Response to Milanovic on the Tobin Tax, Empire, and Migration

I wondered when the Tobin Tax would come up! This concept envisages taxing financial transactions around the globe to throw some sand into financial markets to tame their volatility. The proceeds to be given to the UN to hand out as welfare payments to the world’s poor may have been endorsed by the World Bank’s Chief Economist and by the French and the Brazilian governments, but these are the usual suspects, whose endorsement by no means ensures that this proposal will get anywhere, as it has not for the last 20 years since proposed by Jim Tobin. Does Branko Milanovic seriously believe that the US Congress will accept such a tax, and even more seriously, even if this unlikely event were to occur, to hand over the proceeds to the UN, whose record in the Iraq food for oil scandal is threatening its very existence? Moreover, with the growing financial integration in the world economy (which of course the French are against), does he really believe that the emerging Asian giants will agree to a tax on their growing financial transactions?

Second, how does he think he will get the dollar to the poor Congo worker collected from a Tobin tax? Will it be through a helicopter drop of money in poor areas? Or will it still have to depend on governments? Remember, the deal the World Bank made with Chad two years ago to devote most of its oil revenue to reducing poverty in exchange for the Bank’s investment in a pipeline to export oil has fallen apart. The government of Chad now wants to use the money for military spending and government salaries!

Third, I am surprised at Milanovic’s implicit argument that Western welfare states, which he wants to globalize, have unambiguously aided the poor. Numerous studies have shown the middle class capture of these Western welfare states. [1] Why would not this happen in a global welfare state?

The point he makes about the failure of imperialism in Bosnia, Kosovo, Afghanistan and Iraq, is precisely why I don’t think this route is feasible for the current imperial power—the US. It has the military might but not the will nor skills to engage in “nation building.” In this it differs from the 19th century British empire, which in its second post-predatory phase (in the words of the magisterial study of British imperialism by the economic historians Peter Cain and Anthony Hopkins) [2] had a “wider mission which can be summarized as the world’s first comprehensive development program”(p.650) . This resulted in generating intensive growth in most parts of the Third World, which had stagnated for millennia, experiencing at best extensive growth. [3] But, as I argue in my In Praise of Empires, the long term commitment this involved in creating an imperial civil service charged with nation-building is no longer available, given the domestic politics of the current global hegemon. So I agree that indirect or direct imperialism for nation building is no longer feasible.

On migration in the 19th century, Milanovic is wrong to state that this was mainly involuntary. As O’Rourke and Williamson have shown, the convergence of commodity and factor prices (which is the essence of globalization) in the heyday of the 19th century liberal international economic order (after 1850) was largely due to voluntary migration of the poor from the Old World to the New. [4] It is this avenue which has been closed to the Third World’s poor.

So I come back to my basic point, taking the world as it is and not as it should be ideally, how do the proponents of aid propose to get the money to the poor without it being siphoned off as it has been by the ‘Lords of Poverty’?

Notes

[1] D. Lal and H.Myint (1996): The Political Economy of Poverty, Equity and Growth- a comparative study, Clarendon Press, Oxford, Chp.9, outlines and discusses these studies.

[2] P.J.Cain and A.C. Hopkins (2002): British Imperialism 1688-2000, Longmans.

[3] See L.G.Reynolds (1985): Economic Growth in the third World, Yale, Table 1, p.958; and Angus Maddison (2001): The World Economy- A Millenial Perspective, OECD, p.100.

[4] K. H. O’Rourke and J.G.Williamson (1999):Globalization and History, MIT.

Also from this issue

Lead Essay

  • Why Doesn’t Aid Work? by William Easterly

    It is a tragedy that billions suffer from extreme poverty. The second tragedy of the world’s poor, William Easterly maintains in this month’s lead essay, is that trillions spent on foreign aid have done so little to help. Aid efforts so rarely succeed because they so often lack feedback and accountability. The way forward, Easterly argues, is “truly independent scientific evaluation of specific aid efforts … continuous evaluation of particular interventions from which agencies can learn.”

Response Essays

  • Thought-Provoking and Misleading by Branko Milanovic

    In his spirited reply to this month’s lead essay the World Bank’s Branko Milanovic claims that William Easterly’s argument is misleading. Easterly, Milanovic argues, is not clear about the definition of “aid,” and he both underestimates how much governments can do to help the poor and overestimates the likely effectiveness of his proposed new “grandiose bureaucracy” to assess aid effectiveness. Easterly, Milanovic writes, “provides an argument for those who have long argued that the best policy is to do nothing and ignore the poor world.”

  • There is No Fix for Aid by Deepak Lal

    In his reply essay, Deepak Lal, the James S. Coleman Professor of International Development Studies at UCLA, argues that like almost all aid efforts, Easterly’s proposed evaluation initiative is likely to fail. “Short of direct or indirect imperialism,” Lal argues, “there seems to be little hope of overcoming the domestic political obstacles to the efficient utilization of foreign aid.” Easterly’s proposal is just more fodder for the “Lords of Poverty,” the middle class professionals who derive a good living from the international business of alleviating world poverty.

  • Evidence Beats Rhetoric, Every Time by Steve Radelet

    The Center for Global Development’s Steve Radelet argues against Easterly that, in fact, “aid amounts have been modest” and that the evidence shows that aid is often effective. Without successful health interventions, “millions of these people would be dead,” Radelet writes. Furthermore, he argues, aid does promote economic growth. “Here is the dirty little secret: most of the published research over the past decade has shown a modest positive relationship between aid and growth.”

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