Challenges of Sovereign Wealth Funds on Politics & Economy
Amidst a global economic ‘credit crunch,’ world economies are desperately seeking dependable sources of investment into their financial institutions, in an effort to regain liquidity into their markets, enabling lending institutions to continue their day-to-day activities. One source of such income is derived from an emerging investment tool known as a sovereign wealth fund (also known as an SWF). This article will briefly explore the development of SWFs, explain the relevance they play in the U.S. and world economy today, raise national security issues that stem from SWFs, and address recent and developing legislation in response to the growing presence of SWFs in the U.S. economy.
Sovereign wealth funds are government investment funds composed of financial assets such as stocks, bonds, real estate, or other financial instruments that are financed by foreign currency reserves. Some experts have referred to SWFs as oil or natural resource funds, because a majority were created with countries excess budgets from exports of oil and natural gas. Many SWFs have developed because of the rising success of emerging economies, specifically in the Middle East and Asia. In recent years, growing concerns have developed over the stake that these state-owned investment funds have in the private market of the U.S. These concerns are echoed by economists and government officials over the national security of the United States, which may be compromised because of the possibility these government owned investments might be securing a stake in vital economic institutions of the country for political rather than financial gain.
Implications of Sovereign Wealth Funds
Since the recent sub-prime mortgage crisis has stuck at the heart of Wall Street, threatening the collapse of many financial institutions crucial to the economic infrastructure of the United States, SWFs have provided a much needed “cash infusion” into the market. Some of the more prominent investments have been made in Citigroup, Morgan Stanley, and Merril Lynch. One major concern that SWFs pose is the possibility that countries could form an alliance as major shareholders in a US corporation and force the resignation of its corporate officers in an effort to exercise political power. Current estimates of these state owned investments account for nearly $3 trillion globally. Countries across the world have begun to take action in an effort to regulate the unbounded investment of sovereign wealth funds into a significant portion of their financial markets. Some European countries have passed legislation that calls for regulation over SWFs investment into their domestic markets. Accordingly, U.S. government officials are raising awareness about the growing presence of SWFs in the economy. Therefore, it is no surprise that many global economists are calling for legislative reform in the oversight of Sovereign Wealth Funds.
In recent decades, legislation has begun to develop in the Unites States to address the growing concerns presented by SWFs. In 1975 the Committee on Foreign Investment in the United States (CFIUS) was established to examine the national security threats posed by foreign investments into the domestic economy. In 1988, Congress enacted the Exon-Florio Amendment which allows the CFIUS to review any foreign investments deemed a threat to national security. The President may then take any appropriate action with regard to the foreign investment at the recommendation of the CFIUS. Since the enactment of the Exon-Florio Amendment, CFIUS has investigated and ruled on roughly 25 major foreign transactions that implicate a security threat.
However, in the future government scrutiny over these transactions is likely to heighten because of the projected growth of SWFs. Morgan Stanley projects that foreign investments under management of SWFs could reach up to 12 trillion dollars in the United States by the year 2015. It is also predicted that SWFs could exceed the world’s total official reserves as soon as 2011.
Startling predictions like the projected growth of Sovereign Wealth Funds, and recent current events have led to criticism over the inherent weaknesses with current legislation concerning SWFs. For example, in 2006 Dubai Ports World, a state owned company located in the United Arab Emirates negotiated a deal to purchase the management of six major ports in the United States, including New York. Despite intelligence reports raising the possibility of national security risks associated with the management by a foreign government of major ports along the eastern seaboard, CFIUS approved the deal. Public outcry and Congressional pressure eventually prompted Dubai Ports to sell its operations to American International Group (AIG).
Incidents like the Dubai controversy have led to reform in Congress concerning foreign investments, including SWFs. In 2007 Congress passed the Foreign Investment and National Security Act. The Act requires the Executive Branch to make specific inquiries into the effects of commercial transactions that raise national security threats. It also lays out several factors to use when making a decision to take action. In addition to legislative reform, international debate over the controversy of Sovereign Wealth Funds (SWFs) caused the leading SWFs of the world to meet in early September of 2008, where they agreed to draft a voluntary code of conduct. Still, it is important to realize that the world today is a global economy. Accordingly, economists also believe adopting a policy of protectionism that restricts foreign investment opportunities could restrain economic growth in the United States. In addition, the U.S. could steer foreign investments towards other countries, as well as causing retaliatory policies against American’s investing abroad. Thus, the U.S. is placed in a difficult position, sometimes being forced to pit economic concerns against those of national security.
