to have an impact on their ability to lend, particularly to small- and medium-sized enterprises. That approach could have a backlash in terms of business lending.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6435/original/7v9nnn3f-1323833279.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia has so far avoided the worst of the global economic meltdown.</span>
<span class="attribution"><span class="source">AAP/Emilio Naranjo</span></span>
</figcaption>
</figure>
<p>What I am saying is that, if anything, the GFC will have made the Australian banks even more conservative, which may be helpful in terms of them avoiding risky investments and ventures going forward. But we have to understand there is a price to pay for that in terms of their overall capacity to lend.</p>
<p>I think the other thing that will continue to help us is that because of our position in the Asia Pacific region, China will continue to give us a growth impetus. We can’t avoid the backwash of what happens in Europe because at least half of the wholesale funding of banks now comes from the international capital markets. So when those markets freeze and don’t lend, or the risk premiums in those markets go up and we have to pay much more for the cost of our funding, that flows through to the cost of our consumers.</p>
<p>So that debate you see in Australia about the banks not passing on all of the RBA-sanctioned interest rate adjustments, that reflects that in part the cost of their funding may be going up in a way that diverges from the Reserve Bank and they have to make up for that and that is a challenge for them. </p>
<p><strong>Mark:</strong> Yes, part of the excuses for the banks not passing on the rate cuts is that with a potential liquidity freeze coming from Europe, they may need to have as much of a financial reserve as they can.</p>
<p><strong>Sinodinos:</strong> In a perverse way, what the RBA may be doing is by cutting rates saving the big banks from raising their rates because of ongoing funding pressures, but that hasn’t actually factored much into the debate.</p>
<h2>Could the GFC have been avoided?</h2>
<p><strong>Mark:</strong> How does the current GFC compare with the Asian financial crisis on 1997/1998, which was the first big crisis that the Howard government faced in terms of economics?</p>
<p><strong>Sinodinos:</strong> The Asian economic crisis was a bit more contained in a way, because that was in developing financial markets rather than developed financial markets like the US, in the case of the GFC.</p>
<p>What surprised us at the time is that if you just let the exchange rate go, the economy was flexible enough to accommodate that and actually as a result of that we were able to keep ourselves afloat – in part because we were able to generate trade and exports, and the exchange rate was flexible.</p>
<p>And that reminded people that the previous 20 years of economic reform had had an impact by making the economy not only more open but more flexible and better able to deal with shocks.</p>
<p>What was good at the time of the Asian financial crisis was the work we had done in ‘96 in putting the budget back into balance was useful because it meant we weren’t necessarily classed along with those Asian economies that were under fire.</p>
<p>What was happening in Asia was a lot of short term capital flowing in and out was playing havoc with the financial markets and we didn’t have that issue in Australia, we were seen as having a more stable budgetary framework.</p>
<p>What we learned from it was economic reform did pay off in terms of the suppleness or flexibility of the economy. The other thing we learned was that we could influence what the IMF and others do in a more direct way. We did that [with] Indonesia where they had a particularly harsh austerity program, which was leading to riots, and we intervened with the IMF to get it changed to assuage some of those impacts.</p>
<p>That really reminded us about the role we could play in terms of international security and international financial policy. It was after that we set up a group within Australia to look at reform of the international financial system and that raised issues about some of the very entities; the hedge funds and what we call the shadow financial system that played a role in this latest crisis, but the Americans at that stage were not keen on reform of the international system which addressed some of that.</p>
<p><strong>Mark:</strong> If they only listened to you we could have avoided all this.</p>
<p>Sinodinos: It was about listening to the Treasury. It was interesting because it was maybe more interventionist than you would associate with a Howard type of government but the Americans under Larry Summers and Robert Rubin and others weren’t interested at that stage.</p>
<h2>Slashing red tape</h2>
<p><strong>Mark:</strong> One of your new jobs is to be in charge of a review committee on deregulation, and reducing red tape particularly for small business. What areas do you think you will be looking at there?</p>
<p><strong>Sinodinos:</strong> In one sense, how long is a piece of string? because government has a pervasive impact on the economy. There’s the federal dimension that we are mainly interested in, and the state and the local dimension, and sometimes it is the interaction between them, which is the problem for business because they are getting hit from all sides and they feel like it is all a bit uncoordinated.</p>
<p>My point is that the remit of this taskforce is federal, so we are looking across a range of departments. Some departments have more of regulatory role than others. The Tax Office for example has a pretty significant role in regulating business, and particularly small business, but there’s a whole variety of business regulation that comes through the Department of Industry.</p>
<p>We are not looking so much at industrial relations in its own right because that is a separate policy area but we are going to look at the impact of various government programs that are either meant to benefit small business or they are meant to be able to apply for.</p>
<p>If you are going to apply, how much red tape do you have to go through, how quickly do you get an outcome? Even approval processes – how long do they take, how much time, how much effort, how much expense? </p>
<p>Of course, governments don’t have to pay for that, but if you are a business looking for approvals and they are taking a long time, it is the opportunity cost which is important as well. We’ll also focus on some of that Commonwealth/state stuff that is being done around the seamless national economy. There are a number of de-regulatory initiatives there. Are they working, is that happening quickly?</p>
<p>At this stage we are going through a process before Christmas of prioritising the sort of areas we will deal with, but in a sense the whole of the Federal Government is our canvas.</p>
