Whether it be workers demanding higher wages and better conditions or citizens demanding higher taxes on corporations and the rich, the response from business chiefs and their drudges in the media is the same; ‘business and entrepreneurs will shut up shop and leave if we are not ‘business-friendly’’. This is often stated as if it were a fact of nature; mere mortals such as us would not possibly be able to stop the wealthy from moving their property about as they please. Sometimes it seems as if commentators believe that divine intervention itself ensures this.

But this common sense view that we ‘better not upset business and the rich or else!’ is in fact largely a hollow threat. There are two important aspects which are often ignored:

1. There is very little mobility of productive capital
2. Capital controls are an effective policy instrument

Productive capital
From 1990 to 2003 foreign direct investment (FDI) averaged only 8 per cent of world domestic investment [1] , signifying that the vast majority of the world’s investment is domestic. Moreover, FDI flows have been shown to largely follow domestic business cycles [2]. FDI is also overwhelmingly directed towards developed economies such as that of the UK. In 2000 developed countries share of FDI accounted for 80 per cent of the total. This, perhaps unsurprisingly, suggests that investment follows potential for return, and returns are not simply created by lax regulation, lower taxation and lower labour costs, but also by the potential for sustained growth which requires good public infrastructure, trained workers, social peace, etc.

The rise of Transnational Companies (TNCs) is often seen as another way that capital has become more mobile, and resulting in ‘jobs migration’. Yet TNCs remain embedded in their domestic nation states. In fact, the average transnationality (the average between three ratios: foreign assets to total assets, foreign sales to total sales, foreign employees to total employees) of the top 100 TNC is 50% [3] meaning that on average the domestic operations of a TNC are as important as their total foreign operations. This is because, whilst production has become more global and networked, these ‘global production networks’ are of course embedded spatially and despite being global, act to anchor production. You cannot simply uproot a node in network and shift production elsewhere because doing so would break the connections within that network. It would be necessary for another network to exist into which the production node could be shifted but the development of production networks usually takes place over a long period as various economic activities and social dynamics organically co-evolve [4]. Globalisation has created global production networks but these networks remain geographically fixed through their own interconnections.

Financial capital
Financial capital is, however, a different story. Improvements in communication technology and the deregulation of global financial sectors has vastly increased the speed and mobility of financial flows. Despite little productive role, the mobility of short term capital flows can have serious economic consequences. They essentially provide capital a whip by which to discipline leftwing governments through capital flight. This happened to the UK Labour Government in 1975. Despite being elected on promise of creating a “fundamental and irreversible shift in the balance of power and wealth in the favour of working people”, a massive devaluation of the pound led by speculative selling of foreign reserves led Callahan to drop the party’s radical manifesto pledges in return for a stamp of approval from the IMF. It was a similar story in France in 1982, when the election of Mitterrand sparked massive capital flight. The capital controls which existed were not effective enough, while the European Monetary System (EMS) did not allow for the devaluation which would have allowed an export boom to return the economy to growth. Rather than leave the EMS, Mitterrand chose to abandon his socialist agenda and the neo-liberal doctrine of TINA (There Is No Alternative) was cemented.

However, the experiences of Malaysia during the 1997-1998 Asian financial crisis turned TINA on it’s head. The Malaysian government refused the IMF’s support and instead introduced capital controls whereby all offshore ringgit were mandatorily repatriated and could only legally be exchanged in Malaysia through official channels at a fixed rate. The result was that, relative to other crisis-struck countries which did not implement capital controls, the Malaysian economy recovered faster, whilst wages and employment did not suffer as much [5]. This proved that modern unilateral capital controls can be implemented relatively easily and effectively.

Capital mobility is not only an economic process, it is also an ideological weapon which is used to extract concessions from both workers and voters. Research in the US, using a random sample of 400 firms, found that in 60 per cent of companies where workers tried to set up unions, management responded by threatening to shut down either the entire facility or part of it. However, in the companies in which the workers were successful, less than 3 per cent of firms carried through with their threat [6]. The fact that firms failed to carry through with their threats in 97 per cent of cases demonstrates that capital mobility is largely that – a threat. But as Gramsci famously argued, ‘hegemony is always protected by the armour of coercion’, so even if only 3 per cent of these threats are carried through, that 3 per cent is enough – when amplified by other institutions – to create a pervasive sense of fear and fatalism towards challenging capital. However, it can be overcome, if solidarity is built across workplaces and communities, employers cannot pick off the 3 per cent of workers who they wish to make an example of. Meanwhile the left in academia, the media and our political parties must strive to break the common sense view that ordinary people have no power and no weapons with which to confront, supposedly, all powerful globalised hyper mobile capital. We must go back to the future of capital controls.


1. UNCTAD (2004) World Investment Report
2. Doogan, K. (2009). New Capitalism? The Transformation of Work. Polity Press: Cambridge
3. Doogan, K. (2009). New Capitalism? The Transformation of Work. Polity Press: Cambridge
4. Doogan, K. (2009). New Capitalism? The Transformation of Work. Polity Press: Cambridge
5. Malleson, T. (2012).  The Theory and Practice of Economic Democracy. PhD Thesis. University of Toronto.
6. Bronfenbrenner, K. (2000). Uneasy Terrain: The Impact of Capital Mobility on Workers, Wages, and Union Organizing. Submitted to the U.S. Trade Deficit Review Commission.