Saturday, November 10, 2007

 

Free-Market Objective of the Day

Wikipedia broadly defines "sovereign wealth funds" (SWFs) as "entities that can manage the national savings for the purposes of investment." The United States doesn't have one because there are no national savings. The State of Alaska, however, does. But most of these investment funds are owned by countries such as China and the oil-producing states—countries that have more money than they know what to do with.

In a study [PDF] that attempts to rank the funds I came upon this—

It could reasonably be argued that the objectives of a SWF should be merely to implement its investment strategy and maximize financial returns subject to whatever risk management constraints that have been established. In this case, its “ethical guidelines” would involve ignoring ethical considerations.... —Edwin M. Truman, Senior Fellow for the Peterson Institute for International Economics, writing in "A Scoreboard for Sovereign Wealth Funds"

This is a wonderful formulation! "Ethical guidelines" would involve ignoring ethical considerations. In the study, any fund that perfectly followed this principle received a "plus 1," though all the SWFs were found to be "ethically challenged" to some extent—which is to say that all SWFs were seen to have implicit restrictions on where they might invest.

This, of course, is standard Capitalist Business 101 wherein it is taught that the fiduciary responsibility of the corporate board and executives is to maximize the financial returns for the stockholders (which in privately held companies may consist only of themselves). And may the rest of the world be damned! It is a principle that even the Mafia has been known to abandon.

We all know what the reaction would be if an equivalent principle of ethical neutrality were promulgated for engineering within the fields of, say, biology, psychology and sociology. The Religious Right and the secular Left would find common cause overnight. And what is nuclear arms control if not an effort to bring humanitarian considerations into nuclear engineering?

Yet for economics, which is both a quasi-science of little predictive ability and a field of (implicit) social engineering based on dubious knowledge and even more dubious theories, the public allows a priesthood robed in grey-flannel suits not only to promulgate this principle but to wreak utter havoc in its service.

Well, let's just look at it as an "economic" question: What is the benefit of convincing the public to accept this principle and whom does it benefit?

Related post
A note on understanding elites (9/3/07)

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