Advanced economies did not simply abandon capital controls after the 1944 Bretton Woods Agreement. Welfare states quietly took over their job, with countries protecting workers able to afford open financial borders, while those spending mainly on pensioners still police money movement.

New research suggests that the composition of welfare spending, not just its overall amount, correlates with a country's cross-border financial regime. Countries that prioritize pensions tend to maintain tighter capital controls, whereas those focusing on protective and productive spending (like health, unemployment, training, and education) tend to keep their financial borders more open. This is because protective spending can restore some bargaining power to workers, and productive spending shifts economies away from price competition, reducing the need to defend exchange rates.

Beyond the OECD, the share of the population reached by social assistance matters more than the total money spent. Broad coverage correlates with open capital accounts, while narrow coverage is linked to controls. The study implies that the welfare state can act as a macroprudential policy, absorbing the shocks of global finance. When redistribution is broad, the welfare state cushions these impacts; when it's narrow, protecting insiders, governments use financial borders for stability. Gutting broad social protection can lead to demands for closed borders.