US scuttles Tobin tax - and hope for the world's poor

American omnipotence wilts when faced with projects that could actually do some good

Dateline: Friday, March 29, 2002
By Linda McQuaig

These are difficult times for those in the money laundering business. With George W. Bush's war on terror in full swing, Washington has been pushing countries around the world to tighten their financial laws to eliminate money laundering as a source of terrorist financing. Last month, the U.S. president made it clear he expects countries to fully co-operate with these sorts of financial changes if they want to avoid ending up on the evil-axis side of his ledger.

One thing absent from his remarks was any suggestion that such international financial co-operation would be difficult to arrange. When it comes to the war on terrorism, "difficult" isn't a word I reckon George Bush has in his vocabulary. He's made it clear he intends to kick ass and he's not taking back-talk from anyone.

It's interesting to see how quickly this tall-in-the-saddle resolve about remodelling the world wilts away when it comes to enforcing international co-operation on things that would actually make the world a better place.

When it comes to goals like reducing international financial instability and fighting world poverty, for instance, the problems of lining up international financial co-operation are deemed to be insurmountable.

Take the Tobin tax, for instance. It's a proposed tax aimed at curbing the highly-destructive practice of currency speculation which banks and investment firms carry out daily on a massive, world-wide scale.

Ever since it was first proposed back in 1972 by James Tobin - the Nobel Prize-winning economist who died last month - the Tobin tax has provoked intense hostility from those in the banking and investment community who have profited enormously from the lucrative game of betting on the ups and downs of national currencies.

The resistance of these bankers and financiers is understandable, since the whole purpose of the tax is to put these guys out of business - when it comes to currency speculation. By making currency speculation unprofitable, the tax would help protect the world from the bouts of financial instability that have rocked Mexico, Southeast Asia, Russia, Brazil and Argentina in the last decade, with secondary shocks felt around the world.

At the same time, the Tobin tax would raise billions of dollars annually that could be put towards fighting world poverty. (Now if only the Tobin tax could do something really useful, like remove unwanted hair, maybe it would get some attention.)

So it's not surprising that bankers and brokers resist the tax. It's also not surprising that they try to dismiss it as simply unfeasible. That way, they avoid being in the awkward position of having to explain why the world economy should be allowed to operate much like a giant gambling casino. Instead, they can say that the Tobin tax may be a fine idea but it just won' t work, that there's no way countries around the world could be convinced to collect the tax, since capital would simply move to another jurisdiction.

This notion that socially-desirable goals are simply unattainable in the highly-mobile world of the global economy amounts to what I like to call a "cult of impotence."

This notion that socially-desirable goals are simply unattainable in the highly-mobile world of the global economy amounts to what I like to call a "cult of impotence." Any policy that business doesn't like is quickly rejected as impossible to achieve, given the realities of the global economy. What's striking, though, as George W. Bush illustrates, is how quickly all this impotence disappears, how quickly apparently incapacitated men spring back to full vigour, when the cause is something like stopping terrorist financing, rather than merely ensuring that hundreds of millions of people get enough food to survive.

Another line of argument against the Tobin tax is that it won't work because financiers will simply figure out some clever way to avoid it. (It's interesting to note that George Bush isn't deterred by the possibility that terrorists will find clever new ways to launder money.)

In fact, nobody expects the Tobin tax to be a cure-all. Economist Rudi Dornbusch once argued that the tax would not eliminate all currency speculation, but would help deter it, "just as gun control would not stop all murder; poison and knives would make a comeback." Still, sensible people support gun control as a useful tool for curbing violence.

Despite the hostility of the financial community and the financial press, the Tobin tax has been quietly gaining supporters over the past thirty years. Interestingly, the Canadian Parliament was the first elected legislature in the world to support it back in 1999, when a substantial majority of MPs voted in favour of a private members' motion introduced by the NDP's Lorne Nystrom.

Since then, the tax has been endorsed by France's National Assembly, and is under consideration in a number of other EU countries. British Chancellor Gordon Brown recently pointed to the tax as a possible new source of funding for global development. Last month, the German Ministry for Development produced a report saying the tax is feasible.

Sadly, though, attempts to keep the Tobin tax on the agenda at the recent United Nations conference on world development in Monterrey, Mexico were scuttled by the U.S.

So, except for terrorism, impotence reigns in Washington. George W. Bush may be the Clint Eastwood of terrorist-fighting, but when it comes to standing up to world poverty, he could learn a thing or two from those Bob Dole commercials.

Columnist Linda McQuaig is the author of a new book, All You Can Eat: Greed, Lust and the New Capitalism, published by Penguin Books.