ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

World Unrest Creates Flight Capital

Updated on March 15, 2011

  • “May you live in interesting times” – Often referred to Chinese curse. It was actually thought to be the first of three curses. The other two being: May you come to the attention of those in authority and May you find what you are looking for.

These days the world seems to be filled with tragedy. Recent events in Japan which defy description have dovetailed political unrest and revolts in the Middle East. If we set aside the humanitarian element to these occurrences there are substantial economic consequences which will have long term effects to be considered. Political unrest chases wealth to new locations faster than the heaviest handed tax collector. Investors always look unkindly at any location that does not have its own house in order. The equation comes down to a simple analysis of risk vs. reward. Therefore, with these forces at work as a driving force flight capital will be economic reality for sometime to come.

Flight Capital

This is defined in economics as an occurrence when money rapidly moves from one country to another to seek refuge. Flight capital is most frequently caused by a dramatic increase in tax or political uncertainty. Wealth disappears from the effected country which is usually accompanied by a sharp drop in the exchange rate. The decrease in purchasing power makes it significantly more expensive to import needed goods and devalues a country’s assets. .

Historical Perspective

History is littered with examples of flight capital. The Iron Curtain, the Nazis of World War II, human rights violations in China, Cuba under the Castro regime, the fall of Vietnam, North Korea are all examples of tyrannical behavior having a major influence over investment. Investors, however, will make a move offshore for far less. Hong Kong offers a clear and relatively recent example of this type of political flight.

After more than 150 years of British rule, Hong Kong reverted back to the Chinese on July 1, 1997, causing grave concern at the time about its future. Millions of dollars became flight capital and left this location. Canada became a huge benefactor of this exodus. Many investors not only moved their money but established second citizenships in this North American location. The mere perception that once mainland China regained control it would institute strict economic controls resulted in huge sums of money leaving and the migration of thousands of people.

Today this strategic location in the Asian Pacific region remains one of one of busiest harbors in the world and the third largest financial center, behind only New York and London. The Sino-British Joint Declaration, signed by both Great Britain and China in 1984 provides for a transitional policy of “one country, two systems” until 2047 and it seems to be a success. Hong Kong appears to have come to its crossroads and successfully managed to carve out a new identity. As China has opened its doors to the world, new investment capital has poured in to this city-state. Hong Kong is also interesting because it is an example of how a country can reinvent itself numerous times as the world changes. Prior to 1841, it was an island with a tiny population of approximately 3,000. Hong Kong became a textbook case of a nation short on natural resources; where poverty and crime could have easily over run this nation. Instead, low taxes and nonintervention in business became a source of enormous prosperity. By embracing this “laissez-faire” philosophy, Hong Kong positioned itself for the long term success it has enjoyed

Conclusion

Unfortunately, citizens in some parts of our world face a deep concern over their nation’s current political environment while others are dealing with dreadful natural disasters. This is a sad fact which holds true throughout history and across borders. In response to these events the harsh certainty is that investment capital will move. Nations which position themselves to be competitive on an international basis will prosper from this capital seeking refuge. Anyone active in either international business or investing should remain aware of these realities and accordingly make decisions. For those countries facing the economic reality of loosing investment capital, the Hong Kong example offers hope and methodology to recapturing it.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)