Global Policy Forum

By Satya Sivaraman

The Tobin Tax is a novel instrument whose time may have finally come, and one that a significant portion of the "anti-globalization movement" - many of whose advocates are meeting in the second World Social Forum (WSF) in this southern Brazilian city - swears by.

Yet the proposed new tax, which would be levied on global financial transactions, continues to generate strong debate - not so much over its practicability as over its real effectiveness in curbing the various ills associated with globalization today.

While some believe that the Tobin Tax is a measure that has the best chance of widespread approval and hence early implementation, others feel that by projecting the tax as a "magic bullet" of sorts, a wide number of other measures that are needed to curb speculative capital are being neglected.

Various speakers at a WSF seminar on Financial Capital Controls agreed that the Tobin Tax, though urgent and necessary, may not be enough on its own to prevent an Argentina from happening again.

Leading the charge for implementation of the Tobin Tax was Dominique Plihon, a French economist and leading member of the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC). Pointing to the way the Tobin Tax, in just the past few years, has made strong inroads into French and European political debate, he said that the tax was "not a panacea" but that its implementation would be a very important first step in combating the problems created worldwide by neo-liberal economic policies.

Within the past few years ATTAC and other organizations supporting the Tobin Tax have managed to get politicians across the world, particularly in Europe and Canada, to bring the measure up for serious debate and push for its immediate implementation.

The Tobin Tax is named after Nobel Prize-winning economist James Tobin, who in 1972 proposed that a small worldwide tariff, of less than half of 1 percent, be levied by all major countries on foreign-exchange transactions in order to "throw some sand in the wheels" of speculative capital flows.

Investors play the bond and currency markets, profiting from the minute-to-minute, hourly or daily fluctuations in prices around the world. More than US$1.5 trillion is traded every day, 95 percent of which is bet on whether currency values and interest rates will rise or fall. Traders make money either way and they thrive when markets are highly unstable, as they were in Southeast Asia in 1997 and most recently in Argentina.

The Tobin Tax is expected to reduce or eliminate the incentive to speculate and help stabilize exchange rates by reducing the volume of speculation. And it is set deliberately low so as not to have an adverse effect on trade in goods and services or long-term investments.

"The real challenge today is to explain the Tobin Tax to workers and ordinary people and point out the benefits they will have from regulating financial capital flows," said Jayati Ghosh, a development economist from India and also a panelist at Friday's seminar on Financial Capital Controls. The seminar is part of the January 31-February 5 WSF, which emerged as a kind of counterpoint to the annual World Economic Forum (WEF), which draws the world's top economic and political movers and shakers. The WEF, which is generally held in the Swiss ski resort city of Davos, was relocated to New York this year because of expected anti-globalization protests.

However, Ghosh said that the Tobin Tax should not be seen as the only measure possible or desirable for curbing the problem of speculative money flowing out of devastated economies, ranging from Thailand to Argentina.

Among other measures discussed by panelists at the WSF seminar were a flat tax of up to 20 percent on multinational profits to be diverted for poverty alleviation, a tax as well as a minimum lock-in period for foreign capital, and tighter controls over bank credit to companies and outflow of foreign exchange from national economies. While many of these measures, such as the lock-in period for foreign investment, are already being implemented in countries such as Chile and Malaysia, Ghosh pointed out that there were considerable obstacles still in the way of making speculative capital flows accountable to the individual economies they operate in.

Among the biggest problems is the way international financial institutions such as the International Monetary Fund and World Bank have pushed neo-liberal policies, favoring free movement of capital, on to the backs of numerous developing countries, said Gigi Francisco, of the Development Alternatives with Women for a New Era (DAWN). She believes regulation of global capital will remain difficult because developing country governments are under tremendous pressure to keep the doors of their economies open.

Ghosh contends that ultimately the biggest problem is not economic but political in nature, because currently global power relations are skewed in favor of a few rich countries that are pushing neo-liberal policies worldwide. Tinkering with the global financial system, she says, cannot be a substitute for a real redistribution of global wealth and power.

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