Conclusion
With the emergence of Sovereign Wealth Funds (SWFs), the U.S. is presented with unique challenges that have caused many leading economists and government officials to rethink basic principles of capitalism and free market that have laid the foundation of economic prosperity in this country. Therefore, in an ever-increasing global economy it is important to weigh the risks and benefits of allowing SWFs to have such a large financial stake in the U.S. economy.
[thanks to john legear and ibl journal via cc]
Google Reporting on Which Countries Ask For Data About Users
Citizens have long wondered how often their governments ask online service providers for data about users, and how often governments ask providers to take down content. Today Google took a significant step on this issue, unveiling a site reporting numbers on a country-by-country basis.
It’s important to understand what is and isn’t included in the data on the Google site. First, according to Google, the data excludes child porn, which Google tries to block proactively, worldwide.
Second, the site reports requests made by government, not by private individuals. (Court orders arising from private lawsuits are included, because the court issuing the order is an arm of government.) Because private requests are excluded, the number of removal requests is lower than you might expect — presumably removal requests from governments are much less common than those from private parties such as copyright owners.
Third, Google is reporting the number of requests received, and not the number of users affected. A single request might affect many users; or several requests might focus on a single user. So we can’t use this data to estimate the number of citizens affected in any particular country.
Another caveat is that Google reports the country whose government submitted the request to Google, but this may not always be the government that originated the request. Under Mutual Legal Assistance Treaties, signatory countries agree to pass on law enforcement data requests for other signatories under some circumstances. This might account for some of the United States data requests, for example, if other countries asked the U.S. government to make data requests to Google. We would expect there to be some such proxy requests, but we can’t tell from the reported data how many there were. (It’s not clear whether Google would always be able to distinguish these proxy requests from direct requests.)
With these caveats in mind, let’s look at the numbers. Notably, Brazil tops both the data-requests list and the takedown-requests list. The likely cause is the popularity of Orkut, Google’s social network product, in Brazil. India, where Orkut is also somewhat popular, appears relatively high on the list as well. Social networks often breed disputes about impersonation and defamation, which could lead a government to order release of information about who is using a particular account.
The U.S. ranks second on the data-requests list but is lower on the takedown-requests list. This is consistent with the current U.S. trend toward broader data gathering by law enforcement, along with the relatively strong protection of free speech in the U.S.
Finally, China is a big question mark. According to Google, the Chinese government claims that the relevant data is a state secret, so Google cannot release it. The Chinese government stands conspicuously alone in this respect, choosing to deny its citizens even this basic information about their government’s activities.
There’s a lot more information I’d like to see about government requests. How many citizens are affected? How many requests does Google comply with? What kinds of data do governments seek about Google users? And so on.
Despite its limitations, Google’s site is a valuable step toward transparency about governments’ attempts to observe and control their citizens’ online activities. I hope other companies will follow suit, and that Google will keep pushing on this issue.
[thanks to epheterson and ed felten via cc]
Detroit Sex City: Zoning Out Adult Exotic Dancing Clubs
Detroit has been working hard to revive the city and bring residential growth to the downtown area. Millions of dollars have gone into renovating historic buildings, creating new public transportation, reviving the riverfront and building residential lofts in the Central Business District area. Detroit wants to prove that, “the growing population can support and sustain retail and grocery development,” for its current and future residents. New casinos and stadiums have also enhanced the city’s cultural atmosphere while attracting a wave of young professionals. Issues will arise, however, when the city tries to achieve this vision of a “better Detroit” by imposing ordinances and regulations on businesses that it deems problematic to their ideal. In particular, the city of Detroit has targeted the adult entertainment business as an industry they would like to see zoned out.
