Jeffrey Chwieroth of the London School of Economics recently sent me a paper he just wrote on SWFs. In it, he offers a really interesting take on the rapid rise of these government funds:
“Much of the literature, even that in international political economy (IPE), assumes that SWF creation is largely a functional response to the accumulation of “excess” revenue and reserves from recent commodity price booms, particularly for oil, and large and protracted current account surpluses, most notably in East Asian economies. I argue otherwise.”
And with good reason. This gap in the literature is what inspired me to write a paper on almost the same topic, albeit from an institutional perspective (see “Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance“).
In his paper, Chwieroth suggests that the rise of SWFs is as much about “fashions” and “fads” as it is about needs or requirements. And, again, I agree with this logic (see here). In short, he argues that many of the newly created SWFs are a function of “contingent emulation“:
“I argue that rise of SWFs has been linked to their diffusion as a socially constructed appropriate institutional form or policy for particular countries to emulate. The decision of many governments to create a SWF have been shaped by a process of contingent emulation in which first this policy was constructed as appropriate for countries with given characteristics, and then when countries took on these characteristics, they followed their peers.”
I don’t know why, but this paper makes me think of Las Vegas deciding to build its own Eiffel Tower for no other reason than the original tower in Paris is quite good at attracting tourists to the city. It’s a similar principle here with the creation of SWFs in certain countries; i.e. “If it worked for them, it should work for us.”
Anyway, this paper is worth reading. While I do have a few issues with some assumptions and interpretations, I think his overall thesis about “contingent emulation” is sound (at least in certain cases). And since this is just a draft paper, he’ll likely tighten it up; it will undoubtedly feature in my reference list in the near future.
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