September 2, 2001
They Are Misusing My Name"
SPIEGEL: Mr. Tobin, here you sit, calm and unruffled, on the lake while the critics of globalization in Europe are practicing revolution under your name. Isn't that enough to tear you away from your garden bench?
Tobin: Certainly not. I have nothing in common with practitioner of revolution against "globalization."
SPIEGEL: The protest organization Attac had originally named itself after you; opponents of globalization are rallying for a Tobin tax. Doesn't it please you that now, 30 years after you proposed a speculation tax on currency transactions, your idea is finally finding supporters?
Tobin: I appreciate attention to my proposal, but many of the praise comes from the wrong side. Look, I'm an economist and, like most economists, an advocate of free trade. Moreover, I support the International Monetary Fund, the World Bank and the World Trade Organization everything that these movements are attacking. They're misusing my name.
SPIEGEL: This movement seeks the introduction of a tax on currency, transactions. The objective is to get some control over capital marke1s and with the additional revenues to strengthen development assistance for the third world. Doesn't that sound like your proposal?
Tobin: I did suggest that revenues from the tax might go into the World Bank. The turnover tax on foreign exchange trading was intended to limit exchange rate fluctuations. The idea is very simple: on every exchange of one currency for another a small tax would become due, let's say one half of a percent of the transaction. That would scare speculators away. For there are many investors who put their money into currencies for the very short term. If this money is suddenly withdrawn, the countries have to raise interest rates drastically so that the currency remains attractive. High interest rates often are disastrous for the domestic economy, as was demonstrated by the crises in Mexico, Southeast Asia and Russia during the nineties. My tax would restore some room for maneuver to small countries' central banks as against the tyranny of the financial markets.
SPIEGEL: Scaring away the speculators, breaking the tyranny of the financial markets isn't that the language of the people who oppose globalization?
Tobin: Mostly, I think, they are interested in the revenues from the tax, with which they want to finance their projects for world improvement. But raising money is not my major objective. I wanted to slow down currency transactions. Revenues would only be a by-product.
SPIEGEL: What's wrong with using this by-product for good purposes?
Tobin: Nothing. I would be happy if the revenues found their way to the poor people of the world. However, the participation governments at the time would have to make those decisions on that.
SPIEGEL: Do you feel that you've been misused by the opponents of globalization?
Tobin: I feel that I'm being misunderstood and that my name has been wrongly co-opted for other people's priorities. The Tobin tax offers no platform for the reforms that these people are seeking. But what can I do?
SPIEGEL: Don't you at least credit your fans with a good purpose?
Tobin: Their intentions are good, I assume, but the proposals are badly thought out. But maybe I just don't understand it correctly.
SPIEGEL: What impelled you to develop the Tobin tax in 1972?
Tobin: First, I am a follower of Keynes who, in his famous chapter 12 of his "General theory" on the stock crash of 1929, had suggested a turnover tax to marry investors more durably to their assets. In 1971, I applied this tax to the foreign exchange markets. The United States departed from the Bretton Woods system of fixed exchange rates. At the same time, electronic transactions promised to bring an enormous increase in the speed and the number of transactions. I wanted to slow this process down so that there wouldn't be so much speculation and so much volatility in the exchange rates. Now that anyone can make financial deals at any time on his home PC, problems I foresaw have grown by multiples.
SPIEGEL: Last week the French Prime Minister, Lionel Jospin, spoke out in favor of the Tobin tax the first head of government to do so; on the international scene more than 300 parliamentarians have by now come to support the idea. Its implementation, however, would have to be carried out at the same time throughout the world in order to avoid loopholes and tax oases. Who should organize that? An international Tobin tax authority?
Tobin: The International Monetary Fund (IMF) could do that. It has experience with the global currency system. Almost every country in the world is a member of it.
SPIEGEL: The IMF, of all things? It is viewed as a handmaiden of global capitalism that ought to be abolished and not just by the opponents of globalization.
Tobin: On the contrary, I think the IMF must be strengthened and enlarged. Certainly it's made many mistakes no question about that but it, like the World Bank, has far too few resources at its disposal to help the member countries, especially the poor and less developed economies. The World Bank and the IMF are not part of a conspiracy called globalization.
SPIEGEL: Does that also hold true for the World Trade Organization (WTO)?
Tobin: Certainly its predecessor, the GATT, did much good in expanding world trade.
SPIEGEL: Not everybody believes that. In 1999, the WTO-Meeting in Seattle failed as a result of pressure from tens of thousands of opponents of globalization.
Tobin: WTO may need more power vis-à-vis the United States, among others. The WTO ought, for example, to be in a position to prohibit the industrialized countries from setting up all sorts of trade barriers to exclude imports from developing countries.
SPIEGEL: The tact is that the industrialized countries flood the markets of the third world with their goods and use those countries as a source of cheap labor.
Tobin: I think this whole idea that the IMF, the World Bank and the World Trade Organization are the enemies of the developing countries is misconceived. The problems of globalization will not be solved by trying to prevent it from going forward. All countries, along with their inhabitants, profit from the free exchange of goods and capital.
SPIEGEL: Then why has world poverty increased?
Tobin: It hasn't done that at all. Take South Korea, for example, which in 1960 was a bitterly poor country. Now it belongs with the great industrial nations of the world. The same applies to many other "Tiger" states, despite the Southeast Asia crisis three years ago. These countries are still more prosperous than they were three decades ago. And they have become that way through trade and foreign capital.
SPIEGEL: Individual countries may profit but in global terms the rich are getting richer and the poor poorer. Would you deny that?
