Capital Rules: The Construction of Global Finance, by Rawi Abdelal. Cambridge, MA: Harvard University Press. 2007. Hardcover: 0 674 02369 2, $49.95, 304 pages.
In today's economy, international organizations generally encourage the free flow of capital between countries. However, this was not always the case. Immediately after World War II (WWII) tight restrictions on capital became "orthodox," with organizations such as the International Monetary Fund (IMF), the European Community (EC), and the Organization for Economic Cooperation and Development (OECD) promoting capital controls. These recommendations were in stark contrast to the "orthodox" policy of free capital flows prior to WWII, and in stark contrast to the free capital flows of today.
In Capital Rules: The Construction of Global Finance, Harvard Business School professor Rawi Abdelal discusses the historical context of these changes and what prompted them. His book is an intriguing combination of history and sociological commentary. Abdelal introduces the reader to the internal workings of 'three international organizations (the IMF, OECD, and EC--later the European Union [EU]) from World War II to the present.
Capital Rules is an engaging description of the history behind changes in capital flow doctrine. Economics teaches us that free global capital flows have both a positive and a negative side. On one hand, they can drive economic growth in developing countries. On the other hand, they can exacerbate underlying economic problems already present in developing countries. Capital Rules shows how the IMF, OECD, and EU changed their stance on capital movements over time. The book is well-organized--such efficiency of organization is necessary for a book that interweaves so many different trains of thought. The meat of the book consists of three chapters, corresponding to the IMF, OECD, and EU. Each chapter progresses along three trains of thought simultaneously. Each chapter delineates the particular institution's movement from advocating capital controls to advocating free capital flows, makes a sociological critique of the institution's method of enforcing/suggesting policy to its member countries, and argues against the prevailing theory of why capital flow policy changed. Abdelal refutes the scholarly literature's claim that the Treasury and Wall Street promoted free capital flows for their own gain, arguing that French policymakers pushed for the change.