Guest column, Return of the political economy
Worrying about foreign currency open positions, retail deposits, TurkStat, Turkish politics and the like, a whole weekend passed, and I almost forgot the usual weekly guest column by Taylan Bilgic, which was also published in the Hurriyet Daily News on Friday. Here it is, with my comments right below the column.
[The post-global-crisis, economic environment looks a bit different than market dogma suggests – this is a climate in which the weight of governments in the economy is rising.
This strong trend is easily recognized in the United Nations Conference on Trade and Development, or UNCTAD’s, “World Investment Report 2011,” released earlier this week. In general, the report indicates that there’s quite a long way for foreign investment flows to reach the pre-crisis levels: Flows of global foreign direct investment, or FDI, rose slightly to $1.24 trillion in 2010, but the figure is still 15 percent below the pre-crisis average. According to UNCTAD estimates, the 2007 peak can only be reached in 2013 – if the global economy does not tumble into another recession, that is.
The “state interest” outlook in global investment stems from a host of factors, but “legacy assets and liabilities,” meaning the bailout of private companies by taxpayer money, are key factors. As of April 2011, governments are estimated to hold such assets and liabilities in financial and non-financial firms valued at over $2 trillion.
Most bailouts may have been about saving banks, but the weight of non-financial, state-owned transnational companies, or TNCs, is massive, too. Indeed, the top 10 list of such companies is dominated entirely by Western conglomerates: Enel, Volkswagen, GDF Suez, EDF, Deutsche Telekom, Eni, General Motors and the like... These are giant companies that are wholly or partially owned by Western governments.
The iron grip of governments over the investment climate barely ends here, as the phenomenon of sovereign wealth funds, or SWFs, continues. These are special-purpose investment funds that are owned by governments. According to the UNCTAD report, more than 80 SWFs were identified as of the end of 2009. These commanded an estimated $5.9 trillion in assets. The trend is strengthening: Last year, nearly 20 governments “considered or decided to establish” an SWF, according to UNCTAD.
When a sizeable chunk of the global economy is in the hands of policy makers, two logical paths could follow. Governments may start to “unwind” their weight in the economy, privatizing their interest through various methods. Or, given today’s uncertain economic outlook, they could decide to “hold on” to these assets for the foreseeable future.
The first path would imply a “fire sale,” during which everybody is trying to sell off assets in a buyers market. As prices plummet, serious political problems could be triggered for governments. Just remember that Greece has promised to the EU and the IMF to earn 50 billion euros through privatizations until 2015. Spain, Ireland and Portugal have also set ambitious privatization targets, which include selling stakes in state lottery and airport operators and banks. Turkey is trying to sell its energy assets, while rumors of public offerings of state banks and Turkish Airlines never cease to circulate. When everybody sells, getting a fair price becomes pretty much impossible.
The second path would mean that despite the unprecedented freedom in the global movement of capital, a different era which involves greater political control over economies could be dawning. That would not only have an effect on the economic system – it would mean a profound shift in international politics and diplomacy, too.]
Interesting stuff to which I honestly had not put much thought into. I think the term “fire sales” might be an exaggeration, as apart from Greece, not many others are forced to sell, but it illustrates the dilemma many countries are facing nevertheless.
Anyway, the column has made me think about two things: First, I am wondering if it would be possible to get a list of all the government acquisitions/cash injections of the last few years. 2. I wonder if I could find a total flow of privatization flows, broken down by country, sector and the like. Such databases exist for FDI for sure, but I have never seen one (other than for specific countries) for privatization…
2 Responses to “Guest column, Return of the political economy”
you may have already known this, http://rru.worldbank.org/Privatization/Default.as… is the best one on the privatization around the world.. regards, Fatih
Thanks a lot. It is a really good database, but to follow up on Taylan's point, I would need precisely the privatizations after 2008:(