Foreign States in Domestic Markets

• Robert Schuman Centre for Advanced Studies

The Political Economy Working Group welcomes Mark Thatcher and Tim Vlandas as they present their new book on sovereign wealth funds and the burgeoning importance of foreign state capital for domestic investment

A key theme in European academic and policy debates has been whether and why the internationalisation of market has greatly reduced the capacity of states to govern their economies. In recent years, there has been a return to interest in the state as a growing ‘statist’ literature has argued that it finds new forms of action in internationalised markets. Indeed, the state has been a central and increasingly visible actor not just regulator but also participant, as state bodies have become international investors. The most prominent have been massive sovereign wealth funds, many from the Middle East or Asia, that have taken stakes worth up to $9 trillion, often encouraged by policy makers in recipient countries. But why would Western governments welcome these sovereign wealth funds into their economies? Do they see them as benign and useful or as economic and national security threats that should be resisted? 

The book argues that national policymakers in recipient countries pursue strategies of ‘internationalised statism’- using overseas state funds to tackle economic problems that they once addressed within national borders, often in surprising ways. Britain has welcomed these overseas sovereign wealth funds with open arms. France and Germany have done so more cautiously and directed their investments. The United States, supposedly the most liberal and open economy, has been more reluctant to attract these funds. The book thus argues that the liberalization and internationalisation of financial markets can empower national policymakers in recipient countries who use overseas state investors as new tools to pursue strategies for governing their economies. Internationalised financial markets offer national policy makers not just constraints but also new opportunities through overseas state capital.

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