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Although the benefits of competition and free trade have dominated political approaches to economic policy for the last thirty years or so, the ideological framework for such ideas dates mostly from the beginning of the nineteenth century. In this essay, I will make the case that political economy first evolved from the turn of the sixteenth and seventeenth centuries as a means of dealing with the problem of overpopulation and lack of agricultural employment by advocating the benefits of market-oriented commercialisation to provide industrial work. This was further expanded as foreign trade and colonisation became seen as means to economic growth and specifically national wealth. Writers were generally strongly oriented towards the nation state as the instrument of government to promote industrial policy, and most, although not all, authors thought that a surplus of industrial exports was the best policy to promote growth. The state which was most successful at implementing such policies was England and then Britain. This essay will focus on both the evolution of writings concerning political economy and government policy in the strongest commercial states of the period from 1600 to 1800, England, France and the United Provinces.

This chapter considers two central problems in our statistical frameworks which impair the ability to use wealth to assess economic sustainability or the impacts of economic downturns. Some increases in wealth may reflect increased economic rents—in particular, land and exploitation rents—and their capitalized value, unrelated to an increase in the productive capacity of the economy. Another major problem in our wealth accounts is the “missing capital” required to explain the marked decrease in economic output, at the time of the recession and in the years following, that cannot be fully accounted for by a decrease in measured inputs. When account is taken of this missing capital, the adverse effects of austerity appear much greater than suggested by the standard national income accounts.

Social scientists have grappled for decades with the key question of whether inequality in control over a society’s resources facilitates or hinders economic growth. While there is a large theoretical and empirical literature on this topic, the question is far from settled.

Distributions of income and wealth remained highly unequal in Britain until the twentieth century. During the feudal period, land was the predominant store of wealth, and landownership was concentrated in the hands of the crown, church, and aristocracy. Wealth was slowly redistributed to the gentry and merchant classes as feudalism gave way to mercantilism and agrarian capitalism, and more rapidly concentrated in the hands of the emergent capitalist class during the Industrial Revolution. It was only after the First World War that the combination of technological change, trade union power, and progressive taxation triggered a Great Levelling in income and wealth distributions. However, since the 1980s globalization and financialization have empowered a neoliberal Counter-Revolution, causing inequalities to widen once more.

Foundations face a cluster of charges to do with their wealth and income. One charge concerns the source of the wealth with which the foundation was initially created—how the money was made and what harm, if any, was done in the process? A related but different charge concerns the effects of foundation formation on the tax base; do foundations erode the tax base in such a way as to neutralise any good they may do? Yet another charge is that the bulk of foundation money is not applied to public benefit and, worse, actually contributes to the problems foundations claim to want to solve.

Previous chapters have described various countries’ attempts to reform governance of public assets or even implement national wealth funds. In this chapter, we summarize the lessons one can draw from these attempts, and the way forward.

Most of this book is concerned with institutions that countries devise to govern public wealth. In this chapter, however, we will examine more closely how a national wealth fund might act vis-a-vis the public companies it governs in order to increase yield.

Historically, countries have managed their public assets in a fragmented way depending on the nature of the assets or their history. Typically, railways, telecommunications, and other similar assets were controlled through, for example, the ministry of transportation communication, and electricity assets through the ministry of energy and so on. This structure was natural in a centrally planned economy and a market economy when the regulation of a sector and the ownership of the state monopoly assets in the same sector was integrated under the same line ministry.

The single largest owner of wealth in nearly every country is not a private company or an individual like Bill Gates, Carlos Slim, or Warren Bufet. The largest owner of wealth is all of us collectively — you and your fellow taxpayers. And we all have our own personal wealth manager, who we usually call “the government.” As far as we can calculate, governments own a larger stock of assets than all very wealthy individuals put together, and even more than all pension funds, or all private equity funds.

In the previous two chapters, we learned that the economic wealth of a nation comprises three distinct assets: manufactured, or reproducible, capital, such as roads, buildings, machinery and factories; human capital, such as the skills, education and health embodied in the workforce; and natural capital, including land, forests, fossil fuels and minerals and ecosystems that provide valuable goods and services. However, the total or national wealth of an economy also includes the accumulation of sizable financial assets, such as monetary metals and currency, bank accounts, government bonds, corporate bonds and stocks, mutual funds, insurance policies, pension funds, trade credit, and foreign-owned assets (see Figure 1.1).