<p><strong>Mark:</strong> Is one of the objectives of this to provide some budget savings?</p>
<p><strong>Sinodinos:</strong> There are cases where that will be the case but a lot of it is really the cost to business. If you can take away some of the costs to business of doing business, hopefully that means they have got more money to invest or create new jobs. We can even make savings in time for them, maybe even work/life balance issues, they will have more time to spend with their family and less time on paperwork.</p>
<p><strong>Mark:</strong> This is one of the issues facing the Opposition, isn’t it – reforming fiscal policy? The government claims there’s a $70bn black hole in the budget once the carbon tax is repealed and the mining tax.</p>
<p><strong>Sinodinos:</strong> I’m not sure about how big the task is, because if you repeal the carbon tax you presumably don’t have to pay the compensation that goes with it. There may be some compensation; there might be a separate tax package that the opposition has talked about. That will need to have a bit more precision put around it in due course. We will see that closer to the election.</p>
<h2>No government has its own money</h2>
<p><strong>Mark:</strong> Going back to your period in the Howard government, was that one of the weaknesses towards the end? The loss of fiscal discipline, particularly after you left in 2006?</p>
<p><strong>Sinodinos:</strong> I don’t know about that. There’s a bit of myth around this but the reality was that the economy was performing pretty strongly, revenue was pretty strong, so there was a capacity to have both surpluses as well as some tax cuts, as well as put some money away for various funds. We had a higher education fund as well as the future fund and other funds for capital investment in the public sector.</p>
<p>As far as the surpluses are concerned, the Reserve Bank and the Treasury seemed to be quite happy with a surplus of around 1 to 1.5% of GDP so there wasn’t any pressure to have massive surpluses of $20bn. Yes, there was pressure to also have funds, and we put money away for that, but the view in the government philosophically was: if we get extra revenue, part of it should be returned to the taxpayers because it is their money in the end. Governments never have their own money; it is always someone else’s.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6432/original/nbm8xdg8-1323832657.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sinodinos with his former boss John Howard after being awarded the Order of Australia.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>The idea was: give tax cuts back as well. The Treasury in those days weren’t necessarily great fans of having sovereign wealth funds. Ted Evans and, to an extent, Ken Henry were of the view that you were better off recycling the money into the economy through tax cuts, which improved the incentive to work and to save and to help encourage people, particularly those who might be second-income earners in the household, back into the workforce.</p>
<p>I can remember the old budget where they would model the impact on labour force participation of cutting tax rates, and that is an ongoing challenge.</p>
<h2>Sovereign wealth fund</h2>
<p><strong>Mark:</strong> On sovereign wealth funds, do you think it is a sensible idea for Australia to have one on the model of other countries like China or the Emirates or Norway even? Malcolm Turnbull has raised it as an idea.</p>
<p><strong>Sinodinos:</strong> I mentioned it in the maiden speech. Joe Hockey used to argue that it was like wanting a Maserati – it is nice to have if you can afford it. For us, if it is affordable at some stage in the budget cycle it is not a bad thing to do, because I was linking it with the idea that you then invest particularly in emerging economies as a way of getting more of a stake in those economies and then geo-politically having a bit more influence because of that.</p>
<p>The way the Singaporeans and the Koreans and some of the others use it is they have that sort of influence and clout and if you talk to people here in Australia about the Singaporeans and others that is certainly their view, that it is used to give smaller countries more clout.</p>
<p>In a perverse way, that is promoting Australian investment abroad, shouldn’t we invest at home and my answer to that is that you can do a bit of both. But to the extent that you get a bit of influence in emerging economies that’s a good thing too because they are the ones with the growth potential.</p>
<h2>Foreign policy</h2>
<p><strong>Mark:</strong> Apart from economic crises, what were some of the other main challenges you faced when working with the Howard government, especially in terms of foreign policy?</p>
<p><strong>Sinodinos:</strong> On the foreign policy front, East Timor in the late 1990s was important because I think it gave John Howard a taste [of how] the UN in particular works, because he ended up leading that coalition. He spent a lot of time with Kofi Annan on the phone lining all that up.</p>
<p>The Americans were happy to help with the heavy lifting but they didn’t want to lead the coalition, so it was left to Howard to do that and I think that gave him a real insight into how the international system at its best can work, when all the players are on a similar wavelength and want to work together to achieve an outcome.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6440/original/fvv2295r-1323834064.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australian troops on parade at Dili port in East Timor.</span>
<span class="attribution"><span class="source">AAP/Capt John Toohey</span></span>
</figcaption>
</figure>
<p>I think he got a lot out of that process. It is interesting. Over time, as prime ministers stay there, and they are longer in the job, they get to have longer relationships with overseas leaders and they get a bit of corporate memory. </p>
<p>I think Howard enjoyed foreign policy more when he’d been through a few crises like this; they’d given him a feel for how things like this work, he’d developed good relationships. Jiang Zemin was the leader he probably saw the most in the period he was prime minister, they developed a good relationship.</p>
<p>I remember they were watching the fireworks together in Shanghai at APEC in 2001 and Jiang and he were holding hands the Chinese way. There was this camaraderie, <em>esprit de corps</em>, whatever you want to call it, that develops between leaders, so the international dimensions of the job became more important over time and of course the War on Terror gave a new point to all of that.</p>
