Why we should back Brown’s moves against the fat cats

The longstanding campaign for the Tobin Tax was once compared to the futile search for the Loch Ness Monster. So it is apt that an MP from Scotland, Gordon Brown, has started to scotch the cynics and trumpet the idea of a transaction levy. The UK now joins Germany, France and other countries as keen advocates.

The levy is a radical change in UK thinking. I remember a Treasury Minister dismissing Tobin in a meeting with a delegation a decade ago. But life is a great teacher and times have changed. The deeply damaging behaviour of bankers in the global casino economy sparked a world recession and necessitates new thinking and funds.

UK taxpayers must stump up £1.5 trillion to clear up the mess made by the masters of the universe.

Suddenly a transaction levy is centre-stage thanks first to the Chairman of the Financial Services Authority Adair Turner whose support increased its credibility in the summer.

The PM has spectacularly broached this taboo this Autumn. This is particularly striking given the City’s old stranglehold on UK policy-making.

A fair and popular question is why should the many suffer swingeing spending cuts and/or tax increases to pay for a few bankers’ mistakes without their changing their tune – from the bonus culture to a transaction levy? If “we are all in this together,” as George Osborne said, why don’t the fat cats cough up their share?

Brown’s surprise support at the recent G20 summit in St Andrews for a global levy and other measures has unleashed a more popular cat among the plump pigeons.

We should back Brown when he says that “it cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us.”

The PM is on the money in demanding “a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards.”

The potential benefits of a global tax have evolved over the years. The Tobin Tax was initially seen in the early 70s a means of stabilising the then far less volatile markets by “throwing sand into the wheels” of global finance.

As the scope of global currency speculation soared massively, campaigners banked this benefit of greater stability and focused on the massive revenues that could also be raised.

The Austrian government estimates that a levy on all financial transactions could raise £400 billion. They make the assumption that the levy would reduce transactions by two-thirds but this could be a liberal assumption. A minute levy on foreign exchange trades would raise less.

One idea would be to move rapidly towards a levy on foreign trade transactions as the first step in winning international agreement on taxing all transactions.

Brown suggests that the proceeds of a levy could be devoted to tackling climate change – a canny move in the run-up to the vital Copenhagen summit.

Gordon Brown has gone out on a limb and received some flak but could yet win the fight if he and others build international alliances and win public support, including parts of the City as well as unions and experts.

Avinash Persaud, chairman of Intelligent Capital and a former banker, argues that: “Financial transaction taxes are not only commonplace, but have become easier to enforce.” Persaud adds “ Where there is a will, there is a way.” Chancellor Alistair Darling also says: “No one is saying this is easy, but if you don’t look at the possibilities and ask yourself whether or not there could be a fairer way of making sure these big multinationals make a fair contribution, then I think you would be missing something.”

The traditional objection is that it requires an international regime to minimise evasion. But the trillion dollar a day trade is recorded electronically which makes it easier to track and tax transactions in the same way as tax havens are being tackled.

Supporters of a Tobin-type tax now have a golden opportunity to build the momentum behind this obvious measure of fairness to overcome the deeply damaging power of the banks and brokers.

The Conservatives and some papers accused Brown of chasing headlines and being isolated. But most people would welcome headlines saying that the banks should contribute to their salvation and not just rely on poorer punters to pay the costs of the banks’ failures. With a more concerted campaign, it could one day become a decent social democratic source of finance for development and alleviating climate change. The key point is establishing a global tax which is difficult to reverse.

It’s the right thing to do. Economist Will Hutton says that this is “potentially game-changing.” Let the Conservatives stick to the bad old days of socially useless banking and global greed whilst Labour demands a fair deal from finance capital. Gordon Brown’s suggested sin tax can help civilise the wilder excesses of global finance, raise billions for good causes and monster the Tories.

See www.stampoutpoverty.org for updates on the campaign.

  • Greenflag

    ‘Economist Will Hutton says that this is “potentially game-changing.”

    He could be right though perhaps too late for the next up coming game. Gordon Brown certainly connected with David Cameron’s chin at the last PM Question time !

    ‘Let the Conservatives stick to the bad old days of socially useless banking and global greed ‘

    Greed is not going away. It can only be made less ‘socially’ and ‘politically’ suicidal for states and economies worldwide .

