long-term goal. Surprisingly few nations have turned back the clock on financial and capital-account liberalization. As domestic ly sophisticated depth and breadth of their financial instruments, policymakers are ys to live with open capital markets. The lessons from Europe's failed, heavy-handed attempts to regulate international capital flows in the 1970s and 1980s seem to have been increasingly absorbed in the developing world today Even China, long the high-growth poster child for capital-control enthusiasts, now views increased openness to capital markets as a central long-term goal. Its economic leaders understand that it's one thing to become a $1,000 per capita economy, as China is today. But to continue such stellar growth performance-and one day to reach the $20,000 to $40,000 per capita incomes of the industrialized countries-China will eventually require a world-class capital market Even though a continued move toward greater capital mobility is emerging as a global norm, absolute unfettered global capital mobility is not necessarily the best long-term outcome. Temporary controls on capital outflows may be important in dealing with some modern-day financial crises, while various kinds of light-handed taxes on capital inflows may be useful for countries faced with sudden surges of inflows. Chile is the classic example of a country that appears to have successfully used market-friendly taxes on capital inflows, though a debate continues to rage over their effectiveness. One way or another the international community must find ways to temper debt flows and at the same time encourage equity investment and foreign direct investment, such as physical investment in plants and equipment. In industrialized countries, the pain of a 20 percent stock market fall is shared automatically and fairly broadly throughout the economy. But in nations that rely on foreign debt, a sudden change in investor sentiment can breed disaster Nevertheless, financial authorities in developing economies should remain wary of capital controls as an easy solution. Temporary controls can easily become ensconced, as political forces and budget pressures make them hard to remove Invite capital controls for lunch, and they will try to stay for dinner Striking a Global Bargain Should the international community just give global capital mobility and encourage countries to shut their doors? Looking further ahead in the 21st century, does the world really want to adopt greater erhaps the greatest challenge facing industrialized countries in thislong-term goal. Surprisingly few nations have turned back the clock on financial and capital-account liberalization. As domestic economies grow increasingly sophisticated, particularly regarding the depth and breadth of their financial instruments, policymakers are relentlessly seeking ways to live with open capital markets. The lessons from Europe's failed, heavy-handed attempts to regulate international capital flows in the 1970s and 1980s seem to have been increasingly absorbed in the developing world today. Even China, long the high-growth poster child for capital-control enthusiasts, now views increased openness to capital markets as a central long-term goal. Its economic leaders understand that it's one thing to become a $1,000 per capita economy, as China is today. But to continue such stellar growth performance—and one day to reach the $20,000 to $40,000 per capita incomes of the industrialized countries—China will eventually require a world-class capital market. Even though a continued move toward greater capital mobility is emerging as a global norm, absolute unfettered global capital mobility is not necessarily the best long-term outcome. Temporary controls on capital outflows may be important in dealing with some modern-day financial crises, while various kinds of light-handed taxes on capital inflows may be useful for countries faced with sudden surges of inflows. Chile is the classic example of a country that appears to have successfully used market-friendly taxes on capital inflows, though a debate continues to rage over their effectiveness. One way or another, the international community must find ways to temper debt flows and at the same time encourage equity investment and foreign direct investment, such as physical investment in plants and equipment. In industrialized countries, the pain of a 20 percent stock market fall is shared automatically and fairly broadly throughout the economy. But in nations that rely on foreign debt, a sudden change in investor sentiment can breed disaster. Nevertheless, financial authorities in developing economies should remain wary of capital controls as an easy solution. "Temporary" controls can easily become ensconced, as political forces and budget pressures make them hard to remove. Invite capital controls for lunch, and they will try to stay for dinner. Striking a Global Bargain Should the international community just give up on global capital mobility and encourage countries to shut their doors? Looking further ahead in the 21st century, does the world really want to adopt greater financial isolationism? Perhaps the greatest challenge facing industrialized countries in this