Global Capital And National Governments

This book, first published in 2003, examines the degree to which international financial markets affect governments' policy choices.

Published in 1997, this study analyzes the global capital market as one of the most dynamic aspects of the world economy. As more financial markets were created, the security of the structure came under scrutiny. The book examines the crises in its history and how the global structure can be regulated.

Global Capital and National Governments suggests that international financial integration does not mean the end of social democratic welfare policies. Capital market openness allows participants to react swiftly and severely to government policy; but in the developed world, capital market participants consider only a few government policies when making decisions. Governments that conform to capital market pressures in macroeconomic areas remain relatively unconstrained in supply-side and micro-economic policy areas. Therefore, despite financial globalization, cross-national policy divergence among advanced democracies remains likely. Still, in the developing world, the influence of financial markets on government policy autonomy is more pronounced. The risk of default renders market participants willing to consider a range of government policies in investment decisions. This inference, however, must be tempered with awareness that governments retain choice. As evidence for its conclusions, Global Capital and National Governments draws on interviews with fund managers, quantitative analyses, and archival investment banking materials.

The politics of international debt have received increasing attention in recent years. However, discussion of the politics of money has focused on Latin American and 'third' world countries. So far there has been little treatment of the politics of scarce money and of money as a political category in relation to 'advanced' countries. The central theme of the book is the limitations and constraints on state action which arise from the relation between the (nation) state and the global flow of money.

The book examines the rapid growth and dramatic changes in capital flows globally and to emerging markets. In the context of relevant economic theory, it analyses benefits and costs of large and volatile capital flows to developing countries; the latter includes damaging currency crises as the Mexican and East Asian economies. The book makes innovative proposals on how best national governments - and especially - international organisations can avoid such crises.

Kessler shows how political considerations distorted the liberalization process in Mexico, leading to inconsistent and unsustainable patterns of financial policy. Although market reform is promoted in developing countries to improve economic efficiency and stimulate growth, in Mexico financial liberalization provided rent-seeking opportunities for privileged groups and increased the states' ability to finance politically inspired obligations. The research examines four periods: the populist administrations of EcheverrÍa and Lopez Portillo, during which the foundations of modern financial markets were paradoxically laid; the debt-crisis years of de la Madrid, who reversed his party's political strategy by favoring the business class with financial opportunities; the economic transformation undertaken by Carlos Salinas, who mixed genuine reform with destabilizing anti-market measures; and the political watershed of the Zedillo administration, whose unpopular bank rescue gave opposition parties unprecedented power within Mexico's policy making process. Kessler also provides a comparison of financial collapse in two other emerging markets, South Korea and Russia, and examines the political roots of crisis in both countries. He concludes by suggesting how greater attention to questions of power, social organization, and challenges to state authority can help the policy-making community avoid giving well-meaning advice that is unlikely to be implemented in a sustainable way.

There is inherent tension between the increasingly global focus of industry and the continuing national focus of governments. Countries, particularly developing ones, compete to attract investment from global corporations, and they attach performance requirements to tilt the impact of those investments in their favor. This is because the host nations expect investment to raise growth levels, efficiency, and living standards. At the same time, the home countries of such corporations worry that their firms are not accorded fair and reciprocal treatment abroad. These issues have become a source of conflict among nations, one that could escalate considerably if an agreement is not soon reached. Graham's study analyzes the nature and depth of the international investment problem and its potential impact on the world economy and on economic relations among nations. He urges that current rules on foreign direct investment be enlarged and restructured via new international rules and institutional arrangements and offers two alternatives for doing so.

A road map for the future of the world market "Bryan has emerged as an influential voice on regulatory issues. "--The New York Times The world is on the verge of the most sweeping economic changes since the Industrial Revolution. National economies are transforming from government-controlled market systems into an open international marketplace under no one's control. The consequences will be both exhilarating and terrifying. Market Unbound is the first compelling blueprint for adapting to this new global market. According to McKinsey and Company authors Lowell Bryan and Diana Farrell, this revolution will have a profound effect on all sectors of business and finance. The global economic scene has already undergone profound and irreversible changes, but most of the transformation still lies ahead of us. Those who learn to operate under the new system will have the opportunity for tremendous profit. Those who don't face the specter of catastrophic loss. Market Unbound outlines how the global market came into being and why it is so powerful, and why it is so rapidly accelerating the globalization of the world's entire economy. The authors explore the implications of this evolving market force and examine the consequences and the opportunities for governments, investors, corporations, and financial organizations. Market Unbound is a must read for anyone who hopes to thrive or even survive into the 21st century. * Based on extensive research conducted at McKinsey &Co--the world's premiere consulting firm * Case studies and relevant examples illustrate the patterns of market change currently taking place * Reveals how a government's ability to exercise control over its own financial system is being undermined by the global capital market LOWELL BRYAN and DIANA FARRELL (New York, New York) are consultants at McKinsey & Co. He is the author of three previous business books and a leading authority on financial regulatory issues and global capital markets. She led the research efforts underpinning the book's conclusions.