Monday, August 29, 2011

Time for Tobin

The Tobin tax is an idea named after a Nobel prize winner for economics. It was first mooted around the time that exchange rates moved from predominantly fixed to generally variable, around 1970. Its purpose then was to discourage wild flows of speculative money between currencies, and so generate stability.

Since then, the tax idea has received an airing every few years, but never come to pass. Most recently, Sarkozy and Merkel speculated about a Tobin tax as part of a solution for the current financial woes in Europe. Gordon Brown was also once a cautious advocate.

I love the idea. One reason is that increasingly financial services have become just like any other services, and a big part of the world economy, yet somehow free from transaction taxes. If I go to the barber, I receive a service and pay VAT. If I go to the bank, I pay VAT on the banker fees, but no tax on the transactions involved, which are the main outcome of the service. Firms whose business is buying and selling oil or cars pay tax on every transaction. Why shouldn’t firms whose business is buying and selling money? This is one massive global tax loophole – should we be surprised that so much global wealth ends up in this sector (which, incidentally, actually produces nothing)?

But the main reason I like it is very similar to the original proposal. One culprit for financial instability is the velocity of markets, driven mainly by technology and communications advances. It is simply too easy these days to transact. As a result, the whole herd moves at the slightest market signal, often via computer generated actions. I would extend the tax to all financial transactions, including buying and selling of equities and all derivatives. At a small rate of say 0,2%, this would not deter transactions, except for the most damaging, short-term kind, yet the tax would still generate massive revenue.

Of course, the tax has to be global, and this is one reason often quoted against it – by the way the same reason that we don’t pay tax on airplane fuel, another gross distortion. This is so manageable. Each of the G20 has a good reason to support the tax and a forum to instigate it. That covers 99% of all transactions, and rogue states outside would have to play ball or be limited to dealing among themselves. Tax havens still need financial trading partners.

On what to do with the revenue, there are some clear global goods such as the millennium goals or climate change research, but nowadays the financial world itself could do with some of it. Much as Norway has invested much of its oil wealth into a rainy day fund, the Euro could currently do with such a fund, and every other economy would benefit from the creation of that fund.

What really annoys me about Tobin is how the wealthy establishment and the financial community collude to make the subject undiscussable. Merkel and Sarkozy were duly ridiculed, though admittedly Tobin on its own would not solve the problems they should be solving and their ideas don’t do enough. As soon as the subject is raised, the finance lobby brings out its old arguments, including, sadly, my beloved Economist. And such is the power of finance over politics, and the overwhelming resources they control, that the tax never makes it to the policy table.

The two main arguments against strike me as tosh. One is that it would be hard to collect. Well, so is VAT, yet that works. There are far fewer institutions involved in financial transactions, monetary value is always clear, and most transactions go through regulated bodies, so the tax would be among most collectable of all. True, the scope of the tax would have to keep up with the ingenuity of traders to create new vehicles, but that should be achievable with goodwill.

The second argument is the one about tax havens, and that is just as much tosh. Sweden apparently imposed Tobin on its own in the 1960’s and, unsurprisingly, it backfired. The G20 is not Sweden.

Lots of other spurious stuff comes up, much of it thinly disguised populist gunk (the real goal of Merkel and Sarkozy is claimed by the Sun as getting Britain to pay to bail out the Euro). Read this executive summary: http://www.adamsmith.org/blog/tax-and-economy/executive-summary:-the-tobin-tax-%E2%80%93-reason-or-treason%3F/ , and especially the part where it claims to be a summary of arguments both for and against Tobin.

All in all, global politicians are as cowed on the topic of Tobin as British ones were on the subject of Rupert Murdoch. Well, last month that changed. What might tip the balance for Tobin?

Thursday, August 18, 2011

Manifesto for Manila

Safely home from a wonderful trip East, I’ve had time to think a bit about what my priorities would be to try to develop the place further. It is a wholly theoretical exercise, since winning power anywhere is a messy compromise between promoting a vision and getting elected, and then retaining a mandate. In Manila, that is truer than in most places with its crony politics. I’m also well aware that Europeans have spent much of history forcing their visions onto other cultures, with pretty dreadful results. Furthermore our European model looks pretty broken just now. Still, it passes the time.

Philippine politics is currently consumed by the reproductive health bill, bravely promoted by the president against strident opposition by the catholic church and other conservatives. While divorce and abortion are important, it does seem perverse to me that so much energy goes on a single issue, while the problems of poverty, overcrowding, economic weakness and corruption are so evident. Still, at least those issues matter more than the news story dominating the radio stations on Monday – that Paris Hilton had lost her mobile phone. The poor thing.

