Financial Nationalization

Haggard and Maxfield's chapter, "The Political Economy of Financial Internationalization in the Developing World" discusses "financial internationalization" - a trend in which developing countries have opened their financial systems in the past decade by liberalizing capital flows and the rules governing. In all the case studies, the countries went through a liberalization of their financial policies in response to a crisis. Haggard and Maxfield state that this is due to international systemic pressures which limit a developing countries agency in choosing their international financial policy. Between a combination of the balance of payments crisis and the effects of increased trade and financial interdependence, actors are almost forced to liberalize their financial policies.

After completing this chapter my first thought went to the United States and our recent foreign policy shifts. It seems like we are doing the exact opposite of what this chapter discussed. If developing countries are going through a trend of "financial internationalization",  I see the United States and  other developed countries are going through a trend of "financial nationalization".

Changes in financial policy are to be expected when there is a change in government. Haggard and Smith pointed out that in each of the case studies changes of policy only occurred following changes of government. Additionally, this change doesn't have to towards liberalization. As pointed out in the Mexico case, during the early 80's Mexico went through a period of nationalization and Haggard and Maxfield say that a "nationalistic response appears to suggest that crises are just as likely to lead to foreign exchange and capital controls as they are to liberalization" (p 229). The recent financial nationalization measures taken by the Trump administration are a clear adverse reaction to the policies of the previous administration.

The global reaction to the new US policies also support Haggard and Maxfield's claim that international systemic pressures are heavily involved in states international financial policy decisions. There is severe international backlash at the "financial nationalization" by the United States and the system is not making this easy (or a smart) policy decision for the U.S.

Historic trends would suggest that the U.S. will eventually revert back towards "financial internationalization" and adopt more liberal financial policies. In the 1980's Mexico went through periods of financial nationalization but, due to new financial crisis, were pulled back toward liberal policies. Let's hope that when the United States does eventually revert back towards financial internationalization, it is not because of a financial crisis that results from this period of financial nationalization.

Sources:

1. Haggard, Stephan and Sylvia Maxfield, "The Political Economy of Financial Internationalization in the Developing World" in Internationalization and Domestic Politics, ed. by Robert Keohane and Helen Milner (Cambridge, 1996).