In all the dire talk about public debt, far too little attention is being paid to public assets. Helping to right that balance is a new book, “The Public Wealth of Nations,” by Dag Detter of Whetstone Solutions and Stefan Folster of the Royal Institute of Technology in Stockholm.
Governments across the world have an estimated $75 trillion worth of commercial assets — roughly 50 percent more than the $54 trillion in global public debt — and these assets are typically quite poorly managed, Detter and Folster show. In some cases, governments have actively tried to hide their value, often so that government officials can personally benefit from handing out favors.
Measuring the value of public assets is admittedly challenging. In their calculations, Detter and Folster include only commercial assets, such as bank accounts, pension funds, government-owned corporations and toll-based infrastructure. They exclude national parks, historic buildings and the like. The total value of all public assets is thus actually higher than $75 trillion.
(William Buiter, who is the chief economist at Citi, my employer, properly notes that the division between commercial and noncommercial assets is less clear-cut than it might seem. A national park, for example, may have some commercial value if it contains natural resources and the government allows them to be exploited.)
In general, public assets are not managed well, and the returns from better management would be enormous. A 2-percentage-point increase in the return on public commercial assets would generate an additional $1.5 trillion a year, a sum equal to total global spending on research and development.
Detter and Folster are clearly on to a big idea: Public assets could be better managed if public officials would increase transparency about their value, define clear goals and, as much as possible, insulate asset management from political influences. To do this, Detter and Folster propose that public commercial assets be placed into a national wealth fund, an independent entity that operates at arm’s length from its political masters. An example is Singapore’s government-owned holding company Temasek, incorporated in 1974 to manage the government’s assets in strategic industries. By 2014, Temasek’s portfolio grew to more than $75 billion. Across the globe, more than 20 national wealth funds manage more than $1 trillion in assets.
The U.S. illustrates the potential for this approach, and also its practical difficulties. I know from experience at the Congressional Budget Office and the Office of Management and Budget how difficult it is to change the way federal properties are managed. The government spends more than $20 billion a year operating and maintaining some 300,000 buildings across the country. Many of these are no longer needed, but disposing of them is a complex process: Typically, state and local governments and nonprofits must be offered first dibs at heavily discounted prices. Beyond that, the McKinney-Vento Homeless Assistance Act generally requires that surplus properties be made available to the homeless and that, if they aren’t, Congress receive in writing “the reasons for determining that such need was so meritorious and compelling as to outweigh the needs of the homeless.”
Over the past few years, the U.S. government has made some progress toward better management of its properties, including by reducing its office and warehouse footprint and by publishing, this year, a National Strategy for the Efficient Use of Real Property. Nonetheless, in June, the Government Accountability Office concluded that the “government continues to retain excess and underutilized property, rely on leasing when ownership would be less costly, and utilize unreliable data for its property-related decisionmaking.”
All of which underscores Detter and Folster’s point. Rather than focus entirely on how much debt governments owe, let’s figure out ways to better manage their even-larger assets.
Peter Orszag, a Bloomberg View columnist, was formerly President Obama’s director of the Office of Management and Budget.