One other thing that this illustrations is that using national sovereignty and national security has its limits. If China were thinking about buy mines and mineral rights in the United States, then sure the US government can and in fact should stop that it if doesn’t think that it is in the US national interest. However, it’s really tough for the US government to use US national security interests as an excuse to block in deal in which China buys stakes in Brazil and Australia.
In situations where you are dealing with small impoverished nations, you run into the problem that you have counterparties that aren’t able or willing to make a good deal and the problem of exploitation becomes a problem. In the case of Zambia or Uganda, you really have questions as to whether the government is acting in the Zambian and Ugandan national interest or whether they have the expertise to tell a good deal from a bad one. This definitely is not a problem with Australia, and I don’t think that it is a major problem with Brazil. Both those governments can and should say no if the deals that they are offerred are bad ones.
(Also the problem of insufficient expertise isn’t only a problem in developing countries. The state of Florida and a lot of municipalities has run into huge problems because they didn’t have the expertise needed to run some of their funds.)
Personally, the model I think that CIC should look very closely at is Calpers. However, I think that one thing that has changed in the last three months is that the financial problems on Wall Street have made the government concerned about having too little control over investment decisions.
My own thinking on these issues is very heavily influenced by Von Mises and his ideas on the socialist calculation problem, which is a very good explanation about why central planning doesn’t work for national economies.
Another point is that if CIC turns out to work well, there’s nothing that keeps the US from taking the $2 trillion in the social security trust fund and creating its SWF. I’m not worried too much about CIC “taking over the world.” I’m much more worried about CIC shooting itself.
One other way of thinking about this which tells you how much things have changed in the last few months is that you can think of the holdings of the Federal Reserve as an SWF which is invested in real estate and financial services.
Bernanke has crossed the Rubicon. The old rules are no longer constraints and everyone is busy trying to figure out what the new rules are.