The Case for Capital Controls

Globalization is a project of class war whose destructive effects have driven many US workers into the Trumpian right. The Left needs a real response to the problems raised by global capital mobility — and that should start with capital controls.

Globalization has not been primarily about increasing “free trade,” but rather facilitating the unrestricted movement of investment across borders. (Spencer Platt / Getty Images)

Globalization is a form of class war. Yet the Left has today failed to offer a coherent strategy for challenging it.

On one level, this is understandable: in the face of a menacing far-right MAGA movement, focusing on the dangers of globalization may seem to risk playing into nationalist sentiments. But the truth is that failing to articulate a distinct vision for contesting the economic restructuring that has destroyed working-class livelihoods and communities in recent decades enables the far right to channel the frustrations of working people into a nationalist and racist politics.

To abandon the critique of globalization is to cede this terrain to the MAGA right. Moreover, doing so amounts to implicitly joining forces with the neoliberal center as a supposed bulwark against far-right authoritarianism — thereby ignoring the direct role of neoliberal policies in fueling the Right’s rise.

The Left has to answer the crude nationalism of “America First” with a more substantive, class-based analysis of the forces that have devastated working- class lives. This immiseration is not the result of “China” or “Mexico” taking advantage of “America” with “bad trade deals” and floods of immigrants enabled by “globalists” (often implied to be Jewish, or Marxist, or otherwise subversive and un-American elements). Rather, all-American capitalists have pushed for, and massively benefitted from, the elimination of barriers to the movement of investment internationally.

This has allowed multinational corporations (MNCs) to offshore production and jobs, slashing labor, tax, and regulatory costs. Meanwhile, workers and states around the world have been placed in competition with each other for investment and employment — driving a “race to the bottom” in which wages have been held down and social and environmental protections rolled back, both at home and abroad.

We need a strategy to fight back against this class project of globalization. This begins with a demand for capital controls, or restrictions on the ability for capital to move across borders. But such a step immediately raises the question of what happens with the capital that stays at home. Capital controls must be seen not as the end, but the beginning of a fight to gain wider public control over investment. Questions of where investment is allocated, when, and why should be matters of democratic decision, not of unaccountable corporate despotism.

What Are Capital Controls?

Rhetoric aside, globalization has not been primarily about increasing “free trade,” but rather facilitating the unrestricted movement of investment across borders. Capital has been tremendously empowered by its ability to “exit”: withdrawing investment at will and relocating it where labor and regulatory costs are lowest. Today, about half of world “trade” actually happens within MNCs, as they move goods and capital internationally — and if one includes the global “value chains” organized by MNCs, this figure jumps to around 70 percent.

The internationalization of production has limited the space for states to enact reforms, deprived workers of bargaining power at the workplace, and decimated working-class communities with plant closures. The despair and rage at the rising inequality, precarity, and misery this has caused is now feeding the right-wing politics of “America First.”

A left strategy for breaking with globalization starts with capital controls. In economic terms, there is no reason why enacting such controls should be impossible. The difficulties in doing so would primarily be political, as they would face staunch opposition from all segments of capital. While some on the Left have suggested that workers can form an alliance with industrial capital to rein in finance, bring “good jobs” back home, and restore the postwar “Golden Age” of capitalism, in fact the global integration of finance has been critical for the ability of industrial firms to move capital around the world. And industrial and financial capital are both massively benefiting from globalization, as reflected in record profits for both.

Challenging globalization will therefore involve a significant confrontation with the domestic power of capital. Implementing capital controls, in turn, is an essential step for further building workers’ power and moving toward broader public control over investment.

Capital controls are regulations restricting outflows or inflows of capital. Such controls come in many shapes and sizes, including limitations on the ability to invest abroad or convert money into different currencies, taxes on moving money across borders, and even outright bans on certain kinds of capital movements. They could be directed at specific sectors, or the economy as a whole; they could aim to prevent short-term capital flows, or to regulate medium- or long-term investment.

