There was good news on November 9th for supporters of the Robin Hood Tax – a celebrity-backed proposal to tax international financial transactions to raise money for public investment – as a respected UK think tank, the Institute of Development Studies (IDS), published a report arguing that the proposal is feasible and could raise large sums of money. Campaigners welcomed the scholarly endorsement, coming on the eve of the G20 summit where ideas on how to finance the fight against poverty, including the Robin Hood Tax, are on the table.
Taxing rich bankers to help the poor out of poverty has an understandable appeal to everyone raised on the story of the philanthropic ‘prince of thieves’ of Sherwood Forest. Yet read on in the IDS report and things get a bit murkier. First of all, the idea has been touted since the 1970s, when it was first proposed by the economist James Tobin as a way to ‘throw sand in the wheels’ of speculation and reduce financial market volatility. Dream on, say the IDS researchers: “most empirical evidence shows that higher transaction costs are actually associated with more, rather than less, volatility.”
To be fair, the Robin Hood Tax campaign has not pushed the anti-volatility argument much, focusing instead on arguing that “the financial sector should pay their fair share to clear up the mess they helped create”. The IDS study suggests that even if the UK goes it alone, the tax could raise £7.7 billion ($11 billion), which is about what Britain spends on aid. Don’t cheer too soon, however. The researchers then go on to point out that, while the banks would have to pay in the first instance, the tax is likely to be passed on to consumers.
In the old-fashioned slapstick of clowns there is the classic manouevre where a custard pie misses its target and hits an innocent bystander, or even the thrower himself. The Robin Hood Tax is touted as a ‘something for nothing’ way for the public to vent their anger at the banks, while raising free cash to spend on good deeds. The IDS paper makes clear that it is certainly not as simple as that and could even backfire on ordinary taxpayers, like a misdirected custard pie.
Asking the beleagured British taxpayer to dig even deeper to finance global development seems unlikely to work, especially given the coalition government’s pledge that this will be one of the few areas of public spending that is going to increase over the next three years. Rather than trying to mobilise public anger against the banks as a way to impose an untransparent tax on the British public, here’s an alternative suggestion for the development lobby: why not try to figure out ways that the finance houses can play a positive role in the fight against poverty?
This is one of the most exciting trends in philanthrocapitalism (which we discuss in depth in The Road From Ruin, our analysis of how capitalism needs to change in response to the financial crisis): investing in businesses in the developing world that create jobs and help tackle climate change, generating significant financial, social and environmental returns. Working with banks to help them invest, or support other investors, in ways that create sustainable value (rather than the phantom short-term profits of the pre-crash era) may not be as exciting as campaigning for punitive taxation but it has far greater potential to have a positive impact on the lives of poor people.