<p>The relationship with America after all of that was shaped by that influence, and in John Howard’s case by the fact that he was in Washington on 9/11 and had seen the impact on the “American homeland” in inverted commas, and out of that one of the reasons he was keen to support the American action in Afghanistan and Iraq was because he linked the whole issue around the War on Terror and weapons of mass destruction.</p>
<p>I remember going on the odd trip with him during that period and this issue of WMD was like conventional wisdom; everywhere you went in the US, in Britain, in other countries. Even Kevin Rudd I remember talking about this as if it was conventional wisdom.</p>
<p>That period John Howard spent increasingly focused on international security issues. In the run-up to the 2001 election, the whole border control/boat people thing came to a head with the Tampa. That took a fair bit of time, putting in place the Pacific Solution. After that period of getting the numbers of control there was a period, 2002 to 2003 where the issue was children in detention, what are you doing about that, trying to get that sorted.</p>
<p>You might remember there were issues around Cornelia Rau, people being put in detention who had fallen through the cracks. There was a period there where the focus was more on international security issues and immigration issues. Economic and social policy went on and things happened, but it wasn’t a big focus.</p>
<p>Economic and social policy came back into it more towards 05/06 when WorkChoices was around, welfare-to-work reforms and other issues around the budget and taxation came more to the fore again. </p>
<h2>The rhythm of politics</h2>
<p><strong>Mark:</strong> Again, looking at the historical perspective – before even being part of government you were an advisor to John Howard in both periods of opposition, from '87 to '89 until he ended up out of office … </p>
<p><strong>Sinodinos:</strong> In the dustbin of history.</p>
<p><strong>Mark:</strong> … temporarily, before he came back to '95/'96. How has politics in general changed since that period of the '80s?</p>
<p><strong>Sinodinos:</strong> That’s a good question. I think, and it is trite to say this but true to say this, the media cycle is a lot quicker. You really do have to feed the beast 24/7. The proliferation of programs, Sky News would run interview programs morning, noon and night and they need talent to fill that and that creates its own dynamic.</p>
<p>Politicians have also discovered the proliferation of media and they have tried to take advantage of that. You’ve had a situation where they are doing not just print, but radio and TV and more social media as a mechanism for getting messages out.</p>
<p>The channels of distribution have changed, I suppose and the focus on getting the message out has increased. [This has happened] during a period where the number of rusted-on supporters for either side of politics has tended to go down and there has been a perception that post-Cold War that the issues between the parties aren’t as significant as they used to be.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6441/original/hvnkbq5p-1323834245.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sinodinos echoes many of former ALP politician Lindsay Tanner’s views on the interplay between politics and the media.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>Therefore you have had a situation where more single-issue parties have tended to come to the fore. Part of the success of the Greens has been to use the environment as a banner under which they marshal a group of people, partly on the left, some of whom would have been on the right, who might have been less right than other people on the right, so they might have been interested in some of those issues.</p>
<p>There has been a tendency for third parties to grow, and then third parties like GetUp and others to be part of the scene. In the old days there weren’t that many other political players. The unions would have been the main non-political player, and some elements of the business lobby, but these days it is more fragmented and it is more systematic – GetUp and others can use social media to get their messages up and tap into people.</p>
<p>The political marketplace is in some ways tougher, and part of the challenge for politicians is how to get to people they may not be able to get to through traditional means. Social media plays some role in that, but there are a lot of people who don’t get their news or information through social media. They may read the odd magazine. What do you do about them?</p>
<p>The other challenge is that the economic debate is more sophisticated, there are more players in it, more vested interest. They have the capacity to get independent economic advice, so you get the battle of the models, the battle of the facts and that creates its own tension for political parties and governments and the public service. There’s competing sources of advice.</p>
<p>That creates an environment where issues can be picked up – the mining tax before the last election is an example – and really run quite hard and become the focus of political attention and activity. It is quite a battleground for politicians, they don’t have it to themselves the way they once did.</p>
<p>They can no longer control the rhythm of politics; the rhythm of politics is controlling them. I notice this alleged secret part of the last ALP report which talked about Rudd’s problems around spin and lack of purpose. Part of the problem can become that you get so focused on getting your message out that it is not so much that you don’t think about the message, but you get more relaxed about the message, and you are more focused on getting it out and feeding the beast and dominating the media because if you don’t dominate the media, the opposition will.</p>
<p>I think one of the problems Labor has had in this term of government is having a consistent, for wont of a better phrase, narrative about what it is about. There are elements of it there in various ways, but often for tactical reasons they haven’t stuck to the narrative, they have tended to jump off their own narrative.</p>
<p>They did this before the budget, where they are building up to the budget and their story about maximising the benefits of the boom and making sure that there’s skilled jobs, and as they’re building up to it they suddenly announce the Malaysia Solution which immediately takes the focus off the budget and onto boat people.</p>
<p>Then they announce the budget and they don’t spend very long selling before they’re off saying that there’s Abbott and his budget reply, he’s got to tell us what his alternative budget is. They didn’t even spend much time spruiking their own stuff.</p>
<p>It is this sense of what you are about, and why are you doing what you’re doing, that people like to know, and they know when it is missing. </p>
<h2>The Greens</h2>
