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
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
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.