The problem with a National Wealth Fund

It is entirely true that Norway has a ginormous National Wealth Fund. It would be fun if we had one too. That we don’t was really about the fact that we’re a much, much, larger country and economy than Norway. So, the flow of revenue from North Sea oil and gas into our economy was, proportionately, very much smaller. Even so there were those who worried - righteously - about the effects upon the exchange rate of all those exports of that oil and gas.

Which is the actual problem a wealth fund is trying to solve. Yes, it’s lovely if there’s some natural resource that the world wants to buy. Mere tricks and happenstances of geography provide and income to those who live above it. But if that amount is “too large” then the foreign exchange rate will rise so much that it will choke off all other domestic economic activity. First by making exports of goods in more competitive marketplaces too expensive, then as the resource gets larger killing even domestic production for domestic consumption in favour of imports.

The solution to this problem of geographic beneficence is that national wealth fund. To avoid what is called “Dutch Disease”. The defining feature of such a national wealth fund it that it is not allowed to touch that domestic economy. Indeed, the funds gained are never even transferred into the national currency.

The whole point of a National Wealth Fund is that it doesn’t invest in the domestic economy. So clamouring for a national wealth fund that does invest domestically is really very much missing the very point of the creation in the first place.

Of course, it’s wholly possible to insist that acshully, government will invest really profitably and so it should do so whatever we call the fund. At which point we ourselves would call for a little more proof, evidence of, the contention.