My campaign would focus on three issues – education, infrastructure and security.

Education is the biggest opportunity facing many developing countries. While health and other things clearly matter, education seems to me to give the best future return on investment. Currently, many of the best schools are run by the Church. They provide a decent education, but to a pitifully small share of the country’s young. The rest have to settle for woeful state-run schools, or for nothing at all. Of course, the Church schools charge fees, and apply other entry criteria to favour families who have existing status in society. These then feed similar universities.

This is similar to the problem of public schools in Britain, only on a much larger scale. There too, an infeasible share of Oxbridge undergraduates come from few, fee paying schools. Labour for years campaigned to close these schools down, on the grounds of fairness, and also with a belief that the elite would care more about state sponsored education if their own kids were not exempt from it. This has great merit, but it would be such a destructive waste.

The Philippines could afford this waste even less, so let us build on it. The Church could be encouraged to triple the number of such schools, while only marginally reducing resources allocated to existing ones. Then also greatly increase the number of available bursaries for poor kids, while also making life a bit tougher for the richer ones by raising entry standards – based on raw ability only. Finally, force universities to look to the state sector for most undergraduates, with a quota system for a time.

Even more important is to improve the quality of state schools. For sure, that would mean investment in infrastructure and teachers, but perhaps the private sector could help. The last link is to encourage parents to make their kids’ education a priority, and here, the existing government is laudably following the brilliant example of Brazil, where welfare hand outs for the poor have greatly increased, but with a string attached that children must attend school.

On infrastructure, I would be a bit of a communist planner. Plainly, what is missing is any long-term or joined-up thinking. Here is an example. We visited a friend in a recently opened condo unit. The unit was less 500 metres from a metro station, and the same from shops. We actually did walk from the metro, and what a walk! In the heat, we had to climb many staircases, cross busy roads, and finally walk right around the condo unit to reach its only entrance – placed round the back for reasons of security and parking. It is no surprise then that our friends have three cars, and use them to travel around the corner, thereby clogging the roads even more.

While money and personal convenience dictate everything, this will only get worse. Hence the only answer is some sort of grand Manila 2025 type scheme, with the future zoning and use of every square metre defined now and implemented gradually. Investment in public transport is critical, as are things like covered and air-conditioned walkways and proper bus stops. The scheme would have to address flood control, sewerage upgrades and of course road improvements too.

Massive investment in public-type housing would also be needed, as currently almost nothing exists between the luxury condo and the slum. Again, the private sector, Church, and imaginative finance can help. In Kuala Lumpur, I was always impressed by the lower-middle class housing being developed, in Manila I saw none. Then, many slums would need to be cleared up. Where to put these displaced people? Well, the new housing can help and so can an expansion of the city boundaries, as well as incentives to stop families moving from the countryside to Manila. But this would not be enough. Perhaps the Mexico solution would be required. There, a dense ring of shanty towns has developed around the city perimeter. They are hardly ideal, but at least it frees up the city itself, and the state has succeeded in making shanty living conditions almost bearable, and even created some property rights.

This will all take time and be expensive. One source of funds has to be taxing cars more, like in Singapore. It would not win me votes, but I would tax cars heavily for registration and use (fuel and tolls) and hit the SUV’s hardest. My friends and the next condo developers may otherwise need more than a covered walkway to change their habits.

The security policy would be all about professionalising the police and giving them legitimacy, and trying to get private security and guns off the streets. Mexico has tried this as well, which has involved taking on the drug barons. It would be ugly in Manila too. But a well-staffed, non-corrupt, police and judiciary is the only way to restore any control and get rid of guns, fences, and impunity for criminals. This will start with some investment, linked with some zero tolerance policies, including for police bribe-seeking. To his credit, the president has focused here, with some early successes, but it will require great backbone to stay the course. Part of this policy would be paid for by reducing spending on the armed forces. Sorry, the country has more important things to deal with than invading/defending the Spratleys.

So then, education, infrastructure and security. Dose this with promoting competition in business and honesty in tax paying, and you have a manifesto that might make a difference. Of course, there is no chance at all of this coming to pass. So, if you live in Manila, prepare for more guns and gridlock while the debate on birth controls continues. But you can console yourself that you have some of the best food and the best hospitality in the world, so you’ll probably still be smiling.

