Here is an extraordinary statistic which had previously passed me by: 1.5 per cent of all the world’s listed shares are owned by Norway’s sovereign wealth fund. Set up in 1990 to absorb surplus revenue from North Sea Oil, its value has since grown to $1 trillion, or $190,000 for every Norwegian inhabitant. That’s one reason why you are unlikely to see Norway’s equivalent to Rishi Sunak heading off to the IMF for an emergency loan in the near future (although I wouldn’t rule out Sunak himself having to do that). The country’s national debt (it does have one) is vastly outweighed by its assets.
All of which all raises the question: why don’t we have a sovereign wealth fund? Perhaps we will soon have a bit of one: this week the government announced Project Birch, aimed at saving companies from collapse, and which, as a last resort, will consider taking an equity stake in failing companies. But why be so reluctant? If we had a sovereign wealth fund, we would be in a rather better position than we are now, with the government facing a budget deficit of over £300 billion. Ever since Mrs Thatcher’s time it has been seen as almost indecent for the government to own assets. Anything of value owned by the state has been expected to be flogged off and the proceeds use to fund current expenditure.
I am all for financial efficiency, but I fail to see the advantage of a public sector which lives hand-to-mouth. I know that national finances work on different dynamics to household finances, but I don’t feel any happier about a UK government which tries to live entirely on its day-to-day revenue than I would feel happy about cashing in my share portfolio, flogging my house and moving into rented accommodation in order to splash the proceeds on a few holidays. Here’s one clue why it might be an idea to have some assets stashed for a rainy day: UK tax revenues in April fell by £25.9 billion compared with April 2019.
But if there ever was a chance to build up a bit of UK sovereign wealth fund, now surely is it. Rather than showering billions on the furlough scheme, handing out grants and loans willy-nilly, why doesn’t the government take equity stakes in some of the companies it is bailing out? There are an awful lot of good UK companies with depressed valuations which need a bit of help through a time of unprecedented economic shock. Invest in them now and in a few years’ time the government could be sitting on healthy profits as well enjoying significant dividend revenue.
There are arguments against governments investing in industry. Not all companies will survive the current problems and if they do fail then their creditors will be ahead of shareholders in the queue to reclaim what assets they can. But then most companies will get through; anyone with a broad and balanced spread of investments shouldn’t be too troubled about the prospect of the odd wipe-out. It is worth asking anyone who does make this point: are you invested entirely in bonds or have they judged that in spite of the risks shares make a better long-term investment?
A more serious objection to a sovereign wealth fund is whether the people managing it would be skewed by political considerations into making poor investments. Previous attempts by government to ‘pick winners’ have often proved a miserable failure and for good reason: it is politically very tempting to prop up bad businesses (think British Leyland) in the cause of solving immediate problems, such as the prospect of large job losses.
Many councils in recent years have made some stunningly bad investments such as tired old shopping centres. You can see why they might want to do this, in the forlorn hope of saving fading town centres, but why on Earth didn’t they invest instead in greenfield sites on which developers are now scooping huge windfalls – on the back of planning decisions by the same councils which have lost buying shopping centres?
If we were to have a sovereign wealth fund it would have to be run pretty ruthlessly and be separated from day-to-day political decisions. It shouldn’t be used to bail out any old business – only those with good prospects of succeeding in future. If we can’t trust a government to make wise investment decisions then we can’t trust it to make good spending decisions either.
Finally, there are some people who would object to a sovereign wealth fund on the grounds that they see it as creeping nationalisation by the back door. But it is nothing of the sort. Nationalisation is when a government forcibly buys out shareholders against their will. Jeremy Corbyn’s policy of snatching 10 per cent of company stock for a workers’ fund would have been nationalisation because it would have meant simply diluting existing shareholders. What we need now, on other hand, is government to inject fresh capital into companies which could do with a bit of help through tough times. Rather than just doling out money, it would do us a favour by investing instead.