    ‘whilst Labour demands a fair deal from finance capital.

    He should get the support of the Germans and French and even the Americans . One would hope so 🙂

    ‘Don’t give up till it’s over’ as Ronnie Drew used to sing !

  • Dave

    It’s a shame that Flash Gordon, the man who saved the world by saving capitalism and who now has another mission to save the world (which will apparently self-destruct in 50 days), couldn’t turn some of his genius to saving the UK economy which seems to have been comprehensively fucked by some mysterious other during the period that coincided with his chancellorship and premiership. Big government always means big taxes which means smaller economies. Someone is going to have to pay for for the vanity projects of those who only know how to spend wealth that others have created, and that would be those who do know how to create wealth. Unfortunately, those who know how to create wealth will have less wealth to invest, so government will have less taxes to collect to pay for said vanity projects.

  • Rory Carr

    Don’t be coy, Dave, do tell us please exactly how you define ‘wealth’ and who it is that you believe are those with the sole knowledge of how to create it. I do hope that you have not been bamboozled by all this television advertising of the Dosh4Bling variety and are maybe referring to the ancient but ultimately futile practice of alchemy.

    I wouldn’t mind betting my little cotton socks however that you just might consider yourself to be one of these magical wealth creators.

    I was wondering if I, with my splendid little crop of courgettes and carrots from my allotment plot this year, which I was able to share among my friends and neighbours, might not be one of those very sharp cookies who ‘know how to create wealth’ myself. Or does the small matter of my refusing to profit from this bounty somehow knock me out the wealth creation league table?

  • Greenflag

    ‘by some mysterious other ‘

    There’s nothing mysterious about the ‘other’

    We had some quotes from Andrew Jackson , Thomas Jefferson and even Abraham Lincoln on another thread explaining how the ‘mysterious’ other operated in the past and it’s little different today . We have the words of Dwight D Eisenhower who saw the dangers of the military industrial complex becoming a juggernaut and we now see the result of the neo con juggernaut of destruction on the world economy .

    ‘Unfortunately, those who know how to create wealth will have less wealth to invest’

    Of course having ‘stolen ‘ from millions of people conned millions more they finally ended up stealing from each other and the taxpayers 🙁 Some including Goldman Sachs and Bank of America continue to benefit from their success as the world’s greatest theft corporations !

    Wealth creation my arse . It was a ponzi scheme from beginning to end plain and simple -aided and abetted by the thickest and most self serving generation of politicians ever to have been elected to public office in the western world .

    ‘ Big government always means big taxes which means smaller economies.’

    And NO government or negligent government or turn a blind eye government or complicit government simply means that the biggest gangsters on the globe get to steal everything they can lay their hands on, and will continue to do so regardless of the social and political consequences of their greed .

    The people of Britain , Ireland and the USA and other countries need to rise up and crucify the bastards ;)!! Upside down preferably and of course only after a fair trial .

  • Dave

    Rory, you’d lose your little cotton socks. But if they’re actually cotton, that might not be a bad outcome for you. Governments don’t create wealth. They raise their revenue by taxing wealth. That’s a good way to get rich quick, but only if you have the power to imprison those who fail to comply with your request to hand over their money to you. It is not, however, a qualification in business. That is not to say that governments can’t create wealth in that they can’t produce goods or services of greater value than the resources used to produce them. They can, but they don’t. Taxation is a zero-sum game where those who benefit from the redistribution of other peoples’ money gain and people whose money is being confiscated obviously lose. Wealth is created by a very small number of people who have the relevant flair for entrepreneurship. If every old tosser (such as a politician) knew how to create wealth, every old tosser (bar the lazy) would be a millionaire. So it’s not a case of the state nominating a risk-averse public sector worker to build a Microsoft or a Ryanair but rather it is a case of waiting for a Bill Gates or a Michael O’Leary to come along via the private sector and take the necessary risks. Politicians, as a rule, do not have entrepreneurial skills, which is why the world’s top businesses are not state-owned. Workers merely spend wealth, never creating it. You tax them without damaging the much more valuable wealth-creating class beyond some modest impact on the demand-side. But remove the wealth from the wealthy and you remove the means to create wealth from those who know how to create it. Your faith in the political class as the doer of all good is matched only by that class’ wholly unmerited faith in itself. In Obama’s case, he wants to take the majority of Americans out of the tax net because this provides the Democrats with a core group of voters who will always vote Democrat out of self-interest. As Shaw observed, any party that taxes Peter to pay Paul can always depend on the support of Paul. In effect, they seek to gerrymander the democratic process and doing extreme damage to the American economy in the long-term. That is a particular political class protecting the interests of itself – which is always its first priority. The national interest is always secondary if it figures at all.