Monday, August 8, 2011

Colonial Legacies

My two trips outside Europe this year have been to Mexico, in March, and to the Philippines, where I am now. Despite being on opposite sides of the world, the two countries have a similar feel about them. This has set me wondering whether the similar colonial legacies have had an enduring effect on this lands, since I have not felt the same impression from other South East Asian visits.

I should declare here that, even more than usual in this blog, I don’t really have much idea what I am blabbing on about. Though much travelled in Europe, I am pretty naïve outside of Europe. Most of my trips have been as a Shell visitor, pampered and shielded from reality. Even then, I have never been to Africa, except South Africa, and only once to Latin America, this year.

So what do I find here, and in Mexico, that might be from a colonial legacy? There are many factors, some of which might be symptoms, some deeper root causes.

First is the security. In Mexico, the police and army were everywhere, in the Philippines less so, yet in both places guns have been prevalent, and public places and private addresses are routinely guarded and fortified. Armed security guard must be one of the most readily available jobs in both places. It is intrusive, and a sad reflection on a society with great inequality and lack of trust in the official institution.

Next is the consumerism and its nature. Here, malls are everywhere, and local shops everywhere else. You are also bombarded with advertising. Top categories are food, health and beauty, mobile phones and car related. In Mexico it is the same. I find the emphasis on body enhancement rather sad. Most people have very little money, and that feels a rather wasteful way to spend it. Yet spend it they do, judging by the number of outlets and people buying. Sadly, I also see many pawnshops and debt management adverts.

The cars and transport is truly amazing. Here is a city of 12-24 million people, depending on how you count, with one highway quality road, just one or two over ground metro lines, and no trams or trains. No one seems to walk, maybe due to the heat and pollution as well as the dangerous walkways. There are a plethora of public buses, and cheap local transport in the form of little vans converted as a form of bus and tricycles. Yet many people still drive, and what cars they have! SUV’s abound, and the average age of cars seems low. The result is almost total gridlock. A few years ago, the government tried to ease congestion by banning each car one day per week based on its number plate. Most of the people I have met here got around that restriction by buying an extra car! Manila is worse than Mexico City, where at least the metro system appeared good, but the nightmare of transport is the same.

Inequality is staggering in both cities. Both have shanty areas and street life at the bottom, and every strata on the way up towards condo or hacienda life with multiple cars and servants. The plentiful malls in Manila seem designed to serve the separate classes, some full of exclusive brands and others feeling like bustling street markets.

Then we come to the politics. Both places boast democracy, but ones driven primarily by money. We look with distaste at Berlusconi’s Italy, but here the hostess of a popular chat show just happens to be the president’s niece. Money buys patronage and votes, and retention of privileges. True, individuals in both countries are incredibly generous, especially to their extended families and via Church charity, but the reality is that a car or a city flat are totally unaffordable from the salary from a decent starter job. Worse, education is the most stratified thing of all. Many kids get no schooling, free schools are woeful, and getting to college from anything but a fee paying school is next to impossible. Then jobs are advertised for graduates from the better colleges only (unless someone in the family can get you in).

I ask many people here the question why the Philippines has fallen so far behind its neighbours. I usually receive incomplete answers. Too many people, corrupt politicians, lack of infrastructure. Yet Thailand, Malaysia and Indonesia have or had all these things too. It is not enough.

Which brings me to my theory about colonial legacy. Colonialism is always bad, but if you had it, perhaps some is worse than others. What priorities did British colonists have? Raping the raw materials of their colonies was one, hardly a laudable goal. But the result may have been a few well-run companies, and some institutions and infrastructure to back them up, including some public schooling. Over generations, that may have equipped the societies to thrive once the Brits had gone.

I expect the Dutch, and even the French, colonies received similar legacies. Apart from a greater focus on a more authentic religion, I’m not even sure the Spanish were that different. My theory is that the bigger driver in Latin America and the Philippines has been the de facto US colonisation since 1900.

Much of what I find distasteful in Mexico City and Manila is reminiscent of the least functional aspects of the US. No public transport. Intrusive security. Inequality. Money based politics. Broken institutions. Poor public education. For many generations, the US has got away with it, perhaps because the prescription suited their nation in their state of development. But exporting that system to developing pseudo colonies appears to have been an unmitigated disaster.

If you are a bit jaded with the European model and what used to be called social democracy I advise you to spend some time in Manila. As the many priests here advise, it will help you to count your blessings.

Next week, if I find a bit more free time on holiday, I’ll think about what a one-term manifesto for improving the Philippines might look like. As with many problems, this one is much easier to diagnose than to solve.