 ceptics often dismiss the idea of taxing international
currency speculation as a fiscal equivalent of the Loch Ness
Monster - sometimes spotted but never retrieved. The idea was
first raised by Yale Professor James Tobin in 1972 and is now
popularly known as the Tobin Tax. He argued that throwing "some
sand in the wheels" of what was then a relatively low level
of speculation would help to stabilise national currencies and
governments.
After 30 years of liberalisation of the international financial
markets, such speculation has soared to about $1.5 trillion
a day. The vast bulk of this is highly profitable and short-term
gambling on the global casino economy.
Currency crises have had devastating effects in Asia, Russia
and Latin America, plus our own Black Wednesday in 1992.
As a result, an international campaign for Tobin is starting
to gain intellectual clarity and official as well as popular
support. The French Government may propose an official European
Union study into the feasibility of Tobin, during their current
Presidency. The United Nations Social Summit on Development
recently agreed to initiate a feasibility study.
The Treasury Select Committee may include Tobin in wider
investigations of the international financial architecture
in the Autumn. The Treasury itself has been flooded with round
robin cards in support of Tobin organised by the third world
pressure group, War on Want, but Ministers, including the
Prime Minister, have ruled it out.
Nonetheless, support for Tobin is rapidly moving from the
academic Margins into the political mainstream. In Britain,
over 100 MPs from across the main parties including former
Treasury Minister Geoffrey Robinson have backed Tobin. The
Liberal Democrats have formally adopted the tax as policy.
Tobin would be set at a relatively low level and aim to both
deter speculation and raise revenue. Genuine investment would
not be deterred by, say, a 0.25% tax whereas brokers making
multiple "round trips" would at least think twice.
Four-fifths of all transactions are for seven days or less.
If it were completely successful at deterrence, then it wouldn't
generate revenues. But Tobin couldn't completely halt all
speculation - not least where profits dwarf the size of the
tax. The tax can be compared to those on alcohol and tobacco.
War on Want say that Tobin could raise perhaps $250 billion
worldwide each year for third world development. A portion
- say 20% - could be collected by the host country. Since
the UK accounts for one-third of such trading, this could
deliver a huge social dividend here of about £6 billion a
year. The key objection to Tobin is that it would require
universal support to prevent foreign currency traders migrating
to uninvolved countries or offshore tax havens.
Total compliance with any tax or law is virtually impossible.
However,the sophisticated electronic trading systems used
by traders to protect their own interests could be used to
track and tax their transactions. Feasibility studies can
address this as well as other contentious Questions such as
the rate(s) of Tobin, sufficient flexibility to minimise evasion
by traders using new financial instruments, who collects it
and how it is distributed. There are difficult technical questions
but the key is political legitimacy.
After all, the vast bulk of currency trading is undertaken
in 10 countries and by few big brokers who would incur popular
wrath if they bucked such a "sin" tax.
The key is for campaigners to win popular support to persuade
Governments to find the necessary political will for a tax
that takes from the few to benefit the many.
There is no shortage of need that could be addressed by such
huge revenues. For example, The United Nations estimates that
$25 million a year would be enough to tackle the worst forms
of poverty and environmental degradation. The Guardian argues
that universal primary education could be secured at a cost
of just $8 billion a year. Whether the UN itself is the best
body to supervise the tax and its distribution is another
matter, given its somewhat chequered record.
The Jubilee 2000 coalition helped to mobilise a new and large
constituency of activists on the issue of third world debt.
Despite radical promises, it now appears that little happened
in reality. This constituency's anger at this and the increasing
desperation of many third world countries and the continent
of Africa in particular could begin to move many of these
people into supporting other ways of financing development.
Tobin could also win support from beyond the Left: for example,
industrial capital which suffers considerably from speculative
short-termism and wants greater stability.
Speculation crises have strengthened those who say that society
should regulate and humanise the process of globalisation.
A global economy needs a global society and a global tax.
Even if Tobin is not itself implemented, the debate highlights
the need for some sort of social control over global capital
flows.
Harry Barnes is MP for Derbyshire North East
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