<p><strong>Mark:</strong> What is your opinion on the Greens? Could you work with the Greens? They do control the balance of power. Your Senate colleague Cory Bernardi thinks they are trying to destroy the fundamentals of society.</p>
<p><strong>Sinodinos:</strong> To a greater or lesser extent all the parties in the Senate cooperate on things. There was recently that report on coal seam gas that Bill Heffernan chaired on behalf of the Coalition and the Greens were on that. These conversations occur all the time.</p>
<p>I think what Cory is trying to get at without putting words in his mouth is he’s trying to say ideologically, what are the Greens about, and is this an agenda that at the end of the day the vast majority of the Australian population support? The issue then, and I referred to this in my maiden speech, is on things like growth. What do they really think?</p>
<p>They talk about sustainability, but they are not all that big on growth. They have reservations about growth. The fact is that in terms of jobs – and the fairest way to help people is to have jobs – you need some sort of growth. In some ways their dilemma is, and now they’ve peaked in popularity people will give them more scrutiny, their dilemma is having a program that appeals to the public as a whole as opposed to a sectional interest which, by dint of minority government, they are in a position to impose on the rest of the public.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6443/original/8y48wzrc-1323834411.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sinodinos argues the Greens may have peaked in popularity.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>It is unrealistic to say we can just live off renewable energy within a decade. It is unrealistic to say we can close the coal industry overnight. It is not just whether you think that is a good thing, it is unrealistic that you can do it if you are a responsible legislator. It ain’t that easy to close a whole industry like that overnight or in a short space of time.</p>
<p>In the past they have been allowed to get away with a certain looseness around this. They have policies they highlight on their website without getting much scrutiny. That is changing because they are at the heart of government and they have a responsibility to the electorate as a whole.</p>
<h2>Ageing parties</h2>
<p><strong>Mark:</strong> Earlier on, you mentioned the challenges of the media cycle and representing people adequately. That was an issue at the ALP conference where Senator John Faulkner mentioned the ageing of the Labor Party and that it is shrinking. With your NSW Liberal Party President hat on, is that also a challenge for the Coalition parties?</p>
<p><strong>Sinodinos:</strong> Particularly relative to the size of society, yes, I think that is right. If you look at the demographics of the Liberal Party, it is an ageing demographic and to some extent society is ageing, but even more so the political parties are, and Faulkner has a point on that. Both sides have Young Labor and Young Liberals and all the rest of that but in terms of the broader membership, it is fair to say that it is ageing and this in part reflects the fact that it is hard to get young- and middle-aged and professional people to get to branch meetings by the end of their work and family responsibilities.</p>
<p>All the parties are looking at strategies to try and engage those sorts of people. It is a real challenge. One advantage the Liberal Party potentially has over Labor is the extent that it still maintains a fairly independent grassroots influence over the party machine. There can be circumstances where you want more control from the centre; you can impose certain solutions on things. But to some extent the benefit of having that greater grassroots influence is that it maintains that vitality because you have people who are members of the party who feel they have a say in what goes on. I don’t think they have as much of a say as they should have and we are looking at ways in NSW of maximising that, say, and I noticed Labor at their mational conference were essentially talking about the same thing in terms of giving individual members more say.</p>
<p>Even more so than us, they have tended to have their centralised bodies to impose pre-selection and candidates on various seats. It has got to a stage where it is almost like a Politburo setup, where power is exerted from the top rather than coming up from the bottom. That is an issue because it erodes the value of membership if you are a grassroots member, because you have no influence on what goes on, you are just there to hand out how-to-vote cards at election time.</p>
<p>The other issue they face is their relationship with the trade union movement because it is both a great benefit in terms of resources and organisation on the ground and helping distributing stuff both at, and between, elections. But the other problem is the situation where the party becomes too influenced by one interest. You could say it is a pretty fundamental interest and it is but the trade union movement today does not represent all workers simply by the changing industrial composition of society.</p>
<p>There is an issue about whether that hobbles the ability of Labor to be a more broadly representative party and in touch with ordinary Australians, even though the unions would argue through their very membership base they’re are in touch with ordinary Australians.</p>
<p>In one sense they are but I’m not sure to what extent that really filters up rather than comes down. I think they have got to do something about the trade union link but I think it will be difficult for them to do that while the unions have so many resources tied up in the ALP.</p>
<p>If that link can be watered down to some extent it would probably be easier for both sides of politics to go forward in a more sensible way. And at the moment I think what has happened is that Labor have been bankrolled by the unions and that has allowed them to dictate the policy pretty effectively and they got a big payoff in '07, and we handed that to them on a platter in a way, but it is a major issue going forward.</p>
<h2>The WorkChoices misjudgement</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6444/original/js8vzczp-1323834612.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sinodinos admits the Coalition misjudged reaction to WorkChoices.</span>
<span class="attribution"><span class="source">AAP/Justin Smith</span></span>
</figcaption>
</figure>
<p><strong>Mark:</strong> You did say when you made your maiden speech that things may have gone a bit far with WorkChoices, possibly as a result of having a full majority in the Senate.</p>
<p><strong>Sinodinos:</strong> On the Senate point, it was certainly a surprise that the Coalition got a majority in the Senate after the 2004 election. There was certainly a debate internally, or a view that we shouldn’t be seen to fritter away the opportunity that might give us, to do things which we hadn’t been able to do because the Senate had been opposing through most of the time of the Howard government.</p>
