Mr. Speaker, I commend my colleague in the New Democratic Party for having brought forward this issue to the House of Commons.
When James Tobin introduced the concept of a Tobin tax 20 years ago it did not make much of a ripple, which were his words. In fact, it sank like a rock. Periodically we hear about a Tobin tax and the idea flares up again typically during times of economic turmoil.
In the current context, with $1.3 trillion traded daily in global capital markets, it has raised its head again similar to the Loch Ness monster. Periodically this monster pops up. Some people see it, typically during periods of turmoil.
I think the hon. member has done us a service by bringing the issue forward so that we can debate and discuss the Tobin tax in the House. I have significant concerns about the Tobin tax. Not that I do not recognize the importance of developing market controls or developing some way to effect the prevention of the types of financial disasters we have seen in Southeast Asia, prior to that in Mexico and with the Barings Bank and some of the spinoffs of that debacle, or BCNI. These types of disasters have been very damaging to economies not only within the sovereign borders of those states where they emanated from but in a global sense.
I do disagree with the concept of a Tobin tax. I feel there is a certain amount of economic naivety that ignores some of the unintended consequences of this type of tax. One of the important things we must seek to protect in a global knowledge based society is the efficiencies of our capital markets. Those efficiencies can benefit in many ways as opposed to hurt.
In recent weeks and months we have seen the Asian crisis and the resulting difficulties. We should not be asking whether Tobin taxes could have prevented the Asian crisis because arguably they could have or other arguments say they could not have, but we should be asking why currency speculators found an opportunity to begin with in those Asian countries. The fact is governments in southeast Asia were operating fiscal policies inconsistent with their monetary policies.
By global speculators seeing this inconsistency, finding an opportunity to make money and investing as such they corrected an inherent wrong in those economies much more quickly than would have occurred if we had a Tobin tax. It is kind of like would we prefer as a country with structural deficiencies in our economy either fiscal or monetary to sit on the curb bleeding to death or get hit by a bus and be taken to the hospital. The fact is that currency speculators, and arguably they are like a bus, draw very quickly global attention on some of these hemorrhaging economies and cause us to fix them a lot faster with the types of tenable, long term, sustainable, market driven solutions which ultimately will prove to be the best.
Mr. Tobin referred to the tax initially as throwing sand in the wheels of international finance. I suggest those people who believe we can through something like the Tobin tax throw sand in the wheels of international finance may have their heads in the sand. It is a huge global enterprise that Canadians can participate in and one that Canadians can succeed in if we create the appropriate incentives and structural elements in the Canadian economy and efficiencies to do so. The Tobin tax would work against us.
The idea of imposing a tax on foreign exchange transactions sounds fairly innocent, making speculation more costly and in proposals supporters claim that would inhibit speculation. The question we have to ask ourselves is if speculation can cause corrections which ultimately eliminate government ability to make the wrong decisions and to create or to pursue fiscally profligate policies that are in the long term unsustainable, whether we really want to stop that. The idea of financial tax to rebuff financial markets pops up periodically and most economists reckon that a Tobin tax would not work nor would it be desirable. The main problem is enforceability.
Even if we had each OECD country sign on, which would be a big step, trading would simply move off shore to Singapore or other countries such as the Cayman Islands or somewhere else which would see a tremendous opportunity. The tax would have to cover a whole range of financial transactions, not just foreign exchange trading.
One of the most difficult financial transactions to actually track and one that would be almost impossible for a Tobin tax to effect would be derivatives. Derivatives and other increasingly complex financial instruments are becoming increasingly prevalent in the global markets and the Tobin tax would not be able to effect change.
I could spend 20 minutes describing the Tobin tax and my difficulties with it. The UN describes the Tobin tax as a sort of Luddite proposal in terms of its intention to reverse the general decline in the cost of international financial transactions. We should be looking at some of the things that we could do and I am glad this debate has come to the House. Some of the things we should do is work with the IMF to improve reporting such that we see more quickly situations developing in countries. We can improve the reporting of governments. We can improve openness and transparency of government policies, directly inconsistent with what this government has done.
If we look at the dollar debacle of this summer when this government was blaming currency speculators, the Prime Minister was behaving similar to President Suharto. He was blaming currency speculators for the weakness in Canadian currency when the structural impediments to Canadian productivity in this economy are the real culprits. It is not the currency speculators. It is governments that pursue economic policies that are unrealistic and governments that do not maintain the type of transparency and openness with the international markets to make them aware of the types of things they are doing that reduce their credibility and ultimately lead to issues like the systemic decline in the Canadian dollar or in issues in southeast Asia where monetary policy was inconsistent with the fiscal policy.