Tobin isn’t enough now

Fifteen years ago, Le Monde diplomatique first mentioned a tax on financial transactions (1). At the time, the value of these transactions was 15 times the entire world’s gross annual product. Today, it is almost 70 times. Back then we had barely heard of subprime loans and no one imagined there could be a sovereign debt crisis in Europe. Most European socialists, under the spell of Tony Blair, were all for “financial innovation”. In the United States, Bill Clinton was about to encourage deposit banks to speculate with their clients’ money. And in France, Nicolas Sarkozy, besotted with the American model, was praising the (potentially ruinous) policy pursued by the Federal Reserve (2) and dreaming of French-style subprime loans.

Almost no one in power backed a Tobin tax in 1997: everything was going so well. The then French finance minister, Dominique Strauss-Kahn, thought it would not work. Sarkozy was even more incisive: “The Tobin tax business is absurd … We will encourage the creation of wealth in other countries if we penalise it here” (3). As soon as he became president, he instructed his finance minister, Christine Lagarde (now head of the International Monetary Fund), to cancel a tax on stock exchange transactions. She explained that “this measure will make Paris more attractive as a financial centre” and she warned that if it was not cancelled, “deals will be made in foreign centres where taxes of this kind have long since been abolished” (4).

It is now clear that policymakers were irresponsible when they expected to make the most of “financial innovation” that grew from tax dumping. The state rescued the banks and asked them in return only to make even fatter profits for themselves. But no decisions were taken on financial control; there were just more grumbles about “money ruling the world”. In the US, even ultra-conservative Republican candidates now criticise Wall Street “vultures” who “come in, take all the money out of your company, and then leave you bankrupt while they go off with millions” (5).

So it is no surprise that, four months before the end of his presidential term, Sarkozy now claims “the financial institutions should be made to help repair the damage they caused”. No more talk about the “absurdity” of a tax on financial transactions, or the danger that the goose — speculation — might lay its golden eggs in some other country.

We could still be content to “throw some sand in the wheels of our excessively efficient money markets,” as economist James Tobin recommended long ago. But since these markets clearly represent an essential public asset whose shareholders have the ability to take countries hostage, we should do more. From now on, we must insist that the banks cease to be in the hands of private interests.