That did not take long. The day after Cary Moon officially acknowledged her loss to Jenny Durkan in Seattle's mayoral race, both the Seattle Times and KOMO posted stories about the great interest Chinese investors have in the local housing market. This is curious because Moon (and I) got a lot of heat from Durkan and some members of the local Chinese business community for raising concerns about global surplus capital, why it's entering the Seattle-area housing market, and how it only happens to be coming from China. The Seattle Times reports that 50 percent of all purchases made through a brokerage firm in Beijing were sheer investments (meaning, the homes were bought not as homes but as financial assets); and KOMO reports that two-thirds of listings sold by a Windermere Real Estate agent were, over the last two years, "to international buyers." But we are told again and again by neoliberal urbanists that there is no connection at all between rising home values in Seattle and speculation in particular or finance in general. It's all about scarcity.
Because we can expect no political action on this matter from Durkan (she is a part of the system, which is why she was elected), our only hope turns out to be China. That country still has (and even understands the importance of) capital controls. Indeed, the main cause of the current stagnation of foreign sales in Seattle's housing market is attributed to this fact: "China has made it harder to get money out of the country." The harder this gets for the rich and investor class, the better things will be for the poor and working-class in China and US cities like Seattle. There are two reasons for this. But first I must explain the economic policy tool—capital control—that, for now, is making it a bit harder for money to exit China.
What are capital controls? Most Americans have no idea of this policy because mainstream economists tend to explain almost nothing of importance to the public. But capitol controls have been around, in one form or another, for as long as capitalism has been around. But their moment in the sun happened in the final years of World War II at the Bretton Woods Conference. One of the key features of the global economic system established by the conference was this: Each country was permitted (indeed, encouraged) to manage the flows of money entering and leaving their home markets. This kind of monetary management is called capital control.
When poor or developing nations were permitted to do this, their economies did fairly well (grew at an average of 3 percent, according to the Cambridge-based economist Ha-Joon Chang) and didn't suffer from the madness of extreme booms and busts. Capital controls allowed governments in poor and developing countries to manage their bank and currency crises effectively. But the Bretton Woods economic order collapsed in 1971, when the US pulled out of the agreement and currencies around the world were forced to float (this is known as the Nixon shock).
By the 1980s, developing and poor countries were ordered by the IMF (and the World Bank and the US Treasury Department—the unholy trinity is called the Washington Consensus) to abandon capitol controls, to open their markets to investors, and float their currencies on the world market. The governments in these countries were informed by mainstream economists that this is how the US became rich. Not by tariffs or industrial policy or import substitution; but by the sheer heaven of free trade. (None of this, of course, was true, as Ha-Joon Change pointed out in his down-to-earth books.)
Poor and developing countries obeyed the IMF, and, one by one, their economies began this bad business of booming some of the time and crashing almost all of the time. Money's renewed freedom to enter and exit economies has had, since the 1990s, a number of consequences, one of which is the wealth of the rich in a given country is now dissociated with its home market and connected with global flows that tend to move from poor and developing countries to overdeveloped ones, rather than the other way around.
The absence of capital controls, therefore, created, by combination, a globally homogeneous class that currently dominates land-locked labor. This is why the cost of labor in home markets can be easily repressed, and the wealth accumulated from the production and distribution of cheap products can easily relocate to overdeveloped countries and purchase, as investments, debt, and other financial assets—such as homes or commercial buildings.
This is the global economy we have today. This is how it functions. This is why the US economy can run massive current account deficits without devaluing its dollar. This is why Greece's suffering will not end any time soon (with capital controls, it could have solved the crisis by devaluing its currency and locking up the money in its economy—this move would have helped the nation's poor but pissed off its rich). This is why the Asian Tigers crashed in 1997 (capital flight). The global economy is based on two things: the mobility of money and the immobility of labor.
