Book Review: Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance

Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance by Kevin P. Gallagher. Ithaca & London: Cornell University Press, 2015. 248 pp, $29.95 / £19.77 hardcover 978-0-8014-5311-3

Vital impending decisions of key central banks worldwide have risen to the forefront of the attention of policy makers and investors alike in 2015. In the shadow of these potentially imminent changes, relationships between developing markets and advanced industrial economies have similarly gained a new focus. In light of these dynamics, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance offers valuable perspectives. In Gallagher’s book, the co-director of the Global Economic Governance Initiative at Boston University primarily aims to, “examine the extent to which emerging-market and developing countries have become better equipped to govern the global capital flow cycle at both the domestic and global levels.” (p.ix) Putting the study in historic context, his research focuses on a central question: “To what extent has the governance of cross-border financial flows changed in the wake of the global financial crisis of 2008?” (p.3)

This investigation highlights more than just positive recent developments and potential areas for future improvement. In addition, Gallagher’s study also offers a valuable window into many dimensions of the economic interaction between key state players that are less frequently considered. While historical comparisons are brought to bear, the relatively focused scope from approximately 2007 until 2014 in the wake of the financial crisis offers an up-to-date case study. In doing so, Ruling Capital provides the reader with vivid insights into the related shorter-term cyclical factors embedded in recent capital flow trends.

Amongst the exceptionally low federal funds rates consistently enjoyed over the past several years, some market participants have been lulled into a false sense of calm. But as correctly pointed out in the Financial Times on May 17, “Since the global financial crisis, mankind has learnt to live with a third certainty along with death and taxes — monetary loosening …. The common path on which monetary policy makers have strolled, however, is expected to diverge this year. The timing of the partition and the way in which its side effects are managed hold big implications for financial stability and the global recovery.” With this chorus of concerned observers now growing louder, the imminent implications inherent in such predictions help to partially underscore the timeliness of Gallagher’s book and the increased relevance of the trail guides that he provides therein. Amidst other current debates surrounding the U.S.-led Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP), the ramifications of trade policies and prevailing structures have similarly gained a brighter spotlight as well. Each of these structural inputs stand among the essential factors holistically considered in Ruling Capital.

David’s Economic Weapons for Confronting Goliath: Instruments of Countervailing Power

As part of the overarching structure for this book, Gallagher broadly separates state actors into two groups: emerging-market and developing countries (EMDs) and industrialized countries. His associated analysis leads to the definition of ten levers of influence used by the smaller EMD powers in confronting the might of industrialized incumbents. Five of these relate to national level instruments employed via domestic policy and in capital markets, while the other five are found in the arena of global governance organizations. The book’s description of the latter group of five factors offer deep comparative perspectives regarding prevailing institutional frameworks including the WTO, IMF and G20. (pp.15-29)

Taken together, Gallagher’s sophisticated and well thought out agenda introduces a useful mechanism for understanding today’s changing dynamics in the world economy and international relations alike. A rich blend of conceptual ideas and practical reality makes the book a balanced endeavor. In parallel and based on extensive primary source research, he simultaneously considers new theoretical approaches that policy makers have begun to implement in practice. While outlining these recent developments, the book offers a vivid picture of emerging trends and concepts which have only grown more important over time despite the inherent volatility of today’s geopolitical and economic environment. In light of these current dynamics of market stresses, political tensions and economic imperatives, the world seems inevitably destined to continue confronting certain aspects of the same trends described in this book. Notwithstanding the technical nature of some of the mechanisms which Gallagher describes, Ruling Capital is presented in a way that makes it well suited for the layman and expert alike.

While other books may offer an encyclopedic historical account of certain economic developments, the focused methodology of this slim yet pithy volume does not attempt such an endeavor. Nonetheless, the timeliness of these key aspects of the economic interaction between diverse states offers a valuable window into increasingly pivotal global issues and trends. Disagreements regarding security and political matters have recently gained relatively greater attention amidst the growing conflicts in the Middle East and elsewhere worldwide. Nonetheless, the more subtle specifics of these economic policy levers belie their intense implications and inherent stakes, as the recent drama in Greece has similarly helped to illustrate.

Gallagher notes that, “Since the demise of the Bretton Woods system, a system where regulations on cross-border capital flows were a global norm, the world community has lacked a forum for governing global capital flows. In the meantime, cross-border capital flows have increased by orders of magnitude, so much so that international asset positions now outstrip global economic output.” (p.30) Albeit perhaps with less “existential” implications, this description bears close similarity to descriptions of the long-standing nuclear non-proliferation regimes which have also come under increased pressure in recent years. Across the realms of global economics, nuclear security and other world issues, comparable governance challenges have frequently arisen. Despite these similarities, Ruling Capital stands out as an excellent and compelling addition to the global political economy literature.

With the recent era of expansionary monetary policy potentially nearing its final days, the vital significance of the issues that Gallagher considers makes this well-timed book an especially useful and enlightening read.

Carter W. Page is Founder and Managing Partner of Global Energy Capital LLC. He is a Fellow at the Center for National Policy in Washington and an adjunct faculty member at New York University’s Center for Global Affairs.