Joseph Mitchell Global Economic Governance paper @j0e_m

Is the financial transactions tax an idea whose time has come and gone?Discourse, power and politics in global economic governance.

1. Introduction“You never want a serious crisis to go to waste.”

Rahm Emanuel, speaking to President-elect Obama, 2008 (Kay, 2011)

This is an essay about the failure of an idea in the face of private power. It begins with a brief history of the idea of a financial transactions tax. It then explains how the modern concept came to be a rallying call for activists and several politicians during the ongoing financial crisis. It examines the economic merit of the European Commission’s conception of the tax, but finds little agreement among scholars and institutions. Despite this lack of agreement, it finds a highly disparaging narrative of the tax in the popular press and in political discourse, particularly in the United Kingdom, which, when coupled with the unrealised nature of the tax, despite the idea’s decades-long existence, suggests that the discourse of the tax has been shaped to reflect its more negative aspects.

To explain this, the essay examines the political situation at the global, regional and national levels, using the Group of Twenty (G20), the European Commission (EC) and the UK as case studies. Here the essay makes a case that there is a significant danger of regulatory capture of these political institutions by the banking lobby. It uses Doris Fuchs’ tripartite definition of power to show how financial institutions exercise control, then uses Walter Mattli and Ngaire Woods’ model of regulatory capture to compare the G20, EC and UK. In this case, it finds that the EC is the institution least susceptible to capture. The essay concludes by considering the case of the financial transactions tax as symbolic of the lack of political action in the face of the power of global private interest, which presents grave problems for global governance.

2. A brief history of the financial transactions tax

John Maynard Keynes first suggested a transactions tax to help prevent the wilder aspects of finance, in his General Theory:

“The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.” (Keynes, 1936:143)

It is not clear that Keynes’ suggestion directly led to the imposition of any such taxes, suffice that his work generally would influence the generations of economists who followed, and that several jurisdictions do enforce specific and local transactions taxes. Matheson (2011) explains that they are most commonly found in equities trading, though there is a growing

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number of countries who are abandoning them. The transactions taxes that generate the largest revenues are found in Hong Kong and Taiwan, where between one and two per cent of GDP is raised from equity transactions taxes.

At the global level, James Tobin’s currency tax is most widely recognised as the precursor of the modern financial transactions tax. Tobin’s target, like Keynes, was speculation: in this case, currency speculation. In his paper entitled ‘A Proposal for International Monetary Reform’, he suggests that the excessive mobility of private capital is such that national governments are sometimes rendered unable to cope without ‘real hardship and without significant sacrifice of the objectives of national economic policy’ (Tobin, 1978:154). He suggests that ‘throwing some sand in the wheels’ into ‘excessively efficient’ markets would help to protect the interests of national governments (ibid.). The ‘sand’ he proposes is a tax levied equally across the world on spot conversions of currency. He suggests that the cost of macroeconomic instability is such that the effect of a small levy is justifiable, and that coordinated international action is more efficient than autarkic and protectionist national responses (ibid:159). The tax he proposed became known as the Tobin Tax. Over the decades since its proposal it has been promoted by various parties and causes, but no realistic efforts have ever been taken to implement it.

Though not enacted, Tobin’s idea remains seductive. It was developed further by economists such as Paul Bernd Spahn, who devised a two-tier model that would trigger a tax when currency movements became high enough to create economic risk, but would leave lower movement levels alone to enable efficient markets (Simms, 2001:5). The Asian financial crisis of 1997 added to the calls for restrictions on ‘hot money’ flows, which could destabilise currencies. At the same time, the Tobin Tax was adopted by the anti-globalisation movements, despite the economist himself rejecting their views (Von Reiermann and Schießl, 2001). James Tobin was also concerned that transnational advocacy networks supported the tax not to reduce speculation, but in order to raise funds for their political goals.

In contemporary terms, it was the financial crisis that began in 2007 that was the spur to the development of the concept of a globally-applied financial transactions tax. Following the collapse of large financial institutions and the subsequent recessions, the liberal theory of rational and efficient free markets found itself considerably weakened. It seemed as though financial markets had been led by ‘animal spirits’: experiencing herding behaviour and the loss of rational control, with detrimental effects on stability and the real economy. Keynesian theory began to be rediscovered, exemplified by Lord Skidelsky’s republishing of an abridged version of his Keynes biography entitled ‘Keynes: Return of the Master’ (Skidelsky, 2009). At the G20 meeting in London, governments agreed on a Keynesian approach to the crisis, producing a one trillion dollar spending package to boost global aggregate demand.

