Capital flight

[Unclebananahead]

Could somebody please explain what capital flight is in a simple and straightforward manner? I'd very much appreciate it. I'm trying to understand a Chomsky lecture on the IMF and the Bretton-Woods system. Unfortunately my comprehension of this subject is limited, and Wikipedia isn't really helping.

[Comrade Gwydion]

I don't know the term, but I know of a concept wich *could* be described as capital flight:
Basically it's an argument at higher taxes for the rich and for large coorperations, because the rich would 'flee' to a country with lower taxes, taking their capital with them.
Eg: All of the Dutch austerity cuts could be prevented by raising the taxes for the richest 8% of the people with 2%, but everybody is against that because it would cause those 8% to move out the country, making us miss out on those taxes completely.
Almost the same effect could be had from not raising taxes, but by actually making sure multinationals PAY the taxes they're supposed to: currently coorperations in the NL are evading taxes for 16 billion euro per year, while the austerity cuts provide 18 billion in ten years.

[Decolonize The Left]

Could somebody please explain what capital flight is in a simple and straightforward manner? I'd very much appreciate it. I'm trying to understand a Chomsky lecture on the IMF and the Bretton-Woods system. Unfortunately my comprehension of this subject is limited, and Wikipedia isn't really helping.

Basically, very basically, capital flight is the movement of capital (i.e. the means of production) from one production location to another for the purposes of securing less-expensive labor and therefore maintaining previous profit-margins.

So to put it even simpler:
Company X produces goods at cost A in location M.
Cost of producing goods at location M increases, hence profits decrease.
Company X increases prices to maintain profit margin.
Company X sells less goods and hence profits decrease.
Company X moves to location N and produces goods at cost B which is lower than cost A.
Hence company X now increases profits as cost B is lower than cost A, while prices remain the same.

This is capital flight in a nutshell. It is called "capital flight" because the companies are "fleeing" the rising costs of production (read: the rising costs of labor) for cheaper labor. If it helps, you can think of "white flight" as a rough analogy.

Hope that helps,
- August

[Raightning]

^^ I think this isn't capital flight, but rather just outsourcing, although it can be a linked phenomena.


Basically it's an argument at higher taxes for the rich and for large coorperations, because the rich would 'flee' to a country with lower taxes, taking their capital with them.
Eg: All of the Dutch austerity cuts could be prevented by raising the taxes for the richest 8% of the people with 2%, but everybody is against that because it would cause those 8% to move out the country, making us miss out on those taxes completely.
This is what capital flight is. It's basically when money and assets are withdrawn enmass from a country (in the form of relocating businesses, moving production, removal of commodities, etc.) in reaction to some perceived threat against them, with higher taxation being the one most commonly cited.

[Unclebananahead]

Sounds pretty much like outsourcing to me. Like GM moving its manufacturing facilities out of Flint, Michigan in the film "Roger & Me"

[Decolonize The Left]

^^ I think this isn't capital flight, but rather just outsourcing, although it can be a linked phenomena.


This is what capital flight is. It's basically when money and assets are withdrawn enmass from a country (in the form of relocating businesses, moving production, removal of commodities, etc.) in reaction to some perceived threat against them, with higher taxation being the one most commonly cited.

Point taken. What I illustrated and has been termed as outsourcing is equivalent to capital flight with the only difference being the reason behind the departure of capital - outsourcing being the securing of cheaper labor, and capital flight being impositions upon capital in the location of departure.

The both leave the initial source of production in order to secure a cheaper market, but in the case of outsourcing the market is explicitly cheaper labor, and in the case of capital flight it is cheaper terms of production (taxes, etc...).

Often the operate hand-in-hand. I apologize for the inconsistency.

- August

[Broletariat]

it is cheaper terms of production (taxes, etc...).
I was under the impression taxes were not factored into production?

