Paulson's resolve

Editorial

No one can doubt the commitment of Hank Paulson, US Treasury secretary, to an open investment policy for the US.

The big question has always been whether the administration can sustain this supportive approach to foreign investment in the face of a hostile Congress that is inclined to embrace protectionism.

The resolve of Mr Paulson and his colleagues is likely to be put to the test soon following yesterday's news that Nasdaq and Borse Dubai had raised their bid for OMX, the Nordic exchange operator. The disclosure that the two companies control 47.6 per cent of OMX suggests the successful completion of a complex deal is close. One result will be the acquisition by Borse Dubai of just under 20 per cent of Nasdaq.

Even though Borse Dubai will limit its voting share in the US exchange to 5 per cent, the planned participation in a US icon by an ambitious government-owned Gulf state entity has rekindled the controversy over sovereign wealth investment. The emergence of state-backed agencies from Asia and the Middle East as large-scale investors in companies in the US and elsewhere was the big financial story of the summer until knocked off the front pages by the subprimeinduced credit squeeze.

It was a story that stirred emotions - and still has the power to do so. That Chuck Schumer, the New York senator, has raised questions about a Dubai stake in Nasdaq is disturbing. Mr Schumer has form. He played a big part in orchestrating Congressional opposition to the 2006 takeover by Dubai Ports World of five US container terminals.

Since that demonstration of protectionism, the US has experienced a crisis in the housing and credit markets with an attendant worsening of economic conditions. With a weak administration and presidential campaigns looming, conditions are ripe for yet more protectionism.

This is a world where Mr Paulson deserves all the support he can get - from the US's industrial trading partners and responsible sovereign wealth investors alike. The former could stiffen US support for Mr Paulson's open investment policy by agreeing common policies and principles for dealing with sovereign wealth investors that abuse their financial power.

Sovereign investors must make clear their good intentions. That means following the example of Norway, which has invested billions of dollars of oil revenues transparently and accountably without distorting markets. The stakes could not be higher. If protectionism revives in the US, the entire world economy will be the loser.