James Carville famously quipped that he would like to be reincarnated as the bond market because “it can intimidate everybody.” In The Lexus and the Olive Tree (1999), Thomas Friedman called bond traders an “electronic herd” and compared the embrace of globalization to donning a “golden straitjacket.” This book is a painstaking, thorough, and useful response to such observations. It spans several literatures well. True, much of it follows paths already trod by Duane Swank's Diminished Democracy (2002); the work of Alberto Alesina and Geoffrey Garrett (notably the latter's Partisan Politics in the Global Economy, 1998); regionally focused works such as Leslie Armijo's 1999 edited volume (Financial Globalization and Democracy in Emerging Markets); and, in its historical comparison of the 1990s with an earlier period of globalization, by works of Barry Eichengreen and Albert Fishlow (especially their jointly authored article in Miles Kahler, ed., Capital Flows and Financial Crises, 1998). But Layna Mosley covers all of this in one package that is generally cohesive and often analytically innovative.

After a couple of chapters devoted to literature review and “theory and hypotheses,” the book turns to describing the nature of financial-market influence on government policy. These chapters support the proposition, developed in Chapter 2, that global finance exerts a narrow but strong influence on developed-country government and a broader, stronger, and more volatile influence on government policy in “emerging markets.” In the former, interest-rate premiums paid by governments respond to only a few macroeconomic indicators, principally the inflation rate and the current account balance, since bond markets assume that the borrowers will not default. In the latter, bond markets do not assume this, and look at a wide swath of information to surmise a government's ability and willingness to repay. The basic contrast finds support, first, from interviews with bond traders (an interesting feature of the book) and then, in Chapter 3, from a pooled time-series analysis. Data from emerging markets being less adequate, Chapter 4 fills out the picture of emerging-market finance with analyses of credit ratings, interest-rate spreads, and global “push factors.”

The next two chapters link financial-market influences to domestic politics and policy responses. Chapter 5 focuses almost exclusively on developed countries. It concerns how politics (here, a government's exposure to blame and its security in office) and the legacy of past policy decisions (especially the level and maturity of government debt) affect the likelihood of a government's acceding to financial-market pressure or, alternatively, continuing to pay an interest-rate penalty for its policy preferences. It “tests” these causal links over five case studies. Chapter 6, focused on both developed and developing countries, discusses a variety of domestic policy options that can help governments manage their interaction with global financial markets—from independent central banks to the issuance of indexed debt to capital controls. The major premise of both chapters is that financial globalization, if a straitjacket, is a loose-fitting one: Governments (especially in rich countries) do have meaningful choices.

Before concluding, the book considers the classical gold standard period (1870–1914). The chapter first compares that era to ours, finding that although the gold standard imposed rigid discipline (compared to floating rates today), herd behavior then was less common and governments had fewer social-welfare commitments at stake. Governments today, Mosley concludes, “are at least as influenced by capital markets” as those in that era (p. 302). The chapter then presents another exercise in developing theoretical expectations about relations between merchant (investment) banks and governments, and then “testing” these with reference to materials from several bank archives.

As suggested here, the book's vast scope—it covers many topics treated elsewhere at book length—is both its major strength and the source of a few weaknesses. For example, the chapter on the gold standard feels like an unneeded distraction. It begins by promising to focus on the stimulating question of whether globalization periods sow the seeds of their own demise (though without asking if this was true of the one that ended with World War I). It might then have linked this topic to the rest of the book. But the author then changes the subject, making only a few historical comparisons.

A few minor criticisms. First, Mosley suggests that the link between current-account deficits and interest premiums arises because the former signal high (capital account) demand (p. 84). More likely, I think, is that such deficits create exchange-rate risk, in a way that contemporaneous exchange-rate movements do not (this is also more consistent with her finding on p. 85 that the other “demand-side” variable, the fiscal balance, was significant but weak). Second, the theoretical discussion of information economizing (pp. 35–37) should have sought more clearly to explain, rather than assume, the fact that bond traders classify sovereign borrowers ex ante into “good” and “bad” risks. Third, the choice of fixed versus floating exchange rates probably deserved a full treatment in Chapter 6, rather than being scattered about the book. Finally, the language of hypothesis and testing seems a bit artificial and obtrusive at times.

As might be expected in a work of such ambition, we find interesting questions explored only in passing. Juxtaposing developed and emerging markets allows Mosley to show how global finance affects each differently. But since the main empirical attention falls on the former, key comparisons are left undeveloped. In Chapter 5 the author observes merely that “in emerging markets, international capital market pressures are more likely to override the effects of domestic institutions and ideology” (p. 173). Later, however, she insists that governments in emerging markets do have choices, for example, in how to reform social security or whether to adopt a currency board (pp. 309–10). While she usefully reminds us that much of the “golden straitjacket” is woven by governments themselves when they take on debt, it seems that Mosley does not fully represent her pessimistic observations about finance in developing countries in her overall optimism about government autonomy.

All in all, scholars of globalization should find Global Capital and National Governments a useful book, both for its intelligent analysis and as a convenient guide to a vast literature.