While the integration of international finance that has been central to globalization has meant reducing or eliminating such controls, they still operate in different forms in a range of states around the world, primarily in the global periphery. In such cases, they typically aim to promote economic development or limit financial volatility by constraining short-term speculative flows of money.

In the wake of the severe Asian financial crisis of 1997–98, Malaysia introduced capital controls to limit speculation against its currency, the ringgit, and to restrict flows of capital out of the country. Similarly, a range of states implemented capital controls in the aftermath of the 2008 financial meltdown, most of which were intended to be temporary, and all of which served the interests of capital in supporting financial and economic stabilization. China and India have also maintained controls, to varying degrees, to manage the exchange rates of their currencies and regulate foreign investment — with both facing strong pressure from global finance to roll back these measures.

In fact, the United States and other advanced capitalist countries had capital controls in place through the 1970s as part of the so-called Bretton Woods system established after World War II. By allowing states some autonomy from the discipline of global financial flows so that they could enact independent economic policies, Bretton Woods established a stable framework for the integration, consolidation, and legitimation of global capitalism and US empire.

Capital controls were always intended as a temporary step in “the making of global capitalism” by the American state. As global capitalism became more interconnected, the incubator of capital controls eventually became unnecessary and could be discarded. Eliminating controls helped resolve the 1970s profitability crisis, slashing labor costs by opening the vast low-wage workforce of the global periphery to exploitation within streamlined, internationally integrated production chains.

The Left-Wing Case for Capital Controls

For us, capital controls are not about promoting the internationalization of capital, nor addressing short-term economic crises or boosting the competitiveness of national firms. We see them as part of a strategy to limit market dependence, and thereby to help shift relations of class power and extend democratic control over the economy.

Blocking capital’s ability to “exit” would weaken its bargaining power and increase workers’ leverage in the fight for improved wages and working conditions. If corporations can no longer simply invest abroad to avoid addressing the demands of workers here, then they may be forced to make compromises. Moreover, enacting capital controls would also create more room for the expansion of social programs that are so essential to address decades of neoliberal devastation like Medicare for All, improved and expanded public education, and the like. Restricting capital mobility could compel capital to accept reforms that it might not like — and which it has blocked in part with the threat of withdrawing investment.

As James Crotty and Gerald Epstein put it in their classic Socialist Register essay on the subject: “In the absence of the enactment, or at least the credible threat of enactment, of capital controls and trade restraints, what leverage can labour and the citizenry possibly use to force capitalists to even bargain seriously over these issues”?

Social democrats have often pursued “progressive competitiveness” strategies, aiming to sustain social programs and high wage and tax rates without challenging globalization. Rather than loosening market discipline, such strategies actually embrace it — offering subsidies, including upskilling the workforce, in hopes that capital can be enticed to invest at home.

This was apparent, for example, in the championing of globalization and national competitiveness by Tony Blair’s “New Labour” in the UK, under the guise of a forward-looking drive for “modernization.” This orientation has only deepened since the 1990s, as has been painfully evident from the leadership of Gordon Brown to the truly deplorable bootlicking of Keir Starmer. The push to adapt to the supposedly “new realities” of global capitalism has not only characterized “Third Way” social democratic parties in places like Canada and Australia, but has also extended to the strongholds of Finland, Sweden, and Norway. Indeed, even left social democrats like Jeremy Corbyn and Bernie Sanders have shied away from calling for capital controls.

It is now clear that progressive competitiveness has failed to provide an alternative to the neoliberal dynamics of wage restraint, austerity, and worsening living standards for the majority that have fueled the rise of far-right nationalist forces. Coming to terms with the continued impasse of social democratic politics means embracing a more difficult fight for a more radical alternative.

Challenges to Capital Controls

Capital controls are not a panacea. Indeed, the inherent problems involved in trying to “manage” capitalism mean that such controls are inherently unstable. For one thing, as with all reforms that threaten the interests of capital, corporations will strive to evade and undermine limits on their ability to freely circulate investment.

