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Sovereign Wealth Funds Ending United States Protectionism?

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Sovereign Wealth Funds Ending United States Protectionism? Sovereign Wealth Funds ending United States protectionism? Explaining the US acceptance of foreign governments’ investments in US financial institutions at the onset of the subprime mortgage crisis Author: Joop Overkamp Student number: S4483774 Degree: Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master in political science (MSc) Specialization: International Political Economy Supervisor: Dr. T.R. Eimer Faculty: Nijmegen School of Management University: Radboud University, Nijmegen, The Netherlands Date of submission: June 24, 2020 Word count: 21.760 1 Abstract For a long time, the United States of America (US) tried to prevent acquisitions of foreign governments into vital economic sectors. This long-held policy seemed to change during the onset of the subprime mortgage crisis When Sovereign Wealth Funds (SWFs) acted as White knight’s and provided much-needed liquidity for failing US financial institutions. The US government did not intervene in these investments, Which caused politicians to publicly voice their concerns and lengthy congressional hearings. The final governmental response Was to accept investments and enact ‘best practices’ for SWFs and ‘guidelines’ for SWF investment recipient countries at the IMF and OECD level. Which respectively ensured that SWFs do not invest politically, and SWF investment recipient countries do not discriminate betWeen state oWned enterprises or private companies. This research tried to understand this policy decision through the detailed analysis of three policy phases. It finds that neither the Neoclassical Mercantilist nor the Critical Political Economy (CPE) approach can fully explain this decision. Interestingly, a combination betWeen both approaches seems to explain Why the US chooses to proliferate neoliberal policies that do not regulate SWFs directly. It seems that the state has more agency than expected by the CPE approach, but, in contrast to the Neoclassical Mercantilist approach, it has to be acknowledged that the state’s decision-making is influenced by neoliberal structures. Therefore, that might imply that the proliferation of neoliberal supremacy Within international institutions and the government can be explained by the US’s seemingly deliberate decisions. Key words: Sovereign wealth funds, state authority, Mercantilism, New constitutionalism, Structural power, Foreign investment regulations 2 List of tables and figures Table 1: Intervening variable clusters by the degree of systemic clarity and strategic environment Table 2: Summary of analysis chapter 4 Figure 1: Conceptual model 1: Neoclassical Mercantilism Figure 2: Conceptual model 2: Constitutionalizing structural power 3 Table of Contents Abstract.................................................................................................................................. 2 List of tables and figures ......................................................................................................... 3 1. Introduction ........................................................................................................................ 6 1.1 Research problem ...................................................................................................................... 6 1.2. Theoretical framework .............................................................................................................. 8 1.3. Scientific relevance ................................................................................................................. 10 1.4. Societal relevance ................................................................................................................... 10 1.5. Structure of research ............................................................................................................... 11 2. Theoretical Chapter .......................................................................................................... 12 2.1. Neoclassical mercantilism ....................................................................................................... 12 2.1.1. Theoretical underpinnings ...................................................................................................................... 12 2.1.2. Mercantilism ............................................................................................................................................ 13 2.1.3. “Opening” the black box ......................................................................................................................... 15 2.1.4. Adding FPE analysis ................................................................................................................................. 16 2.1.5. Adding intervening variables ................................................................................................................... 18 2.1.6. Summary ................................................................................................................................................. 20 2.2. Constitutionalizing structural power ....................................................................................... 21 2.2.1. Critical Political Economy ........................................................................................................................ 21 2.2.2. Neo-Gramscian approach ........................................................................................................................ 21 2.2.3. New constitutionalism ............................................................................................................................. 22 2.2.4. Bringing in Strange’s integrated analytical framework ........................................................................... 24 2.2.5. Summary ................................................................................................................................................. 27 3. Methodological Chapter ................................................................................................... 28 3.1. Hypotheses and operationalization ......................................................................................... 28 3.1.1. Dependent variable ................................................................................................................................. 28 3.1.2. Mercantilist theory .................................................................................................................................. 28 3.1.3. ‘Constitutionalizing structural power’ theory ......................................................................................... 30 3.2. Epistemological approach ....................................................................................................... 32 3.3. Case design ............................................................................................................................. 34 3.4. Sources and method of inquiry ................................................................................................ 34 3.5. Limitations .............................................................................................................................. 36 4. Case analysis .................................................................................................................... 38 4.1. First Phase: Problem arises .................................................................................................... 38 4.1.1. Legislative history of US foreign investment ........................................................................................... 38 4.1.2. Subprime mortgage crisis ........................................................................................................................ 40 4.1.3. Investments of SWFs ............................................................................................................................... 41 4.1.4. Analysis first phase .................................................................................................................................. 42 4.2. Second phase: Governmental discussions .............................................................................. 45 4 4.2.1. Domestic political discussion ................................................................................................................... 45 4.2.2. International efforts US government ...................................................................................................... 48 4.2.3. Analysis second phase ............................................................................................................................. 50 4.3. Third phase: Policy Response ................................................................................................ 53 4.3.1. Domestic policy output ........................................................................................................................... 53 4.3.2. International policy output ..................................................................................................................... 55 4.3.3. Aftermath ................................................................................................................................................ 56 4.3.4. Analysis third phase ................................................................................................................................. 58 5. Conclusion .......................................................................................................................
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