Global Policy Forum

By Glyn Ford

How can we eradicate world poverty? This is a question all developed nations have a responsibility to consider. At the beginning of the new millennium, we may have found the answer - a global tax on capital transfers.

While the "Tobin tax" is one of a host of solutions, it is being mooted, particularly in Europe, as the one that could work - by raising a possible $250 billion from financial markets worldwide each year to help support developing economies.

So how could it work, and how would it affect Japan? The European Union - under the presidency of France - may well give the Tobin tax a boost. Laurent Fabius, French minister of finance, will raise the idea of an independent expert study of how such a tax might be introduced during the French presidency of the Council of Ministers during the second half of this year.

With support for the tax - named for James Tobin, winner of the Nobel Economics Prize - growing rapidly, Japan needs to be aware of the consequences for its economy. Governments are traditionally reluctant to place restrictions on financial markets, but many experts agree that it is just a matter of time. A tax of this type, of between 0.05 percent and 0.25 percent, would not affect the cost of goods, services or investment in Japan, but would be imposed on speculators who buy and sell currency on a short-term, quick profit, basis.

The collapse of the "tiger economies" in the late 1990s brought the issue of currency speculation to the fore. The Southeast Asian economies are still recovering from the currency collapse that led to a corresponding collapse in confidence among investors, small and large; a withdrawal of capital and investment; and closure of thousands of companies and massive job losses. As Tobin envisaged this tax would "throw (sic) sand in the wheels of international finance" and prevent the international financial system being vulnerable to its own excesses.

Since the liberalization of the currency market the volume of transactions has increased by 8,300 percent. More worrying, the assets that global banks can call upon now equate to less than three days of trading on the international market. Yet foreign currency-exchange transactions are currently not subject to taxes anywhere in the world. This means governments are losing out on a lucrative source of revenue. The Tobin tax expert, Professor Alex Michalos, chair of political science, University of Northern Columbia, Canada, believes: "It is simply immoral and unacceptable that financial traders should be permitted to continue to take a free ride on the infrastructure of civil society without paying taxes to support their habit." Many in the European Parliament and around the world believe powerful financial traders should be prevented from dictating the terms of their own financial freedoms.

In many ways the Tobin tax could be considered a "sin tax" such as taxes oncigarettes and alcohol. However, the major difference is that whereas "sin taxes" affect many people, especially the poorer sections of society, the Tobin tax could raise hundreds of billions for the fight against poverty - a Robin Hood tax.

In the mid-'90s, the United Nations Development Program estimated that the cost of eradicating the worst forms of poverty, supplying water and energy, providing basic sanitary conditions and an education structure in the Third World would amount to between $30 and $40 billion per year.

In 1995, the Bank for International Settlements estimated the annual foreign-exchange trading figure at $312 trillion. Thus, the revenue obtainable from a Tobin tax of 0.25 percent, the highest rate suggested, is a staggering $250 billion a year.

This extra revenue could be allocated to the cancellation of the debt of developing countries. (This is in line with existing agreements by industrialized countries to cancel these debts). Another possibility is to use as a blueprint, the European Structural Funds, and allocate central monies to areas of the greatest need around the world. The funds could be distributed by the UN or an international conference devoted to the fight against poverty such as the Copenhagen plus-5 summit.

At the start of the 21st century, we have seen the emergence of demands for globalization - not for the globalization of George Soros, Total, Monsanto and the International Monetary Fund with their structural adjustment plans - but a globalization under the citizen's control. We are faced with a question of world justice, a decision between the billions earned by a few through the casino economy and entire countries fighting for survival.

As much as 80 percent of all foreign-exchange transactions are handled in just seven countries alone (Britain, the United States, Japan, Singapore, Switzerland, Germany and Hong Kong). All these major players, including Japan, need to collaborate to implement a global tax simultaneously in all financial centers to prevent discrepancies leading to the markets shifting to where the tax is not in operation. With global political impetus, the end to world poverty is a realistic proposition.

With the Finnish government in favor, and parliamentary working groups in France, Belgium and Italy, Europe has the opportunity to drive the debate forward on the Tobin tax. Over 75 percent of global foreign-exchange transactions occur in Europe and the French presidency has the critical mass to make it a Tobin zone. But a real attempt to eradicate world poverty will only happen when all the major players put their support to this world democracy.

Glyn Ford is a member of the European Parliament and secretary of the Global Tax, Fiscal Systems and Globalization Intergroup.

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