Sovereign wealth funds (SWFs) have grown rapidly in recent years in both value and number. Despite a great deal of popular debate, very little scholarly attention has focused on the "strategic use" of SWFs by nations as tools to promote national development. Such usage is particularly significant in the context of globalization and financialization, which pose challenges to traditional industrial policy tools used by developing countries to improve their position in the international division of labor. This doctoral dissertation research project will undertake one of the first detailed empirical and theoretical examinations of strategic SWF investment. The doctoral candidate conducting this project will seek to answer the following three questions: (1) How and to what extent are states employing SWFs strategically to achieve national developmental objectives? (2) How are patterns of strategic SWF investment shaped by processes of negotiation and coalition formation involving multiple state and non-state actors based in different countries? (3) What are the policy and theoretical implications of strategic SWF investment for development? The student will conduct case studies of the strategic use of SWFs by Singapore, China, Abu Dhabi, and Dubai using a methodology of "network mapping" in order to analyze the extent and nature of strategic SWF investment originating from these states. In addition, semi-structured interviews will be conducted with a particular focus on the SWF-mediated relationship between Abu Dhabi and Germany. These interviews will facilitate development of a deeper understanding of the political and economic dynamics of strategic SWF investment and its implications for late development. Strategic SWF investment is hypothesized to be an adaptive response by states managing processes of "dependent development" in the context of contemporary globalization, entailing the convergence of emerging network or catalytic forms of statehood with private sector trends towards cross-border "alliance capitalism."
Project results will contribute to a deeper understanding of the dynamics of strategic SWF investment as well as potentials and limitations inherent in strategic SWF investment as a developmental tool. This project thereby will improve general understanding of the diverse forms of institutional and policy adaptation that states in the developing world are undergoing in the context of globalization and the significance of these changes to their abilities to affect successful developmental outcomes. The project also will inform policy debates over which SWF investment strategies are appropriate from the standpoint of host economies. These debates have been associated with a great deal of apprehension in the western world, but have had limited substantive grounding. By helping to provide this grounding, this project will enable citizens and their representatives to make informed decisions regarding whether, and under what conditions, inward investment by foreign SWFs should be welcomed, opposed, or treated with indifference. As a Doctoral Dissertation Research Improvement award, this award also will provide support to enable a promising student to establish a strong independent research career.
Yuko Aoyama PI Daniel Haberly Co-PI This research was aimed at examining the evolving strategies though which states harness financial markets to manage and accelerate national development. With nationally-rooted bank-based systems of development finance under mounting strain due to the pressures of financial globalization, a growing number of states in the developing world have turned towards modes of financial intervention derived from a global private equity investor model. These so-called sovereign wealth funds (SWFs)—a broad category of state owned global institutional investor—have become an increasingly common and influential institutional form, particularly for oil and gas exporters and states in East Asia, and are contributing to a shift in the dynamics of global financial integration towards increasing diversity and multi-polarity. Despite a great deal of popular debate, very little scholarly attention has centered on the ‘strategic use’ of SWFs by states, i.e., as tools to promote national development. This research constituted one of the first examinations of strategic SWF investment. It was aimed at answering the following three questions: 1) How and to what extent are states employing SWFs strategically to achieve national developmental objectives? 2) How are patterns of strategic SWF investment shaped by processes of negotiation and coalition formation involving multiple state and non-state actors based in different countries? 3) What are the policy and theoretical implications of strategic SWF investment for development, in the counties under study, and in general? The research conducted consisted of two phases. In the first phase case studies were developed of four states which preliminary research suggested might be particularly active in the strategic use of SWFs: China, Abu Dhabi, Dubai, and Qatar. Through archival research, a series of network maps were developed to determine the nature and extent of strategic investment by seven funds belonging to these four states, and the role of these investments in their respective national developmental strategies. This research demonstrated that the investments of many of these funds are in fact, to a much greater extent than is openly acknowledged, carefully deployed tools of globally projected industrial policy intervention. An article containing the results of phase one of research; "Strategic Sovereign Wealth Fund Investment and the New Alliance Capitalism: A Network Mapping Investigation," was published in fall 2011 in a special issue of Environment and Planning A dedicated to the global financial crisis. In the second phase, a total of 41 semi-structured interviews of public and private sector key informants were conducted in Germany and the United Arab Emirates between October 2010, and January 2011. The goal of this research was to develop a detailed understanding of both the political dimensions and economic impact of strategic SWF investment, in both SWF-owning states in the developing world, and host states for SWF investment in the developed world. Gulf Arab SWFs have been highly significant actors in German financial markets since the mid-1970s, owning concentrated stakes in a number of major industrial firms. Investment is particularly concentrated in the automotive industry (i.e. Volkswagen, Porsche, and Daimler). Most Gulf Arab SWF direct investments in German firms are openly strategic in nature, i.e. linked to the promotion of state developmental objectives. Strategic SWF investments in German and other developed economy firms are a central component of the efforts by Abu Dhabi and other Gulf Arab states to develop self-sustaining diversified non-petroleum industrial and "knowledge" economies by establishing global partnerships with foreign public and private actors. In general, this investment, and the strategic partnerships which it mediates, are effectively integrated into broader diversification strategies which are both well planned and executed, and in the case of Abu Dhabi have facilitated the rapid growth of new local industries in areas such as plastics, aerospace, and semiconductors. Abu Dhabi and the other Gulf Arab states face significant internal social and political barriers, however, to the fully successful realization of their ambitious economic diversification strategies, most notably their highly entrenched dependence on foreign labor. Rather than being regarded as a threat in Germany, strategically motivated SWF investment by Gulf Arab states (although not necessarily by other governments) is regarded by German government, business and organized labor as an opportunity for German firms to gain preferential market access and other opportunities in the Gulf Arab states and broader MENA region. In addition, many interviewees representing business, government, and organized labor found Gulf Arab SWFs to be more desirable as investors than American and British financial investors, by virtue of their long-term investment horizon, willingness to intervene as "white knights" to stabilize critical distressed companies (e.g. Daimler, Porsche, Volkswagen, Hochtief), and cooperative as opposed to confrontational engagement with portfolio company management. In all, the research suggests that strategic Gulf Arab SWF investment in developed economy firms is mutually beneficial, although internal structural issues may inhibit the full realization of potential benefits in the Gulf Arab states themselves.