The idea of a transaction tax to slow these panicked, herding effects and stabilise the markets quickly gained support among politicians and activists. France, supported by Germany, led the G20 to consider the tax at the 2009 Pittsburgh Summit. There the leaders agreed to ask the International Monetary Fund (IMF) to report on how the financial sector could make a ‘fair and substantive contribution towards paying for any burdens associated with

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government interventions to repair the banking system’ (G20, 2009). France and Germany were supported by public advocacy campaigns by charitable groups, who now recognised that the political space was opening in which to promote their ideas of a tax to raise funds for international development. The ‘Robin Hood Tax’ coalition was established in 2010, led by charities whose Make Poverty History campaign in 2005 had been successful in promoting debt cancellation. The new coalition again includes large globally active charities, such as Oxfam, African activist networks, and faith leaders such as the Vatican.

Despite these efforts, the tax has subsequently slipped down the global agenda. In 2010, the IMF reported that the tax was not the most effective means of getting the financial system to contribute for the crisis. Their report favoured a ‘backward-looking tax’ as the least distortionary solution (IMF, 2010:8). While President Sarkozy’s constant efforts before the 2011 Cannes Summit were perceived as drawing in more supporters, including South Africa and Brazil, the summit was partly distracted from its agenda by political events in Greece (Wroughton, 2011; Cooper, 2011). Although it had been thought, not least by President Sarkozy, that Cannes might present a moment at which the idea of the tax would take hold, the final communiqué states only that the G20 ‘acknowledge the initiatives in some of our countries to tax the financial sector for various purposes, including a financial transactions tax, inter alia to support development’ (G20, 2011). This weak and confused wording suggests that France was not able to coalesce supporters around a fixed proposal, and that agreement on the tax at the G-level is unlikely to be realised. President Sarkozy immediately announced that France would continue to pursue the tax, particularly with the European Commission (Wroughton, 2011), and subsequently, that France will apply a financial transactions tax, regardless of the EC’s efforts, from August 2012 (Neate, 2012).

The work of the European Commission has developed the transaction tax most closely towards realisation at a transnational level. The European Parliament voted overwhelmingly in favour of introducing the tax in the European Union in March 2011. As a result, the European Commission carried out the required public consultation on the tax, and in September 2011 presented a legislative proposal, which awaits approval or dismissal by the Council of Ministers. It is this model of the tax that this essay goes on to consider.

3. The European Commission’s financial transactions tax

This section will examine the European Commission’s proposal in more detail, examining each of the proposed reasons for applying the tax. It will then examine other economic debates surrounding the tax, finding a lack of academic and institutional agreement.

The commission produced its legislative proposal on a financial transactions tax in September 2011. It proposes a tax of 0.1% on transactions of shares and bonds on 0.01% on derivative contracts. It estimates that the tax will raise approximately €50bn. It suggests that a tax is necessary for three reasons: to ‘avoid fragmentation in the internal market for financial services’, to ‘ensure that financial institutions make a fair contribution to covering the costs of the recent crisis’ and to ‘create appropriate disincentives for transactions that do not

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enhance the efficiency of financial markets’ (European Commission, 2011b: 2). There is considerable debate on each of these reasons, which are considered below.

Firstly, there is debate over the avoidance of fragmentation of taxation measures. The commission does not have taxation powers: the issue of tax is left to member states, so action to avoid fragmentation is limited to coordination. Never before has a pan-European tax been created. This issue may therefore stretch the commission’s legal remit. In addition, there are already ten countries in the union that apply a form of transaction tax and this has not previously been seen as a fragmentation problem.

