Tuesday, May 23, 2006

Globalization and Securities Markets

The New York Stock Exchange has offered to acquire the operator of a number of European stock and futures exchanges. National governments are beginning to wring their hands. It will be interesting to watch this attempt at deepening the globalization of capital--that is the creation of a more integrated global market for capital--in the face of the continued temptation for territorially limited states to attempt to extract something like a transaction cost from the movement of capital across borders. The attempt to unify this portion of the market for certain securities reminds us of the great transformation brought by the push toward economic globalization. The territorially based state, once the great protector of the capital and other resources of its citizens, now stands as an ever larger "transaction cost" in the efficient movement of capital across the globe. Like the great lords of medieval Europe, guarding the entrances and exits of the little territories they controlled for the purpose of exacting "tolls" and "fees" on traffic moving across their borders, state regulation of markets tend to inhibit rather than enhance the efficiency of capital markets.

And all of this, of course, in the name of some sort of "greater good" or "benefit" for the inhabitants of the territory with respect to which these regulations are limited. In developing states, the usual rhetoric embraces the ideals of equity in development and the disadvantages of competition for capital in a capital market the global rules of which are already tilted to favor developed states. In developed states, the rhetoric. See my discussion in Ideologies of Globalization and Sovereign Debt: Cuba and the IMF, 24 PENN STATE INT’L. L. REV. 497 (2006).

But what benefit is there in a system in which the accident of borders determines the aggregate of regulations to which capital is subject. While there may be some benefit to local inhabitants from the protections of state regulation, the differences in regulation (usually small) can serve only to benefit those who are able to take advantage of the discrepancies in regulations themselves. Territorial regulation of capital, then, can function in the same way as differences in the value of national currencies. The greatest value of these differences might well accrue to those who know how to take advantage of those differences.

Perhaps one day the world will begin moving to a global currency based on something like a 100 yen=one U.S. dollar=one Euro standard. But to the extent that nations, or influential elements of the economic sector within nations, can continue to make money off of the inefficiencies and transaction cost generating events arising from differences in territorially based values or regulatory regimes in a world increasing tending toward a free movement of capital standard, we will continue to suffer through manipulation of these inefficiencies. We will also continue to see states loudly proclaim their commitment to economic globalization--even to the free movement of capital--and simultaneously attempt to extract or divert value through regulatory barriers.

And this is the easy case.

The regulation of labor, tied so intimately with immigration, migration, human rights, and cultural policies, will be a much harder issue to tackle. For a discussion of some of these issues int he context of the great American debate about "immigration reform" see my blog entry: Irony, Perversity and Misdirection as Immigration Policy: 6,000 Troops and Their Sisyphean Labors.

1 comment:

Anonymous said...

Just killing some in between class time on Digg and I discovered your article . Not usually what I choose to read about, nevertheless it was completely worth my time. Thanks.