With so many governments struggling under the burden of debt, is it time to rethink the way that public wealth is managed? A new book suggests that it is, and proposes that better managed assets could generate annual returns of up to $3000bn.

A big barrier standing in the way of efficient government is that most governments do not know what they owe and do not know what they own. They may know what they earn, but likely or not it is a fraction of what they should be getting. Under these circumstances, it is hardly surprising that a large number of countries – both developed and developing – are staggering along under the burden of unsustainable finances. Cleaning things up and making them more transparent would provide a huge economic boost.

A new book called The Public Wealth of Nations by Dag Detter and Stefan Fölster puts forward some solutions for the ownership of public assets. The authors take issue with the concept that privatising state-owned assets is always the best or only solution to the problem of poor management. They argue that placing them in independent national wealth funds under professional managers is a better outcome. That way the state earns the revenues it should from them.

But let’s step back a bit – to make any progress governments need to get a clear view of their finances. The big cloud on the liability side is public-private partnerships, which make it appear that risks have been transferred to the private sector when ultimately they lie with government. On top of this, are pension and welfare promises that are completely unaccounted for. Independent assessment of these liabilities might provide some of the political ballast for getting to grips with both the assets and revenues.

Tax evasion and avoidance are definitely higher up the agenda in most countries since the financial crisis. But the really important questions of properly taxing multinationals can only be resolved with rock-solid co-operation between governments, of a kind rarely witnessed.

So, that leaves the assets. Since the 1980s, the mantra has been to sell off state-owned enterprises in the belief that governments can never manage them effectively. Some of the results were spectacular but some sectors, such as railways in the UK, struggled to find an effective market model. In any case, Mr Detter and Mr Folster point out that there are many other types of state-owned assets, such as forests, buildings, land – the equivalent, they calculate, to the size of annual global gross domestic product – that could be better utilised.

“If central governments managed their assets better, they could generate annual returns of roughly $3000bn, or more than the world’s yearly investment in infrastructure, including transportation, power, water and telecommunications,” they say in an article in Foreign Affairs magazine. “Every percentage point of improvement on annual global portfolio returns would generate the equivalent of the GDP of Saudi Arabia.”

But, as with every good idea, there are a lot of bad reasons not to implement it. These include the political wish to keep the true state of the public finances from too much scrutiny to the hard facts that there are interest groups benefiting from the assets as they are, and who would not like to see them improved. With such formidable barriers, this is likely to be a very long journey.​

Brian Caplen is the editor of The Banker.

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