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³ Three distinct views that have framed much of the subsequent theoretical debate can be found in Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little Brown, 1977)Google Scholar; Katzenstein, Peter, ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrial Countries (Madison: University of Wisconsin Press, 1978)Google Scholar; and Gourevitch, Peter, Politics in Hard Times: Comparative Responses to International Economic Crises (Ithaca, N.Y.: Cornell University Press, 1986).Google Scholar

⁴ Helen Milner has made a compatible argument with regard to trade policy; see Milner, , Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press, 1988).Google Scholar

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⁷ See Conybeare, John, U.S. Foreign Economic Policy and the International Capital Markets: The Case of Capital Export Controls, 1963–74 (New York: Garland, 1988).Google Scholar For relevant back ground, see Cairncross, Alec, Control of Long-Term International Capital Movements (Washington, D.C.: Brookings Institution, 1973)Google Scholar; and Lamfalussy, Alexandre, “Changing Attitudes towards Capital Movements,” in Changing Perceptions of Economic Policy: Essays in Honor of the 70th Birthday of Sir Alec Cairncross (London: Methuen, 1981).Google Scholar

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¹⁰ The Mundell-Fleming conclusion that a government has no control over monetary policy under such conditions depends on the assumption that sterilization does not or cannot occur. Evaluating the effectiveness of sterilization is a complicated matter. See Goldstein, Michael, Have Flexible Exchange Rates Handicapped Monetary Policy? Special Papers on International Economics, no. 14 (Princeton: Princeton University, International Finance Section, 1980), 36–38.Google Scholar

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¹³ Bryant, (fn. 8), 22.Google Scholar

¹⁴ Goodman, John B., Monetary Sovereignty: The Politics of Central Banking in Western Eu rope (Ithaca, N.Y.: Cornell University Press, 1992), 18.Google Scholar

¹⁵ See Yoffie, David B., Beyond Free Trade: Governments, Firms, and Global Competition (Boston: Harvard Business School Press, 1993).Google Scholar

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¹⁸ Hirschman, Albert O., Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge: Harvard University Press, 1970)Google Scholar; for a more recent argument regarding the effects of mobility of investment on public policy, see Reich, Robert, “Who Is Us?” Harvard Business Review 48 (January-February 1990).Google Scholar

¹⁹ In conceptual terms, the burden of capital controls falls most heavily upon fixed factors of production. Thus, labor, presumably one of the intended beneficiaries of expansionary policies that necessitate capital controls, might ultimately pay the heaviest cost.

²⁰ The link between controls on short-and long-term flows depends upon the mobility of savings and investment. For any country, aggregate savings and investment must ultimately be equal. Imposing capital controls has the effect of reducing savings and therefore investment. The extent to which investment declines depends upon the mobility of production. If production is mobile, a drop in savings will lead to a parallel decline in investment. If production is immobile, then companies will pay higher interest rates to attract available savings. Investment will decline, but by a lesser amount. On the mobility of savings and investment, see Feldstein, Martin and Horioka, Charles, “Domestic Savings and International Capital Flows,” Economic Journal 90 (June 1980)Google Scholar; Feldstein, Martin, “Domestic Savings and International Capital Movements in the Long Run and the Short Run,” European Economic Review 21 (1983)Google Scholar; Bayoumi, Tamim, “Savings-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior,” IMF Staff Papers 37 (July 1990)Google Scholar; and IMF staff, “Determinants and Systemic Consequences of International Capital Flows,” IMF Occasional Paper Series 77 (March 1991).Google Scholar

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²² On the structural power of business, see Lindblom, Charles, Politics and Markets: The World's Political and Economic Systems (New York: Basic Books, 1977)Google Scholar; and Stopford, John and Strange, Susan, Rival States, Rival Firms: Competition for World Market Shares (Cambridge: Cambridge University Press, 1991).CrossRefGoogle Scholar

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³¹ We are indebted to Louis Wells for clarification on this point.