<p>I think that was partly informed by the view that when Malcolm Fraser had majorities in the Senate in 1975 and 1977 till 1980 it wasn’t really used to do big things or keep things really going forward. That informed the thinking on the need to do reform and all the rest of it.</p>
<p>On industrial relations, most of it was a codification of things we’d tried to get through before but couldn’t. I think the big error was assuming that if you take the safety net away and rely on the idea that agreements subject to national standards would be ok wasn’t go to fly in the end. You still had to have someone to vet the agreements and make sure that workers weren’t being potentially undermined.</p>
<p>I had assumed, and I don’t know about others, that in a strong labor market that would not necessarily be the case. But what I was hoping, and to some extent there is evidence of this, is that a more flexible system would make it easier to create entry-level jobs, make it easier for people with a marginal attachment to the labour force into the workforce and complement other policies that were promoting people being in work rather than on welfare.</p>
<h2>A double dissolution</h2>
<p><strong>Mark:</strong> Again talking about the Senate, and now the government is likely to go full term and the Greens maintain the balance of power, what are the prospects of a double dissolution happening soon after an assumed Coalition government?</p>
<p><strong>Sinodinos:</strong> Tony Abbott has made it clear that if he couldn’t get through things he felt he had a clear mandate for, he would look at a double dissolution. I think he mentioned that in the context of the carbon tax. It is a possibility but he was hoping Labor would at least respect the mandate of a Coalition government, particularly if it won a significant victory at an election.</p>
<p>That has been his thinking, and the dynamic can change after an election, and parties can rethink their positions, can change so Labor might re-think its position but certainly at the moment they have been very strong that they would oppose any abolition of the carbon tax, as would the Greens.</p>
<p><strong>Mark:</strong> On that scenario, it wouldn’t be until at least 2015 until you could repeal the carbon tax or the mining tax.</p>
<p><strong>Sinodinos:</strong> That is absolutely right. If people want change they are going to have to vote big.</p>
<h2>Kevin Rudd and the Copenhagen mistake</h2>
<p><strong>Mark:</strong> Do you think Rudd made a mistake by not going to a double dissolution in early 2010 when he was flying high in the polls and had the trigger?</p>
<p><strong>Sinodinos:</strong> He may have made a mistake. It would have been more consistent with his rhetoric around climate change being the great moral challenge of our time, the fact that he was prepared to go to the public with it. He was a first-term prime minister, just been through the GFC, the atmospherics would have been quite supportive. Either that or coming back from Copenhagen and saying the rest of the world is going to take longer on this so I am going to put the ETS on the backburner. That was the other option he could have taken just to take the heat out of it.</p>
<p>That was the other option he could have taken, just to take the heat out of it. He came back from Copenhagen and he was still quite bolshie about it and didn’t really drop it until he was seen to drop it under pressure because of deteriorating opinion polls.</p>
<p>What that did was to say to people was, “Hang on, does this guy really believe this is the great moral challenge of our times?” And you won’t follow a leader who doesn’t seem to have the courage of his own convictions, and I think that fatally undermined his credibility in the community.</p>
<p>I think at the time when Swan and Gillard and others may have given that advice to drop it they were just reacting to the polls. It is Politics 101, it isn’t going too well, it’s toxic, let’s get rid of it. I don’t think they understood the link between the policy and the brand of their prime minister who had campaigned big on Kyoto in 2007 as well.</p>
<h2>Winning elections</h2>
<p><strong>Mark:</strong> In your previous experience with elections, to what extent can you say it is a combination of luck and leadership that brings victory?</p>
<p><strong>Sinodinos:</strong> Mark Latham was a lucky break, there’s no two ways about that. I think it was McClelland, [then] Attorney General, who was the one vote difference that got Latham the job. You could say that [an opponent] like Latham is lucky in one way, but you also make your own luck. I think in the run-up to the 2004 election there was no overwhelming case to change the government apart from the fact that by then it had been in government for about eight years and people could say it is getting on a bit.</p>
<p>But Labor, even under Latham, hadn’t made a strong case. One thing about Latham is that he is one of the few Labor thinkers who had thought in opposition but when he became the leader, he didn’t really seem to want to pursue many of his own ideas, he just seemed to adopt what was seen as the appropriate set of policies. The machine people got to him, I think. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6446/original/48d74z7r-1323835015.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former Labor leader Mark Latham - a lucky break according to Arthur Sinodinos.</span>
<span class="attribution"><span class="source">AAP/Rob Hutchison</span></span>
</figcaption>
</figure>
<p>Early on, even though he made some gains by talking about reading to kids and bringing the troops home by Christmas which sounded good, what happened in the end was there wasn’t sufficient of a mood for change and also he did those ads during the '04 election where he said “I’m 43, and I’m ready to govern” which reminded people of their reservation about him, which was that he was too young to be the national leader.</p>
<p><strong>Mark:</strong> What about 1998? How close to being a one-term government were you?</p>
<p><strong>Sinodinos:</strong> Pretty close. I think what saved the government then was some pretty good campaigning by the marginal seat members, there’s no doubt that helped. But we lost on the popular vote, but the popular vote wasn’t in the right places, and that’s where the marginal seat campaigning was so important.</p>
<p>There were probably a lot of big swings, and I’d have to check this, in safe Labor seats where you might have got working class groups concerned about the regressiveness of the GST.</p>
