Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance

Abstract

Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds; governments have been using these special purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter global capitalism’s transformative forces. Drawing on institutional theory and economic geography, the paper conceptualizes the impetus behind SWFs’ existence, and concludes that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.

Keywords: Sovereign Wealth Funds, Globalization, Varieties of Capitalism, Institutions, Economic Geography, Capitalism

JEL Classification: G23, G24, L12