Capital strike refers to the practice of businesses withholding any form of new investment in an economy, in order to attain some form of favorable policy. Capital strikes may arise from the determination that return on investment may be low or nonexistent or from the belief that by withholding investment certain political or economic changes may be achieved—or from a combination of the two. Capital strikes can be economy-wide, or take place in a specific industry.
Capital strikes may sometimes result when governments pursue policies that investors consider "unfriendly" or "inflexible," such as rent control or nationalization. The term can refer to a capital strike by a single investor or a large group. Capital strikes are commonly invoked as the business-owner/shareholder equivalent of a labor strike, and are often tied to the concept of capital flight. Capital strike was originally a derogatory term, but has been used more neutrally in modern politics.
It is difficult to determine with any certainty when a decline in business investment is the result of a "capital strike" against certain policies or a response to other economic factors. Most often, the phrase "capital strike" is used to describe resistance to labor-friendly or left wing reforms which are perceived or intended to be against the interests of business owners and investors.
- U.S. President Franklin Roosevelt argued that the Recession of 1937 was caused by a capital strike organized to undermine the New Deal and his new taxes on high incomes.
- French President François Mitterrand is said to have faced a capital strike when capital fled France following the 1982 nationalization of a large number of private firms and other labor market reforms.
- Chilean President Salvador Allende is said to have faced a capital strike when investment fell after his election as he was the leader of a left-wing coalition that proposed large-scale nationalizations and far-reaching economic reforms.
- U.S. President Barack Obama was sometimes said to have faced a capital strike during the Great Recession, including then Speaker of the House John Boehner saying that "job creators in America are on strike" in response to uncertainty over the Obama administration's economic policies.
Capital strikes have historically impacted economies and governments in a variety of ways and provoked a variety of responses.
- The Roosevelt administration took an aggressive stance in response to the recession and alleged capital strike. Roosevelt railed publicly against monopoly business interests, and signed into law a total of $3.75 billion worth of new congressionally allocated government spending to be divided among government recovery agencies, which helped spur economic rehabilitation.
- Disinvestment and international market pressures forced the Mitterrand government to reverse course on economic policy, making significant cuts to public spending, raising individual taxes, and setting a hard ceiling on deficit spending.
- While the capital strike, often manifested through the intentional under-production of necessity goods, damaged Salvador Allende's government, it maintained significant popular support among working class Chileans until it was overthrown in a 1973 U.S. supported coup that put in place a more business-friendly Military Junta lead by General Augusto Pinochet.
- Under pressure from large firms withholding investment, the Obama administration pursued several pro-business reconciliation initiatives such as cutting corporate tax rates, pursuing free trade deals, and limiting government regulation, but still signed into law mild financial regulations, the Affordable Care Act, and the 2009 American Recovery and Reinvestment Act.
Conditions under which capital strikes are effective
Given that capital strikes have succeeded or failed in a variety of situations, predicting what conditions favor them is particularly difficult. Some have put forward that capital controls are one key method by which governments can mitigate the effectiveness of disinvestment and capital flight, but their usefulness has been disputed. The effectiveness of modern purported capital strikes in Greece and Venezuela have been attributed to the sheer size and reach of the financial firms involved.
In popular culture
- Young, Kevin A.; Banerjee, Tarun; Schwartz, Michael (2018). "Capital Strikes as a Corporate Political Strategy: The Structural Power of Business in the Obama Era". Politics & Society. 46 (1): 3–28. doi:10.1177/0032329218755751. ISSN 0032-3292.
- "Capital Strike Definition". Shmoop. 2019.
- "Foreign Investor Explains Capital Strike Against Chile".
- Epstein, Gerald A. (2005). Capital Flight and Capital Controls in Developing Countries. Cheltenham, United Kingdom: Edward Elgar Publishing. p. 6. ISBN 9781781008058.
- Frank, Thomas (April 2013). "To Galt's Gulch They Go". The Baffler.
- Karlgaard, Rich (22 December 2008). "Capital Is On Strike". Forbes.
- James, Frank (15 September 2011). "Boehner Lobs Supply Side Shell In Fiscal Trench War With Obama". NPR.
- Markham, Jerry (2002). A Financial History of the United States Vol II. M.E. Sharpe. p. 234. ISBN 9780765607300.
- Devine, James (Fall 1989). "Paradigms as Ideologies: Liberal vs. Marxian Economics". Review of Social Economy. 47–3 (3): 305. JSTOR 29769465.
- Eaton, George (October 7, 2017). "French lessons: what Corbyn can learn from Mitterrand's mistakes". The New Statesman. Retrieved February 19, 2019.
- "Salvador Allende | president of Chile". Encyclopedia Britannica. Retrieved 2019-03-14.
- Chiang, Lulu (September 15, 2011). "Boehner: Job Creators in Americ are "on Strike"". CNBC. Retrieved February 19, 2019.
- Freyer, Tom (2016). Antitrust and Global Capitalism. Cambridge: Cambridge University Press. p. 59. ISBN 978-1139455589.
- "Roosevelt Recession". Roosevelt Institute. 19 August 2010.
- Brown, Kendall W. (2019). "Chilean Military Overthrows Allende". Salem Press Encyclopedia.
- Patricio, Navia; Osorio, Rodrigo (2017). "'Make the Economy Scream'? Economic, Ideological and Social Determinants of Support for Salvador Allende in Chile". Journal of Latin American Studies. 49 (4): 771–797. doi:10.1017/S0022216X17000037.
- Williamson, Elizabeth (11 December 2010). "Obama Woos CEOs as Frictions Ease". The Wall Street Journal. Archived from the original on 2015-03-25.
- Young, Kevin; Schwartz, Michael (3 February 2017). "When Capitalists Go on Strike". Jacobin.
- Noor, Jaisal (21 January 2014). "Syriza Succeeds in Greece by Challenging European Social Democrats' Approach to Reform - Panitch: Reforms can be easily thwarted by the power of business and the ideology of neoliberalism". Real News Network.
- Hartwell, Christopher (3 July 2015). "Capital Controls Hinder Needed Reform". Handelsblatt.
- Employers Threaten Walkout Chosun Ilbo February 9, 2006