Today’s Guardian carries an appropriately cautious welcome for the European Commission’s decision to support a Financial Transaction Tax among 11 member states. Based on the ‘Tobin Tax’ first proposed by American economist James Tobin in the early 1970s, the tax will impose a 0.1% tax on share and bond trades 0.01% levy on all currency and dervivatives transactions within and between participating states. Tobin’s original proposal was intended to slow market volatility by introducing the tax at a level that would act as ‘sand in the wheels’ – not enough to stop the markets flowing, but enough that huge fluctuations would get very expensive for the institutions involved. This contrasts with the complete impunity with which the financial markets can currently operate, despite the damage that huge trades in overly risky and speculative ‘products’ (such as sub-prime mortgages) have done to us all.
As Larry Elliot notes in the Guardian piece, the proposed level is hardly enough to act effectively as the much needed ‘sand’. However, since Tobin, the debate has moved on to focus as much on the likely revenues generated by such a tax (many predict $billions) as on the disciplining of the markets. The very low level of the proposed rate seems to reflect this in a compromise intended more to generate a bit of cash and some posiitive headlines than effective market regulation.
More importantly, however, the proposed FTT suffers from a significant flaw – it is not ‘global’. With only 11 national members – and among them Europe’s weaker economies – the tax will be very easy for the world’s banks to circumvent. Not only are currency and derivatives markets already mainly ‘offshore’ – occupying that complex xenospace made up of tax havens, tax shelters and the other arcane ‘locations’ of the contemporary xenotopia – but those states, particularly the UK, with the worst record of regulating their finance industries will not be joining in. As is now well known, banks and corporations are able routinely to avoid national tax systems (which are far more rigorously enforced than an essentially voluntary FTT is likely to be), so this project seems fatally weak from the outset.
Tobin’s tax would only work if there were no effective space beyond the areas and institutions covered by any FTT. This does not have to mean that every bank or transaction is captured, but it needs to be sufficiently difficult (and expensive) to evade the tax for it to have any chance of making a real impact. The exit routes from the European Commission’s FTT are so many and so obvious as to make this little more than a cosmetic exercise for the moment.
Of course, I sincerely hope that I’m wrong and that the participating banks pay in to the system and raise the $billions predicted. More than that I hope that this will demonstrate the viability of an FTT to those sceptics and vested interests (UK, US, etc) that currently block its wider appllication. But for that to happen the emphasis needs to move from revenue generation to proper regulation, and that requires the shutting down of the world’s economic xenospaces. My hopes are not high.