Источник: UNESCO Courier, Feb99, Vol. 52 Issue 2, p46, 5p, 2c, 1bw
Boukhari, Sophie; Anbarasan, Ethirajan; Kohut., John
JAMES TOBIN: REINING IN THE MARKETS
In an age of globalized markets and deregulation an American Nobel prize-winning economist champions a tax on short-term financial transactions to head off international crises and help poor countries
You once said that the study of economics offers hope, and that improved understanding of our economies can better the lot of humanity. Do you feel economists have been able to improve the situation of all humanity, or have they helped some people more than others?
I think some economists have helped some persons more than others. That's quite likely. But yes, I think on the whole economists have improved the lot of humanity, though we haven't done it as well as I might have hoped.
I began studying economics during the Great Depression. There was 25 per cent unemployment in the United States, in France probably 15 to 20 per cent, and complete disorder. The international political scene was certainly affected by the failure of the world economy. The rise of Hitler was directly related to the Great Depression in Germany.
Anybody who went to college who had his eyes open and read the newspapers in the 1930s had the right to be concerned about the economic situation, and the right to believe that failure of the world economy had a lot to do with the many threats to the peace of the world, to fascism, nazism and communism. To the extent that we learned in the Great Depression how to keep from having great depressions anymore we have reduced the likelihood that things like that would happen again. We figured out why there was a depression, and we figured out what kind of monetary and fiscal policies we could use as a remedy.
It seems that economists have generally concentrated on the production of wealth, and less on its distribution. According to international organizations like the United Nations Development Programme (UNOP), inequality is increasing within countries and between countries. That's why one might argue that economists have concentrated on the production of wealth, and less on distribution.
I don't think that's a fair charge against my profession. Actually, consider the whole welfare state that you have in France and throughout Europe--economists have had a lot to do with bringing it about and organizing it. We didn't have those things when I was younger. Social security didn't begin in the United States until 1936 during the depression. We didn't have publicly supported health care until after the war. A lot of those things have come with the help and the advocacy of economists.
Why does inequality keep increasing at the national and international levels?
That's a really complicated question. I don't have any single answer. We ought to be spending a lot of our energy, our emotion, and our intelligence to find ways of reducing inequality both within countries and between countries.
It hasn't been ignored by economists. The World Bank, for example, was founded in 1945 for that purpose. The reduction of inequality requires that people who have earned higher incomes in markets be taxed in order to improve the standards of living of the people who have been less fortunate, who earned less in markets. Among the major preoccupations of economic policy, social policy and politics is the level of taxation and the degree to which governments transfer your earnings into the hands of people who are less fortunate. Taxation and transfer programmes are a big political issue.
You ask: why don't democracies succeed in making more transfers of income and wealth from the fortunate people who earn a lot to the less fortunate people who earn much less? And then the same thing is true on a bigger scale between nations, between people in one part of the world and people in another. I suppose if you really wanted to reduce inequality across the whole world you would try to get rid of all immigration barriers, so that people could move wherever they want to, to get jobs and higher wages. That would certainly be an immense political problem.
Since 1971 you have been saying that states need to have at least a minimum amount of control over their national monetary policy. With globalization, have states lost control over monetary policy?
It is true that the globalization of financial markets has diminished the control that states have over their own monetary policies. There always has been a constraint on monetary policy ever since we started having some liberalization of monetary regulations back in the BrettonWoods system beginning in 1945. But that has gone on much more rapidly in the last few years, and it does limit particularly the power of small countries like those in East Asia to run their own monetary policies.
Given financial globalization, how can states preserve their monetary autonomy?
Well, they have to have some ways to slow down the inflow and outflow of foreign currency and to make the convertibility of their own currencies into foreign currency less damaging to the country as a whole.
