As our government was pondering the best way to try and revive a little British mortgage bank called Northern Rock, something much bigger was happening in the US. Abu Dhabi has, in effect, rescued the world's largest bank, Citigroup.
We'll come back to Northern Rock in a moment but just think about the significance of this other deal. Abu Dhabi, a country of 1.8 million, has just pumped $7.5bn of cash into Citicorp, giving it an 11 per cent return on its money. Looks like a good deal but why a tiny Middle Eastern sheikdom rather than the global investment community?
The answer is that it had the cash and it had it now. Citigroup was under huge pressure because it needed cash to replenish its balance sheet after the string of sub-prime losses. Its market value has nearly halved in the past year. Abu Dhabi may be tiny but it is home to the world's largest sovereign wealth fund. That is a fund set up by a country that uses its revenues, from oil in this case, to buy assets around the world. There are not very many organisations that can write out a cheque for $7.5bn with no messing – you need the money, here it is, bang, deal done. Abu Dhabi can do it.
Contrast this with all the stuff about Northern Rock. There is a preferred bidder, the Virgin-led consortium, which is putting up £200m of its own money. But the deal is complex and a large part of the money lent to it by the Bank of England, and hence ultimately the British taxpayer, remains at risk.
I happen to think that the Virgin deal does not look too bad for everyone and the team that Sir Richard Branson has pulled together is a good one: these are people who know what they are doing. But it is not a clean deal in the sense that it done and dusted. There will be a continuing liability to the British taxpayer and it may not go through anyway.
Our government could buy the whole thing and nationalise it, and it might come to that in the end. But it is reluctant to do so. There is no sovereign wealth fund here in Britain that could pitch in and say: "Hey, this is a good deal; let's go for it."
Mind you, there is no such fund in the US that could say: "Let's buy that chunk of Citigroup rather than have it go cheap to Abu Dhabi."
So what does this say about the modern world? The first and most obvious point is the paradox that small governments have a power and authority – and you might add courage – that large ones lack. It is not just small ones, for both Russia and China have set up these sovereign funds this year, so the distinction is not one of size but rather one of outlook, self-confidence and perception of their role in the world.
On the one hand, there are the governments of the West that feel constrained because they are answerable to their electorate but who do invest in commercial activities in a random and politicised way. Thus, our own government has invested hugely in nuclear power, something commercial companies have been loath to do. It has invested in the new Channel rail link, which may well turn out to be a financial failure because St Pancras is a less popular station than Waterloo.
So Western governments do carry out commercial activities but they do so usually because the private sector, for whatever reason, won't do the projects in question. They don't go for the best ventures; they go for the ones that would not otherwise happen and which in narrow financial terms, at least, may turn out to be the worst ones.
On the other hand, there are governments that actively invest to make money and don't feel at all abashed to have this as their aim. They may or may not be successful but they do have two substantial potential advantages over their counterparts in developed democracies and indeed over nearly all investors in the West. They can take a very long view; and they don't have to concern themselves about the concerns of their electorates.
To be clear, I am not saying that the Abu Dhabi approach is superior to that, for example, of Her Majesty's Treasury. The longest-established sovereign funds, such at that of Kuwait, have been far-sighted and honourable investors, seeking to act in the interests of both themselves, of course, but also of the host countries in which they invest. It is early days, but I am not sure we can be as confident of, for example, the new funds in Russia.
What is beyond dispute is that there is a new power in the world: countries that have cash. That cash will be deployed for two purposes. One will be to make money. The other will be to reinforce what are perceived as national strategic objectives. The Citicorp deal is in the former category; the massive Chinese investments now going into infrastructure in Africa are in the second. We have to come to terms with this.
The money side first. Western investment banks have certainly recognised what is happening and one of their big new areas of business has been advising these new funds on what to do with their cash. Western governments, by contrast, have no thought-through response.
The International Monetary Fund is trying to draw up some sort of agreement on good practice but I think what will happen is a series of ad hoc deals defining what assets can be bought and what are off limits. But this will get personal. Were Abu Dhabi to offer to buy Northern Rock, it would, I think, find itself greeted warmly. I can think of other less welcome suitors.
Where I think we can learn from these sovereign funds is that part of the duty of any government is to be financially nimble. The outcome of the era of nationalisation was so inept that we lost our confidence in public-sector projects. Here in Britain more recent experience of public sector investment projects has been discouraging and undermined that further.
The Dome was a large burden on the taxpayer, yet has now become the largest public venue in the world, passing even Madison Square Gardens. A bit of courage and the Government would have taken over Northern Rock, sorted it out and sold it at a profit. But if that does happen it will be by default – and without the self-confidence that is so essential. Not easy, but doable.
The strategic side is much harder still. We are, in the West, used to a world where we call the shots. We assume that the Western models – both the market-enterprise model and the official aid/World Bank/IMF models – are the correct and proper ones. For the moment, we can more or less impose them on the rest of the world.
That will not be the case for much longer; indeed, in Africa it is not the case now. An African country wants a road built. It can choose to go to the West, get loans and submit to all the "conditionality" involved. Or it can do a deal on resources and get the Chinese to build it.
So the Abu Dhabi deal is a benign one, but one that gives a powerful signal. Power is shifting to where the savings are located, and that is not here.Reuse content