Another variation on the demand to “tax the rich” is the call for a tax on financial transactions, otherwise known as a “Financial Transactions Tax” (FTT), “Tobin Tax” (after the Nobel economics laureate, James Tobin, who first proposed the idea in 1972), or “Robin Hood Tax” (i.e. taking from the rich and giving to the poor).
The Tobin Tax
The idea of an FTT has even been proposed recently by high up figures such as Wolfgang Schäuble, Germany’s finance minister, and Rowan Williams, the Archbishop of Canterbury, who have proposed an EU-wide FTT to curb speculative activity and make the financial sector contribute more for the cost of the crisis.
The idea was instantly rejected by David Cameron and George Osborne, the British Prime Minister and Chancellor respectively, who said that whilst they supported the idea of an FTT “in principle”, they did not think it would be implementable in practice unless it was global. It should come as no surprise that Cameron and Osborne would be against implementing a tax that could bite into the profits of their banker friends in The City.
The Buttonwood columnist in the Economist points out the implausibility of a European-only financial tax:
“London is the global centre for foreign exchange trading. This trading is conducted electronically at very low cost; ICAP, the broker, says the cost averages $2 for every $1m traded. A Tobin tax of just 0.01% [the proposed rate] might not sound much but would equate to $100 for the same trade, 50 times as much. Why would anyone want to pay it? Such trades would be routed to New York or Singapore in an instant.”
The threat of finance moving its capital is not mere scaremongering, but is an undeniable fact. The Asian economic crisis of 1997-98, which wreaked havoc on the economies of a whole region, showed how easily and quickly capital can be withdrawn from a country, and the devastating effect that such a withdrawal can have.
Some European ministers have proposed that the FTT could be introduced in the eurozone countries only. The Financial Times highlights the problems with this suggestion:
“According to the European Commission’s own estimates, roughly 62 per cent of the revenues generated by an EU tax would come from London.”
And the Economist continues with the criticism of a eurozone-wide FTT:
“The big flaw in the plan is that taxable transactions are likely to migrate outside the EU. Although the commission bills its proposals as the first step towards a global agreement, it is hard to discern sweeping international enthusiasm for the idea. The commission’s own numbers, partly based on an unhappy Swedish experiment with an FTT from 1984-91, suggest that derivatives traders could relocate as much as 90% of their business outside any tax zone…”
“…The commission’s own assessment suggests that the FTT could reduce long-run GDP in Europe by anywhere from 0.5% to 1.8%. At a time of economic frailty, that seems perverse.”
All available evidence shows that international treaties cannot be implemented on a capitalist basis. With examples such as to the Copenhagen climate summit in 2009, which ended with no binding agreements, and the trade negotiations organised by the World Trade Organisation (WTO), which began in Doha in 2001 and ended in complete collapse in Geneva in 2008, one can see that international treaties or regulations of any kind consistently come up against the contradiction of the nation state, with individual governments doing whatever it takes to protect the profits of the capitalist class in their own country. The implementation of a global FTT would encounter the same barrier, which cannot be overcome on a capitalist basis.
Even if such a tax could, somehow, be implemented at a global level, what is to stop the global financial industry from simply passing this cost on, for example, by reducing the access to credit for small business and families? By passing on the costs, the FTT would end up simply being an additional regressive tax, like a sales tax or a carbon tax, on ordinary people.
The “Robin Hood Tax campaign”, a UK-based campaign supported by all manner of well-wishers – from charities, philanthropists, and trade union leaders to bourgeois politicians, economists, and businessmen – provides a number of fairly insubstantial sounding responses to some of the criticisms levelled above, even going so far as to say that Britain could implement such a tax in isolation.
But again, as with the question of financial regulation and any other tax on the rich as outlined above, it must be asked: who will implement such a tax? With Cameron and Osborne in Britain immediately pouring cold water on the idea, evidence suggests that it is complete utopianism to think that a bourgeois government might implement any sort of Robin Hood Tax in a period of crisis. Once again, it is the so-called “pragmatists” and “realists” who are seen to be the most utopian and idealist of all.
The example of Greece – where an austerity programme is being implemented due to pressure from the financial markets and where a democratically elected government has been forced to step down by these same creditors – shows that governments are not able to dictate to the financial sector; in fact, it is the opposite. To paraphrase an old Soviet Union slogan: under socialism, government controls finance; under capitalism, finance controls government.
