In public policy terms, I often think of sovereign wealth funds as mechanisms for reconciling present day political temptations with future government obligations. And, it seems, the venerable development economist Paul Collier agrees:
Professor Collier is picking up on an interesting theme here, namely that SWFs offer governments a useful way to deal with temporal challenges. For example, SWFs can smooth volatile resource revenues over time; they can support sustainable government spending; they can facilitate inter-generational wealth transfers; and they can (if set up correctly) minimize political temptation for malfeasance and misappropriation of state resources. All of these objectives are about disciplining the short-term temptation of politicians with a view to prioritizing the long-term interests of the nation-state.
So, when you think about it, a government that decides to set up a new SWF is making a conscious effort to consider tomorrow’s -- in addition to today’s -- needs. Given the incredible popularity of these funds over the past few years, I think that’s quite encouraging...
