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The Very Silly Idea Of A UK Sovereign Wealth Fund

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Bad ideas never die they just fester to be revived again. As with financial market crises, the same mistake being made about the time that all the people who remember the last time it was having retired. Because there are some ideas that are just too lovely for people to forget even if the knowledge of their stupidity tends to fade.

So it is with this idea of a sovereign wealth fund. Government invests in companies, those companies grow, government makes a profit. ‘Ow super, eh? Then reality intervenes:

Britain could be poised to launch its first ever sovereign wealth fund under plans being examined by the Government, The Mail on Sunday can reveal.

Officials are understood to be ‘actively considering’ a £25billion taxpayer-backed fund to reboot struggling regional firms in the wake of the coronavirus crisis.

Under the plan, the Government would buy shares in key businesses outside of London as part of Prime Minister Boris Johnson’s agenda to strive to ‘level up’ the entire country after lockdown ends.

Yes, OK, super. It’s being pushed by this bloke who really should know better:

Lord O’Neill told The Mail on Sunday: ‘My feeling is you should never let a crisis go to waste. Why not use this mess to invest in British businesses while also helping manage our debt coming out of this?’ The former Goldman Sachs chief economist is now the vice chair of Osborne’s Northern Powerhouse initiative.

The problem here is that government is entirely shit at working out where to invest money. This has been tried. Many a time, in many different places and it has never worked. For the investments just never are made on the basis of what is a good investment. How can it when it is politics which decides who gets invested in?

Another way to make much the same point. And this being something that someone who was at Goldman Sachs might grasp. We have an entire industry devoted to investing in companies. We might say the 11 or 12% of GDP that is financial services. Or more accurately perhaps the 4% that is The City. That’s quite a lot of the collective brainpower of the country devoted to this problem already.

Do note, that’s not the amount of money being invested, that’s much larger. That’s the portion of economic activity devoted to trying to find the people to invest in then get that greater sum of money to them.

And government’s going to do better than this sector, is it? Better than all the bright people chasing gargantuan pots of filthy lucre manage? Better than the alignment of brains and incentives that we’ve already got? Seriously, some mid-level civil servant whiling away the time until the defined benefit pension is going to do better at spotting a likely one than Goldman Sachs?

Quite, any sovereign wealth fund will invest in the pigs in pokes, not the bright stars of tomorrow. And why would we want to spend the wealth of the nation on doing that?

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1 COMMENT

  1. Dunno.
    Pitt’s sinking fund worked pretty well.
    Though as far as I recall that was simply invested for profit without a thought for anything else. You can bet that any modern equivalent would have to be green, ethical and favouring certain constituencies.

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