Twenty-five
years ago, Nobel Prize-winning economist James Tobin proposed a modest
tax on speculative financial transactions.
Even then, he was farsighted enough to foresee the enormous harm that
could be inflicted on national economies if money-traders and speculators
were free to move funds in and out of a country whenever they wished.
Since Tobin first made his proposal, the devastation caused by unfettered
(and untaxed) financial mobility has exceeded our worst fears. Many countries
have been raised to giddy heights of economic growth by the inflow of
foreign capital, only to be plunged into deep recessions when the money
was suddenly pulled out. Millions of people have been impoverished by
the effects of trade and capital "liberalization," and by the
free-market policies forced upon them as a condition for foreign investments
and loans.
In effect, the money markets now control the pace--and place--of economic
activity on a world-wide scale. They use their power to coerce and intimidate
governments. Any country that tries to stimulate its economy or increase
its spending on social programs is "disciplined" by a flight
of capital--or by the threat of such a penalty. To pretend that any kind
of genuine democracy is possible under such conditions is to fantasize.
The money moguls won't tolerate governments that act in the public interest,
that dare to defy the dictates of the IMF, the World Bank, the central
bankers, and the CEOs of transnational corporations. In a world where
money equates with power, economic and social policy is now set in the
boardrooms, not the legislatures. And so the stupendous amount of $1,500
billion a day in financial transactions now floods back and forth around
the globe, more than 90% of it in the form of short-term speculation on
currencies and exchange rate fluctuations rather than in investments in
the real economy.
When Tobin floated his proposed 0.5% tax on such short-term transactions
in the early 1970s, he likened it to throwing "grains of sand"
into the cogs of the financial machinery, to discourage speculation and
encourage long-term investment. But in the ensuing quarter-century, the
Tobin Tax has been scorned or ignored by the world's key financial institutions--and
thus by their political and academic minions.
The commercial media have also disdained to report or comment on Tobin's
proposal. So much so that, when a major book--The Tobin Tax: Coping With
Financial Volatility--was published a few years ago by the prestigious
Oxford University Press, it was boycotted by the media--because (according
to Noam Chomsky) of pressure exerted by the big American financial institutions,
as well as the Clinton administration.
The financiers and speculators don't want it generally known that the
Tobin Tax, if introduced, would make it much less profitable for them
to engage in their current very harmful and destabilizing practices. They
would have to put more of their money into constructive and job-creating
enterprises instead. (Even such a small tax, by the way, because of the
vast sums involved, would generate as much as $500 billion a year, which
would contribute greatly to helping the world's poor, hungry, sick and
homeless.)
Will the Tobin Tax, or its equivalent, continue to be ignored? Perhaps
not. The destructive consequences of the speculators' uncontrolled greed
are becoming so obvious that even some of their erstwhile allies in business
and government are considering--a few even openly advocating--the reimposition
of some kind of capital controls.
Prof. Tobin has argued convincingly that his proposed tax would be the
easiest and most effective such curb to introduce. Most of us may yet
live to see it implemented.