Domestic policy choices, political institutional change, and financial globalization

Active global capital markets existed before the Depression. These markets shrunk to minuscule levels during the Depression and remained that way until 1960. The reawakening of global finance since 1960 constitutes one of the most important transformations in social relations during the twentieth century. Popular explanations of this transformation emphasize systemic pressures external to the state such as technology and economic competition. These "outside-in" explanations are consistent with "open-economy" frameworks, but they neglect or discount the causal role of domestic politics and the activities of states. At most, state policy makers, state policies, or domestic political institutions intermediate such pressures to produce different "faces" of globalization across nations. But, external pressures originate somewhere. I marshal systematic empirical evidence to demonstrate that such exogenous pressures originate endogenously in a few key states. The interaction of public policy choices and private choices in such states spill over to produce the exogenous pressures, which then affect the deliberations of all governments. This refinement emphasizes the interaction of public and private, domestic and international, and context and individual choice. Such interactions led to four shifts that fundamentally transform the international financial environment: (1) capital's increasing international mobility, (2) growing securitization and disintermediation, (3) emergence of intangibles as commodities, and (4) participation by Russia, Eastern Europe, and China in global financial markets.