<p>That was a funny election because some of the analysis done by the ANU afterwards suggested that some other groups were attracted to the government because of the GST proposal; because they thought it isn’t popular, so they must be putting it up because they think it needs to be done. So you get a response positively because they think it is the right things to do not because it is politically popular.</p>
<p>But the challenge Howard faced in '97 was that the government had been a bit wobbly in its first term and to stabilise it he used the second half of the first term to have an overarching project to pursue and that turned out to be tax reform and I think that helped stabilise the government, gave it a purpose and gave it a policy and a narrative for its second term.</p>
<h2>2012 … and beyond!</h2>
<p><strong>Mark:</strong> What do you see as the big issues next year the opposition is going to try to take to the government?</p>
<p><strong>Sinodinos:</strong> On one level keep up the fight on the mining tax that comes to the Senate in March I think after a Senate inquiry. Try and keep the rage alive on the carbon tax, reminding people of that, issues like boat people will have their own dynamic. The boats may stop during the typhoon season and restart afterwards.</p>
<p>Tony is talking about putting out more of his own policies. He’s already put out a few when you tot them all up, making sure people are aware that is what he is doing so it is not just attack there is also the alternative.</p>
<p>Slipper is a bit of a walking time bomb given his background. He will be more careful than he has in the past. Craig Thompson is still walking around, at some stage he could still be charged but because they have now got one vote up their sleeves, Labor may think we can cope with something happening to Craig.</p>
<p>The problem in politics is that things tend not to happen just in ones, you can have a few things happen together. Even though the government may have vote up its sleeve it is not out of jail yet.</p>
<p>Julia has to make up her mind what she does about Wilkie and pokies by May. People have said that because she has got the one vote up her sleeve now she can afford to burn him. But if she burns him, well, Ronald Reagan used to talk about you always dance with the one who brought you, Andrew Wilkie would exact his revenge if he felt he was being dudded like that. There is no point having a vote up your sleeve over here if you are burning a vote over there, permanently, potentially.</p>
<p>The other issue is that the government have forecast a surplus in 2013 in the next budget. You’d expect them to put a surplus into their budget. The question is what confidence they have about how long they can sustain that as the figure in their budget and therefore what dynamic that sets up going into an election soon after the budget or early in the second half of calendar year 2012. A lot depends on how popular Julia is.</p>
<p>The other dynamic that is going on and won’t go away is the whole Kevin Rudd thing. That is still playing out there. The higher primates learn from experience. Given the undermining of Julia during the campaign and the accommodation of Kevin by giving him the foreign minister job, they have to stop snubbing and sniping at each other, like on the Australia TV tender or not mentioning him.</p>
<p>What does it matter if he is mentioned in the speech with Curtin and the rest of them? She might not think he deserves to be there but she should mention him. He’s here. He’s in the room! Former prime minister, the guy who got them into government. I think there is just that lack of judgement about things like that that allowed, at the end of the year, the story of the Kevin Rudd/Julia Gillard rivalry to come right back into it.</p>
<p>It happened at the beginning of the week after the conference – Rudd lets go on the faceless men, they leak; then, someone faceless, leaks a secret report on him and his government, manna from heaven for the opposition.</p>
<p>Then the Australia TV deal, the ABC now permanently get the gig and that can again be interpreted as a snub to Kevin as he’s flying to Germany. That dynamic appears to be there. I thought that by the end of the year, with Slipper in the chair and everything else and Julia having her tail in the air that maybe Kevin would start to pull back but if anything it seems he’s not pulling back, his backers are not pulling back.</p>
<p>That is a long-winded way of saying the first part of next year; will circumstances arise where Kevin decides to have a go? Julia might decide to head that off and go to the polls, but her problem is she needs her vote to be above a primary of 31% to be in striking distance. She can be in the late 30s because if you add that plus the Green vote you’re sort of getting there. But 31? Not enough on a primary?</p>
<h2>Divided we fall</h2>
<p><strong>Mark:</strong> On the disunity-is-death thing, would you say that was one of the things that really weakened the Howard government in its last years, the Costello leadership issue?</p>
<p><strong>Sinodinos:</strong> It was one of those things where if people expected John Howard to go with a gun to the head, that wasn’t going to happen, that’s not his style. I think the psychology of that was all wrong, the McLaughlin note as a way of levering him out. What I found about leadership tensions in the Howard government was that they would erupt from time to time but the work of the government went on at the level just below that.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6447/original/tvn5ctkk-1323835375.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Peter Costello never formally challenged John Howard for the Coalition leadership.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>Even at the height of the McLaughlin thing we, the PM’s office, had quite good relations with the Treasurer’s office. It was almost like, fact of life, like the weather that these things would be happening. You just sort of got on with the work because at no stage was Costello contemplating pulling the pin. It wasn’t like a Keating 1991 scenario where the threat was always that “If I don’t get my own way I’m going to bring the whole show down”. That didn’t seem to be his modus operandi at all, which is probably in a sense to his credit and may have been to his disadvantage.</p>
<p>The point is he never wanted to bring the whole show down so he always maintained cooperation even during periods when relations were strained.</p>
<h2>Guiding philosophy</h2>
<p><strong>Mark:</strong> On a personal level, what is the governing idea that gets you out of your political bed in the morning? You’ve spent a life inside politics, you seemed to think you wanted a life outside it but then you came back. What gets you doing it all, working the late nights, fighting the fights?</p>