  • Dave

    Greenie, why do you have such faith in big government when big government made you responsible for the debts of big business? Big government is not the little man’s friend.

  • Sean Fear

    For a British Prime Minister to propose an international tax on banking transactions is as sensible as a French President proposing an international tax on wine sales, or a German chancellor proposing an international tax on luxury car exports.

    Gordon Brown has simply confirmed that he is unfit for his current position.

  • Greenflag

    Dave ,

    ‘why do you have such faith in big government when big government made you responsible for the debts ‘

    I do ? News to me . I have less faith in government than you might think . But I do understand that without government and my preference is for effective government rather than ‘big ‘ or ‘small’ government -the human race would end up eating each other in the streets in the literal sense . I also understand that in extremis the ‘little people’ will rise up and remove their government when it’s seen to be too naked an embarassment. This is ‘revolutions’ take place .And history despite Mr Fukuyama’s soundbite has not ended . The struggle is now not between communism and capitalism but between the various brands of capitalism .

    I have however even less faith in big business to behave in a manner which would not destroy the entire planet if they were allowed to do what they want to do without regulation. We have seen what the big ‘financial ‘ services corporations have wrought and we see the roles of Haliburton and Enron and a myriad other big corporations in fostering war mongering or in pillaging the life savings and retirement funds of their employees . We see Walmart and a hundred other Corporations purchase ‘dead peasants ‘ insurance so they can milk ‘profit ‘ from their employees wneh they die ? The economic and social history of large corporations from the beginning of the industrial revolution to the present shows that for many of them ‘human life’ mattered little be it child labour in 19th century Manchester or slave labour in 19th century North Carolina or the ‘lead poisoning ‘ of it’s employees by the Ethyl Corporation in the mid 20th century . The only reason said corporations now ‘behave ‘ is simply because ‘government ‘ forced them to .

    I agree with your point re wealth creation and the importance to a society in making use of the talents of such people . But it cannot be at the expence of the remaining 90% of the population .

    Anyway in such a world given over entirely to laissez faire the so called ‘wealth creators ‘ would have to spend too much of their valuable time and money building walls to protect themselves from the masses of starving and uneducated people without the walls . In such a world the ‘wealth generators ‘ would eventually have to feed off each other as there would be nothing left worth looting from the masses of the destitute .

    We need government elected by the people -for the people and answerable to the people as a famous American President once said . What he said about the ‘financial services ‘ sector you can read elsewhere on slugger . And he was a Republican and so was Dwight D Eisenhower and so too was Richard Nixon who was the first American post war President to try to bring in Public health insurance for the american people !

  • Dog in the Street

    Labour ARE the fat cats: war mongers, tax fanatics, over paid, mistresses, etc. They are in no position to preach. Least of all Brown, who has ruined British pensioners and is the main recruiting sergeant for the BNP.

  • Milan 0 Juventus 0

    Any idea who was the guy who rejected such a tax in 2003?

  • JoMax

    SDLP adopted the Tobin Tax idea around a decade ago. Article from this week’s BelfastMediaGroup site by Carmel Hanna:

    “This week Gordon Brown suggested the introduction of the Tobin Tax, which has been SDLP policy for many years. His proposal got a dismissive response from some in the G20, especially from the US.

    The Tobin Tax is named after the US economist and Nobel Laureate James Tobin. It proposes a tax on international financial transactions, such as currency trades, across international borders, basically currency speculation. It was originally proposed to be set at 1% of the value of the transactions, but was subsequently drastically lowered to 0.25% or 0.1% of the value of transactions.