Previous chapters looked at the detrimental effects that extensive public commercial assets can have on governance, GDP growth, and democracy. Yet public wealth comprises much more than state-owned companies. In fact, SOEs and financial institutions constitute the smallest part of the government portfolio, be it at the central government level or the regional and local level. The largest segment of public commercial assets is real estate: property and land with an economic value that often does not appear on any balance sheet.

In fact, in the economic literature, a remarkable consensus exists concerning the importance of financial market development in reducing adverse effects of economic and monetary shocks related to exchange rate changes in the presence of net balance sheet effects (cf. Levy-Yeyati, 2006; Aghion et al., 2009). The literature unambiguously highlights the importance of well-developed financial markets, in particular the development of local currency-denominated financial instruments, as highly relevant to mitigate the aforementioned adverse effects on net wealth and monetary policy constraints. [T]he development and active use of a fixed-rate local currency market for funding government and corporate financing needs is probably the single most important step an LDC [less developed country] can take in reducing its sensitivity to external shocks. (Pettis, 2001: 168)

In this interview, Dirk Junge (pictured left ) and Alex Scott (pictured right) discuss the evolution of their respective familyowned multifamily offices.

In this chapter it is not necessary to distinguish the points of view in which wealth is regarded as the object of consumption and as an agent of production; we are concerned with the growth of wealth simply, and we have no need to emphasize its uses as capital.

Religious fundamentalists often succeed in bringing their own religion into disrepute. That is because of a peculiar habit they have developed: They cannot afford so much time as to read a single chapter in any one book of the whole bible. [Erasmus (1509) p.140]

All governments take the development and promotion of businesses as one of their key responsibilities, but in China the degree to which government and business are intertwined is perhaps the highest among all nations. The introduction of the market and related institutions has hardly weakened the functions of China’s authoritarian government agencies. On the contrary, except for a few years of ideological confusion in the 1980s, governments at all levels have become even more powerful than they were before the economic reforms.1 Not only have they adopted policies to encourage the growth of private businesses but have also directly engaged in the entrepreneurial process. Setting up more and bigger businesses is their business because (1) their political performance is assessed based on the number and the size of local businesses, (2) local governments run their own businesses, such as hotels and trading corporations, and (3) private businesses generate a larger and larger proportion of local revenues and consequently the officials’ personal wellbeing heavily relies on the businesses (housing, bonuses, car, and so on).

The budget of the European Union (EU)1 is small yet controversial. For the period of 2007–13, during seven full years, it amounted to € 821 billion (in the prices of 2004), equivalent to 1 per cent of the collective national wealth or gross national income (GNI) of the EU’s 27 member states. Article 311 of the Treaty on the Functioning of the European Union (TFEU) establishes a maximum ceiling that cannot rise above 1.24 per cent of GNI. This is agreed unanimously by the governments. Moreover, the EU budget must always be in balance. To put these amounts in perspective, the average level of public spending by European governments is equivalent to 45 per cent of gross domestic product (GDP), or more during a recession. Spending by the EU is therefore equivalent to approximately 2 per cent of public spending, with 98 per cent taking place at national, regional or local levels.

The land has always been a controversial issue in British politics. From the radical ‘Diggers’ who occupied the land during the English Civil War, through the Chartists’ ‘back to the land’ enthusiasms and Land Plan, and on to Liberal land reforms in Ireland, Scotland and Wales, the multiple divides between landowners, tenants and the landless have remained one of the key dividing lines in British society.1 But the acute twentieth-century debate over government’s role in English land reform might be said to date from David Lloyd George’s time as Chancellor between 1908 and 1914. His ‘People’s Budgets’ of 1909 and 1910 enacted a land tax that amounted to 20 per cent of the land’s increase in value, though agricultural land was exempted. Another, much smaller, charge imposed a tax on ‘unimproved’ land that was being hoarded.2 The yield would be low — perhaps £500,000 in all, at a time when the budget deficit ran at £15.8m — but the symbolism was unmistakable. For the first time, all land would be surveyed by the government, allowing the state to tap this source of national wealth in future: Lloyd George had deliberately raised the standard of what one biographer has called ‘class warfare’.3