³² See Pauly, Louis W., “Regulatory Politics in Japan: The Case of Foreign Banking,” East Asia Papers, no. 45 (Ithaca, N.Y.: Cornell East Asia Program, 1987), 47–61.Google Scholar

³³ Economist, February 2, 1985, p. 69.

³⁴ Julius, (fn. 16), 119.Google Scholar

³⁵ Ibid.

³⁶ Allen, Christopher S., ”Domestic Politics and Private Investment: Financial Regulation in West Germany and the United States,” Research Reports, no. 2 (Washington, D.C.: American Institute for Contemporary German Studies, 1990).Google Scholar

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³⁸ By 1973 reserves had reached U.S. $12 billion. Bank of Japan, Economic Statutics Annual (1984)Google Scholar, Table 135.

³⁹ Horne, James, Japan's Financial Markets (Sydney: George Allen and Unwin, 1985), 145Google Scholar and Appendix 1. For a detailed discussion of the domestic struggle against revaluation, see Angel, Robert C., Expfoining Economic Policy Failure: Japan in the 1969–71 International Monetary Crisis (New York: Columbia University Press, 1991).Google Scholar On the sensitivity of the exchange rate question, see also Randall Henning, C., “Finance, Industry, and External Monetary Policy” (Manuscript, Institute for International Economics, Washington, D.C., September 1991). 40Google Scholar Frances Rosenbluth, McCall, Financial Politics in Contemporary Japan (Ithaca, N.Y.: Cornell University Press, 1989), 55.Google Scholar Note that the pattern repeated itself in 1979.

⁴¹ See Schmiegelow, Michele, “The Reform of Japan's Foreign Exchange and Foreign Trade Control Law: A Case of Qualitative Economic Policy,” in Schmiegelow, , ed., Japan's Response to Crisis and Change in the World Economy (Armonie, N.Y.: M. E. Sharpe, 1986).Google Scholar

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⁴³ Note that insurance against the perceived negative consequences of too-rapid decontrol was provided in various ways, including the retention of “notice” requirements tailored to particular types of transactions, an insistence that capital outflows take place through “designated financial institutions” (two hundred domestic as well as foreign financial institutions resident in Japan), impediments to overseas investments by individuals resident in Japan, and graduated implementation timetables. Such techniques promised simultaneously to deflect foreign criticism and to allow time for domestic institutional adjustments to occur.

⁴⁴ Pauly, Louis W., Opening Financial Markets: Banking Politics on the Pacific Rim (Ithaca, N.Y.: Cornell University Press, 1988)Google Scholar, chap. 4.

⁴⁵ The causal importance of foreign governmental pressure is not easy to gauge. The U.S. government has not been shy about claiming credit for liberalization moves by Japan. For its own reasons, not the least of which is undoubtedly to shift the blame for moves that have not been universally popular at the domestic level, the Japanese government has often been willing to go along with this assessment. Astute observers have argued that liberalization is, in truth, unlikely in the absence of a sufficiently well developed domestic consensus but that foreign pressure can sometimes help nudge that consensus along. See Calder, Kent E., “Japanese Foreign Economic Policy Formation: Explaining the Reactive State,” World Politics 40 (July 1988).Google Scholar On the changing balance between the government and the private sector, see Pempel, T. J., “The Unbundling of Japan, Inc.: Changing Dynamics of Japanese Policy Formation,” Journal of Japanese Studies 13 (Summer 1987)Google Scholar; and Samuels, Richard, The Business of the Japanese State (Ithaca, N.Y.: Cornell University Press, 1987).Google Scholar

⁴⁶ An indication of the underlying trend is provided in a bilateral Japan/U.S. comparison. In 1985 Japanese intermediaries in the United States accounted for assets totaling U.S. $178 billion; by the end of 1989 that figure had increased to $421 billion. In contrast, U.S. intermedianes in Japan accounted for assets of $18.6 billion in 1985 and $18.8 billion in 1989. U.S. Department of the Treasury, National Treatment Study (Washington, D.C.: Department of the Treasury, 1990), 208.Google Scholar