    Tobin himself was not opposed to globalisation and his proposal was primarily to cushion national economies against exchange rate fluctuations and in order to discourage short-term currency speculators whose manoeuvrings can destabilise interest rate with disastrous consequences, as happened in the nineties in countries like Russia and Mexico.

    The idea of the Tobin Tax receded into the background for decades, though it was championed by highly credible aid agencies such as Oxfam and War on Want. Last year’s cataclysmic financial crisis has brought the idea back into public discourse and, apart from Gordon Brown, the idea has support from people like French President Sarkozy, Brazilian President Lula da Silva and the reform-minded Lord Adair Turner, chair of the UK Financial Services Authority, who has made clear his revulsion at the obscene bonuses that some City bankers pay themselves, despite them having to be rescued by the taxpayers at enormous cost.

    The US has caused a lot of the world’s economic and financial problems. There is far too close a relationship between the US government and unaccountable and a few undemocratic giant financial institutions, primarily Goldman Sachs (GS). A GS vice president, Lord Griffiths, who advertises himself as a practising Christian, said recently that inequality was good and that the public must learn to tolerate the £13.4 billion bankers’ bonuses GS would pay this year “for the sake of the common good”.

    Now the global head of GS has said his bank is “doing God’s work”.

    To my mind, GS are a pernicious, parasitic influence on the world economy that should be dismantled in the interests of democracy. GS has too much power over governments and consumers Worse, with the demise of other major banks like Lehman’s, and Bear Sterns they have even less competition and they are now so big that no US government would dare to let them fail.

    GS’s function is supposedly to source and allocate money for businesses and, undoubtedly, their staff are extremely astute and hard-working. It has a ‘dog-eat-dog’ ethos, it has been described by its own employees as “completely money-obsessed” and is even proud to describe itself as “greedy, but long term greedy”.

    The value which GS contributes to the world economy is miniscule in comparison to the vast amounts of fees it extracts from global financial manipulation. It was a prime driver of the US sub-prime mortgage crisis, though it dodged the credit crunch bullet when the bottom fell out of the market. GS short-sold mortgage-backed securities and ultimately made a $4 billion profit out of the sub-prime crash, which brought misery to so many. It was also a prime driver in the dot com bubble which burst in 2000 and has been implicated in massive commodities trading manipulation.

    I am a firm believer in social democracy, in a mixed economy and that wealth has to be created by enterprise, opportunity and free trade. However, our lives must have some moral basis. I believe it is time to look at ideas like the Tobin Tax. Some have rejected it because transactions are difficult to measure and it could be easy to avoid. That reminds me of the remark of Mahatma Ghandi, who once said “The Christian ideal has not been tried and found wanting; it has been found difficult and left untried”.

    We will never know if Tobin will work, unless we try to implement it.”

  • frustrated democrat

    The problem is not and never has been the bonuses, of which 60% will go to the Government in future in any event.

    The problem has beeen the deals that were done to get the bonuses. Therefore regulating the bonuses will not stop bad deals being done, the best solution is to allocate the bonuses pay the taxes but defer 75% of the actual cash payment to the employee for say 3 years and have a recall clause for a further 3.

    Bad deal = no bonus but still tax revenue to the government.

  • Brit

    Capitalism is the least bad economic system we’ve got and it seems to be inherently cyclical and prone to boom and bust.

    Blaming Brown for the current recesssion in the UK is hardly fair given the global nature of the economic downturn, the fact that much of it resulted from the US housing market crasch. It also fails to acknowledge the important steps, lead by Brown, taken by Wester governments to secure the financial markets and banks. The UK ecomony is not in great shape and the recovery will be slow but the crisis is over and I fail to see what a Tory government would have dont better.

    As for “big government”, anyone of a progressive bent understands that government intervention and management of capitalism is absolutely vital – one only needs to look at the depression in the 30s to know how small government coped with a financial collapse.

    Big government (though I wouldnt express it in those terms) is responsible for many of the advances and civilising developments of recent history, from the first legislation to protect child workers, to the welfare state, to devopment of the NHS in the UK, FD Roosveldts New Deal.

    There are plenty of cases of capitalism economies with small government failing to generate GDP growth (look at the RoI in the first few decades post WW2 before entry into Europe)