Post-Crisis Capital Controls in the Periphery – Regaining Policy Space?

By  Ilias Alami,

I have made the case for thinking politically about capital controls. This is particularly important, I argued, because on one hand, capital controls tend to be portrayed even by progressive economists as ready-made, neutral, technical measures, which fulfil similar objectives irrespective of where they are implemented; and on the other, because the IMF, mainstream economists, and state managers have recently made attempts at depoliticising and domesticating the renewed debates about capital controls.

In an article recently published in Review of Radical Political Economics, I propose to continue this reflection, this time by engaging with political economy scholarship that has interpreted the recent resurgence of capital controls across the Global South as attempts by some developing countries to preserve their policy space to pursue heterodox economic policies (Gallagher 2015, Mini-Symposium in RIPE 22 (1)). Indeed, the 2008 global financial crisis and subsequent sharp swings of unregulated capital movements sparked off an array of policy responses across the developing world, including measures that aimed at taming the destabilising effects of these flows. Particularly, DECC such as Brazil, South Korea, Indonesia, Costa Rica, Uruguay, the Philippines, Peru, Taiwan, Colombia, and Thailand deployed a variety of CC (Grabel 2015). This is quite remarkable, given that from the 1980s until recently, such measures were largely considered as heresy by the international finance establishment (financial market actors, the International Monetary Fund [IMF], credit rating agencies, etc.), and a strong policy stigma was associated with them (Abdelal 2009Chwieroth 2009)

The analysis that I offer in the article is based on a theoretical examination as well as on a critical exploration of a case study widely used in the literature: the deployment of capital controls by the Brazilian state. The example of Brazil is important, given its long history of capital controls, but also because it is often portrayed in the literature as a successful case of deployment of capital controls to reclaim policy space: capital controls, it is argued, have allowed the Brazilian state maintaining financial stability, reducing the volatility of money-capital inflows, which has in turn facilitated macroeconomic management and has permitted the deployment of heterodox policies.

I draw on historical materialism to engage with this argument in two ways. First, I highlight a series of theoretical shortcomings in the aforementioned literature and in its use of the concept of policy space as an analytical device to explain the resurgence of capital controls in Brazil. Those shortcomings, I submit, prevent commentators from offering a satisfactory understanding of the recent resurgence of capital controls in developing and emerging countries, and they can be revealed by drawing on the Marxian critique of the state and money as alienated forms of social existence under capitalism (e.g. Bonefeld and Holloway 1996; Clarke 1991). Importantly, the literature on policy space conceptualises private capital flows as a structural feature of the contemporary capitalist world economy, which constrains national state policy-making, and capital controls are seen as attempts from developmentally-minded governing élites to better manage/control this constraint. My claim is that this conceptualisation of the relation between private capital flows and the capitalist state is highly problematic, and obfuscates the class-based relations of domination and exploitation that underpin them, with important implications for how we understand capital controls.

Second, and from a more empirical point of view, I offer a class analysis of the deployment of capital controls in Brazil from 1945 to 2014. By focusing on class dynamics and by locating recent capital controls in a longer historical trajectory, the case study produces a significantly different interpretation of those policies than that of the policy space literature: it emphasises the crucial role that capital controls have historically played in the reproduction of capitalist social relations and particular forms of class rule in Brazil. For instance, the various capital controls implemented in the post-2008 crisis environment in no way represented a challenge to the social power of capitalist finance. In fact, they were fully compatible with the policies that underpin the Brazilian finance-led strategy of accumulation, such as a long-term commitment to an open capital account, extremely high real interest rates, and high primary fiscal surpluses. In other words, far from signalling an attempt at controlling cross-border finance, the capital controls deployed were actually instrumental in the continuation of finance-led strategies of accumulation. This argument seriously challenges the narrative, widespread in heterodox economics and critical international political economy, which tends to portray capital controls as inherently progressive policies. This has important theoretical implications for how we understand capital controls.

From a more political standpoint, this also means that if we are to push for capital controls that aim—beyond the mere macroeconomic stabilisation of capital accumulation—at empowering labour vis-à-vis capital to achieve a more egalitarian social order (Epstein 2010), an analytical focus on class processes is crucial. By downplaying the important distinction between the types of capital controls analysed in the article (which are fully functional, and in fact instrumental, in the reproduction of capitalist social relations, as shown in the case of Brazil), and the more “transformative” forms of capital controls, that is to say, capital controls that aim at transforming social relations and class configurations  (Epstein 2012; Dierckx 2014; Alami 2018), debates about capital controls run the risk of being depoliticised and domesticated by state managers and powerful capitalist interests.

originally posted here