Tobin: Poverty can have many causes. Most of them lie in the countries themselves. They will not improve their situation through some measures the opponents of globalization recommend, e.g. the world-wide implementation of the workplace standards of the western nations. Their proposals reduce the competitiveness of poor country imports into the rich markets.
SPIEGEL: You accuse Attac of being a bad advocate for poor countries?
Tobin: I really don't know details of Attac proposals. The demonstrations you were speaking about were pretty incoherent, but I don't know that they reflect Attac. In general, there are well-meant positions, badly thought through. I just don't want them associated with Tobin.
SPIEGEL: Have you ever talked to Attac?
Tobin: The Chairman of Attac, Bernard Cassen, once called me up and invited me to Paris. The idea was for me to appear there before a few thousand of his cheering followers.
SPIEGEL: What did you say to him.
Tobin: I regretted, for family reasons and because I did not want to be identified with Attac's objectives. He had not informed me about them. I had no part in their formulation. I haven't heard anything more from him since that time.
SPIEGEL: How do you explain the fact that your tax idea has many supporters among political activists but is criticized by economic experts?
Tobin: They don't all do that. For the most part, economists simply ignore my proposal. There is a series of books and papers on the Tobin Tax, some supportive, some critical, some in between.
SPIEGEL: Professor Rudi Dornbusch of the Massachusetts Institute of Technology is critical; Robert Mundell, a Nobel Prize winner in economics like yourself, thinks your tax a "dumb" idea.
Tobin: I hope they are referring to Attac and similar movements, not to my tax per se. But I can believe that Dornbusch and Mundell are against it.
SPIEGEL: George Soros, for example: none other than the most famous speculator in the world praises your tax for defending against speculators. Is this, once again, praise from the wrong quarter?
Tobin: George Soros hat spoken and written favorable about my proposal. He certainly knows what he's talking about. He has earned a great deal of money in the financial markets. That, in itself, is no sin. Moreover, he has very unorthodox ideas about the world currency system. The finance ministers of the world have more reason to fear him and heed him than me because Soros has the means to carry out his plans.
SPIEGEL: Do you believe that your Tobin tax will be implemented some day?
Tobin: Not a chance, I'm afraid. The decisive people on the international financial scene are opposed to it.
SPIEGEL: The European finance ministers are going to discuss the Tobin tax in Liège at the end of September.
Tobin: Thats likely to be pure show, I doubt they're thinking seriously about it. They don't want to burden their finances with yet another tax. The most important finance ministers in the world are opposed to the Tobin tax, including the US Secretary of the Treasury, whether Clinton's or Bush's.
SPIEGEL: Why don't we protect the currency markets by simply returning to the old system of fixed exchange rates in which the central banks of the participating countries maintain stable rates?
Tobin: This was tried and failed. Speculators like Soros could outmaneuver the central banks. Look at Argentina, which has tied its peso directly to the US dollar. What's happening there is a disaster, an absolute disaster. Irretrievable exchange rate commitments are an invitation adverse speculation. The dealers bet on whether the central banks are willing and able to defend the established rates. The system of fixed rates has gone out of fashion, and that is a good thing.
SPIEGEL: In Europe the concept of target zones is discussed again and again. According to that scheme the currencies of the United States, Japan and the European central bank would have no established rates but broad ranges in which they could reside.
Tobin: That doesn't really solve that problem. After all, when a currency bumps up against the border of the zone we're right back in the same miserable situation as with fixed exchange rates. Then the rate has to be defended and a lot of currencies are wasted for support purchases. And if the International Monetary Fund also becomes involved the countries may face strict and expensive conditions and penalties. By now even the IMF has given up the idea of firm exchange rates. And that's a good thing. The IMF support of Argentina is an exception to this policy, and a lesson for the future.
SPIEGEL: Why not avoid currency crises by doing away with currencies? Wouldn't currency unions on the model of the Euro make sense in Asia and America as well?
Tobin: As I see it, the Euro is not exactly the big success that would be a model for other regions of the world.
SPIEGEL: The Euro is catching up to the dollar pretty well....
Tobin: I'm not referring to the value of the Euro. What Euroland is suffering from is that in macro-economic terms Europe is not in good condition. The fault for this lies with the European central bank which has not pursued a policy like that of the American central bank the Fed.
SPIEGEL: And what might that policy be?
Tobin: Wim Duisenberg, the president of the European central bank, told me once that he has nothing to do with real economics, with growth and employment. His job is to keep prices stable, i.e., to fight inflation. If that's all that European monetary policy has to offer then it's not surprising that the economy in Europe is weak.
SPIEGEL: How did Duisenberg justify his attitude?
Tobin: He has a very ideological view. For him price stability is a kind of religion, as it used to be in the United States amongst the "monetarists". Happily, the head of the American central bank, Alan Greenspan, was not one of them. The Fed does not limit itself to keeping prices stable. Greenspan has always said that the Fed tried its best to achieve both price stability and growth.
SPIEGEL: Was that a marvelous feat, considering that it occurred during the longest economic boom in American history?
Tobin: The boom was not just historical accident. Greenspan had a lot to do with it, as did the Clinton administration. There's no doubt that Greenspan was lucky, but he was also courageous. In 1994 it was holy writ in the central bank that inflation becomes a threat when the unemployment rate sinks below 6 percent. When we reached this point at that time and inflation continued to behave itself, Greenspan resisted pressure and did not intervene with tight money. We hit four percent unemployment and nevertheless no inflation only because Greenspan dared to take a stand against the traditional teachings. Duisenberg would never dare to do such a thing.
SPIEGEL: Mr. Tobin, we thank you for this conversation.