States and the Reemergence of Global Finance: From Bretton Woods to the 1990s

In This Review

States and the Reemergence of Global Finance: From Bretton Woods to the 1990s

By Eric Helleiner
Cornell University Press, 1994
244 pp. $29.95
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This book, written by a young Canadian political scientist, reviews changes in both attitudes and public policy toward international movements of capital since World War II. Its central thesis is that government policy as well as the oft-cited advances in communications technology played a critical role in the remarkable globalization of financial markets since the late 1950s.

The book recounts the gradual shift from controls on international movement of private capital -- which had proved so disruptive in the early 1920s and again in the 1930s -- to the 1990s, when the prevailing attitude is acceptance of a fully liberal flow of capital between the rich countries (and increasingly to and between developing countries as well, a trend that gets too little treatment). The book provides useful historical background for the many participants in this activity who may be interested in knowing how we got where we are today.

The book is not without its weaknesses. While the political side of the story is well told, the technological and competitive sides are underplayed. The Carter administration rejected capital controls in 1979, not so much because of the growing importance of neoliberal ideas, as the author suggests, but because of the practical infeasibility of using them without a full panoply of exchange controls, which have been politically unacceptable (as well as undesirable for trade) except in wartime.

Policymakers also recognized that technology makes the locus of financial transactions geographically footloose: Switzerland, Luxembourg, Singapore, and Bermuda thrive by offering alternatives to the financial regulations of other countries. The demands on international cooperation to carry out a system of capital controls would be formidable; the issue would have to be elevated to a top priority in U.S. foreign policy, and even then might not succeed.

The author explains and interprets what he sees as the divergence between international capital movements (virtually free) and foreign trade (still restricted). But this view is myopic. It is true that foreign trade is not free of restrictions, for reasons that are well explained. But the book ignores the tremendous liberalization of trade that has occurred over the past 40 years, and is likely to continue with the European single market, NAFTA, and the Uruguay Round. In truth, there has been much more parallelism than divergence.

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