Consider for example what happened in East Asian countries, where some of the banks--the banks in Korea for example--borrowed from New York, Tokyo and London banks. They borrowed very short-term, one week or two weeks, so that the lenders, the big banks in New York or Tokyo or London could decide every week or two whether to renew the loan. The commercial bank in Korea, for example, has to pay back the New York bank in dollars. How is it going to get the dollars? It is going to take some Korean won, the local currency, to the Korean central bank and say "you promised to give us so many dollars per won. Here is my won and I want whatever you have promised to give for won." So the hard currency reserves of the country in the hands of the central bank then evaporate as the banks pay back their loans. That's where the reserves go, and if reserves vanish like that then the currency will have to be devalued. That's what happened in 1998.
If, for example, Korea had had a law which said banks are not allowed to have short-term hard currency debts that are uncovered by corresponding short-term assets, then the central bank would be protecting itself. If they were to have interfered, to that degree, with complete globalization of the Korean banking system and the Korean money market, it would have been a very good thing.
There are a number of ways in which those countries can protect themselves. A transaction tax is one method.
That brings us to the so-called Tobin tax. Could you briefly explain to us what it is and how it would work?
There are 1.3 trillion dollars a day in foreign exchange transactions. Those transactions would be taxed, at a very low rate, something like one tenth of one per cent per dollar per transaction. The taxes would be levied by each country on transactions that originate in the country, and collected by the usual tax authority of that country.
If people are involved in making a lot of transactions every day, every week, they would have to pay the tax a lot of times. So they are discouraged from doing that just by the existence of the tax.
Would the world look different today if your tax had been in place since the 1970s? Would Asia have had the tremendous growth that we saw, which was partly fuelled by investments and capital flows? Would we also have had an Asian financial crisis, if the tax had been in place earlier?
Of the 1.3 trillion dollars in transactions per day, very few have to deal with the movement of productive capital from the savings of one country into the investment of another country. Developed countries nowadays move about 200 billion dollars a year into investment in developing countries. So most of the transactions that occur are not related directly to desirable movements of productive capital from developed to underdeveloped countries.
China doesn't have full convertibility, except of Chinese currency earned by foreigners in trade. You cannot convert Chinese currency into dollars or francs or yen just to move funds around. They have strict financial control very much like the controls that France had in 1945-46 right after the war. In fact, France had exchange controls of some kind until the middle of the 1980s. China receives a lot of direct investments from overseas without having convertibility of capital funds from one currency to another. It's not essential to have that.
Most of the investment from developed into underdeveloped countries wouldn't have been influenced significantly by the Tobin tax, by the exchange transaction tax. In fact, the advantage of that device is that it doesn't tax long-range investments appreciably at all. If you take a 20-year round trip by putting equity capital into an underdeveloped country, say from France into Viet Nam, and you don't take the money out for 20 years, you pay a tenth of a percent the first time and a tenth of a per cent coming back. That wouldn't influence your calculation about whether you want to make the investment. It's only the very short-term movements of currencies that would have been discouraged.
So would the so-called Tobin tax have actually prevented an Asian crisis?
Certainly you need other things as well. You need reforms in your own banking system and stock markets. The other big mistake, perhaps a bigger mistake than some of the things we have been discussing, is the practice of having a fixed exchange rate. You wouldn't have the currency crisis if you didn't have a fixed exchange rate. A fixed exchange rate is a promise by the central bank of the country to pay a fixed amount of dollars, yen, euros or a basket of several currencies. If the central bank doesn't have a reserve of hard currency, it has to default on this promise. It's like the failure of an ordinary bank. If depositors come and ask for cash for their deposits and the bank doesn't have them, then the bank has to close and there is a crisis.
In the light of the Asian crisis, many of the countries in Asia feel that they have lost their power, that there has been a shift in the balance of power between the state and the free market. Do you think that view has any substance?
I think that they are right about that to a considerable degree. The financial markets being completely liberalized and in my view prematurely liberalized, leaves governments without the control or restrictions which they need to limit the speed and volume of movements of funds in and out of their currencies.
Do you think we will continue to have big financial crises. Are we learning from our mistakes?
Financial crises are not inevitable. I think we will probably learn from mistakes and we won't go back--at least in the case of these countries--to trying to defend a fixed rate of exchange, against dollars or yen, and that will certainly make crises less frequent.