Much political capital has gone into the principle of budget reform in the past and in the present, but this has often floundered not on account of support for continuity but on account of division between the governments of EU member states. At the time of writing, the countries of the EU face the most serious economic crisis since the 1930s and yet the EU’s budget in terms of payments is fixed at no more than 1 per cent of collective national wealth. One solution that seems politically impossible would be for a massive federaltype expansion of the budget in order to provide compensation for economic shocks. Only in part, this may be possible via the semiformal mechanisms explored by Charles Blankart and Gerrit Koester in Chapter 5 although this could occur only outside the principal architecture of the EU system. Indeed, Ackrill and Kay (2006) provide an interesting account of how reform of the EU budget has occurred not through changing existing policies or procedures but by adding yet another layer of institutions on top of all the old ones. On the other hand, partial solutions confined to that 1 per cent of payments could involve investment in new policies at the expense of pre-existing policies, which has happened in the past.

Japan evolved as a new developing country after World War II. Japan was a defeated country in this world war, and 30 percent of its productive equipment had been destroyed in the war. The people had lost the national objective that Japan had followed since the Meiji Restoration in 1868: catching-up with occidental countries by emphasizing national wealth and national strength. However, they rapidly restored this national objective, but, this time, adopted the Peace Constitution, which forbids having armies.

Increasing numbers of nations are facing a new challenge in managing significant accumulations of national wealth. The amount of external reserves accumulated by many countries exceeds that which even conservative central bank managers deem necessary to effect desired monetary and foreign exchange policies. According to an IMF survey in April 2008, sovereign wealth funds are projected to grow from $2–3 trillion in assets today to over $6 trillion in 2013. There is an increasing consensus that the appropriate investment policy for such excess assets, which are commonly regarded as having the luxury of a longer-term investment focus, is one that is less conservative than the traditional strategies for central bank reserves. The emphasis has shifted from a singular focus on safety and liquidity toward the achievement of higher levels of return, albeit by accepting higher levels of short-term risk. In fact, leading sovereign fund managers and central banks have already made commitments to an expanded range of asset classes. The expansion of investment latitude includes maturity extensions along the sovereign yield curves that form the core of traditional central bank liquidity portfolios, as well as investments in fixed income sectors such as corporate bonds and mortgage-backed securities, and even asset classes such as public and private equities, real estate, and hedge funds. Most recently, in light of the credit turmoil impacting financial institutions, a number of sovereign wealth funds have made direct investments in troubled institutions and have purchased commercial real estate overseas.

From an African perspective globalisation is not a new phenomenon. It started with the slave trade. After the days of the transatlantic human trafficking various subsequent more or less direct and brutal forms of exploitation characterised the relationships of Africans with the rest of the world. These were then modified by means of formal decolonisation processes. The ‘winds of change’ — as the then British prime minister Harold Macmillan dubbed the rapid transfer from direct colonial rule to political sovereignty under local African governments from the late 1950s — created sovereign states. Their societies, however, remain to a large extent characterised by the structural legacy of an externally on-ented economic system, the beneficiaries of which continue to be based mostly outside the countries, with only limited participation of — all too often parasitic — local elites, who exploit political control over national wealth for their own gains.

Sovereign wealth funds (SWF)1 have been around for a long time, at least since the 1950s. But their total size worldwide has grown dramatically over the last few years. Buoyed by rising commodity prices (at least until recently), desires to build up reserves for risk management purposes, and large capital inflows, many emerging markets as well as some developed countries have accumulated large SWFs in the last few years. The IMF now estimates that assets of SWFs will rise from $2–3 trillion today to about $6–10 trillion within five years (IMF 2007). Other estimates are that these SWFs can grow to $11–14 trillion by 2012 (see McKinsey et al. (2007); note that oil and many other commodity prices have been very volatile lately, so predictions as to future size are fraught with large uncertainties). At present, China, Kuwait, Norway, Russia, Saudi Arabia, Singapore, and the United Arab Emirates are among the countries that have the largest SWFs.