Secondly, the ‘fair contribution’ suggestion is generally accepted, but it is not clear that institutions will not simply pass this cost on to customers. The broad term of ‘fairness’ itself tends not to be disputed by many commentators, including even the private sector respondents to the commission’s public consultation. The political will to punish banks remains, and the banking institutions are not willing to challenge this seriously yet. In responses to the commission’s consultation, some non-banking institutions, such as Aviva, one of the world’s largest insurers, suggested that it should not be made to pay for others’ errors; and several other institutions noted that they did not receive any state bailout (European Commission, 2011a). Beyond the issue of fairness, the critical question is whether the tax will affect the profits of the financial institutions or their customers. In a competitive market, transaction costs should be partly borne by the institution and the customer, depending on the elasticity of demand. Yet several commentators, including the banks themselves in their responses to public consultations, point out that many pensioners and older people would be affected by a tax. Charitable groups with large investment funds have also put forward their concerns (see e.g. Wellcome Trust, 2011). Supporters of the tax in turn argue that long term growth investment, which pension funds are assumed to pursue, is not greatly affected by the nature of a tax on transactions.

The third reason given by the commission, that the tax will disincentivise transactions that ‘do not enhance the efficiency of financial markets’, is perhaps the most controversial (European Commission, 2011b). This is an ongoing debate not only relating to the tax. It again reflects the rational markets hypothesis, which suggests that all transactions simply form part of the invisible hand, more smoothly distributing resources, signalling appropriate prices, or arbitraging difference. Many reject the hypothesis, including Adair Turner, Chairman of the UK’s Financial Services Authority, who has argued that there are ‘socially useless’ transactions, which should be limited by a transactions tax (Prospect, 2009). An oft-cited example of these socially useless transactions is the practice of high frequency trading, which is driven by algorithms engineered to arbitrage difference or act on market trends. Some estimates suggest that algorithm trading makes up perhaps two thirds of all equities transactions and a smaller, but still significant, proportion of foreign exchange and futures trading (Rogow, 2009). Critics argue that high frequency trading compounds errors, typified in the ‘flash crash’ on the New York Stock Exchange in May 2010. They also argue that it increases the effects of herding (Matheson, 2011). Other analysts suggest that the evidence of these effects is inconclusive (House of Lords, 2011b: 14).

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Two further economic debates regarding the tax are briefly considered here. The first is that the banks receive an implicit state guarantee against their collapse, which improves their credit ratings and allows them to borrow far more cheaply than a perfectly competitive market would suggest. This guarantee was valued by the Bank of England at around £100bn at the height of the financial crisis (Peston, 2010). Supporters of the tax argue that it is a reasonable way for the banks to pay back this subsidy. The second debate concerns the amount of money that the tax would actually raise. Matheson (2011) reviews the academic literature, which suggests that a tax could raise anywhere between 50bn to 300bn at the global level. Detractors state that this must be weighed against the cost of revenue lost elsewhere and that relocation will be bigger than the academics allow for in their models. Modelling of the effects of the tax as it would be applied across the EU was performed by the commission, but this has been attacked by commentators who claim the models are too imperfect to judge the effects properly (European Commission, 2011c; House of Lords, 2011b: 18).

In sum, while the effects of the tax are widely and vociferously debated, there is no conclusive evidence as to whether the proposed tax will have its intended consequences. With this in mind, it does not seem unreasonable to suggest that the tax could be piloted, although nowhere in the literature is this mentioned. Given the UK’s success with the one-year application of a bankers’ bonus tax, officially the ‘bank levy’, a similar short trial of the tax at a low rate would provide better evidence as to its effects than any amount of economic modelling and academic debate.

In the absence of compelling evidence against the tax, one might assume that given the idea’s long history and record of political and public support, it would have at least been trialled. The fact that the tax still appears to be some way off realisation suggests that it is not economic arguments upon which implementation is to be decided. As a result, the next section of this essay looks at the political arguments around the tax, before section five examines the idea that the political debate on the tax has been captured by private interest.

4. Political debates on the financial transaction tax

This section will examine three elements of the political nature of the European Commission’s suggested tax: the fear regarding specific local effects, particularly in the City of London; the reasons for which France and Germany support the tax; and recent examples of open political disagreement on the issue. It will show, similarly to the economic debate, that political arguments are inconclusive. The debate on the tax has been caricatured as a battle between the City of London and the governments of France and Germany. In this caricature, the City of London is seen as fighting to maintain the status quo by using the UK Treasury as a lobbyist (Jones, 2011). It is true that the financial sector is important to the UK. It generates eight per cent of GDP, a high proportion of tax revenues and in London provides direct employment to tens of thousands

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and affects many more in the arts, luxury goods and hospitality sectors. Perhaps as a result, UK politicians have been quick to dismiss the financial transactions tax. Chancellor George Osborne has said that he would support such a tax, but only if it was applied globally (PWC, 2011). London’s mayor, Boris Johnson, tipped by some as a future leader of the Conservative Party, is also ‘strongly opposed to the tax’ (House of Lords, 2011a: 157). His ‘donut’ election strategy, practised in 2008, won him votes from the wealthier suburbs of London, which ensures that protecting the banks does not cost him politically. In sum, the UK will attempt to prevent the tax due to self-interest.

