Broadening Employee Ownership Transnationally

[Steve Clem <cclem@kent.edu>]

At the COG Meeting in Chicago in April, a number of basic ideas were
presented on things that could possibly be done transnationally in order to
reduce inequality and reduce poverty in the world. One item on that list
was the establishment of an international fund based on the Tobin tax.
What follows is information on such taxes.  Discussion about its merits is
encouraged.

What are Tobin taxes?  They essentially are simple sales taxes on currency
trades across borders.  The original concept was developed and proposed in
1978 by James Tobin, a Nobel Prize winning economist at Yale.  The idea has
continually gained supporters over the years and the approach has been
refined.  Tobin proposed that a small tax of between .1 and .5 percent on
currency exchange transactions would serve two purposes.  It would limit
the damage from excessive exchange rate volatility as well as raising
significant revenue for global causes.

According to available data, every day more than $1.8 trillion in currency
exchanges moves across national borders.  By way of comparison, the trade
in goods and services for all countries for an entire year is only $4.3
trillion.  In other words, in just a few days, foreign exchange
transactions exceed the entire annual volume of world trade in goods and
services.  Of those currency exchanges, upwards of 90 percent of these
transactions are of a purely speculative nature where investors simply are
betting on whether currency values and interest rates will move up or down.

These speculative transactions themselves often cause short-term
fluctuations of exchange rates, leading to even more speculation and
threatening the stability of countries whose currencies are being traded.
There is overwhelming evidence that the lack of stability helps to cause
financial crises with increasing frequency, witness the crises in Southeast
Asia, Russia and Brazil in just the last few years.  In the past, central
bank reserves were sufficient to combat speculation on a country's
currency; now, the daily market volume created by the speculators dwarfs
all of the world's central banks combined.  When a country cannot defend
its currency, it effectively loses control of its monetary policy.

The Asian currency crisis lowered the world growth projection for 1998 by
one percent and increased worldwide unemployment by 10 million people.
These kinds of crises have not only a direct economic impact, including
exacerbation of global economic inequality, the reduction of which is a
primary goal of the Capital Ownership Group and many other groups like us,
but they also have the related impacts, which are both economic and social,
of increased unemployment, price increases and disruptions, plant closures,
poverty, human rights violations, diversion of resources from sustainable
development and social upheaval which burden poor, indigenous and
middle-income populations most heavily.

Such effects are obviously not limited to the country whose currency is
being speculated.  There is usually a spillover effect as they try to
export their problems by often dumping their products on other countries'
markets and leading to increased unemployment and wage pressures in those
countries as well, witness the problems the Asian and Russian crises have
caused in the United States steel industry.

It is the opinion of those who support the concept of the Tobin Tax that
this kind of excessive speculation could be curbed by a very small tax of
between .1 and .5 percent on each cross border currency transaction. (There
is apparently an alternate two-tiered version that was proposed by German
economist Paul Bernd Spahn in 1996).  It is felt that such a tax reduces
incentives for such short-term speculation while remaining small enough to
leave longer-term investments essentially unaffected with the result being
more stability in exchange rates and less disruption to the worlds' economies.

While curbing the gambling type of speculation and allowing individual
countries to have more control over their own currencies and their own
internal monetary policies, such a tax would produce revenues that have
been estimated at anywhere between $50 billion and $300 billion a year
which could be utilized to provide urgently needed resources to fight
global problems such as disease, poverty, hunger and other priorities or
crises. There would obviously have to be priorities,  guidelines and
safeguards accepted and adopted to avoid improper use or corruption.

Of course, to be really effective the adoption and enforcement of such
Tobin taxes should probably be done in coordination with a rather sizable
number of countries.

There is already support internationally for such a transaction tax.  The
Canadian Parliament has passed a resolution; resolutions have been
introduced in the European Parliament, the French Parliament, the British
House of Commons and there has been substantive discussion of the issue in
the parliaments of Switzerland and Germany, plus a chapter in the Finnish
government rules. A resolution was introduced into the U.S. Congress on
April 11, 2000 which called for enacting such a tax and for the U.S. to
build support for and advocate this position at the World Bank and the IMF,
as well as within other regional and international organizations, including
the OECD, the G-8 and the newly established G-20.

Certainly one possible use of some of the revenues generated by such a tax
would be to create an international fund to be used to assist in the
establishment of employee ownership in appropriate situations as a tool in
the fight against poverty.

The just released (September 12, 2000) World Bank report World Development
Report 2000/2001: Attacking Poverty recommends mobilization behind three
priority areas:
                Opportunity: Expanding economic opportunity for poor people by 
stimulating 
                economic growth, making markets work better for poor people and 
working for
                their inclusion, particularly by building up their assets, such 
as land and 
                education;
                Empowerment: Strengthening the ability of poor people to shape 
decisions
that
                affect their lives;
                Security: Reducing poor people's vulnerability to sickness, 
economic
shocks,
                unemployment, etc.

It is not very much of a stretch to see that there is a place for the
promotion of employee ownership within these World Bank initiatives.
Employee ownership provides employment, empowerment and because with
participative employee ownership it has been shown that such enterprises
are more productive, an increased level of security.