A recent article in the Economist highlights this point and is worth quoting from at length:
“The Europeans created the euro to prevent the crises caused by currency speculators, only to find themselves pushed around by bond investors…
“…In theory, there is an easy answer. If you don’t want to be bothered about the bond markets, don’t borrow from them…
“…Countries can escape from the tyranny of the markets by turning to official lenders: other countries, the International Monetary Fund or the European Financial Stability Facility. But such creditors are just as keen on extracting their pound of flesh (in terms of economic reform) as the private sector…
“…Just as voters cannot repeal the laws of gravity, they cannot insist that foreign creditors lend them money…
“…Over the centuries, countries have tried various rules—the gold standard, balanced-budget requirements, independent central banks—in an attempt to limit government profligacy. But when those rules fail, the markets assert their own grim discipline.”
In other words, one cannot admonish the financial markets and the bankers and simply try to regulate them or tax them. These bankers and financiers have simply operated according to the laws of capitalism. If one accepts capitalism, then one must also accept the logic and the laws of capitalism. If you say “A”, then you must also say “B”, “C”, and “D”.
It must be emphasised, once again, that the only government that could implement such a financial tax would be a workers’ government under the control of the labour movement. Even then, such a tax, in order to avoid a strike of capital would – like any financial regulation or tax on the rich – have to be international.
But then why stop at such an international financial tax? Why not put the financial system – which, as the New Scientist article above highlights, is by nature an incredibly powerful international system already – under public, democratic control, so that the wealth within this system can be put to use as part of a rational, international plan?
Put simply, there is no solution on a capitalist or nationalist basis. It is international socialism or nothing.
The euro: to leave or stay?
Some commentators have tried to paint the economic problems in the world as one confined to the highly indebted states within the eurozone. Such people, however, conveniently fail to acknowledge that the first country to default was Iceland, which is not even in the eurozone. In addition, they seem blinded to the austerity that is being implemented across the industrialised world, including in other European countries that are not part of the euro club, including Romania and the UK. Indeed, despite being able to devalue its currency, Britain is not in a particularly advantageous position; according to The Economist, 40% of British exports go to eurozone countries and there is approximately $350 billion of exposure of British banks to debts of Portugal, Ireland, Italy, Greece, and Spain (PIIGS). It is clear, therefore, that the fate of the British economy is tied by a thousand threads to the fate of the eurozone, despite the UK’s independent currency.
It has been proposed by some (from across the political spectrum) that the “solution” for Greece is to leave the euro in a controlled manner. The idea behind such a proposal is that over time the independent Greek currency (the drachma) would be devalued, Greek industries would become more competitive, and increased exports would pull the Greek economy out of its slump.
It is true that an independent Greek currency would be devalued. However, such devaluation would likely happen extremely rapidly, given that the new currency would (rightly) be considered worthless. Meanwhile, proponents of the Greek exits from the Eurozone seem to forget that a rapid devaluation of any Greek currency would (in addition to making exports cheaper) make imports vastly more expensive. The result would be enormous inflation, which would just be austerity for the Greek people by another name.
In addition, it must be asked: which industries in Greece are expected to provide the basis for these exports? And who are they expected to export to? Even Germany, the economic powerhouse of Europe and the second largest exporter in the world, is finding it difficult to find a market for its exports and is consequently experiencing a rapid decrease in its expected rate of economic growth, with just 0.1% growth in GDP between April and June of 2011.
It should also be pointed out that Greek debts are denominated in Euros, whilst any revenue would be in the new (devalued) currency; therefore any departure by Greece from the euro and introduction of a newly devalued currency would see the real price of Greek debt soar, and repayment costs would be impossible to meet. Finally, a Greek exit from the euro would likely be accompanied by a flight of capital from the country and a strike of foreign investment. All of a sudden, a Greek exit from the euro, in and of itself, does not seem like such an appealing “solution”. As the Economist put it recently: “Austerity, high unemployment, social unrest, high borrowing costs and banking chaos seem likely either way.”
The other alternative, for Greece to default on its debts, is also not a solution if implemented in isolation. By itself, a complete default could be even more painful than austerity for Greece. The country would be instantly cut off from the credit markets, meaning that they would have to eliminate their budget deficit immediately. In addition, much of the Greek debt is in Greek banks, so the government would also have to worry about the possibility of bailing out its own banks.
A Greek default would quickly cause contagion, with banks elsewhere in Europe (which are exposed to Greek debt) going into crisis. These banks, in turn, would be bailed out by their respective states, simply transferring Greek debt onto the balance sheets of other countries’ economies in a similar manner to what was seen (on a far smaller scale) when Iceland defaulted on its debt. The final result would be a spread of the austerity that the Greek masses have been experiencing to the rest of Europe and beyond, as governments everywhere carry out cuts in response to their newly inflated public debts.
The other proposal regarding the euro crisis that is commonly cited these days is that of a fiscal union to accompany the eurozone monetary union. This idea comes in a variety of flavours, including: having the European Central Bank (ECB) issue “Eurobonds”, jointly underwritten by all Eurozone countries; getting the ECB to provide unlimited funds for the indebted PIIGS countries; or even having what would effectively be a political union, with European authorities in Brussels setting legally binding budgetary constraints.
