Thursday, May 1, 2008

Democratic Wealth Funds?

This morning, I visited the Japan Society in NYC to listen to a talk on sovereign wealth funds with John Green of the Eurasia Group, Edwin Truman of IIE, Ann Wyman of Citigroup, and Japanese politician Kotaro Tamura (pictured left). A lot of interesting ethical issues surround sovereign wealth funds.

Some of the common questions people often ask include: how transparent are the investments made by the funds? Will the investments be made for the purpose of wealth generation or for political purposes? Is investment in strategic industries fair? If governments are undemocratic but have funds, are they investing on behalf of the people, and are those investments being made at the expense of projects that should take place in the home country? This point relates to some very interesting points that Tamura made.

Tamura is a member of the Japanese House of Councilors and of the ruling Liberal Democratic Party (LDP). He is also leading a group that is seeking to establish a sovereign wealth fund for Japan. When people think about governments investing in assets and potentially making decisions on boards, a gut reaction that it is not fair for governments to have this kind of power when they did not have a role in the entrepreneurial generation of wealth. Governments can print money, collect foreign reserves, tax its people, conduct currency interventions, and other activities. I might not think of these things as giving governments the authority to have stakes in a company. But Tamura put it a different way:

If a government is democratically elected and represents its people, it can act on behalf of its people, as Tamura put it. In Japan, an economy with some socialist characteristics (as Tamura admitted), the government could bring about positive corporate change through the investments it makes--at least in theory. Sure, Japanese society often thinks of government to provide the solution to problems and needs. But Tamura's remarks made me think about the relationship between companies and their stakeholders.

If stakeholders are broadly defined as the society in which a company operates, then in a way, the government might indeed have a role to play in pushing for positive change in corporations. It is sometimes said that if everyone owned a little part of the whole economy, then there would be more incentives for shareholders to push companies to act on behalf of society at large. Well, what if a representative government owned part of many companies? Is there a case for democratic wealth funds?

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