OPINION:
President Biden and former President Donald Trump don’t agree about much. Still, both are intrigued by the idea of a U.S. sovereign wealth fund similar to those of Norway, Saudi Arabia and China.
Sovereign wealth funds, or SWFs, generally make long-term investments to bank revenue generated by developing nonrenewable petroleum and mineral resources. Still, those may also be funded by national budgets and official foreign exchange reserves accumulated through trade surpluses.
Norway has the largest fund, valued at over $1 trillion, and invests substantially in equities and fixed income instruments. In the first half of this year, it earned $138 billion.
SWFs are big players in private ventures that are too large, long-term or risky to be easily pursued by private firms but have potentially big payoffs or offer foreign policy clout.
Discussions in the Biden White House mention emerging technologies with high entry barriers such as shipbuilding (alternative-fuel ships entail investments in competing technologies and expansive energy new infrastructure), nuclear fusion and quantum cryptology.
The China Investment Corp. has helped fund President Xi Jinping’s Belt and Road Initiative, semiconductors, fintech and artificial intelligence. Its work is similar to that of state-owned enterprises when the latter undertake investments at the behest of Beijing in high-risk, long-horizon ventures in critical materials such as nickel and cobalt or in areas where China is playing catch-up or seeking dominance in leading-edge technologies.
Such public assets have permitted China to finance a network of ports across Asia and Africa with both commercial and military potential, and its investments have enabled Beijing to achieve growing influence at the expense of the United States. Those aid Chinese businesses in electronic vehicles, cellphones and other manufacturing activities in the Global South, where they increasingly challenge Western multinationals for markets.
Twenty-three U.S. states have SWFs. Alaska pays annual dividends to residents, and Texas uses fund income to help finance public schools and universities.
Federal funds authorized by the CHIPS and Science Act and Inflation Reduction Act for semiconductors, electric vehicles and green energy are similar to investments by foreign SWFs. Still, those generally seek some positive return to be self-sustaining.
Grants to establish semiconductor fabrication, where the U.S. suffers a huge production cost disadvantage, and tax incentives for consumers to purchase expensive EVs don’t have that quality. Those are simply subsidies and, in chips, may require endless funding to sustain.
The Department of Energy’s $400 billion Loan Program Office, established by President George W. Bush, helped launch Tesla and the ill-fated Solyndra. It’s currently tasked with supporting innovative energy projects that reduce carbon emissions — for example, three Ford EV battery plants and a Nevada mining and processing project run by the Lithium Americas Corp.
The fund has a loan-loss ratio similar to commercial banks and has generated about $5 billion in interest income.
Mr. Trump targeted the Loan Program Office for extinction as president but ultimately used it to finance nuclear reactors in Georgia. If he were elected again, conservatives are advocating scrapping the fund or shifting its focus more toward fossil fuels such as methanol.
There’s the rub. For a sovereign wealth fund to effectively foster long-term, higher-risk projects, it must have consistent focus across administrations and not be jerked back and forth as the Oval Office changes party control.
Norway’s fund works because it’s a small, homogeneous society, and my recent travels there revealed a high level of consensus about public purposes.
Autocratic governments and monarchies such as China and Saudi Arabia don’t suffer frequent shifts in economic ideology and guiding policy purposes.
An SWF could work in areas where the country is united — for example, developing supply chain assets for critical minerals needed for EV batteries and infrastructure in Africa, Asia and elsewhere to counter China’s growing presence — but only if managed by an independent body.
With a large U.S. budget, trade deficits and federal royalties from natural resource development already built into budget planning, the investment pool would have to be funded by issuing more bonds.
That wouldn’t necessarily be inflationary if invested abroad.
Domestic investments would compete for labor and other resources in a labor-scarce U.S. economy, increasing aggregate demand and domestic inflationary pressures. Foreign investment, for example, in South Asia and Africa, where unemployment and resource underutilization are significant, would create few such pressures in labor markets at home or abroad.
If given clear objectives similar to the bipartisan consensus that enabled the CHIPS Act, performance benchmarks similar to those for the Norwegian SWF and management by a nonpartisan commission similar to the U.S. International Trade Commission, where I served as director of economics, it could powerfully further U.S. commercial and foreign policy interests.
The president appoints the six Trade Commission commissioners for nine-year terms with the advice and consent of the Senate, and no more than three can be from the same political party. That would provide the consistency of purpose needed.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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