Avvenire Editorial - Europe, now at the crossroads, must be able to show the way

Listen to young people, choose well

The Tobin Tax lost for 10 years

by Luigino Bruni

published on Avvenire on 19/08/2011

The Tobin Tax is not a new idea but it is a significant and important idea, which has only a defect of being late. In this case, it is worth an old African proverb: "The best time to plant a tree was twenty years ago, but if you have not done it the best time is now."

A dynamic phase of the debate on this tax was the one that broke out around the year 2000, within the youth movement that started from Johannesburg which culminated in Genoa in July 2001. Two months after the sad events in Genoa, there was the attack on the Twin Towers that completely shifted the attention of international public opinion and politics from the Tobin Tax and the governance of financial globalization to terrorism and wars. Thus began a period of "distraction" from issues of financial speculation from which we have awakened to the tragic crisis of 2008, when we realized that during our global distraction, in reality, the speculative finance without rules and controls grew and became hypertrophic, reaching the edge of an abyss.

A first lesson to be learned from the history of recent years is therefore immediate but important: when young people are protesting together, in so many and on a global scale, often behind that protest, perhaps disordered and badly structured, hides an important question that must be heard beyond the partial or incorrect responses. If, in fact, we had listened, understood and made our own the questions that the young people posed to the world of economics and finance at the end of the last century, that is, a more attentive governance to the new dynamics of financial markets globalization, perhaps the crisis still in progress could have been avoided.

But to understand the meaning and purpose of a tax proposal at the time of Nobel James Tobin (one of the leading scholars of finance of all time, a figure that should already tell us something), it may be useful to recall the three main functions of taxes (and of taxations) in modern democracies.

The first is the most obvious and least controversial from the ideological point of view: financing and construction of public goods. The first function of taxes does not necessarily require special altruism or civic virtues, but only trust and hope that the vast majority the of other citizens are not tax evaders (a trust that we could also call today a virtue in Italy), but it is essentially a coordinated cost in order to produce goods that require contributions from all (security, infrastructure…).

The second function is the classic income redistribution: the taxation becomes an instrument of social solidarity and fraternity which says, with facts, that a people is also a community with a common good to ensure and protect, and may be based also on a form of self-interested rationality (as explained to us by philosopher John Rawls) when we think about the disadvantaged of the future could be us or our children.

The third function, the least known and remembered, which is to encourage the good called "meritorious" (or of merit) and discourage "demerit" good. Little or less goods, considered useful, are taxed for the common good (culture, education…) and more tax on those goods that in reality are "bad" (tobacco, hard liquor…). In this last case, taxes act as direct consumption of ethically sensitive people in areas where values are at stake in the general interest.

Normally, taxes play one or the other of these three functions and are very rare that they happen all together: the Tobin Tax is just one of them. In fact, to bring order and stability to financial markets today means to create a kind of public good that is of great value even economically. The redistributive effect is obvious, if they will use, as seems obvious, the revenue to build infrastructure, health and education in developing countries. Finally, financial speculation presents aspects of demerit goods, because the excessive risk that these tools create is downloaded from private entities, creating the typical "tragedy of the common good."

The critical challenge is to adopt such a tax at the maximum possible global level, as the field of finance is the world’s. As mentioned in other interventions, the legislation can only be global if it wants to be truly effective and not divert resources to other markets. In addition, the tax application must be associated with a serious fight against the scandal of tax havens, a reality in which we will have a hard time explaining its existence to our children without blushing of shame.

But even if only Europe could adopt the Tobin Tax I am convinced that it would be a great sign of civilization, which would benefit not only civil society but also the markets themselves, who need democracy and rules that will last. Europe has been home to modern economics and finance, has been able to invent these institutions and instruments which have been made big and made possible the development and democracy for billions of people, a beacon for humanity of the last centuries. Today Europe is faced with a choice: follow the short-term logic and the vested interests, and therefore leave the status quo of a financial market which today is not free because of the large ransom money, or give a sign of civilization with a courageous choice in line with its great history and its deep, and still alive, humanistic and Christian roots.

All of Luigino Bruni's comments on Avvenire can be found under Avvenire Editorial.