The whole of history is peppered with international financial crises. I am not sure it's right that they are more frequent now. There are more people in advanced countries who have put money into countries where crises occurred. In particular, countries in Asia had grown very rapidly, almost miraculously, for two or three decades and had promoted themselves to higher echelons and higher places in the pecking order of countries and economies. They have a lot of the trappings of the modern European or American economy--stock markets, bond markets, money markets, all these things-and growing levels of wealth and income. They have much closer ties to financial enterprises overseas in major countries. So there was a bigger shock when they couldn't maintain their promises to pay dollars to banks in America and Japan.
Do you think is there any chance of the Tobin tax being implemented one day. In France there is a movement to promote it. Political figures agree with this tax when they are in opposition. But when they are in power they don't talk about the Tobin tax.
I am not optimistic about that. I don't think the financial community, including ministers of finance in major countries and the central banks of those countries, have any use for those taxes. They don't want it. Even if somebody else in the government may say good things about it as Francois Mitterrand did, it won't go through the finance ministry. They are not going to go for it, the International Monetary Fund (IMF) is not going to go for it.
People do not like to be taxed. They think it is an interference with the free market.
Hasn't there been a little bit of a shift in the way people think?
A little bit of a shift, realization, some recognition at the last big meetings of the IMF and the World Bank. Some recognition that maybe globalization, liberalization internationally has gone too fast, too far. But there's been no actual proposal as to how that would be remedied. At least they did express a little more openness to considering ways in which flows of funds now in different currencies could be moderated. I never heard them mention the tax. I did see only one mention, in which Mr Michel Camdessus, head of the IMF, said he saw no support for international taxation.
Do you see there being some sort of attempt to regulate capital flows so as to help prevent the kind of crisis we have seen in Asia?
I don't think there is going to be any internationally co-ordinated policy. I do think that there is going to be more tolerance by the IMF and by the governments in North America and Europe of developing countries. In some of those cases I think there's probably not a big disagreement. For example, the banking systems of those countries were not ready to be part of international financial markets. They weren't ready because they didn't have the institutional and legal frameworks that we take for granted in our systems. Also, consider securities markets. In the United States we have had a federal agency, the Securities and Exchange Commission (SEC) since the 1930s. You can't sell stocks and bonds on the open market without registering complete information about it with the SEC. Yet many of our private financial firms helped set up exchanges in underdeveloped countries which didn't have these kinds of essential safeguards.
It would be very reasonable for a country like Thailand or Korea to regulate the amount of foreign currency debt held not only by the banks in their countries but also by the corporations in their countries. What you really want to do is to encourage your companies to attract equity investments, because they are not going to cause you to have a currency crisis.
In the context of financial crises, what is the role of institutions like the IMF and World Bank? What is your ideal of how they should operate? Are they adequate, alone, to address some of the issues like development and amelioration of situations where there is a financial crisis? Do we need other financial institutions, such as a World Central Bank?
I think the IMF could move in the direction of being a world central bank--which is more like what it was meant to be. That means that it would be prepared to provide international liquidity to countries getting into trouble without pretending that they are guilty of crimes and have to be punished as a price of the assistance. A central bank in a country which serves as a lender of last resort for banks in that country lends to them when they have liquidity problems without acting as though they committed a crime. They expect to be paid back shortly. We should see more of that spirit on the part of the IMF.
In fact, it was the original idea behind the IMF. All the countries had in the beginning rather generous drawing rights in the IMF which they could use without question. Now they are certainly not big enough because the total size of the quotas of all the countries together in the IMF is about 150 billion dollars, which is nothing for a worldwide institution that's supposed to do what they are supposed to do.
I think the World Bank is different. I am afraid in the last couple of years, the IMF has started taking over what was the World Bank responsibility. The IMF prescriptions for the countries in East Asia, whom they were presumably helping, included prescriptions for fundamental changes in institutions in the interest of reforming the long-run structure of those economies. But that was supposedly the mission of the World Bank, not of IMF.
