In the vanguard of globalization: The OECD and international capital liberalization

ABSTRACT

A survey of the literature on the political economy of global financial liberalization shows how little has been written on the role of the OECD, and how the Principal-Agent (PA) theory, complemented by Constructivist tools, can be applied helpfully to analyse this process. We show that the OECD's Committee on Capital Movements and Invisible Transactions (CMIT) played an entrepreneurial role in encouraging the liberalization of capital flows. In particular, we argue that the CMIT slipped by acting beyond its core delegation roles and against the preferences of the OECD member states’ governments. This was done by discussing and seeking to expand the list of issue areas on which controls should be lifted to include short-term capital movements and the right of establishment, to adopt an extended understanding of reciprocity, and to eliminate a range of additional discriminatory measures on capital flows. Acting as institutional entrepreneurs, the CMIT members took advantage of the overlap among the networks in which they were engaged to spread their ideas to the member states. The CMIT's work affected the member states’ willingness to make irrevocable, multilateral commitments through a combination of peer pressure and vertical institutional interconnectedness. Through the work of the CMIT, the OECD was an important actor in capital liberalization, in addition to the role played by other international organizations.

KEYWORDS:

• Organisation for Economic Cooperation and Development
• international organizations
• globalization
• capital liberalization
• Principal-Agent Theory
• Constructivism

ACKNOWLEDGEMENTS

Parts of this paper were written when Tal Sadeh was a visiting scholar at the Institut Barcelona d’Estudis Internacionals (IBEI) and at the University of California San Diego (UCSD). Financial support by the EC's Erasmus Mundus programme and The Carnegie Trust for the Universities of Scotland is acknowledged. The authors acknowledge helpful comments on this and earlier drafts from David Andrews, Cornel Ban, Lawrence Broz, John Campbell, Chad Damro, Iain Hardie, Miles Kahler, Robert Ley, Abraham Newman, Jan Nipstad, Christina Schneider, Diane Stone, Kate Weaver, Tom Willett, William Witherell and other participants in the SPE seminar at CGU, the IICAS seminar at the UCSD, and the AGORA workshop at Brown University. Elena Samarsky provided excellent research assistance. The views expressed in this paper are those of the authors and do not necessarily represent the views of those mentioned above.

Notes

1. From 1961 to 1979, the CMIT was named the Committee for Invisible Transactions. In 2004, it was merged with the CIME (Committee on International Investment and Multinational Enterprises) to form the OECD Investment Committee.

2. See Abdelal, 2005; 2007; Kastner and Rector, 2005; Oatley, 1999.

3. See Chavranski (1997).

4. The Japanese often expressed a ministerial rather than a national line. Intra-national ministerial and bureaucratic turf wars sometimes spilled over into the CMIT (Witherell, 2010).

5. The complete absence of OECD Council interference with CMIT work and recommendations was confirmed by three of four interviewees with lengthy experience of working in the CMIT or the Secretariat.

6. We assume that from a political point of view, national preferences were aggregated in the Council according to the member states’ relative power, even if formally, each of them had equal voting power.