James Schipper: It is certainly possible to transfer savings abroad, and that is not beneficial for ordinary citizens, but a lot of what rich people do is not beneficial to ordinary people. More important than what rich people do abroad is the income distribution.
Suppose that Ruritania is a closed economy. In a closed economy there can’t be capital flight of course. Let’s further suppose that the richest 10
Capitalists can certainly carry out an investors’ strike. If they really dislike or distrust a leftwing government, they can refuse to invest, but that is possible also in a closed economy. We shouldn’t become obsessed with balance-of-payment problems.
Concerns about balance-of payment are mainly justified when a country has limited export capacity but has to import a lot of essentials. In such a case, it may not only be necessary to have rigid controls on capital outflows but also to restrict the import of luxuries. If a family has limited income, then it should not allow dad to buy expensive cigars or mom to buy designer cloths.
Let’s take 4 rich Peruvians, Pedro, Pablo, Diego and Carlos. Each year, Pedro transfers 25,000 USD to a foreign bank. Pablo imports luxuries worth 25,000 USD each year. Diego employs 5 Peruvian servants with that amount. Carlos adds 25,000 to his Peruvian savings account each year.
There is no difference between Pedro and Pablo. Diego employs Peruvians, but the services produced by those employees are for him. Those 5 servants could be providing services for ordinary Peruvians. It is never enough to look at job creation. We should also look at what those jobs produce and for whom. Carlos is the only one who is doing what rich people should be doing: saving money in order to reduce conspicuous consumption and free up resources for investment.
If capital flight is no big deal, why do nations get so upset about it. Venezuela was losing $50 billion a year to capital flight, money that could have been invested in the economy. It was all going straight to Miami and Houston. Venezuela was so upset about this that they put in capital controls to keep people from moving money out of the country. But every time you do that, you seem to end up with an underground money economy and a dual exchange rate.
Capital flight -> capital controls -> dual exchange rates with black market exchange rate diabolically manipulated by the opposition in Houston precisely to ruin the economy -> fixed exchange rate instead of floating the exchange rate -> wild inflation.
And the capitalists went on strike anyway an refused to put any money into the economy. They ran their factories and firms at 50
The capitalists wave the threat of capital flight over the head of any leftwing government like a Sword of Damocles. They just did it was Castillo in Peru, and it forced him to reign in many of his more leftwing proposals. The main thing they need to do in Peru is nationalize the mining business. Mining is extremely profitable in Peru but all of the money goes to foreign corporate carpetbaggers and parasites and the Peruvians themselves hardly get a nickel.
Castillo merely threatened to renegotiate the contracts with the foreign companies so Peru got more of the money, and the oligarchy went nuts. That is because while the foreign-owned mining industry is disastrous for your average Peruvian, the Peruvian oligarchy, like most in the region, is a comprador oligarchy. They make a lot of money off of those mining contracts somehow or other, don’t ask me how. No matter how much the country itself is getting screwed by foreign corporations raping the country, somehow the oligarchy always positions itself between the corporations and the nation and makes money off of the pillage.
They Peruvian oligarchy said if you try to do the tiniest leftwing thing, we will take all our money out of the country. They also said that that would tank the stock market. That is another sword they wave over our heads. “We will tank the stock market!” They’re basically terrorists. “If you don’t give us what we want, we will use these economic bombs to blow up the economy!