– Globalization, thy name is Wall Street bailout. There is no better demonstration of the new global financial order than the cavalcade of “sovereign wealth fund” white knights riding to the rescue of the world’s name-brand investment banks all winter long. On Tuesday, Citigroup and Merrill Lynch both announced huge additional sales of stock to foreign buyers. Some observers are alarmed, fearing a parade of boogeymen out to do the West harm under cover of their aid drops. But they should take heart — the new players will be hard-pressed to do more damage than the old.

Here’s a partial tally so far:

  • Citigroup: $7.5 billion from Abu Dhabi Investment Authority and $6.88 billion from Government Investment Corp. of Singapore.
  • Morgan Stanley: $5 billion from China Investment Corp.
  • Merrill-Lynch: $5 billion from Singapore’s Temasek Holdings, $6.5 from Kuwait Investment Authority, $2 billion from Korean Investment Corp.
  • Bear Stearns: $1 billion from China Investment Corp.
  • UBS: $10 billion from the Government Investment Corp. of Singapore
  • .

A sovereign wealth fund is defined as an investment fund controlled by a national government. While not exactly new on the world scene, such funds have been proliferating of late, a consequence of the high price of oil and the growing strength of East Asian economies. Sovereign wealth funds are currently believed to control around $2.2 trillion worth of assets, and some predict that number could shoot up to $12 trillion or more in less than a decade. But the numbers hardly tell the whole story. Less than two decades after the collapse of the Soviet Union and the West’s gleeful jig dancing on the grave of communism, state capitalism is suddenly threatening the autonomy of the global “free” market. Wall Street’s elite banks, longtime freedom fighters for deregulation and scorners of all government intervention in the marketplace, are now begging, cup in hand, for aid from a gallery of regimes that includes some of the most authoritarian and undemocratic governments on the planet.

The spectacle is jangling nerves up and down the political spectrum. On the left, a zeitgeist gut check can be discerned in comments tossed out over the weekend by two of the more prominent voices in the political blogosphere: TalkingPointsMemo’s Josh Marshall asked, “Am I right to be unnerved by the fact that as a result of the mortgage crisis big chunks of major U.S.-based financial services companies — Citibank, Merrill Lynch, etc. — are being bought up not by foreign owners of capital but, in effect, by foreign governments?” and Atrios observed that while “it isn’t necessarily problematic to have foreign governments invest in our major financial institutions,” people should “be thinking about all of the potential ramifications. Banks aren’t simply widget makers; they have a rather special role in the economy.”

Representatives of both the left and right are united on worrying about the national security implications of foreign government ownership of chunks (even if non-controlling) of key financial institutions. They can take some comfort, in the U.S., in the 2007 passage of the Foreign Investment and National Security Act, legislation spawned by the Dubai PortsWorld fiasco aimed at precisely this problem. But for some conservative commentators, the clash of civilizations isn’t just about geopolitical control of crucial assets, but raises serious ideological questions that many thought had been decisively settled. Wringing their hands with a flutter bordering on hysterical, they worry that the influx of cash from national governments making decisions for strategic reasons, rather than purely economic, will upset the efficient workings of global markets. In Monday’s Financial Times, Jeffrey Garten, a professor of international trade and finance at the Yale School of Management, is distraught.

Indeed the reality may be that the era of free markets unleashed by Margaret Thatcher and reinforced by Ronald Reagan in the 1980s is fading away. In place of deregulation and privatization are government efforts to reassert control over their economies and to use this to enhance their global influence. It is an ill wind that blows…

In the late 18th century, capitalism was replacing feudalism. In the 20th century, freer markets won the day. Now the world is flirting with another big transformation in the philosophy and rules of global commerce. Unlike the changes of the past, this new trajectory does not represent progress.

Perhaps it would be more accurate to say freer markets lost the day. The root of Wall Street’s woes leads back directly to their own strategic missteps, greed, speculation-run-amok, and lack of appropriate supervision. The brightest minds in finance had exactly what they wanted, a playground where the monitors were looking the other way, and they blew it. When the China Investment Corp. pumps in $5 billion to Morgan Stanley, we are not witnessing the triumph of state capitalism, but rather, the embarrassing, humiliating failure of Reagan-Thatcher style unregulated capitalism. So now the U.S. buys Chinese toys at Wal-Mart, and China uses the resulting cash to buy American banks. Hey, anything’s fair in love and war and free markets.

The magnitude of the disaster, from a free market apologist point of view, can hardly be overestimated. By abjectly failing to compensate or cushion the “losers” from globalization — whether by boosting safety nets, improving healthcare, or investing significant resources in education and training — the Bush administration guaranteed a growing groundswell of political opposition to global trade. And by failing to properly oversee financial markets, it provided an opportunity for foreign governments that may not share “American” values to become significant players in the heart of the global financial system. Talk about your legacies! The Bush administration not only may have crippled the Republican Party for a generation, but it also might have broken the free market! Whoops!

In November, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on sovereign wealth funds. The prepared statements of the panelists who testified as witnesses are available at the Committee’s Web site, and they make for interesting reading. Two of the panelists made the case for allowing foreign government investment. Their most compelling argument was that including countries such as China as “stakeholders” in the key cogs of the global financial system makes them less likely to take action that would destabilize the U.S. economy. Although the so-called nuclear option in which China sells off its huge holdings of U.S. Treasuries as part of a trade war or worse was never very likely, such rash action becomes even less so the more China is directly invested in the U.S. The more interconnected we are, the more we’re all in this together.

