Global Policy Forum

A Tobin Tax? The Outré is Back in


Doug Saunders

February 5, 2010

Christine Lagarde, France's guru of the free market, could never have

imagined that she might find herself seated over fruit salad and tea on the

Left Bank of the Seine, selling the merits of a scheme to rein in the forces

of global capital and channel vast sums from the banks into the hands of the


But in the nearly three years since President Nicolas Sarkozy appointed her

to bring U.S.-style market discipline to the creaky French economy, the

world has turned upside down and radical economic ideas are no longer so


"I am, economically speaking, a liberally minded person - I'm not a state

interventionist, if you take my point," the French Finance Minister tells me

quietly, almost by way of apology.

And then delivers the pitch she is bringing to her fellow ministers at the

G7 finance summit in Iqaluit this weekend: to get the world's economies to

place a tiny tax, of a small fraction of a percentage point, on all

international financial transactions - there are millions every day - and

use it to collect billions and trillions of dollars for collective use by

the governments of the world.

Even a year ago, the Tobin tax - named after its inventor, economist James

Tobin - was an idea from the fringes of political thought, the sort of thing

that odd-looking people who corner you at parties talk about at length.

But the prospect of a total economic collapse concentrates the mind

wonderfully. Long-abandoned ideas, such as the state takeover of banks and

massive taxpayer support of private-sector employment, suddenly became

mainstream policy among conservative governments. The risk of slowing down

markets and raising the cost of finance sounded less serious. The

unthinkable became thinkable.

Then, in December, British Prime Minister Gordon Brown abruptly announced at

a G20 conference that a "microtax" should be applied to wholesale market

transactions, with the funds used to create a global "insurance policy" to

protect against future market failures.

Angela Merkel, the conservative German Chancellor, jumped on board, and the

three countries are pushing the idea hard in Iqaluit today. It's still a

hard fight: U.S. Treasury Secretary Tim Geithner doesn't like it. But former

U.S. central banker Paul Volcker, the influential mind behind President

Barack Obama's dramatic banking-reform proposals, spoke in its favour.

It's fitting that we end up discussing the mechanics of this strange new tax

here, in the cavernous, baroque parliamentary office that was once the home

of Jean-Baptiste Colbert, the 17th-century finance minister who virtually

invented the use of government regulation as a tool to shape and secure the

economy. He, too, was employed by a well-known conservative, King Louis XIV.

The state and the market have had a long and intricate dance together, and

this is its latest pirouette.

The Tobin tax may overcome the barrier of political resistance, but it faces

other hurdles. The first - technological - is no longer so difficult: The

micro-billing of minuscule amounts on millions of transactions is how the

prosperous core of the online advertising industry now works.

The larger problem is that many international transactions do not go through

central banks or exchanges but take place in informal over-the-counter

markets, unseen by regulators. The world would need to design a centralized

financial clearinghouse for all transactions. As it happens, this idea is

popular elsewhere, notably among governments hoping to put an end to tax

havens and other tax-avoidance schemes.

Even before those problems are solved, though, a fight has broken out over

how to use the money.

Some would follow Mr. Brown's lead and use it as a strict financial

insurance scheme (what his Chancellor of the Exchequer, Alistair Darling,

described to me as a "living will"). Others would hand it to the

International Monetary Fund for larger economic development uses.

There is a strong desire, notably in Germany, to use the billions as a

"green fund" to pay for carbon-reduction schemes and environmental defences.

And, as a number of people have noted, it would raise enough money to lift

the world's billion poorest people out of absolute poverty, if spent on wise


At mention of this, Ms. Lagarde recounts a famous fable by another

17th-century Frenchman, Jean de La Fontaine.

"The farmer walks to the market with big jar of milk on her head, and she

thinks, 'Once I sell my milk, I will buy a cow and I will buy this and

that,' and she gets so excited by all this that she starts dancing, and this

makes the milk fall off her head and spill. And all the dreams are gone."

The minister, ever poised, gives a wry smile. "And so we don't even have the

jar of milk at the moment!"


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