First and foremost, there are substantial challenges to implementing capital controls within a single state, absent a multilateral framework for international coordination. This creates opportunities for capital to subvert controls by, for example, drawing on relatively unregulated offshore dollar markets. Even if firms were barred from holding dollars offshore, they could find other ways to move money internationally.

Limiting capital’s access to the foreign exchange it needs to invest in other countries is therefore critical for the success of capital controls. However, since trade requires buying and selling foreign currencies, companies could over- or underreport trade data so as to acquire and hold foreign exchange. Firms could also evade regulations by setting up shell companies to engage in international transactions.

Other economic tensions may also emerge. To the extent capital controls disrupt global production chains that draw on low-wage labor, for example, the potentially higher costs of producing domestically may be passed on to consumers in the form of higher prices. Critically, however, inflation is in no way problematic if it is simply the result of real wage growth (i.e., wage growth exceeding price hikes) and so just reflects a shift in income distribution. In fact, forcing corporations to make concessions to workers — including higher wages, improved working conditions, and labor and environmental regulations that may impose new costs on capital — is one of the primary objectives of enacting capital controls in the first place.

Corporations would of course ferociously lobby to remove constraints. But the political conflicts engendered by capital controls would go well beyond battles in Congress. They would ripple throughout the state administration, including but by no means limited to whatever agencies are created to implement controls. Officials who see their role as facilitating the smooth functioning of capitalism cannot be expected to automatically implement measures that explicitly aim to challenge capital’s power — let alone a broader plan to take control of investment.

Implementing capital controls, then, will require the development of new state capacities for managing the economy. Whether these are merely oriented around securing market stability and profits or could become foundations for the wider democratization of investment depends on social struggle. As long as control over investment remains in private hands, capital possesses the ultimate trump card: if profits are insufficient, economic conditions unstable, or it is politically threatened, it can simply refuse to invest.

If capital won’t invest, however, the public can. One way to do so would be to create a National Investment Authority, which could extend credit to firms unable to attract private investment — another important step in “taking capital away from capital” and moving toward a kind of socialist economic planning. Given the failure of markets to invest in a green transition, and thus the need for the state to play a leading role in doing so, this can’t happen too soon.

A serious left program for breaking with globalization could resonate with the many people suffering from four decades of neoliberal restructuring — and take the wind out of the sails of the MAGA right. Moreover, unlike the Right, the socialist left can actually offer a meaningful alternative to neoliberalism, and thereby point up the contradictions between Donald Trump’s strident nationalist rhetoric and his failure to bring jobs and investment back to the industrial heartland.

To be sure, this comes with its own risks of stirring nationalist sentiments. Calling for the undoing of globalization may be interpreted as promoting the same kind of xenophobic “America First” politics that is the opposite of the internationalism and cultural openness that ought to be central to socialist politics. It’s therefore imperative that such a politics be wedded to unwavering opposition to all forms of racism, discrimination, and oppression. Organizing a working-class movement means recognizing and standing up for the equal humanity of each and every member of the working class, regardless of race, national origin, gender identification, and the like. The goal of challenging globalization is not to promote the interests of American workers at the expense of others, but to start building an international economic order that empowers workers worldwide.

Whatever the risks of demanding an end to neoliberal globalization, it would surely be worse to continue to cede this terrain to an ascendant right. Only a renewed left challenge can properly cast globalization as the product of a class-based conflict with American MNCs and financiers, that have been the primary beneficiaries — not the victims — of the global capitalist order.

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Stephen Maher is assistant professor of economics at SUNY Cortland and coeditor of the Socialist Register. He is the coauthor of The Fall and Rise of American Finance: From J. P. Morgan to BlackRock with Scott Aquanno and author of Corporate Capitalism and the Integral State: General Electric and a Century of American Power.

Scott Aquanno is assistant professor of political Science at Ontario Tech University. He is the coauthor of The Fall and Rise of American Finance: From J. P. Morgan to BlackRock with Stephen Maher and author of Crisis of Risk: Subprime Debt and US Financial Power from 1944 to Present.

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