<p><strong>Sinodinos:</strong> Excellent question. Can I answer it on two levels? In terms of ideas, the idea that we get better off, that we get freer, better able to meet individual aspirations is to me a good thing and to me the idea that I can make a difference to that is quite motivating.</p>
<p>The other thing that gets me out of bed in a way is that if you can help in situations of negotiations with other groups and get a common outcome, where everybody feels they got something out of it, I find that quite energising. I remember with the GST package when we finally got an agreement with the Australian Democrats, they got a fair bit of what they wanted, we got a fair bit of what we wanted.</p>
<p>I mentioned in my maiden speech, what’s a good reform? Getting 70 or 80% of something is better than getting zero of something that is perfect, you won’t get it. The idea that you get people together and they agree, fundamentally I quite like but it has to be an agreement about something that keeps things going and improves things. But I quite like that idea.</p>
<p>We are the sort of society where ultimately we don’t want anyone left behind. We ultimately want a society where we feel we are in this together. One of the dangers of societies that evolve, this is broadly, not just Australia, is you don’t want a situation where it becomes so stratified because of wealth or whatever that groups end up having not that much in common.</p>
<p>Then you ask yourself, “what is it that brings us together?” then you get this idea of social cohesion. Not in a racial or colour or creed sense, but in a sense that there is something in it for all of us, that really appeals to me and in the modern world there are all sorts of pressures pushing and pulling at that.</p><img src="https://counter.theconversation.com/content/4740/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Craig Mark does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to this In Conversation between Liberal Senator Arthur Sinodinos and Macquarie University politics expert Craig Mark. Sinodinos is a political paradox: he’s the newest member of the Australian…Craig Mark, Associate Professor of International Studies, Kwansei Gakuin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/43762011-11-21T19:44:44Z2011-11-21T19:44:44ZHas the mining boom given us ‘too much luck’? Hardly<figure><img src="https://images.theconversation.com/files/5701/original/miningred.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Paul Cleary's book, Too Much Luck, paints a negative picture of Australia's mining industry.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p><strong>CORRECTION: Stephen Kirchner’s review of Paul Cleary’s book Too Much Luck said he “wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local”, and that he has advocated policies, including industry intervention, which appeal to “Australia’s parochial, insular and protectionist past”. Dr Kirchner now accepts that Mr Cleary’s book advocates no such policies. His policy recommendations only involve measures to save windfall resource revenue in a sovereign wealth fund, and to tax and regulate the resources industry more effectively.</strong></p>
<hr>
<p>If Paul Cleary is to be believed in his recently published book, Too Much Luck: The Mining Boom and Australia’s Future, the resources boom is the worst thing that ever happened to Australia. </p>
<p>He maintains that the mining industry is under-taxed and under-regulated and in need of “stronger and more effective government control”. Yet at the same, he argues that recent governments have also squandered the revenue windfall from the mining boom. These positions are difficult to reconcile. </p>
<p>Cleary’s proposals for greater taxation and regulation of the mining sector and increased use of a sovereign wealth fund (SWF) would only enhance the capacity of governments to squander the boom.</p>
<p>Cleary, a journalist at The Australian and researcher at ANU, has in part based his book on freedom of information (FOI) requests made to Treasury, the Reserve Bank of Australia and other agencies on some of the public policy issues raised by the mining boom. Ironically, these FOI documents are far less revealing than what Treasury and other official sources have put on the public record.</p>
<h2>Pushing a sovereign wealth fund</h2>
<p>Cleary tries hard to find support for a sovereign wealth fund among the documents even though they mostly relate to experience in overseas economies that have little in common with Australia. He is forced to concede the Treasury’s “curious bias against sovereign wealth funds”. </p>
<p>He neglects to mention comments in a speech by then-Treasury Secretary Ken Henry to Australian Business Economists on May 18, 2010 arguing against a SWF. These comments are far more compelling than the Treasury working papers Cleary cites.</p>
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<img alt="" src="https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former Treasury Secretary Ken Henry expressed doubts about a sovereign wealth fund.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> <p></p>
<p>Cleary also seeks to enlist Reserve Bank Governor Glenn Stevens to his cause, but Stevens’ comments on SWFs have been equivocal and have called for no more than the issue to be considered. </p>
<p>Much of Cleary’s argument is ultimately an appeal to the authority of economists, but the few reputable ones he relies on for support would also reject many of the arguments in his book.</p>
<p>Cleary’s support for a sovereign wealth fund reflects his view that Australia’s resources are finite and that future generations will be left worse-off because the current generation will have exhausted these resources and spent the proceeds. The idea that resources are finite in any economically meaningful sense is fallacious because of productivity growth and long-run substitutability on both the demand and supply sides of commodity markets. </p>
<p>The Australian economy is well diversified and not dependent on a single resource, unlike the economies of Norway or Timor-Leste that Cleary views as models for Australia. The so-called “resource curse” is not a function of resources, but of weak institutional frameworks in some resource-rich developing countries. Australia, by contrast, scores very highly on comparative measures of institutional quality.</p>
<p>The idea that future generations need to be “compensated” for resource depletion by the current generation through a SWF is absurd. Future generations will be much wealthier than the current generation due to the ongoing technical progress that drives productivity and long-run growth in real GDP per capita. </p>
<p>This will occur regardless of the contribution of the resources sector. Proven reserves are a poor guide to future resource availability. But even based on these estimates, Australia’s resources are not in danger of being exhausted. </p>
