International Regulatory Rivalry in Open Economies, Doha Abdel-Hamid, England: Ashgate, 2003. pp. 303 Humanity has always been struggling over resources, so when the world started to value increasingly diverse forms of capital, countries began to compete among themselves to attract and accumulate capital. With modern technology, countries are now trying to present investors with a pinnacle environment and competitive returns for their investments to acquire more capital, whether Foreign Direct Investment (FDI) or Portfolio Investment (PI). The definition of a pinnacle environment would include but not be limited to investor- friendly laws and regulations ensuring that the taxation, regulatory and legal frameworks are in line with best practice, the utilisation of double taxation treaties, financial incentives to the private or public sector, and unproblematic market entry and exit. International Regulatory Rivalry in Open Economies: The Impact of Deregulation on the US and UK Financial Markets by Doha M Abdel-Hamid presents an insightful case to support this hypothesis that the most important objective for countries is attracting FDI and PI to achieve economic growth. For this work to be published and distributed internationally demonstrates how valuable the thesis is for academic scholars, government officials and the public. The book begins by discussing the history of regulation implementation starting with the Bretton Woods Agreement, which priced all currencies against the dollar rather than the gold standard and adopted restrictive regulations concerning the financial arena. Furthermore, it addresses the laissez faire system introduced by Adam Smith, which frees the economy from government intervention, and finally tackles the evolution of regulatory competition. The writer concentrates on the US and the UK as special cases of regulatory rivalry, explaining in detail their financial and economic history in the 20th century. Before WW I, Great Britain was the most powerful country in the world, and its economy was generally run by market forces. After WW II, the US surpassed Great Britain because of the massive destruction that the war wrought across Europe. With the US possessing most of the world's capital and Europe suffering from major capital shortages, they concluded the Bretton Woods agreement with its rigid regulations on trade and capital flows. Moreover, the US was wary of another major financial crisis and decided to abandon the laissez faire philosophy. As the global order in the wake of the Bretton Woods agreement came to an end, the Eurodollar market emerged, "an 'off-shore', regulation-free environment in which to trade financial assets denominated in foreign currencies, predominantly dollars," presenting a new rival to American and British banks. The emergence of global financial markets and the ease of capital entry and exit, was due both to the willingness of the US to liberalise its economy to try to keep its hegemonic position and to Europe and Japan adopting this liberal approach during their recoveries from WW II so that the US would not divert their share of capital flow. This competition between US and UK regulators was unplanned, with the UK leading the way in liberalising their financial markets. As the US and UK informally inaugurated this liberal financial world, other countries felt compelled to follow suit to avoid being bypassed by the capital inflow. To examine how deregulation was applied, we will summarise what happened in both the US and UK. The pressures on the US to deregulate were firstly due to the competition from the Eurodollar markets on acquiring capital, and secondly because of domestic competition from the National Association of Securities Dealers Association Quotation System (NASDAQ), a privately owned stock exchange. NASDAQ introduced advanced transaction facilities and increased its efficiency and transparency compared to the outdated New York Stock Exchange (NYSE). Finally, Merrill Lynch introduced the Capital Market Account (CMA) in 1977, which enables investors to establish an account to buy and sell stocks up to the limit of the account in the style of credit cards. The CMA offered the investor an interest-bearing account that returned a higher interest rate than banks which were still under an interest rate ceiling regulation. To stimulate the US economy, the Securities and Exchange Commission (SEC) removed the regulation on interest rate ceilings of banks, extending the authority of the Federal Reserve to impose reserve requirements on all institutions that accept deposits in the US. In the UK, it became clear in the mid-1970s that the level of transactions and investment done through the London Stock Exchange (LSE) was unacceptably low. Other indications, such as the hefty brokers' commission, led to the erosion of London's competitiveness. Moreover, the US introduced American Depository Rights (ADRs), which enabled investors to purchase British shares without entering the overpriced LSE in 1983. The Financial Services Authority (FSA), which is the central regulatory body of the UK, reacted by enacting deregulatory laws in the mid- 1980s, paving the way for a wave of mergers. The deregulation led to the abolishment of high commissions and the introduction of technological advances similar to that of NASDAQ. Deregulation certainly has its benefits -- financial transactions are easier, flexible, cheaper and more efficient. However, we cannot ignore the problems that happened after the deregulation of economies, whether fraud within brokerage firms, money laundering or tax evasion. Deregulation alone cannot bear full blame for these problems, though it must be admitted that they have clearly increased during the deregulation process. Developing countries can go through this deregulation process and Egypt itself is now in a position where it is in direct competition over attracting foreign investments. This competition is with other countries in the Arab region like Morocco, Lebanon and the Gulf states, as well as on the global level. Signs of competition are very low taxes and customs, financial incentives and the reduction of bureaucracy. Given fierce competition over limited FDI, the Egyptian government has to exert phenomenal efforts to lure investment. The Ministry of Investment is a "one-stop shop" that should greatly facilitate the investment process, and the ministry should set the standard for rival regulators in the Middle East. By Walid Gamaleddin
