Is the Tobin Tax on international financial transfers an idea whose time has come? It has been endorsed by the United Nations, Gordon Brown, Angela Merkel, the Archbishop of Canterbury, Financial Services Authority chair Lord Turner, and now the European Union (EU).
An EU summit last week adopted the proposal of Brown and French president Nicolas Sarkozy to ask the International Monetary Fund to study the feasibility of using a global financial transactions tax to pay for combating climate change. The Guardian carried a headline last weekend: “Why the Tobin Tax could be Gordon Brown’s legacy.”
This is a remarkable turn-up. The Keynesian economist James Tobin originally proposed a tax on foreign exchange transactions in the late 1970s. His aim was “to throw some sand in the wheels of our excessively efficient financial markets” and to “restore to national economies some fraction of the short-term autonomy they enjoyed before currency convertibility became so easy”.
In other words, Tobin’s aim was to try and reverse a state of affairs where globally integrated financial markets had undermined the economic power of nation states. He wanted to return to the more regulated capitalism that emerged after the Great Depression of the 1930s and the Second World War.
But the proposal languished ignored for decades until it was taken up in the late 1990s by the emerging movement against capitalist globalisation. A key step came in 1998, when Attac was set up in France to campaign for the introduction of the Tobin Tax, and rapidly spread to other countries.
The explosive development of the anti-capitalist movement prompted the French and German governments to agree after the Genoa protests in 2001 to authorise a feasibility study into the Tobin Tax. But the idea went nowhere, partly because of the sustained opposition of Gordon Brown as British chancellor and champion of the City of London.
So why has Brown changed his tune? Essentially this is a consequence of the global economic and financial crisis. The leading Western capitalist governments were able to stave off a depression on the scale of the 1930s by the gigantic bank rescues – estimated by a Bank of England study to have cost £14 trillion in the US, Britain, and the eurozone.
This has left the surviving banks bigger them ever, and able to profit from a quasi-monopoly underwritten by state guarantees. Governments are worried that this situation is politically indefensible because of popular anger over bankers’ bonuses and also economically dangerous, because there is nothing to stop the banks engaging in the destructive behaviour that precipitated the crisis.
So taxing the banks’ super-profits and restricting their activities has become practical politics. The 50 percent levy on bankers’ bonuses over £25,000 announced by Alastair Darling in his pre-budget report last week has caused hysteria in the City, but it was endorsed by the Financial Times and embraced by Sarkozy and, more tepidly, by Merkel.
This is the context in which suddenly the Tobin Tax is being taken seriously in the main Western capitals – and in which campaigners are gaining access to the corridors of power. According to the Guardian, “a presentation by David Hillman, the coordinator of a little-known NGO called Stamp Out Poverty, at a high level conference in Doha [a year ago] proved to be pivotal.”
Dave Hillman is a veteran of the anti-capitalist movement and was one of the main organisers of the European Social Forum in London in 2004. None of this is particularly surprising. The tax was always a proposal for reforming capitalism, not overthrowing it. This doesn’t mean it wasn’t worth campaigning for, but circumstances have changed.
Would the Tobin Tax work in any case? One of its leading academic advocates, Heiki Patomäki, acknowledges that it doesn’t address “the problem of financial short-termism as a whole” or “the governance of credit and investments in the global political economy”. In other words, the roots of the crisis lie deeper than the financial markets that Tobin wanted to slow down.