As The Economist has rightly emphasized, Chile, supposedly the model country for capital controls, has no restrictions on the entry of foreign banks. Foreign participation in the banking industry stands at around 20 percent there. The real issue in a free market economy is proper banking supervision, especially of short-term debt in currencies different from those of the lenders. Strict supervision and well-designed rules are needed. But that is not an argument for so-called capital controls.
Portfolio investment is necessary, even of the short-term kind.
Protectionism is also the wrong answer and one that deepened the depression of the 1930s. The world needs free trade more than ever. From there to zero, it should be a small step for legislators, but a great leap for free trade. But the allocation of the accumulated capital has been done by government bodies rather than competitive private enterprises in a transparent capital market. More than overinvestment, Asia has had a crisis of malinvestment, as will always be the case when you substitute the political committee for the market.