Globalism — the free flow of money, people and goods — has made the world a heck of a lot richer over

the past several decades. But it's always been subject to some threat or other. In recent years, the big

economic fear has been that trade wars would follow the banking crisis as countries tried to protect their

beleaguered markets, ending the free flow of goods and throwing the world into a downward spiral.

Thankfully, that did not come to pass. Sure, nations have become more self-interested and are cutting

bilateral deals that threaten to turn the global trade system into an unmanageable bowl of spaghetti.

(Those who ever bothered to learn what Doha referred to can forget about it now.) But the worst case —

an escalating rise in tariffs that would throw us back to the Great Depression — never materialized,

perhaps in part because most world leaders understood the risks early on and rallied against it in

numerous op-ed articles and speeches.

What hasn't been written or talked about is financial protectionism — the largest and most recent threat

to the free flow of money and something that may turn out to be the biggest economic issue of 2011.

Such protectionism can take many forms: state control of currency in China, politicians rejecting foreign

buyouts of domestic companies in the U.S. and Europe, even specific laws about who can or can't take

money in and out of a country. In the past several months, Indonesia, Thailand, Brazil and South Korea

have put capital controls in place to try to stem the tide of hot money flowing into their markets from jittery

investors looking for decent returns. (Note to world leaders: in most cases, capital controls will only

worsen your problems, because traders bet on the fact that currencies whose value is kept artificially low

by governments will eventually rise, which attracts even more hot money in the short term.)

All the restrictive measures are coming at a terrible moment, because if there's one thing the world needs

now, it's to keep global capital flowing. Rich countries need money because they are drowning in debt,

and poor ones need it because they are in the midst of an unprecedented development boom. Nations

such as India, China, Brazil, South Africa and Turkey can't build new bridges, roads, homes, railways, offices and shopping centers fast enough. In fact, the McKinsey Global Institute (MGI) predicts that $24

trillion in investment will be needed by 2030 in order to service this boom, the likes of which the world

hasn't seen since the post–World War II rebuilding of Japan and Europe.

All that demand for money to fund the global Big Dig will push up both inflation and interest rates. It's

been years since we lived in a world where inflation is high and capital is dear, but that is what the future

likely holds. As the MGI points out in a new report titled "Farewell to Cheap Capital," the global

investment boom under way means that eventually money will be scarcer and more expensive.

Rising capital costs will only exacerbate the risk of financial protectionism. Accessing capital is going to

become an issue of national competitiveness, and a very political one. Already, there are heads of state

and finance ministers who speak privately about not allowing government-guaranteed funds to be

invested overseas (a case that's easy to make with voters spooked by the financial crisis). If a handful of

nations actually took such actions, it could seriously threaten globalization and possibly plunge the world

back into recession.

On the flip side, any nation that is flush with cash will be just fine. China is the most obvious case in point;

the Middle Kingdom is busy deploying its $2.4 trillion in currency reserves, buying everything from oil and

minerals in Africa and the Middle East to blue-chip companies in the West. China would buy a lot more if

it could. But in countries like the U.S. and Australia, Chinese acquisition of local companies has become

a political issue. Still, as the global money spigots continue to tighten, the U.S. and other debtor nations

will be forced to look for investors wherever they can find them.

Certainly it would help if policymakers in rich and poor nations alike removed limits on how much pension

money can be invested abroad. And who knows? One day, the global cash crunch might translate into

encouraging Chinese firms to build power stations in New Jersey or revamp Amtrak. They've had plenty

of practice doing stuff like that at home, and when the age of easy cash comes to an end, politicians all

over the world may find that money from politically tricky sources is better than none at all.