And we should at least consider the possibility that governments acting in their nationalist interest might be more prudent in how they invest their money in global markets, in the long run, than traders looking to make a quick killing on derivatives bets. As David H. McCormick, undersecretary of international affairs at the Treasury Department, observed at the hearing, sovereign wealth funds are not fly-by-night day traders.

Sovereign wealth funds have the potential to promote financial stability. They are, in principle, long term, stable investors that provide significant capital to the system. They are typically not highly leveraged and cannot be forced by capital requirements or investor withdrawals to liquidate positions rapidly. Sovereign wealth funds, as public sector entities, should have an interest in and a responsibility for financial market stability.

If only we could say the same for the government of the United States!

Other panelists took a more nationalist approach, portraying China in particular as a latter-day mercantilist empire, intent on manipulating its currency and using its foreign reserves to succeed at the expense of the United States. All the panelists bemoaned the lack of “transparency” in sovereign wealth funds and called for the establishment of a global “best practices” standard for how they should conduct business. Why can’t everybody be more like Norway?

The concrete result of the hearing, so far, appears to be a request by the committee that the Government Accounting Office conduct a review of sovereign wealth funds to determine just how much these “opaque” funds control in cash and where they have invested it.

Now comes the latest rash of infusions. The political heat will only rise. The temptation, especially in an election year, to demonize the outsiders crashing Wall Street’s party will be irresistible. But let’s take a deep breath before we get too heated up about foreign governments influencing the strategic decisions of Citigroup and Merrill Lynch and Morgan Stanley. Could they really manage to wreak more havoc than what the home-grown bumblers in charge of those institutions have already caused?

The Launch of The Lancet’s Series on Maternal and Child Undernutrition – today The Lancet’s Editor Dr Richard Horton and a team of international experts launch this series, and the text of Dr Horton’s comment which opens the Series can be found below.

Maternal and Child Undernutrition: An Urgent Opportunity

Nutrition is a desperately neglected aspect of maternal, newborn, and child health. The reasons for this neglect are understandable but not justifiable. When one considers specific actions to improve maternal and child survival, one is drawn to particular interventions-vaccination, oral rehydration therapy, and the treatment of infection and haemorrhage. In recent years, this portfolio of responses has broadened to embrace the health system-human resources, financing, and stewardship. Somehow, nutrition has slipped through the gap.

And yet we know that nutrition is a major risk factor for disease *. What public-health experts and policymakers have not done is to gather the evi-dence about the importance of maternal and child nutrition, catalogue the long-term effects of under-nutrition on development and health, identify proven interventions to reduce undernutrition, and call for national and international action to improve nutri-tion for mothers and children. The five-part Series on maternal and child undernutrition , launched this week by The Lancet, aims to fill this gap in global public health and policy action.

The key messages of the Series, which has been written by an independent team of public-health scientists led by Robert Black, Zulfiqar Bhutta, Jennifer Bryce, Saul Morris, and Cesar Victora, are critically important for all those concerned with the health and wellbeing of women and children. Under-nutrition is the largely preventable cause of over a third-3.5 million-of all child deaths. Stunting, severe wasting, and intrauterine growth restriction are among the most important problems. There is a golden interval for intervention: from pregnancy to 2 years of age. After age 2 years, undernutrition will have caused irreversible damage for future development towards adulthood.

Incredibly, four-fifths of undernourished children live in just 20 countries across four region-Africa, Asia, western Pacific, and the middle East. These are the priority nations for action. In terms of under-5 mortality rates, the most immediate needs are for Afghanistan, Democratic Republic of Congo, Nigeria, Ethiopia, Uganda, Tanzania, Madagascar, Kenya, Yemen, and Burma. In order of population size, and excluding the countries with highest mortality rates, the ranking is different: India, Indonesia, Pakistan, Bangladesh, Vietnam, Philippines, Egypt, South Africa, Sudan, and Nepal.

As this Series shows so clearly, there are proven effective interventions to reduce stunting and micro-nutrient deficiencies. According to strict criteria around admissible evidence, breastfeeding counselling, vitamin A supplementation, and zinc fortification have the greatest benefits. Attention to maternal nutrition through adequate dietary intake in pregnancy and supplementation with iron, folic acid, and possibly other micronutrients and calcium are likely to provide value. But these interventions need additional programmatic experience about how to achieve full coverage.
There is no magic technological bullet to solve the problem of undernutrition. Long-term investments in the role of women as full and equal citizens-through education, economic, social, and political empowerment-will be the only way to deliver sustainable improvements in maternal and child nutrition, and in the health of women and children more generally.

The compelling logic of this scientific evidence is that governments need national plans to scale-up nutrition interventions, systems to monitor and evaluate those plans, and laws and policies to enhance the rights and status of women and children. Although complex and fraught with political disagreement, none of these solutions are separable from global treaties and negotiations over trade, agriculture, and poverty reduction. This latest Lancet Series concludes, not surprisingly perhaps, that the international nutrition system is broken. Leadership is absent, resources are too few, capacity is fragile, and emergency response systems are fragmentary. New governance arrange-ments are urgently needed. An agency, donor, or political leader needs to step up to this challenge. There is a fabulous opportunity right now for someone to do so. But who?

Richard Horton
The Lancet, London NW1 7BY, UK