Political support for the tax in Europe is led by France and Germany. Right-leaning press in the UK has helped promote the idea that the French see the crisis as an ‘Anglo-Saxon creation’ and that France’s ‘strategic objective...is to destroy the city’ (Bagehot, 2011). This is unlikely, since the tax applies across nations equally, albeit that Paris and Frankfurt are less vital to their respective national economies. Both France and Germany do hold London’s financial sector partly responsible for the ongoing crisis in the Eurozone, but the issue is more complex than this. Chancellor Merkel’s support for the tax can be seen as politically and morally driven, since her support contradicted the advice of the German finance ministry (Dettmer, Reiermann and Reuter, 2009). Likewise, President Sarkozy has spoken many times of the moral case for the tax (e.g. France24, 2011). This may not simply be political posturing, as France has acted alone on innovative financing before. The French air ticket levy, for example, has raised over $800m for the Global Fund to Fight Aids, TB and Malaria (WHO, 2010). When President Chirac first introduced the airline levy, French private sector interests made the same relocation and diversion arguments to the French government as do the large banks in London today. Yet there is no evidence that it has had the feared effect; today thirteen countries apply the airline levy.

The differences between the UK and France and Germany have resulted in open political disagreement, particularly on the issue of relocation of financial transactions, but all parties still lack conclusive evidence to support their arguments. In November, Chancellor George Osborne called the financial transaction tax a ‘bullet aimed at the heart of London’ (Osborne, 2011). In return, the German Finance Minister Wolfgang Scheuble gave a speech in London describing the UK’s position as ‘short-sighted parochialism’ (Reuters, 2011). In the same speech he argued that if Europe led, the rest of the world would follow. The debate is a good example of political rhetoric that lacks economic evidence. Liberal theory would suggest that transactions will move to where they are not taxed, e.g. from London to New York. In this debate, liberals regularly refer to an example from Sweden, which introduced a financial transaction tax in 1984, but abandoned it in 1991 after trading fell dramatically and the tax reduced overall revenue (Wrobel, 1996). In fact, Sweden provides a weak example: it was a small national market and London was a simple move for the traders. The unilateral application of transaction taxes has worked elsewhere, including in the UK, which for decades has applied its own stamp duty of 0.5% on equity ownership, raising around £3bn yearly. Despite this stamp duty being far higher than its New York equivalent, the London Stock Exchange still registers a higher turnover than the New York Stock Exchange.

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Thus far, this essay has explained that the economic effects of a financial transactions tax are disputed and that the political debate is combative, in turn relying upon arguments not strongly supported by econometric or empirical evidence. Despite the divergence of its political leaders, the European public is united on this matter. The Eurobarometer (2011) poll showed that 61% of the European population were supportive of the principle of a tax on financial institutions. This support was 65% in the UK, and in Germany and France support was even higher, at 71% and 69% respectively. The next section questions both the reasons for the political obstinacy in London, given that public support is so high, and for the increased weight given to arguments against the tax versus those in favour.

5. Regulatory capture

“Will HSBC relocate if the Government implements [bail-in bonds]?”Andrew Tyrie MP, UK Treasury Select Committee

“That would be a very significant item to weigh up in consideration as to where one would choose as the optimal place for headquarters. It is a hypothetical notion at the moment, but it would be a very huge cost.”

Douglas Flint, Chief Executive, HSBC

“That is a bit of a gun to the head of the regulators, isn’t it?”Andrew Tyrie MP

“It is not intended to be a gun to the head. It is a very large expense.”Douglas Flint

(Hansard, 2011)

This section suggests that the ongoing failure of the realisation of a financial transactions tax is related to the dangers of regulatory capture in the political environments considered in this essay. It suggests that while financial institutions cannot be said to have purely captured the political sector, they have done enough to ensure that politicians and policymakers fear change. This argument will be made with the support of two theoretical analyses. The first, building on Doris Fuchs’ work, describes three types of power financial institutions can use, the second, which allows for the different levels of capture between jurisdictions, is constructed upon the work of Walter Mattli and Ngaire Woods.

