Capital flight, along with financing campaigns, is a main source of corporate power used to rig the political system. It allows corporations to successfully leverage legislatures to privatize public infrastructure and programs, reduce public social programs from Social Security to education, and demand special favors, from tax breaks to subsidized facilities and infrastructure. Capital flight enables corporations to browbeat labor unions into submission under the threat of removing employment altogether. Capital flight is the main means by which corporations have shrunk our public sphere, broken our unions, colonized our legislatures, outsourced our jobs overseas, squeezed the middle class, destroyed the safety net, increased financial insecurity for millions and poverty for millions more.
Why is capital flight so important at this juncture in history? The sheer size of companies is a major reason: large domestic companies can move jobs from city to city and state to state, and multinationals can move them anywhere around the globe. This is a power that smaller firms simply do not have, and calls into question just how “competitive” markets actually are. Absentee ownership is another factor that promotes capital flight: most stockholders a just want a large return on their investment and have no connection or loyalty to the workers, their communities, or their well-being. Finance plays a major role in this, too, by monetizing the production surplus, making those skimmed profits liquid, and providing channels to move money to locales with “favorable business climates.” Laws and public policies also play a major role: Congress is willing to allow corporations to shift jobs around the country without oversight, and rather than having international standards for capital investment, over the last two decades we have enacted Free Trade Agreements whose whole point is to strengthen the ability of multinationals to capital move capital to where it is most advantageous to them.
So how does the Left deal with the problem of capital flight?
First, as always, promote awareness: talk openly and often about capital flight -- I’m very sure that most people just sort of take it for granted as a fact of life, never think much about changing it, and indeed probably don’t even have a name to give it. Make sure to always discuss how significant it is: it is no longer simply squeezing the American middle class but destroying it, and it is a basic threat to democracy by undermining governments’ ability to determine fiscal, macroeconomic, and microeconomic policies. Make the moral arguments -- which are true -- that capital flight is economic extortion, and that it ruins people’s lives, and sometimes ruins whole cities (e.g., Detroit).
There are many policy ideas floating around to solve it. A small tax on stock market transactions would slow the light-speed pace of capital movement, and a law that required investors to keep an investment in a company for a minimum of six months or a year would promote a longer-term view over short-term speculation. It would compel investors to actually research and understand the companies they put their money into, rather than just going for the biggest quick buck. Much stricter antitrust policies to break up large companies would reduce the problem of size. Breaking up the large banks and finance houses and instead making most banks local would promote community investment. Forbidding a company that moves operations out of the country to sell its goods or services in the domestic market seems to be entirely fair. And if a company’s executives try to move jobs overseas, we workers should have the power to turn the company into a cooperative enterprise. Indeed, the best shield against capital flight is not a matter of policy but is a structural change: economic democracy, in which the workers owned the companies for which they worked, would prevent most capital flight, for who would vote to move their job overseas?
The economics 101 idea that business success is determined in a competitive market by beating other companies with innovation and price reductions is mostly mythical: there is a seed of truth in it, but that nice story ignores that a major part of business profitability comes from having public benefits provided directly to some companies by governments, currently through concessions extorted from those governments under the threat of capital flight. Some corporations become so large in size, and communities so dependent upon them for jobs, that governments have no choice but to concede to corporate demands. That size and those dependencies do not have to exist. Capital flight prevents communities, states, and whole countries from determining their own economic fate, and thus are a threat to democratic governance. Furthermore, capital flight is also a key source of corporate political power. Along with public funding of election campaigns, imposing democratic controls on the use and location of capital is perhaps the most important policy that we need right now.