Venezuela's Errant Ride/From Marxism list on capital flight

Charles Brown CharlesB at SPAMCNCL.ci.detroit.mi.us
Wed Aug 2 10:33:21 MDT 2000


Hi Lou:

Here's a comment on high unemployment and capital flight.

High unemployment never directly causes capital flight.

Capital investment is drawn to profitability higher than the market
average, higher than what they would get with some other investment.

It is also drawn to stability, as in stable long term profits.

Capital is repelled by unprofitable and unstable investments.

Unemployment has three effects which can result in capital flight:

1. It decreases the size of the domestic market for consumer goods like
soap, food, cars, houses, etc., affecting short and meedium term profit
rates for capital invested in those sectors.

2. It contributes to political instability which can lead to all sorts of
bad things - riots, road blockades, insurance rate increases, election of
the other party, nationalizations (although not lately much of a threat)
and even .... (drum roll) revolutions!

3. It can also lead to a change in government policy affecting
profitability, such as lowering interest rates, or other inflationary
measures.

Capital flight can be of short, medium, or long term.

Short term capital flight often occurs as exchange rates fluctuate. And
exchange rates are sensitive to things like unemployment reports.

Medium term is often the result of political instability.

And just about always long term is caused by revolutions!

Also, its good to distinguish between the capitals that are flying, and
which direction they are going.

Ussually big, international capital takes a longer term approach to capital
investment, while smaller capitalists, take a shorter term approach.

So, for example in Colombia, a lto fo the local bourgeoisie keeps its cash
in Europe, the US, or Hong Kong. They are not investing at home.

The result is that prices of things like land, oil concessions, and
telephone companies are bargain basement.

And the multinationals just love a sale! They are buying. And they do not
fear revolution here, because their internal assessment is that - if the
FARC were ever to come to power - there would not be any nationalizations
or other acts which would jeopardise long term profits.  (And they do not
think of anyone else making a revolution here.)

The most aggressive foreign investors in Colombia - as in all of Latin
America, are the Spanish. especially in telecommunications, and banks. But
the French are also aggressive, espeically in oil and retail sales.

Anthony


Louis Proyect

The Marxism mailing-list: http://www.marxmail.org

>>> CharlesB at CNCL.ci.detroit.mi.us 08/02/00 12:07PM >>>
Maybe when unemployment gets too high , they fear social unrest, and someone like
Chavez leading it.

CB

>>> michael at ecst.csuchico.edu 07/31/00 04:18PM >>>
Because in a poor country without a domestic market there is not much to invest in.  I
don't know if that is the case in Venezuela.

Charles Brown wrote:

>
> CB: Why would high unemployment spur capital flight ? Capital loves high
>unemployment.










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