In her 2005 article, The Commanding Heights: The Strength and Fragility of Business Power in World Politics, Fuchs describes three types of power the private sector can hold: instrumental, structural and discursive. The first relates to the sheer size of resources controlled by these institutions. This enables them to hire lobbyists or to staff their public policy teams with experts, and for them to maintain offices in all the economic and political centres of the world. Similarly, donations to political parties, as prevalent, but not as powerful, in Europe as in the US, also demonstrates instrumental power. A review of the private sector responses to the European Commission’s consultation on the tax shows high quality work, carefully drafted by the ‘Policy Lead’ or similarly-titled staff. The financial institutions’ efforts are faced by impressive work by NGOs, but even collectively these organisations are unable to match the resources of individual banks or hedge funds.

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Fuchs’ definition of a second power - structural power - is persuasive in this context. This states that due to their size and importance to a national economy, the implicit threat of movement, carrying with it the loss of jobs, tax income and other benefits associated with hosting a financial services industry, is enough to encourage politicians to protect these institutions. This occurs even if the institutions do not exercise instrumental power. This power seems to drive the UK political agents mentioned above – even if the threat to move is an empty one.

The third power that Fuchs describes - discursive power - is the norm-setting ability of financial institutions. This might be assumed to have weakened in the light of the financial crisis and the bank bail-outs. Indeed, the ‘occupy’ movements are an excellent example of public discursive power, but this was limited by being ignored or criticised for a significant time in the mainstream media. Furthermore, widely read and influential newspapers such as The Economist and Financial Times have been vociferous opponents of a transactions tax. The evidence suggests, therefore, that financial institutions can still exercise considerable discursive power in policy making, political and media circles. This may reflect the long term nature with which discursive power changes. Since the 1980s of Thatcher and ‘Reaganomics’ the political economy discourse in the UK and US, and to some extent in continental Europe, has been that the private sector knows best. This has only been doubted in the past half-decade, but frames, values and norms are deeply-rooted, and will take longer to change.

These three definitions help explain the power of financial institutions, which is exercised in order to protect the status quo and prevent the introduction of a transactions tax. Mattli and Woods’ concept of regulatory capture helps detail these effects in different political environments, and to more precisely delineate the relation of private sector power to regulatory bodies.

In their 2009 book, The Politics of Global Regulation, Mattli and Woods analyse the likelihood of regulation for the common benefit as opposed to regulation being captured by private interests and directed for private benefit. They see regulation as a product of demand and supply. Demand arises from the diffusion of public information, public and private ‘regulatory entrepreneurs’ and, simply, regulatory ideas. Supply of regulatory opportunity is derived from transparency, due process and accountability in all elements of governance. From these two aspects they establish the matrix reprinted below, which shows that together, strong supply and strong demand result in common interest regulation (Table 1). Alternatively, where there is weakness in either demand or supply, capture occurs.

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Table 1: Matrix of supply and demand

SupplyLimited

(closed and exclusive forums, minimal transparency)

Extensive (proper due process, multiple access

points)

Dem

and

Narrow / Limited

Pure capture (A) De facto capture (B)

Broad / Sustained

Capture, but with concessions and compromises (C)

Common interest regulation (D)

(Mattli and Woods, 2009:16)

This model can be applied to the issue of the transactions tax by analysing the institutional supply and demand in the political institutions this essay has considered: the G20, the European Commission and the UK. Below, the extent of each institution’s demand and supply is discussed and is plotted on the range given by the authors. It is then shown in graphical form for ease of comparison (Diagram 1).

(a) The G20 is probably the most closed of the groups to both activists and representatives of financial institutions, which means that institutional supply is limited. However, financial institutions have an advantage in the way that they are likely to meet leaders in similar social and functional circles, such as at the World Economic Forum, and by virtue of the ‘revolving door’, many finance ministers will work closely with former bankers or may indeed be former bankers. Consider, for example, Mark Carney, the Governor of the Bank of Canada and recently appointed, by the G20, to Chairman of the Financial Stability Board, who spent thirteen years at Goldman Sachs. Thus, while it varies upon the actor involved, the G20 has limited supply. On the demand side, the G20 faces considerable public calls for action to punish banks and for innovative development financing, as well as from political leaders in the G20. Thus, given low supply but some level of demand, the G20 risks either pure capture (A), or capture with compromise (C).

