Doug Saunders
Christine Lagarde, France's guru of the free market, could never have
imagined that she might find herself seated over fruit salad and tea on the
Left Bank of the Seine, selling the merits of a scheme to rein in the forces
of global capital and channel vast sums from the banks into the hands of the
people.
But in the nearly three years since President Nicolas Sarkozy appointed her
to bring U.S.-style market discipline to the creaky French economy, the
world has turned upside down and radical economic ideas are no longer so
outré.
"I am, economically speaking, a liberally minded person - I'm not a state
interventionist, if you take my point," the French Finance Minister tells me
quietly, almost by way of apology.
And then delivers the pitch she is bringing to her fellow ministers at the
G7 finance summit in Iqaluit this weekend: to get the world's economies to
place a tiny tax, of a small fraction of a percentage point, on all
international financial transactions - there are millions every day - and
use it to collect billions and trillions of dollars for collective use by
the governments of the world.
Even a year ago, the Tobin tax - named after its inventor, economist James
Tobin - was an idea from the fringes of political thought, the sort of thing
that odd-looking people who corner you at parties talk about at length.
But the prospect of a total economic collapse concentrates the mind
wonderfully. Long-abandoned ideas, such as the state takeover of banks and
massive taxpayer support of private-sector employment, suddenly became
mainstream policy among conservative governments. The risk of slowing down
markets and raising the cost of finance sounded less serious. The
unthinkable became thinkable.
Then, in December, British Prime Minister Gordon Brown abruptly announced at
a G20 conference that a "microtax" should be applied to wholesale market
transactions, with the funds used to create a global "insurance policy" to
protect against future market failures.
Angela Merkel, the conservative German Chancellor, jumped on board, and the
three countries are pushing the idea hard in Iqaluit today. It's still a
hard fight: U.S. Treasury Secretary Tim Geithner doesn't like it. But former
U.S. central banker Paul Volcker, the influential mind behind President
Barack Obama's dramatic banking-reform proposals, spoke in its favour.
It's fitting that we end up discussing the mechanics of this strange new tax
here, in the cavernous, baroque parliamentary office that was once the home
of Jean-Baptiste Colbert, the 17th-century finance minister who virtually
invented the use of government regulation as a tool to shape and secure the
economy. He, too, was employed by a well-known conservative, King Louis XIV.
The state and the market have had a long and intricate dance together, and
this is its latest pirouette.
The Tobin tax may overcome the barrier of political resistance, but it faces
other hurdles. The first - technological - is no longer so difficult: The
micro-billing of minuscule amounts on millions of transactions is how the
prosperous core of the online advertising industry now works.
The larger problem is that many international transactions do not go through
central banks or exchanges but take place in informal over-the-counter
markets, unseen by regulators. The world would need to design a centralized
financial clearinghouse for all transactions. As it happens, this idea is
popular elsewhere, notably among governments hoping to put an end to tax
havens and other tax-avoidance schemes.
Even before those problems are solved, though, a fight has broken out over
how to use the money.
Some would follow Mr. Brown's lead and use it as a strict financial
insurance scheme (what his Chancellor of the Exchequer, Alistair Darling,
described to me as a "living will"). Others would hand it to the
International Monetary Fund for larger economic development uses.
There is a strong desire, notably in Germany, to use the billions as a
"green fund" to pay for carbon-reduction schemes and environmental defences.
And, as a number of people have noted, it would raise enough money to lift
the world's billion poorest people out of absolute poverty, if spent on wise
programs.
At mention of this, Ms. Lagarde recounts a famous fable by another
17th-century Frenchman, Jean de La Fontaine.
"The farmer walks to the market with big jar of milk on her head, and she
thinks, 'Once I sell my milk, I will buy a cow and I will buy this and
that,' and she gets so excited by all this that she starts dancing, and this
makes the milk fall off her head and spill. And all the dreams are gone."
The minister, ever poised, gives a wry smile. "And so we don't even have the
jar of milk at the moment!"
