because of the exigencies of the electoral calendar. Echoes can be found, however, across the Atlantic. Influential countries within the European Union – such as Germany and France – remain deeply sceptical about the benefits of financial capitalism, irrespective of the source.26 The more muscular foreign policy adopted by Russia serves to heighten skittishness precisely because of the difficulty in differentiating business and government interests. The suspicions that Russia is prepared to deploy its energy reserves strategically in order to advance political objectives, for example, are reinforced by the revolving door between Gazprom and the Kremlin.27 The interlinked governance and investment principles proposed to alleviate the risk of political imperatives trumping economic ones in the context of an invigorated state capitalism will be explored more fully below. First, however, it is necessary to evaluate the precise nature of the problems allegedly posed by Sovereign Wealth Funds.
II THE REPRICING OF RISK
The risks associated with Sovereign Wealth Funds can be usefully broken into three core areas: the risk of financial contagion; the exercise of soft political power; and national security considerations. Each will be briefly outlined and the cogency of the regulatory approaches suggested by the United States, Europe and Australia evaluated. The final substantive section suggests that continued reliance on current conceptions of what effective corporate governance entails – based on the transformative potential of transparency and accountability – is itself fundamentally flawed.
A The Risk of Financial Contagion
Significant investment banks have secured immediate survival by turning to Sovereign Wealth Funds operating out of the Middle East and East and South East Asia (see table one). The US Federal Reserve and the European Union along with the OECD emphasise the stabilising role of Sovereign Wealth Funds in ameliorating the current crisis.28 The size, scale and degree to which investment strategies used by Sovereign Wealth Funds are disclosed, differ dramatically, however. Variable opacity makes it difficult to gauge whether inappropriate or misguided investment expansion could potentially generate economic distortions. An apparent increase in risk tolerance, for example, may not be politically sustainable. Sharp commodity price fluctuation, large losses arising from misguided investment decisions or further deteriorations in equity markets could test the faith of new market entrants. The
26 The acrimonious debates on the alleged deleterious implications of private equity last year testify to the strength of this ideational tension; see J O’Brien, ‘Charting an Icarian Flightpath: The Implications of the Qantas Deal Collapse’ in J O’Brien (ed), Private Equity, Corporate Governance and the Dynamics of Capital Market Regulation (2007), 295; J Cioffi, ‘Corporate Governance Reform, Regulatory Politics and the Foundations of Finance Capitalism in the United States and Germany‘ (2006) 7 German Law Review 533.
27 A Kramer, ‘As Gazprom’s Chairman Moves Up, So Does Russia’s Most Powerful Company’, International Herald Tribune (Paris), 11 May 2008 (Online Edition); see more generally, A Aslund, ‘Russia Energy and the European Union: Perspective on Gazprom’ (Speech to the European Peoples Party, European Parliament, Brussels, 15 May 2008). See also, however, A Goldthau, ‘Resurgent Russia: Russian Energy Inc’ (2008) <http://ssrn.com/abstract=1137616>.
28 Evidence to House Committee on Financial Services, United States Congress, Washington DC, 5 March 2008 (G Alvarez); Commission of European Communities, above n 21; OECD above n 12; see also M Allen and J Caruana, ‘Sovereign Wealth Funds: A Work Agenda’ (International Monetary Fund, Washington DC, 29 February 2008) 13.