We also need to recognize the reality that the biggest reservoirs of capital in the future will be in Asia and in Saudi Arabia, Kuwait and the United Arab Emirates, and we should concede the limited ability of the United States or the EU to influence the shape and character of SWFs, given their size, their growing importance to capital markets and the options they have to invest in their own regions or in other regions, and bypass the United States and Europe if necessary.

Creating international economic policy involves constant trade-off between economics and politics, and, in this case, the SWFs have a good deal of the leverage. Moreover, it is very difficult to control capital flows of any kind without the law of unintended consequences kicking in and creating even bigger problems than the original ones. All things considered, Washington and America would be generally better off working as closely as possible with SWFs rather than making them feel unwelcome. It's not a perfect policy, but it's the least damaging one.

Garten is the Juan Trippe Professor of International Trade and Finance at the Yale School of Management.

© 2008