(b) The European Commission process is considerably more open, as it has a legal requirement for public participation, and must work to gain the approval of 27 member states. However, thousands of lobbyists are based in Brussels and the EC has long had a ‘democratic deficit’ with the public. Nonetheless, the commission can be categorised as having a more extensive supply of regulatory possibilities. In demand terms, the commission is probably strongest on the tax: there are pro-tax coalitions across Europe, demand exists from several strong national political leaders, and, as shown in the Eurobarometer 2011 survey, the European public is relatively well-informed about the tax. Whether this demand for regulation outweighs the strength of the banking lobby’s demands is unclear: organisations like the Robin Hood Tax

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coalition did not make representations to the commission’s public consultation. The political strength of Germany and France compensates for this, and thus the commission can be categorised as having the greatest likelihood of producing the ideal of common interest regulation (D).

(c) The only UK political institution currently openly debating the tax is the House of Lords EU Sub-Committee on Economic and Financial Affairs and International Trade, a part of the the upper, and weaker, chamber of parliament. While it actively seeks to engage the public, having invited written and oral submissions before it, it does not legislate. Instead, the power to decide on the tax exists in the closed Treasury working in concert with the equally closed Bank of England or Financial Services Authority. Thus the institutional supply is low. Moreover, since the work of the House of Lords generates very little publicity and there are few political agents calling for the tax, the only demand is driven by the public advocacy campaigns. As a result, the UK can be considered to be at the most risk of pure capture (A), or at least, as with the G20, of capture with concessions (C).

Diagram 1: Levels of capture in G20, EU and UK

Here, this analysis is based on relatively subjective views, but it would be possible to research these elements in greater detail to provide a more robust approach. For example, quantitative analysis could be performed on the responses to the participation invites of the European Commission and the House of Lords, or freedom of information requests could be used to produce data on the time G20 leaders spend with bank representatives and the time

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Closed institution

Open institution

Broad demand

Narrow demand

A: Pure capture

B: De facto capture

C: Capture, with concessions

D: Common interest

UK

EU

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they spend with NGO representatives. In the absence of quantitative research, the explanation above is a broadly accurate estimate of the state of regulatory capture.

In sum, the theoretical analysis of power and regulatory capture suggests that the UK is in the weakest position, facing the likelihood of pure regulatory capture; the G20 is in a weak position, but the significant demand from some of its members may result in capture with concessions; and the European Commission appears to be the institution least likely to be captured by private interest. These theoretical results are reflected in reality: the G20 is yet to completely refute the idea of the tax in the way that has occurred in the UK, and the European Commission is the only institution to actually propose the tax. In its conclusion, this essay argues that this regulatory capture presents serious problems for global politics beyond the financial transactions tax.

6. Conclusion

This essay has described the evolution of the financial transaction tax and how inconclusive economic arguments cannot be used to determine its worth. It found similar problems with the political debates on the subject. It argued that the best explanation for the discourse around the tax and its absence at a global or regional level is that political institutions are at considerable risk of regulatory capture in the face of the extensive power exercised by financial institutions. Finally, it is worth noting that the tax is important not just on its own merits, but as a symbol of the state of global governance. Below, both the results of realisation and non-realisation are briefly imagined.

If the tax were to be implemented at the global or European levels, different results can be imagined. The first, perhaps the most unlikely, would see the European Commission lead the rest of the world in adopting a transaction tax. This would make the financial transactions tax the first global tax and would have symbolic importance for global governance. It could blaze a trail for other taxes, including, most importantly, a global carbon tax. The discussions on the expenditure of the tax revenue might result in calls for greater democratic representation in global politics - no taxation without representation - and help to construct a global identity. A second, more realistic scenario is that the commission’s adoption of the tax in the Eurozone (i.e. without the UK) would show an impressive appetite for risk-taking in regard to the global economy – an effort at real political leadership in a context in which most political action is reactive rather than proactive. This would also indicate the lack of regulatory capture at the European level and inspire an idea that emerging global economic governance is able to match the power of global finance.