Economists have made great strides over the last decades. But they were unable to predict something as great as the financial crisis in Asia. Why is that? Why, despite all these advances in economics, are economists unable to foresee or forecast these kinds of crises?
You can't predict financial markets. If you could predict them, then the process of acting on your prediction to get money, to get profits, removes the possibility of making money in them. They are matters of expectations and emotions, and they are not predictable really.
As for the general question of why can't economists predict things: that strikes me as really unfair. Meteorologists know a lot about weather but their predictions are not always accurate. Doctors know a lot about human disease but they are often surprised, often incapable of doing anything about it. So we are not alone in our failures.
Do you think that there has been generally a shift towards market mechanisms in education, science and culture. If so, has it been a good thing or not?
I think it's hard to make generalizations about that. I think it's true that there has been a movement against government regulation around the world. For example, privatization of government-owned enterprises. In many countries, a lot of that was not necessary, wasn't particularly desirable. I think we have in this country a lot of people, including one of our political parties, who are opposed to using government money for culture, who would like to transfer government money from public education into subsidizing private education, private schools. There has been a trend in that direction.
Do you think it's a good trend?
I think the spirit of it is not a good trend. In general it's selfish and short-sighted.
Economic liberalism with a human face
Nobel economics prize-winner James Tobin may be 80 years old but he is still hard at work. At Yale University, where he taught from 1950 to 1988, this tireless researcher and gifted popularizer has an office where he gives interviews and writes--so far he has published 16 books and more than 400 articles.
In the autobiographical note he wrote for the Nobel Foundation in 1981, he said that he studied economics and made it his career because it "was and is intellectually fascinating and challenging, particularly to someone with taste and talent for theoretical reasoning and quantitative analysis." It also offered the hope of bettering the lot of humankind. His family background-his mother was a social worker and his father an independent-minded journalist-also helped a lot to shape the direction of his life.
Born in Illinois, he lived through the Great Depression and what he called the "miserable failures of capitalist economies" which caused worldwide political and social disaster. The depression also "spelled crisis for economic orthodoxy" and "triggered a fertile period of scientific ferment and revolution in economic theory." It was during this time of ferment that Tobin, then an undergraduate at Harvard, discovered the theories of John Maynard Keynes in 1936.
As a supporter of economic liberalism with a human face, Tobin has ever since then defended the state's role in the economy and fiscal and budgetary adjustments. In the 1950s and 1960s, he led the resistance to the crusade for monetarism headed by another Nobel prize-winner for economics, Milton Friedman. Tobin firmly backed the Democratic Party and was an adviser to President John F. Kennedy in 1961-62. Twenty years later, he spoke out once more, this time against President Ronald Reagan's policies, which were largely inspired by Friedman's ideas.
Since the early 1970s, he has warned against the development of private speculation in money markets, which is undermining the independence of national monetary policies. To discourage these speculators, he proposed in 1972 an international tax on spot currency transactions. The Tobin tax, as it was dubbed, found enthusiastic supporters on the left, especially in Europe.
Tobin was awarded the Nobel prize in 1981 for his work on money supply and his mathematically formulated theory of the allocation by firms and households of their portfolios among different assets. Tobin's theories have influenced a whole generation of researchers and stimulated analysis of the balance of payments and economic growth.
A controversial tax
In order to avoid tumultuous financial and economic floods and droughts caused by increasingly mighty international capital flows for speculative purposes and to protect national policies from dictatorship by the market, in 1972 James Tobin proposed a worldwide foreign exchange transactions tax. In brief the idea is to levy a o.1% to 0.5% on money exchanged from one currency to another.
Such a tax, the Nobel Prize-winner has insisted, would be punitive for short-term financial plays and would thus slow down speculative capital movements such as those that led to the surge and then co[lapse of Asian financial markets over the past decade. On the other hand, the "Tobin tax", according to its author, would not be high enough to deter commodity trade or long-term investments in productive enterprises.
Some analysts, however, feel that the Tobin tax would be impossible to administer because all countries would have to agree to it and such worldwide fiscal harmonization would be unprecedented.