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Monday, July 28, 2014
- Canada supports it. Britain and the United States will have nothing to do with it. Finland is divided on it, and it is on the agendas of a growing number of European parliaments.
It has been billed as a way to check the mayhem of the global financial markets and tackle poverty. But its detractors say it is unworkable.
A few years ago the Tobin tax was an academic pipedream. Now it is the focus of increasingly vocal campaigning by national and international non-governmental organisations (NGOs), governments and parliamentary groups.
The point is simple: to impose a tax on cross-border currency trading of between 0.1 and 0.25 per cent – or 10 to 25 cents for each 100 US Dollars traded.
Some 1.8 trillion dollars change hands every day in the global foreign currency transactions. So the Tobin tax could raise revenues of between 100 and 300 billion dollars a year.
The idea was first floated in 1972 by US economics professor and Nobel Laureate James Tobin.
At that time the system of fixed exchange rates and controls on the movement of capital were coming under pressure from deregulation and diminishing market restrictions – the early days of ‘globalisation’.
Tobin’s point was to suggest a way that the big money markets could be restrained. A small tax on currency trading would cut the destabilising potential of short term speculation.
The proposal was largely ignored. “It did not make much of a ripple. In fact one might say it sank like a rock,” Tobin later said.
The financial speculations of the 1990s and the spate of financial crises that first hit Mexico, in 1995, and then devastated the economies of Thailand, Indonesia, Malaysia and South Korea in 1997, were followed in the next two years by those of Russia and Brazil.
The economic and social toll of big time fast track speculation was all too clear.
Tobin’s taxation idea found new advocates, first from reformist economics and policy theorists but also from social movements and politicians.
In 1999 Canada became the first country to support the Tobin tax. The same year the programme of the re-elected Finnish government referred to the need to study ways to stabilise the financial markets.
These were small but key victories for supporters of the Tobin initiative. Now, parliaments in many countries have debated motions on the tax. They include Belgium, France, Sweden, Ireland, Italy and Spain.
Belgium wants to table the issue in the European Union (EU) during its presidency of the Union later this year. In Brazil a Parliamentarian Front for the Tobin Tax has 100 members.
In Finland, ministers are divided on the Tobin tax, though the government programme tacitly supports stabilising the financial markets.
The message from the wide range of public movements that back the Tobin tax is that the revenues it would bring in could be used to fund people’s needs, particularly in poor countries.
This is the crux of much of the campaigning by the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC), which is an international movement, and the main pro- Tobin lobby in Finland, KEPA, an umbrella for development-related NGOs.
Finnish researcher Heikki Patomaki, a prime mover in the effort to get the Tobin tax adopted, and who heads the Network Institute for Global Democratisation, says the campaign is now the most important movement critical of globalisation because it offers something positive.
“The global power of the financial markets not only create instability and crises, they actually impose conditions on the economic policies of many states for their own benefit – for instance with the momentum to transform the pensions industry, which is highly beneficial for the markets.
Taxing currency trading would, Tobin tax proponents say, make economies less vulnerable to short-term global financial speculation.
Opponents of the tax include most government finance ministries around the world, governments in major financial centres, plus the heavyweight World Bank and International Monetary Fund (IMF) club.
They say that the tax would be impossible to carry out and would make markets less efficient.
Supporters of the tax say that both arguments are specious. The tax would not prevent long-term investment and it would be easy to track foreign exchange trading.
Maybe the neo-liberal centres of opposition are more concerned about loss of power. “If you take this power of the markets seriously and see that the Tobin tax is able to do something about it, you are making the argument for more democratic control of the global economy,” says Patomaki.
All of which makes clear that the Tobin tax is not something that single countries would levy unilaterally. If they did, the markets would just re-locate.
To be workable, the Tax would have to be introduced multilaterally, say by the EU or some other group of states. “You would also need an international organisation to take charge of the Tobin tax,” says Patomaki. “The revenues would be vast, and there would be all kinds of technical problems to handle.”
Such an organisation, he argues, should be more democratic than any existing international finance body. It should include the more equal representation of Southern countries, as well as of civil society.
That is where the chance of diverting billions to social need comes in.
Much of the pro-Tobin tax campaign literature presents the reform as a chance to tackle the crises of poverty, hunger, disease, global climate change and unemployment.
The view of the campaigns such as the US-based Centre for Environment and Economic Development, which coordinates the Tobin Tax Initiative network, is that in the globalised economy there is not the money to go round.
The Tobin tax, they say, could help solve the problem.
But Patomaki admits that there is no automatic link between a Tobin tax and the hope that the money gathered would pay the shopping list of global human crises.
“The point is to do something about the instability and power relations of the global money markets. With the Tobin tax you also indirectly give the possibility for the South and civil society to be better heard,” he says.
That means it would all be down to the fair-mindedness of those who would enact the Tobin tax, and for now there is little prospect of that happening.