Tobin tax on capital movements attracting growing support

The ability to determine the agenda of decision-making is a crucial ingredient of political power in national or international settings.

It operates in two ways: by including certain issues and excluding others which are considered impracticable or incredible or which might endanger order or legitimacy. Political scientists have described these as decision-making and non-decision-making processes, the latter often involving suppression of demands for change before they are voiced or taken seriously.

Thus normal politics usually operates within boundaries of the acceptable and unacceptable, policed daily by political and media discourse.

A fascinating example of these processes at work in current international politics is the debate on the Tobin tax on speculative capital flows. Mr James Tobin, a Yale economist who won the Nobel Prize in 1981, proposed in 1978 that all currency trades across borders be taxed as a means of curbing short-term speculation, stabilising currency markets, protecting national autonomy and encouraging longer-term investment. He originally suggested a tax of 0.5 per cent, later reducing it to 0.1 per cent. It would need to be levied universally to avoid capital flight to tax havens - a major practical difficulty as he acknowledges.

Given the colossal increase in short-term capital flows associated with globalised and liberalised international finance since his paper was published, such a tax would raise enormous sums. Up to $1.8 trillion are so traded daily ($500 trillion a year), giving potential annual yields of $100-500 billion, depending on the rate adopted. This compares with annual official North-South aid flows of about $60 billion and with the current UN annual budget of $13 billion. The UN estimates that the worst forms of poverty and environmental destruction could be tackled with a budget of $250-300 billion per year.

Major questions of international governance are therefore posed by the Tobin proposal. It has been taken up enthusiastically by the many movements critical of neo-liberal globalisation which have mobilised protests at successive international summits.

Gradually it has attracted support, initially mainly on the left of the political spectrum, but increasingly from mainstream experts, economists, some notable market players such as Mr George Soros and a number of governments.

Increasingly it is seen as a means of redistributing resources in a highly unequal world as well as a way to stabilise currency markets.

In France a mass movement has developed around it, Action for a Tobin Tax to Assist the Citizen (Attac), with tens of thousands of members. The organisation is rapidly becoming an international force, using the internet, with branches in many countries, Ireland included.

Going back to agenda-setting, this week saw a significant shift in the politics of the matter when the French Prime Minister, Mr Lionel Jospin, endorsed the Tobin tax. In a television interview marking the reopening of the political season he said: "We must discuss the issues (of globalisation) and I am in favour of France taking an initiative so that Europe endorse the Tobin tax."

The Belgian EU presidency has put the subject on the agenda for a meeting of economics and finance ministers on September 23rd in LiΦge for the first time (unlike the French presidency last year).

This follows a suggestion by Italy that the Group of Seven industrialised countries discuss it when they met in Genoa last July, which was turned down for fear of giving it too much prominence. At the EU summit in Gothenburg last June the Commission president, Mr Prodi, engaged in a substantial televised dialogue on the tax with NGO leaders, giving it sympathetic but critical attention.

There has been a flurry of criticism of Mr Jospin this week for giving the idea such credibility. He has overridden his finance minister, Mr Laurent Fabius, who has described the Tobin tax as generous but impractical and likely to destabilise foreign exchange markets (he has proposed a tax on arms sales instead).

Surprisingly, perhaps, an Attac spokesman accused Mr Jospin of trying to bury the tax while giving the impression of being in favour of it. This is because he knows it will not attract support from other EU states - a German economics ministry spokesman curtly dismissed it this week, while the Blair government also opposes it.

Critics suggest Mr Jospin is cynically canvassing the 6 to 10 per cent of his potential vote in the national and presidential elections next year that could come from people actively supporting Attac and its allies. He is also suspected of camouflaging his retreat on applying the 35-hour week to smaller businesses and on an anti-pollution tax.

Other critics fear that bringing the Tobin tax onto the mainstream political agenda could undermine the current international consensus in favour of the free movement of capital around the world. A comment in the financial pages of the London Independent put it like this: "Attempting to interfere with the free flow of capital around the world, which would be the effect of the Tobin tax, would not only be impracticable, it would also be undesirable."

A Financial Times editorial said Mr Jospin was "playing a dangerous game" by "giving a measure of credibility to those who seek to blame the world's ills on the free movement of capital".

Given that some 32 per cent of money trading takes place in London it is not surprising such papers should be so alert to this piece of news. In fact financial markets are very concentrated within the most developed capitalist countries and among the world's major banking houses. to apply, if the political will was there to do so.

More far-seeing commentators recognise that the reign of free-booting capital so characteristic of the 1990s has passed. Political leaders >and critics of actually-existing globalisation now that many more people are so dissatisfied with it.

The Tobin tax may sound utopian, but it has managed to mobilise millions of people in recent years by crystallising demands for a more equitable and governed international society. In that perspective Mr Jospin's shift, cynical or not, is very significant.

See also Business page 17