Global political movement for the Tobin Tax: A post-Asian crisis re-assessment of possibilities
After the Mexican (1994-95) crisis and its repercussions, the Asian crisis (1997) – spreading to Russia and Brazil (1998) – alarmed the world. However, the Asian crisis did not lead to a global regulatory change. The New International Financial Architecture (NIFA), the official response to the crisis, is a set of policies and regulations that aim at making financial liberalisation and deregulation more stable and legitimate. NIFA is not an attempt to reverse or transform these processes or their guiding principles, but to strengthen them.
In fact, the Asian crises provided an opportunity for the US, the IMF, and advocates of the Washington Consensus to impose their preferred model on the Asian tigers. The accusation was that the Asian form of capitalism has been “crony”, that is, it is corrupt and based on intimate and illegitimate networks of close friends. This was claimed to be the cause of the Asian crisis. The solution was, of course, to replace the Asian model of “crony capitalism” with “free markets”, in order to make also financial markets work properly. This was also the condition of the IMF rescue loans. Simultaneously, the Western corporations and banks had the opportunity to buy Asian means of production at a great bargain (e.g. the dollar-valued price of Indonesian factories and enterprises in 1998 was only about 4% of their previous value). As a result of the Asian financial crises, these countries came under neoliberal domination more strongly than ever.
While the Asian crisis strengthened the grip of the Washington Consensus over the countries facing the crisis (until the crisis they had formed the key exception to the rule of slackening global conditions, since then the key exception has been China), it also led to a new phase in the development for the global alter-globalisation movement trying to establish alternative principles of global regulation. As a reaction to the alarming situation created by the Asian crisis, a more systematic and organised global campaign for the currency transaction tax (CTT) – often called the Tobin Tax – emerged. This reactive scheme has been reinforced by general frustration with the mainstream Western politics of neoliberal globalization, and also through the establishment of the ATTAC (Association pour une Taxe sur les Transactions Financières pour l’Aide aux Citoyens), it contributed decisively to the founding of the World Social Forum in 2000-2001.
The Lula-Chirac report
However, the CTT campaign is divided. One part of the campaign would be content to use a minimalist version of the tax to raise funds for more development aid, mostly through existing channels, leaving global relations of power and regulatory principles intact. The hope is if the CTT is compatible with neoliberalism, its chance for success improves. In 2004, this version of the CTT gained support in the form of the Lula-Chirac Initiative by the Presidents of Brazil and France, joined as well by the Presidents of Chile and Spain, and the UN Secretary General (and United Nations University - WIDER). The Lula-Chirac report “Action against Hunger and Poverty” does not exclusively focus on the need to generate global funds, but it seems to assume, by and large, the validity of prevailing economic theories and policies. It tries to avoid “distorting” free markets and would like to exempt a large part of all currency transactions from the tax (the so-called “market making transactions”).
Moreover, the Lula-Chirac report assumes that the CTT can only be implemented if all the major financial centres are within the system from the outset. In other words, the US or any other major financial centre would have a veto-power over establishing the tax. Effectively, the same is true for any attempt to realise (even a neoliberal) version of the CTT through the UN system. Even in its neoliberal form, the CTT would be, after all, a tax that a few financial corporations (mainly banks) should pay. Moreover, the CTT might be seen as a precedent for other global taxes; thus, at least the US, will continue to oppose it. The solution of some NGOs such as War on Want has been to turn the CTT into a series of independent national taxes, united only by a voluntary global developmental fund based on a one dollar/one vote principle. Instead of a global tax, the CTT would merely be another form of aid. The real effects of this model would be rather limited and context-preserving.
The Draft Treaty for the Tobin Tax
The Draft Treaty on Global CTT outlines an alternative model, more in line with the aspirations of ATTAC and many organisations and movements participating in the WSF process. The basic assumption of this model is that global financial markets are unstable and undemocratic. As explained by James Tobin already in the 1970s, well before the spectacular financial crises that we have seen since, “national economies and national governments are not capable of adjusting to massive movements of funds across the foreign exchanges, without real hardship and without significant sacrifice of the objectives of national economic policy with respect to employment, output, and inflation”. According to the Draft Treaty, the tax is set at the sufficiently high level to curb the power of transnational financial flows. Global finance constitutes also structural power. The CTT should thus be a multilaterally agreed global tax controlled by a democratic body, capable of mitigating the effects of the power of finance. The Treaty on Global CTT also has the potential to act as an “icebreaker” in international law, by setting an example of post-sovereign global regulation and taxation that can be applied also in other fields.
There are thus various competing models of realising the CTT. The possibility to realise the CTT as a truly global tax, also implying a democratic change in global regulatory principles, is dependent on the possibility of enrolling a sufficient number of states to support the model, and organise an international conference to discuss a possible treaty. It may take further crises before this will happen. However, since the political consequences of a major crisis are always hazardous, it does not seem particularly wise to stand passive and just wait for a new disaster.
Further links
Currency Transaction Tax Resources