<p>Cleary’s case for “compensation” is the equivalent of saying that people in the late 19th century should have forgone their consumption and living standards for the benefit of people in the late 20th century.</p>
<h2>A finite fallacy</h2>
<p>Cleary’s view that resources are finite leads to the absurd suggestion that they should be left in the ground because future resource scarcity will render them more valuable later. For example, he thinks that liquified natural gas should be left in the ground “for another decade or two at least”. </p>
<p>He also argues Australia should not compete with other countries that are also exploiting their resources aggressively because this will lead to over-supplied markets and falling commodity prices.</p>
<p><figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1134&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1134&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1134&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cleary argues that some of Australia’s resources should be left in the ground.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> </p>
<p>Australia is a price-taker in global commodity markets. It should focus its efforts on increasing real output and exports rather than a fruitless attempt at manipulating world prices through cartel-like behaviour. </p>
<p>It is a gross contradiction to say that resources are in danger of being exhausted and that their prices will also fall. Cleary can’t have both sides of the argument. In fact, real commodity prices almost certainly will fall in the long-run because they become less scarce over time, a stylised fact well established by economists like Julian Simon, Harold Barnett and Chandler Morse. </p>
<p>But this is no threat to Australia’s future prosperity, because Australia will share in the process of increasing global supply through greater output and export volumes, employment and productivity growth. Cleary’s suggestion that Australia will in future become “like Nauru today, but on a continental scale” is ridiculous hyperbole.</p>
<h2>Blaming the industry</h2>
<p>Cleary accuses the mining industry of a multitude of sins. The mining industry uses imported equipment, adding to the current account deficit. It is capital intensive and does not create jobs. He is hostile to foreign investment and foreign ownership and wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local. </p>
<p>Yet the policies implied by these views are at odds with his complaint that the mining industry draws resources away from other sectors of the economy. The solution to these capacity constraints is to increase Australia’s openness to foreign goods, capital and labour so that the mining industry can expand without increasing pressure on other sectors of the economy. But Cleary does not argue for a single measure that would increase the openness and flexibility of the Australian economy. </p>
<p>In addition to a sovereign wealth fund, Cleary would like to see a debate about the creation of a state-owned resource company. But both these proposals sit uneasily with his concern about the role of governments in squandering the mining boom. </p>
<p>Cleary is critical of the National Broadband Network, seeing it as symptomatic of the bad public policy that results when governments are awash with revenue, yet at the same time, he is in favour of industry policy and laments the demise of government boondoggles like the Green Car Innovation Fund. Cleary would have Australia retreat behind a wall of strategic industry and trade policy and state-run commodity cartels.</p>
<p>Cleary thinks that a sovereign wealth fund can be “pollie proofed” through legislative provisions. The problem with public saving through a SWF is that it is just deferred government spending. There is no reason to believe that future governments will spend the saving accumulated in a SWF any more wisely than the governments we have actually had.</p>
<p><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=866&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=866&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=866&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1089&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1089&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1089&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Coal seam gas faces strong community opposition.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> </p>
<p>In reality, the proceeds of the mining boom are being saved and invested by the private sector. It is only governments that have been dissaving and spending poorly, as Cleary is the first to admit. </p>
<p>If Cleary doesn’t like multinationals making money off Australia’s resources, he’s not too keen on workers profiting either. For Cleary, tax cuts and welfare payments are just “pissed up against the wall”. Miners spend their wages on “grog, gambling and women” or go into debt to buy houses, boats and four-wheel drives. </p>
<p>Apparently, future generations of Australians will be more saintly and frugal and therefore more deserving of this largess.</p>
<p>Cleary goes so far as to suggest that the mining industry has “subverted a well functioning democracy” through its opposition to additional taxes. Yet no one would suggest that the trade union movement was “subverting democracy” by defending its interests in the public sphere in response to the Howard government’s industrial relations reforms. </p>
<p>Defending one’s interests in the public sphere is the very definition of democracy, not its subversion. Yet the extra taxation and regulation Cleary proposes would only increase the incentives for the mining industry to become involved in politics.</p>
<p>Cleary’s views on the mining boom and his public policy recommendations are confused and contradictory.* </p>
<p>Cleary’s book is an appeal to Australia’s parochial, insular and protectionist past, when mining booms really did cause boom-bust cycles because the Australian economy lacked its current openness and flexibility. </p>
<p>We can be thankful those days are behind us, but it is mystery why a journalist of Cleary’s standing would want to turn back the clock to the failed policies of the past.</p>
<p><strong>EDITOR’S NOTE: *On request of the author, a sentence has been removed from this story following publication.</strong>
</p><p><strong>Stephen Kirchner is sorry for the misunderstanding.</strong></p><img src="https://counter.theconversation.com/content/4376/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Kirchner does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>CORRECTION: Stephen Kirchner’s review of Paul Cleary’s book Too Much Luck said he “wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local”, and that he has…Stephen Kirchner, Senior Lecturer in Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.