⁴⁷ Note that the overseas bond activity of Japanese companies rose from ¥806.7 billion in 1980 to ¥5.3 trillion in 1988. Tokyo Stock Exchange statistics cited in Jackson, James K., “Foreign Access to Japan's Capital Markets,” in U.S. Congress, Joint Economic Committee, Japan's Economic Challenge (Washington, D.C.: GPO, 1990), 152.Google Scholar

⁴⁸ Rosenbluth, (fn. 40), 156.Google Scholar

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⁵⁰ Note, however, the persistent lag with regard to direct investment inflows, especially those connected with acquisitions of existing assets. See Encarnation, Dennis J. and Mason, Mark, “Neither MITI nor America: The Political Economy of Capital Liberalization in Japan,” International Organization 44 (Winter 1990)Google Scholar; and Graham, Edward and Krugman, Paul, Foreign Direct Investment in the United States, 2d ed. (Washington, D.C.: Institute for International Economics, 1991).Google ScholarPubMed

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⁵⁵ The effects of the Socialist program on capital flows are found in Bauchard, Philippe, La guerre des deux roses (Paris: Grasset, 1986)Google Scholar; Beaud, Michel, Le mirage de la croissance, vol. 1 (Paris: Syros, 1983)Google Scholar; and Hall, Peter, Governing the Economy: The Politics of State Intervention in Britain and France (New York: Oxford University Press, 1986)Google Scholar, chap. 8.

⁵⁶ Cited in Pfister, Thierry, La vie quotidienne à Matignon au temps de l'Union de la Gauche (Paris: Hachette, 1985), 246Google Scholar; see also Peyrelevade, Jean, “Témoignage: fallait-il dévaluer enmai 1981?” Revue politique et parlementaire (June 1986).Google Scholar

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⁶² Interviews with French government officials, Paris, June 1988. See also holtz, Wayne Sand and Zysman, John, “1992: Recasting the European Bargain,” World Politics 42 (October 1989).Google Scholar The government's subsequent assessment of the position of French financial firms is reported by Pierre Achard, “Le marché unique de 1992: perspectives pour les banques, les assurances, et le système financier français” (Report of the Ministries of Economy, Finance, and Privatization, December 1987).

⁶³ Cited in Euromoney, September 1987, 143.

⁶⁴ See Bauchard (fn. 55), chaps. 3, 4.

⁶⁵ Mélitz (fn. 59). See also Oliver, Peter and Bache, Jean-Pierre, “Free Movements of Capital between the Member States: Recent Developments,” Common Market haw Review 26 (1989).Google Scholar

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⁷⁵ In 1985 the archbishop of Brescia was arrested at Milan airport for trying to take $20,000 in Italian currency on a Christmas mission to Africa. Ibid., 376.

⁷⁶ Ibid., 375.

⁷⁷ Ibid.

⁷⁸ On the decline of the power of organized labor in Italy, see Flanagan, Soskice, and Ulman (fn. 67), chap. 9.

⁷⁹ Solomon (fn. 72); and Kirkland, Richard I. Jr, “A New Dose of Capitalism Turns Italy Around,” Fortune, April 14, 1986, p. 98.Google Scholar

⁸⁰ Macleod (fn. 74).

⁸¹ For a prescient argument in this vein, see Cohen, Benjamin J., “Capital Controls and the U.S. Balance of Payments: Comment,” American Economic Review 55 (March 1965).Google Scholar

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⁸⁴ Undertaken by a larger body, the study was released as Group of Ten, International Foreign Exchange Markets: A Report to the Ministers and Governors by the Group of Deputies (n.p., April 1993).

⁸⁵ See Kratochwil, Friedrich V., Rules, Norms, and Decisions (Cambridge: Cambridge University Press, 1989)CrossRefGoogle Scholar, chap. 7; Ruggie, John Gerard, ed., Multilateralism Matters: The Theory and Praxis of an Institutional Form (New York: Columbia University Press, 1992)Google Scholar; and Pauly, Louis W., “The Political Foundations of Multilateral Economic Surveillance,” International Journal 47 (Spring 1992).Google Scholar