United States: "The Public Wealth Of Nations" Or The Cost Of Opportunity Of The Public Wealth

The current global economic circumstances require governments to seek additional sources of income to meet the growing demand for goods and services and, in short, to meet the needs of a society that is constantly evolving and increasingly demanding.

To achieve this, governments have to manage both the assets and liabilities of each country, and do so in a professional and efficient manner, both from an economic and social point of view. But the reality is that while they focus their attention on the liabilities side, given the constraints on debt and deficit levels, assets are neglected and managed inefficiently in most cases.

Governments have more wealth than they themselves are aware of. They have trillions of dollars in assets, from infrastructure, parks, and buildings to state-owned enterprises. Many of the countries the recent financial crisis has hit hardest own thousands of state-owned enterprises, property titles, and other assets that they have not taken the trouble to value, or manage. In their book The Public Wealth of Nations, (2015), Dag Detter and Stefan Fölster conclude that calculating the value of these assets is complicated given the difficulty of finding information, but they estimate that it may be around 75 trillion dollars. And this value does not take into account the assets in the hands of regional and local governments. To give us an idea, this figure would be equivalent to the annual global GDP, would be higher than the level of global public debt, twice as large as the accumulated savings in pensions, and ten times greater than the assets of the Sovereign Funds.

And yet, of that amount, only 1.5% is managed in a professional manner and without political interference. From 2007 to 2014, the 65 largest state-owned enterprises in Asia would have lost one trillion dollars, which is far more than private firms. According to the Economist (State Capitalism in the Dock, Nov. 22, 2014), state-owned enterprises that rank among the top 500 global companies lost between 33% and 37% of their value at that time while the stock market indexes grew by 5%.

These figures would lead us to draw conclusions against public management rather than focus on how it is carried out. It is not therefore a matter of choosing between public management or private management, but rather of how to establish professional and efficient management.

Detter and Fölster propose the creation of National Wealth Funds, a kind of holding professionally managed and far from the sphere of political influence. In order to consolidate its independence, the entity should be developed on the basis of a corporate governance structure with the highest international standards. Directors and managers are fully accountable in a public and transparent manner ensuring the creation of value and the optimization of the portfolio performance.

An example would be the state-owned holding Temasek (Singapore) which was set up in 1974 to manage government assets in strategic industries, and whose profitability since then has been around 17% annually.

The consolidation of all public assets under the same vehicle, following market practices, would allow the government to establish better time and value strategies for the management, restructuring, and sale of deficit assets. It would improve synergies and economies of scale, both in capacities as in business and financing, among other advantages (https://publications.iadb.org/handle/11319/7652) .

The benefits of better management are undeniable. The improvement in the yield of these assets would free up funds to invest in critical sectors and would reduce sovereign debt and taxes. According to the authors of the book, if central governments increase the profitability of their assets by around 3.5%, additional annual yields of 2.7 trillion dollars would be generated, that is to say, more than the annual global investment in infrastructure including transportation, energy, water, and telecommunications. If the increase in profitability were 2%, the additional income would be 1.5 trillion dollars annually, a sum equal to the total global expenditure on research and development. In the United States, for example, a 1% improvement in the management of public assets would be equivalent to 4% of all taxes collected.

Perhaps the propositions of Detter and Fölster are difficult to carry out completely given the political implications they have, but they undoubtedly uncover a need and an opportunity that is at least worth considering. Under the current circumstances, and without neglecting the debt issues, governments would do well to attend to and improve the management of their public commercial assets given the benefits that it could bring. It is therefore necessary that in their management responsibilities, governments take into account the entire balance of the country and adopt measures in both the urgent and the important matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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