Capital controls versus competition among capital markets

April 6, 2001

Free Market Foundation

All but the most die-hard protectionists agree that capital should be allowed to flow freely across national boundaries, the better to nourish development in poor and advanced countries alike. But some oddball regimes, such as Malaysia’s, continue to claim their economies prosper best behind a wall of capital controls.

The U.S. also maintains some antiquated regulatory structures that may threaten the global supremacy of its equity markets. This has worried Senate Banking Committee chairman Phil Gramm (R-Texas).

So now might be the right time for reforms. Here are some suggestions that are being advanced:

Future regulation might be limited to no more than enforcing contracts and customary rules of doing business.

While it might be reasonable to try to protect the unsophisticated individual investor, the course the U.S. has already taken requiring the disclosure of information to investors of all sorts may be all that is required.

Promote competition among national regulators, but avoid a single capital-market regulator for the world.

To advance the cause of well-regulated global capital markets, allow American and European exchanges to compete for each other’s customers while continuing to be supervised by their own competing regulators.

Source: Global Capital Rules, Okay? Economist, March 3, 2001.

For more on International Competition http://www.ncpa.org/pi/internat/intdex12.html

RSA Comment:
South Africas exchange control regulations continue to have a detrimental effect on foreign investment. Excessive government regulation exacerbates the situation. Failure to follow the successful liberalisation policies adopted by the high growth economies leads to continued low economic growth. A most worrying factor is a lack of concern for foreign opinion that is almost reminiscent of the siege economy attitude adopted by the apartheid government.

Eustace Davie, Director, FMF
(The members and directors of the FMF do not necessarily agree with opinions expressed in these articles).