Writing the rules of global finance: France, Europe, and capital liberalization

Why were capital controls orthodox in 1944, but heretical in 1997? The scholarly literature, following the conventional wisdom, focuses on the role of the United States in promoting capital liberalization. Although the United States encouraged capital liberalization bilaterally, US policy makers never embraced multilateral rules that codified the norm of capital mobility. Rather, European policy makers wrote the most important rules in favour of the free movement of capital. Paradoxically, French policy makers in particular played decisive roles. For the debates that mattered most-in the EU, OECD, and IMF-the United States was, respectively, irrelevant, inconsequential and indifferent. Europe did not capitulate to global capital. Rather, French and other European policy makers created today's liberal international financial regime. French and European policy makers have promoted a rule-based, 'managed' globalization of finance, whereas US policy makers have tended to embrace an ad hoc globalization based on the accumulation of bilateral bargains. Once liberal rules were codified in the EU and OECD, they constituted the policy practices of 'European' and 'developed' states, for which capital controls are no longer considered a legitimate policy tool. During the middle of the 1990s, the IMF debated new, universal rules in favour of capital freedom, but the proposal was defeated, primarily by the US Congress, after the financial crises of 1997-98. By then the vast majority of the world's capital flows were already governed by the liberal rules of the EU and OECD.