If the idea were to be abandoned, these effects would be reversed. The lack of a financial transaction tax would show that there are considerable limits between global ideals and global reality, and that the sovereign state is still the foundation of global governance, such that truly global political action is rare. This would suggest that global reform opportunities are fewer, not only in terms of dealing with global financial crises, but also in the other policy realms in which global leadership is lacking. It would show that the private sector is the most

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powerful actor at the global level, unimpeded, even supported, by national governments, in securing its self-interest.

This issue is not only recognised in academia. From Zuccotti Park to Bay Street to Paternoster Square, protestors around the world have called for better democratic oversight and regulation of the power of global capital. The traditional international monetary institutions, and their modern leaders in the G20, seem unable to respond. The financial crisis presents a moment of opportunity in which change to the global system should be considered possible. It is why grand coalitions of NGOs and faith groups formed to promote the financial transactions tax. It is why the European Commission made a full legislative proposal for the tax. But the idea whose time had come may be running out of time. There is a risk that the world is about to let a crisis go to waste.

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7. Works cited and bibliography

Bagehot, 2011, The moment, behind closed doors, that David Cameron lost his EU argument last night, Bagehot’s notebook, The Economist online, December, 9. Available at http://www.economist.com/blogs/bagehot/2011/12/britain-and-eu-1.

Cooper, A., 2011, The G20 Returns to Crisis Committee — with Positive and Negative Implications, CIGI Commentaries, November, 4. Available from http://www.cigionline.org/publications/.

Dettmer, M., Reiermann, C., and Reuter, W., 2009, G-20 Nations Divided Over How to Fix World Economy, Der Spiegel, September, 22. Available at http://www.spiegel.de/international/world/0,1518,650449,00.html.

Eurobarometer, 2011, Europeans and the crisis: European Parliament Eurobarometer (EB Parlemeter 75.2) Summary, June, 22. Available at http://www.europarl.europa.eu/aboutparliament/en/00191b53ff/Eurobarometer.html?tab=2011_2.

European Commission, 2011a, Report on Consultation on Financial Sector Taxation, April. Available from http://ec.europa.eu/taxation_customs/common/consultations/tax/index_en.htm.

European Commission, 2011b, Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, available from http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/.

European Commission, 2011c, Executive Summary of the Impact Assessment, Commission Staff Working Paper SEC 2011 1103 Final, September 28, 2011, available from http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/.

France24, 2011, Sarkozy reiterates call for financial transactions tax, France24.com, November 4. Available at http://www.france24.com/en/20111104-sarkozy-tax-financial-transactions-summit-france-cannes-eurozone-euro-debt-uk.

Fuchs, D., 2005, The Commanding Heights: The Strength and Fragility of Business Power in World Politics, Millennium - Journal of International Studies, vol. 33 no. 3 771-801.

G20, 2009, Leaders Statement. The Pittsburgh Summit September 24 –25 2009. Available at http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf.

G20, 2011, Cannes Summit Final Declaration: Building Our Common Future: Renewed Collective Action for the Benefit of All 4 November 2011. Available at http://www.g20.org/Documents2011/11/Cannes%20Declaration%204%20November%202011.pdf.

Gates, B., 2011, Innovation with Impact: Financing 21st Century Development, available from http://www.thegatesnotes.com/.

Hansard, 2011, HC1534v, uncorrected, House Of Commons, Oral Evidence Taken Before The Treasury Committee, Independent Commission On Banking Final Report, 23 November. Available at http://www.publications.parliament.uk.

House of Lords, 2011a, European Union Economic and Financial Affairs and International Trade Sub-Committee, Financial Transaction Tax, Oral and written evidence. Available from www.parliament.uk.

House of Lords, 2011b, Unrevised transcript of evidence taken before The Select Committee on the European Union, Economic and Financial Affairs and International Trade (Sub-Committee A), Inquiry on Financial Transaction Tax, Evidence Session No. 2, Tuesday 29 November 2011. Available from www.parliament.uk.

IMF, 2010, A Fair and Substantial Contribution by the Financial Sector: Final Report For The G-20, June. Available at www.imf.org/external/np/g20/pdf/062710b.pdf.

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Joseph Mitchell Global Economic Governance paper @j0e_m

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