Global Policy Forum

By Peter Sain ley Berry

At a recent international conference, James Wolfensohn, President of the World Bank gave a stark warning to the heads of government of the developed world. He argued that on present trends, none of the International Development Goals on health and education were likely to be achieved at the global level, while progress towards the goal of halving the number of people in poverty was likely to remain distinctly patchy.

"It is time to make it clear, …. that development assistance is not charity, but a vital investment in global peace and security," he said. We must remind [major aid donors] that their current levels of foreign aid, at some 0.24 percent of yearly GDP, fall far short of the 0.7 percent target they promised to meet. The difference between these figures is worth a hundred billion dollars a year. For millions of children, this is the difference between life and death."

Despite the pledges there is little sign of the UN target being widely met. Governments instead prefer to hide behind talk of better aid targeting. But the reality is that there is no chance of developing countries as a whole making satisfactory progress towards prosperity and sustainable development without a very substantial increase in levels of assistance from the rich world to the poor.

There is now also the climate change factor to consider. Across large swathes of Africa and Asia in particular, climatic disturbances have wrecked harvests over a prolonged period while the economic disruption caused by the AIDS pandemic is also hampering the achievement of development targets. At the end of the day it is not a question of fine-tuning the aid and assistance systems, producing more sensitive debt relief here or a better directed and monitored aid policy there: at the end of the day it is a simple question of money.

With growth slowing in the United States and stagnant in Japan and with Europe still in the grip of relatively high unemployment, there are tremendous pressures on all governments to reduce public expenditures. Faced with the need to keep taxes low on the one hand and an obligation to provide the wherewithal to make good on their Millennium pledges to the developing world on the other, there is no question about who will win. "It's the rich what gets the money, the poor what gets the blame" wrote the songwriter and he was absolutely right.

Nevertheless, the governments of the developed world are coming under increasing pressure to relieve poverty. This comes only partly from their own citizens, still less from altruism. The pressure comes from their own self-interest and desire for self-preservation. Simply put, rich governments are realizing that they are already having to take expensive action to defend the oasis of the western lifestyle against the five sixths of the world's population out there in the desert.

Thus today immigration pressures caused by conflict and economic insecurity are causing significant problems both in Europe and in the United States. Ever increasing amounts of money are being spent combating illegal entry. Conflicts, often driven by poverty, also pose a threat to security, trade and tourism, quite apart from their humanitarian consequences. A world population growing by 77 million each year puts intolerable pressure on resources. Increased fossil fuel burning and deforestation are widely believed to cause the climate changes we are witnessing today, There is an ever faster loss of bio-diversity. Only education and raised standards of living can halt this gadarene rush.

And that brings us back to money. If developed governments cannot muster the political will to raise the required sums in taxes, where is it to come from? Enter the Tobin Tax. First proposed in 1978 by US Nobel Prize winner James Tobin, the tax is a levy on financial transactions. The argument in favor is simple and compelling. Vast sums of money are traded around the world on a day to day basis - over two trillion dollars at the last count. This money is not traded for any useful purpose other than to make profit out of small changes in its price. Some people make vast fortunes: George Soros, the billionaire financier, is estimated by some to have earned over £650 million in 1992 by speculating against the pound.

But betting against currency movements on this scale can cause vast disruption to markets. The Asian financial collapse in 1997-1999, which threw millions out of work and into poverty, was largely caused by financial speculation. A few financiers and banks profited but their money came from a general impoverishment of the population.

James Tobin's proposed tax would have the effect of dampening down this speculation. Levied at the rate of 0.25 per cent, a bet against a currency of a million dollars would cost $2,500 - sufficient perhaps to make speculators think twice about their actions. A more stable financial system would be in the overwhelming interest of all trading businesses as well as world development more generally.

But it is the revenues that a Tobin tax would generate that make it really appealing. One estimate suggests a yield of $250 billion. At that rate the British charity War on Want estimate that the revenue could pay off all poor nation debts within eight months. At last here is a source of revenue that would really make a difference.

Until now the groups that have been campaigning for the introduction of the Tobin tax have had an uphill struggle. Governments have been opposed to anything that restricted capital flows or interfered with markets. Nevertheless support has been growing throughout the world: group after group has been set up to campaign for its introduction.

They argue that as financial trading becomes more centralized - over two thirds of all transactions are handled in London, New York or Tokyo - and with increasing co-ordination of strategy through bodies such as the G8, many of the obstacles to implementing the Tobin Tax, such as traders moving offshore, are being removed. Above all it could provide those governments with a way of achieving the impossible, meeting their Millennium pledges without raising domestic taxes.

Is it all a pipe dream? Well, one person who does not think so is George Soros himself. Last weekend he was reported to have called the Tobin Tax "a very good idea" even though admitting it would make his personal operations harder. And when George Soros speaks, governments around the world take notice.

More information on the Tobin Tax can be found at