Sunday, November 22, 2009

Don't Like International Capital Mobility?

Blame French socialists, says Dani Rodrik (in the context of a Project Syndicate column in favor of Brazil's tax on short term capital flows):
It may seem curious that [IMF Managing Director] Strauss-Kahn’s instincts are so off the mark on the matter of capital controls. One might have thought that a socialist, and a French Socialist at that, would be more inclined toward finance skepticism.

But the paradox is more apparent than real. Financial markets in fact owe French Socialists a great debt. Received wisdom holds the United States Treasury and Wall Street responsible for the push to free up global finance. But far more influential may have been the change of heart that took place among French Socialists following the collapse of their experiment in Keynesian reflation in the early 1980’s. When capital flight forced Fran├žois Mitterrand to abort his program in 1983, France’s Socialists performed an abrupt volte-face and embraced financial liberalization on a global scale.

According to Harvard Business School’s Rawi Abdelal, this was the key event that set in motion the developments that would ultimately enshrine freedom of capital movement as a global norm. The first stop was the European Union in the late 1980’s, where two French Socialists – Jacques Delors and Pascal Lamy (the president of the European Commission and his assistant, respectively) – led the way. Then it was the turn of the Organization of Economic Cooperation and Development (OECD). Eventually, the IMF joined the bandwagon under Michel Camdessus, another Frenchmen who had served as Governor of the Bank of France under Mitterrand.

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