REGULATORY COMPETITION AND THE POLITICS OF FINANCIAL MARKET REFORM INBRITAIN AND JAPAN

This article examines the impact that the internationalization of fina nce has had on the regulation of domestic securities markets in Japan and Britain. In particular, it seeks to explain the apparent incompati bility of two distinct trends: deregulation (and state retreat) on the one hand, and increased regulation and state involvement in markets o n the other. Much of the literature about the effects of international ization on domestic policymaking has difficulty explaining these two d istinct regulatory trends. First, there has been no uniform ''competit ion in regulatory laxity.'' Second, the United States does not appear to have exerted hegemonic influence over outcomes. Finally, domestic-l evel explanations which deny the importance of systemic-level influenc es on domestic policy choices are unable to explain the similarity of policy choices undertaken by governments with very different regulator y traditions. I argue instead that regulatory reforms have been undert aken primarily for the benefit of a particular set of private economic actors-mobile consumers of financial services, including both holders of liquid investment capital and large multinational borrowers. Inter nationalization has systematically strengthened their influence over t he policymaking process by making ''exit'' from one political marketpl ace to another a more realistic and more potent bargaining strategy th an the alternative of exercising ''voice.''