Legal Issues for Detroit’s Adult Entertainment Industry
The adult entertainment industry has been hit particularly hard by these new city ordinances and regulations. The Detroit City Council has commenced its efforts to phase these businesses out all-together by changing the zoning ordinance in 1999 to preclude new adult entertainment establishments from being opened in the Central Business District. Local laws allow such modifications to zoning regulations because the city of Detroit does not need to wait for an area to deteriorate before applying a zoning remedy. The city may also rely on sociological experiences of other cities in enacting legislation as long as doing so is not completely unreasonable.
The City Planning Commission deemed this phase-out of adult entertainment businesses reasonable because “the B6 zoning district classification in this area may have made sense in the late 1960s when there were still wholesale and freight operations on the east side of the [Central Business District]. The subsequent development of Greektown and Bricktown, however, has rendered B6 inappropriate.” In addition, all zoning ordinances must bear a substantial relation to the public health, safety, morals or general welfare in order to be valid. The city of Detroit seems to think that it is for the good of the general welfare that this new zoning ordinance be enacted.
Many adult entertainment business owners, including the proprietors of exotic dancing strip clubs Déjà Vu and the Zoo Club, believe that various provisions of this ordinance unfairly prevent them from operating a legitimate business enterprise. They have brought suit against the city of Detroit and asked the court to determine that the adult use provisions of the city’s ordinance are unconstitutional. It is also their view that, “such provisions vest a constitutionally defiant discretionary authority in the hands of the city officials, who have no time constraint imposed upon them to evaluate an application in order to render a decision.” The city of Detroit has dragged this case out over several years in order to avoid having to a make a decision that would violate the adult entertainment business owners’ right to engage in free speech under the First Amendment. The court recently decided that the city’s treatment of the plaintiffs in that matter was unconstitutional because of its failure to make a decision on the plaintiff’s application within a reasonable amount of time. Nevertheless, it went on to hold that the city of Detroit’s ordinances are not unconstitutional on their face and are still applicable to all other adult entertainment business owners in the Central Business District. On appeal, the plaintiffs have asked that the city of Detroit be permanently enjoined from enforcing the adult use provisions of the Detroit Zoning Ordinance and that their operation of adult entertainment businesses be identified as a lawful conforming use for zoning purposes. This case is pending and is sure to impact all of Detroit’s adult entertainment businesses currently conflicting with the city’s adult provisions of the zoning ordinance.
Other American Cities’ Regulations and Zoning Ordinances
Detroit is not the first and likely not the last municipality to employ zoning ordinances to phase-out the adult entertainment businesses. City and county governments around the nation are currently enacting the same types of legislation to bring down established adult erotic entertainment businesses. These legislative bodies normally develop an initial ordinance, update an outdated regulation, or attempt to argue for zoning and licensing restrictions in court to accomplish these shut-downs. They may even try to enact laws that prescribe zoning requirements and land use regulations of areas previously zoned for adult entertainment and give the power to a review board to deny a business for lack of “wholesomeness”. Such tactics clearly evince an effort to legislate morality based upon personal opinions of what is “right”. Cities may enact these types of legislation as long as they have a factual basis for their regulations, and plaintiffs can challenge by demonstrating that the government’s evidence does not support the regulations they are seeking to enact.
Not everyone thinks that the adult entertainment business should be phased-out. Organizations such as the First Amendment Lawyers’ Association, the American Civil Liberties Union, People for the American Way, National Coalition Against Censorship, Coalition for Free Expression, Free Speech Coalition, Thomas Jefferson Center for the Protection of Free Expression and the Association of Performing Arts Presenters are all defenders of exotic dancing in the adult entertainment industry.
Conclusion
The city of Detroit wants to grow, shed its negative image and become a desirable place for relocation. Although the city considers tourists to be very important, its attempts are aimed at stimulating population growth within the downtown business area. The general population seems to feel that the adult entertainment industry is a nuisance to their community and a barrier in the way of a “better Detroit”. For adult entertainment business owners, this means that their rights may be compromised and will be continually diminished by adult entertainment provisions to the zoning regulations. It is uncertain as to whether the city of Detroit has gone too far with their zoning ordinances and regulations, but at this point, the city’s efforts have clearly had an effect on the downtown adult entertainment industry’s ability to run businesses going forward.
[thanks to juggernautco and iblsjournal via cc]
