During the 1970s and 1980s, the United States began relaxing government oversight of the securities markets, promoting price competition, lowering national barriers, dismantling barriers between individual sectors of the financial industry, encouraging innovation, and easing international capital flows. The United Kingdom and Japan soon adopted similar policies, thereby transforming markets in New York, London, and Tokyo. Yet during this time, the United States' leadership in international finance was seen to be waning. Why did Japan and the United Kingdom follow the United States' lead so completely and quickly?

Most emphasize the interdependence of the world's financial markets to explain this phenomenon. If this were the case, though, one would expect regulation and transaction costs to converge across markets by competitive deregulation. This has not happened. Significantly, the markets have remained overwhelmingly national with only a modest increase in international activity. In an alternate explanation, Andrew Sobel argues that opening up national doors was really a secondary consequence of policy competitions among sectors of the domestic financial services industry. Changes that occurred earlier in the United States served as examples and constrained the range of choices considered by policy makers in other nations. The author shows how information and reputation networks award disproportionate influence to U.S. actors and institutions. Thus U.S. leadership persists.

Andrew C. Sobel is Assistant Professor of Political Science and Resident Fellow at The Center in Political Economy, Washington University in St. Louis and a member of the Hamilton College class of 1975.

Reviews

"Sobel's focus on security markets helps fill a void in the political science literature. . . . [It] deserves a wide audience as much for its treatment of important theoretical questions as for its evidence regarding the politics of securities relation. The significance of this book goes beyond its demonstration that regulatory changes in financial markets were largely driven by domestic forces. In rejecting the typically held outside-in arguments, Sobel challenges facile assumptions and facilitates more careful thinking about the constraints and possibilities for affecting the course of globalization."
--Mershon International Studies Review