In Defence of Capital Controls

Abstract

The limited extent of globalization was hardly the only important determinant of the Golden Age, nor even its most important condition of existence. But the acceleration of the process of globalization of finance and capital investment and the increase in the openness of trade that took place as the Golden Age evolved does seem to have been an essential element in the dynamics of its demise. The continuation of the globalization process over the past two decades has created tenacious impediments to the restoration of a regime of sustained full employment and real wage growth. In this essay we will argue that a set of policies to gain more control over the international flow of money and, perhaps, goods is an essential component of any serious package of progressive structural reforms designed to achieve sustained full employment and greater equality of income and wealth. In making this argument we are in a minority, but we are not alone. Indeed, in recent years there has been renewed support for capital controls, even among policy makers and mainstream economists.