[ComradeOm]

Point taken. What I illustrated and has been termed as outsourcing is equivalent to capital flight with the only difference being the reason behind the departure of capital - outsourcing being the securing of cheaper labor, and capital flight being impositions upon capital in the location of departureIts not so much the rationale as it is the scale and timeframe. Mechanically speaking, outsourcing and capital flight are virtually identical (money goes from country X to country Y) but its the panicked nature of the latter that makes it so noticeable. We're talking very large sums of money in a very short space of time. Typically its a response to a major crisis; if not then its often a crisis in its own right. A bad case of capital flight, ie more than a few wealthy tax exiles moving abroad, can do serious damage to an economy if not checked

[Comrade Gwydion]

Although I know raising taxes is just reformist, what arguments do we have against the capital flight argument?

[ZeroNowhere]

Although I know raising taxes is just reformist, what arguments do we have against the capital flight argument?
"All measures to restrict competition and the accumulation of capital in the hands of individuals, all restriction or suppression of the law of inheritance, all organisation of labour by the state, etc., all these measures are not only possible as revolutionary measures, but actually necessary. They are possible because the whole insurgent proletariat is behind them and maintains them by force of arms. They are possible, despite all the difficulties and disadvantages which are alleged against them by economists, because these very difficulties and disadvantages will compel the proletariat to go further and further until private property has been completely abolished, in order not to lose again what it has already won. They are possible as preparatory steps, temporary transitional stages towards the abolition of private property, but not in any other way.

"Herr Heinzen however wants all these measures as permanent, final measures. They are not to be a preparation for anything, they are to be definitive. They are for him not a means but an end. They are not designed for a revolutionary but for a peaceful, bourgeois condition. But this makes them impossible and at the same time reactionary. The economists of the bourgeoisie are quite right in respect of Herr Heinzen when they present these measures as reactionary compared with free competition. Free competition is the ultimate, highest and most developed form of existence of private property. All measures, therefore, which start from the basis of private property and which are nevertheless directed against free competition, are reactionary and tend to restore more primitive stages in the development of property, and for that reason they must finally be defeated once more by competition and result in the restoration of the present situation. These objections the bourgeoisie raises, which lose all their force as soon as one regards the above social reforms as pure mesures de salut public, as revolutionary and transitory measures, these objections are devastating as far as Herr Heinzen’s peasant-socialist black, red and gold republic is concerned."

The argument is that it will harm the economy and drive it into crisis. The response is that that's alright, because we're not liberals, and managing the economy is not the job of the proletariat, which would only be pushed further towards socialism by capital flight. "If the democrats propose a proportional tax, then the workers must demand a progressive tax; if the democrats themselves propose a moderate progressive tax, then the workers must insist on a tax whose rates rise so steeply that big capital is ruined by it; if the democrats demand the regulation of the state debt, then the workers must demand national bankruptcy."

Against liberals, it's not that bad an argument. And that applies for us as much as for conservatives.

[Kotze]

Although I know raising taxes is just reformist, what arguments do we have against the capital flight argument?It's true, high taxes make producing and maintaining capital harder, the existing capital is moved to where it is taxed less, high taxes encourage tax dodging and fuel black market activity which leads to chaos.

For example, a high tax on land (http://en.wikipedia.org/wiki/Land_value_tax) means less land is produced, the already existing land is moved to where it is taxed less, those who still hold land in the country will hide it, chaos! ;)

[Zanthorus]

Against liberals, it's not that bad an argument.

To be fair, if liberal or reformist parties co-ordinated themselves on an international scale it would be possible for them to avoid this sort of thing, at least until commercial space flight becomes viable. The chances of them all growing a backbone and embracing proletarian internationalism however, are quite another story.

[Drumming Monkey]

Seems to me, Capital Flight is an excuse to not raise taxes given by the big business polticians and their rich advisors.

Even under capitalism, surely the EU, for example, could theoretically set a corporation tax which is the same in every EU country, this preventing capital flight. (Of course this would probably never happen at it it against the 'free market' model)

But, if a left-wing state prevents capital flight through law and simply nationalising Asda when it tries to withdraw capital, for example, it's not really a problem.

Cuba did it, and I believe Chile did too under Allende (?) and it pissed the USA off a whole lot, because the governments didn't pay the US companies for their own property from their own country. Poor little poverty stricken multinationals :crying: