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Globalization is clearly a growing influence on financial markets. Pension plans are already moving toward greater exposure to international equities and we can expect this trend to further intensify, particularly as many of the most influential consultants are fervently advocating a global approach.The risks involved with holding a significant proportion of assets in domestic equities are becoming more of a concern.There are also a number of obstacles-such as inadequate disclosure of economic and financial data and poor corporate governancethat we need to overcome to achieve a truly global financial market. Nonetheless, the integration of the global marketplace is a powerful theme for both businesses and investors.
"Let goods be homespun whenever it is reasonably and conveniently (possible; and, above all, let finance be primarily national," wrote John Maynard Keynes in his 1933 essay, "National Self-Sufficiency." We've come a long way since then. Experience has repeatedly shown self-sufficiency to be a sure route to impoverishment. Open economies have grown faster than closed ones and are widely recognized as a precondition for sustainable economic growth. Governments throughout the developed world, and much of the developing regions, have accepted globalization as not only inevitable but also desirable. In particular, they have recognized the crucial role of financial markets in achieving sustainable economic growth. The integration of the world's financial markets has become a powerful theme that is creating new opportunities for businesses and investors worldwide.
History Repeating Itself
Globalization certainly is not a new phenomenon. Over a century ago, the world's economies were highly integrated, on a scale certainly equal to what we see today and arguably even more advanced.
The beginnings of global commerce date back to the 15th and 16th centuries, but it was the industrial revolution that would prove the great "enabler" of globalization. During the late 19th century, the world was highly integrated-goods, capital and people moved freely among countries and continents, and restrictions to trade barely existed. Although there were increasing demands for controls and protective tariffs from as early as the 1870s, it wasn't until the collapse of the world economy in the 1930s that economic liberalism gave way to a spirit of protectionism. Between the mid-1930s and late 1940s, tariffs and capital controls abounded and central...