The first two variations of this proposal amount to the same thing – using the ECB to transfer money from the stronger economies in northern Europe to the weaker, highly indebted countries elsewhere. In reality, this means a massive transfer from Germany to the PIIGS. If it were simply smaller economies such as Greece, Ireland, and Portugal that needed bailing out, then this might be possible; but now Italy and Spain are in the sights of the financial markets, both of which are large economies with even larger debts. And it may not end there; there are also concerns over French banks, and therefore over the French economy in general by association. It is far from certain whether the shoulders of Germany are broad enough to take such a burden.
It must also be made clear that such a transfer of money under a fiscal union would not be a one-off, but would be a continual process, since the main problems (i.e. budget deficits and low economic growth in the PIIGS economies) would not be eliminated. The other question, of course, is: where would all this money in Germany come from? Ultimately, from the German taxpayer, i.e. the German working class. Any transfer of money from Germany to the rest of Europe, therefore, would simply be accompanied by a transfer of austerity from elsewhere to Germany. A United States of Europe on a capitalist basis, therefore, would simply be a United States of Austerity.
Others have suggested that the ECB should simply create money to buy up the debts of Greece, Italy, Spain, etc., but this has been met with disapproval by Angela Merkel and other German politicians, who are (as a result of bad experiences with hyperinflation in the past) instinctively against anything that looks, sounds, or smells of printing money. Indeed, there is no real difference between this and the quantitative easing programmes carried out in the USA and the UK, which have thus far done little to solve the economic woes in these countries, and which in the long run will only lead to inflation and thus austerity for ordinary people by other means.
In terms of the third variation of the “greater European unity” proposal – for a political union with national economic targets decided in Brussels – it should be pointed out that such a proposal has already happened– and failed. When the euro was first created, it came with certain budgetary conditions, defined by the Maastricht Treaty, which had to be met, such as targets for budget deficits and public debts. Countries, including Germany, very quickly broke these targets; and as the Marxists pointed out at the time, such measures were deeply anti-working class, since meeting such targets on a capitalist basis inevitably meant cuts to public services and welfare.
Finally, it must be emphasised that a United States of Europe on a capitalist basis would solve nothing. At heart, this is because the crisis is not simply a crisis of the euro, but a crisis of capitalism, as we have explained previously. One only has to look at the United States of America, which has both a political and fiscal union of fifty different states, to see that a union of capitalist states solves nothing. In the USA, there is a massive debt crisis at both the federal (national) level, and also at the level of the individual states. A “super-committee” of Republicans and Democrats has failed to come to an agreement over how the deficit should be cut; as a result, there will be automatic large cuts to public spending. Meanwhile, the precarious positions of some states’ finances have already led to cuts to state expenditure, and in some cases, such as Wisconsin and Ohio, to the state government taking on the labour movement and attempting to take away trade union rights, such as the right to collective bargaining.
Far from moving in the direction of greater unity, Europe is moving in the direction of breaking up. The possibility is now being openly raised of countries voluntarily leaving the euro, which could easily accelerate into a full on breakup of the euro, with countries seeking to get out of the crisis through competitive currency devaluations. But such a move would also be accompanied by protectionism with each country trying to keep out the exports of its neighbours. This would put the whole European Union project – which is built upon the principle of free trade between member states – at risk of falling apart, as The Economist explains:
“The few left in the euro (Germany and perhaps a few other creditor countries) would be at a competitive disadvantage to the new cheaper currencies on their doorstep. As well as imposing capital controls, countries might retreat towards autarky, by raising retaliatory tariffs. The survival of the European single market and of the EU itself would then be under threat.”
The fact is that there is no international solution under capitalism. Internationalism on a capitalist basis simply means international austerity. Nor is there any national solution, as has been pointed out above, in relation to Greece and the possibility of departure from the euro. Nor is there the possibility of so-called “socialism in one country”, as history has shown. Each and every country is part of a global economic system, and one cannot have an island of socialism in a sea of capitalism. Socialism is international or it is nothing.
Crisis of confidence
Certain bourgeois and reformist commentators, as we have seen, have simply described the crisis as a “crisis of confidence”. Such people blame the credit rating agencies and financial speculators for creating fear by downgrading countries’ credit ratings and demanding higher interest rates for lending to governments. But such an explanation puts the cart before the horse. The credit rating agencies are only pointing out what is established fact – that certain countries are unlikely to be able to pay back the money they have borrowed due to high levels of debt, budget deficits, and low economic growth. The job of the credit rating agencies is to warn investors of potentially risky assets (such as government bonds) that are worth avoiding. Meanwhile, when creditors demand a higher interest rate, they are simply recognising that there is a greater possibility that they will not be paid back in the future. Blaming credit rating agencies for causing the crisis is a case of shooting the messenger.
It is not the lack of confidence that causes the crisis, but the crisis that causes the lack of confidence. Marx made similar remarks regarding the idea of a “credit crunch”, pointing out that is not the lack of credit that causes the crisis, but the crisis that causes a lack of credit; as the economy enters into crisis, creditors began to withhold money, thus causing a further slowdown in production.
The bourgeois politicians see their primary task as restoring confidence to the markets by proving that they are reliable and trustworthy when it comes to carrying out austerity programmes and cutting their debts. Where they wobble, a “crisis of leadership” is quickly proclaimed by the bourgeois commentators, and reliable technocratic governments are installed.
Indeed, the bourgeoisie are facing a political crisis, with no stable or strong governments; but this is only a reflection of the economic crisis (as we have pointed out elsewhere and of their objective weakness as a class – a class that has outlived its historical role and that has become a fetter on the development of society. The technocratic governments of “national unity” (i.e. bourgeois unity) that have been created are governments of crisis, which have no social basis upon which to rest.
In so far as there is a “crisis of leadership”, it is a crisis of the leadership of the working class. Across the world, revolutionary movements are developing, but what is seen to be lacking in all instances is a revolutionary leadership of these movements that can unite the various struggles and point out the alternative to the barbarism that faces workers and youth everywhere.
Instead of a revolutionary alternative, all the current leaders of the labour movement are able to offer –as reformists without reforms – are counter-reforms. Over the last twenty years, on the basis of credit-fuelled growth, these reformist leaders were able to benefit from the fact that the boom left room to maintain a certain standard of living for the working class – with many saying that “we are all middle class now”. Now, with the crisis, these leaders cling to their reformist ideology, but, without the material basis below to support it, they are forced to carry out cuts.
At the current time, workers are fighting not to gain new reforms, but merely to keep the ones they have won in the past. In countries such as Greece this process is more advanced, and the embryo of revolution is developing across Europe and the USA (not to forget the revolutionary movements in Egypt and the rest of the Arab world). In the course of these defensive struggles, workers will gain a sense of their own power, and these struggles will turn into their opposite and go onto the offensive. Through a series of victories and defeats, workers and youth will realise their potential to transform society.
The crisis of capitalism
The cuts and austerity being implemented are not ideological, but are being carried out across the world in response to a very real crisis – a crisis of capitalism. Presenting the will to carry out cuts and austerity as ideological implies that the bourgeois – and reformist – politicians that carry them out are doing so out of some ingrained prejudice, rather than because within the limits of the capitalist system they are imposed on the situation by the very crisis of capitalism. In as much as one can talk of “ideology”, it is in the sense of an ideology that represents a material class interest – the interests of the financial markets, i.e. those who have money to lend, i.e. the capitalist class – which are asserting themselves over the interests of ordinary people – i.e. workers and youth.
The question is not over this or that cut, this or that tax, this or that regulation. Nor is it simply a question of a euro crisis; of whether to stay in the euro or leave the euro. The real question is simple: who pays? Who pays for the crisis – the crisis of capitalism: the 1% (i.e. the bankers, financiers, and the rest of the capitalist class) or the 99% (i.e. the mass of ordinary people)?
The more serious and far-sighted bourgeois commentators understand the real depth of the crisis facing society, and are also very clear about what needs to be done to protect their class interests, as this statement from the Economist expresses in a very lucid and honest way:
“This newspaper’s fervent hope would be that Europeans embrace globalisation by at last getting serious about reforming their rigid economies and their welfare states. Indeed, the present crisis has presented them with a unique chance to break apart the political interests that have held them back…”
“…The welfare state, built on postwar prosperity, has become too expensive for these straitened times.”
For “rigid economies” read “reforms and workers’ rights”, and for “political interests” read “the organised labour movement”. Put quite simply, the bourgeoisie is demanding that all the reforms, rights, and welfare that the working class has won through struggle in the past are to be abolished in the interests of the capitalist class and their profits.
Now is not the time to regurgitate reformist platitudes that merely suggest tinkering with the system instead of overthrowing it. The role of leadership is to raise consciousness and increase confidence; to point out the next step that needs to be taken. Now is the time for a bold, revolutionary, socialist programme that links the immediate tasks of defending the living standards of the masses to the need for the masses to transform society – the demand, not simply for crumbs from the table, but for control of the whole bakery.
In short, it is time for the ideas of Marxism, which correspond to the objective needs of humankind and the choice that it faces: socialism or barbarism. These ideas, however, do not spread themselves, but require the effort and organisation of the most conscious and determined layers of workers and youth. We invite our readers to join the International Marxist Tendency in this task.