Universal basic income

Simple but not easy

It looks like I may have been on to something with one of my recent blog entries (I know, I couldn’t believe it either).

I hypothesised that while historical job losses as a result of technological progress and automation have consistently been more than offset by job gains in other/ the same sectors, in the future these job gains may not be sufficient to offset continued job losses, especially if machines become sophisticated enough to replace not just administrative and routine manual labour tasks but also tasks involving creative thinking. Consequently, a larger and larger social safety net will be required to support these structurally unemployed individuals – maybe permanently.

But this need not be unsustainable, as long as a sufficient share of the benefits from automation are taken by the government in the form of taxation and redistributed to the newly redundant ex-workers, rather than just absorbed by the owners of this automation in the form of profits. As I mentioned in my previous blog entry:

“The point of technology and automation was never to replace humans and leave those humans with nothing – it was to find a way to complete the task without the need for humans. But the humans that were replaced by technology should still be supported by the wealth generated by those machines, unless and until they can reasonably find alternative work”

However, sufficient profits would still need to be allowed to provide business and industry with incentives to invest in such efficiency-improving technology and automation in the first place. Alternatively, if business and industry aren't allowed to sufficiently profit directly by replacing labour with technology, then this technology must at least provide the capacity for additional profits via expansion of operations.

And now it seems Finland, in response to such forces, is trialling a universal basic income (UBI), whereby 2,000 of its unemployed/ already-welfare-supported citizens are guaranteed a minimum income. Furthermore, individuals won’t lose this social safety net the moment they re-enter employment – this will maintain the incentive to work (or study, start a business, volunteer, care for others, etc.) without creating the fear and desperation associated with potential hunger and homelessness that can just result in desperate people accepting whatever low paying and insecure jobs they can find, not necessarily the most satisfying or productive job. Consequently, a UBI could be beneficial not just to the individual, but also the community and broader economy. It wouldn’t just be ‘money for nothing’.

There is also the benefit that a UBI is potentially much easier and cheaper to administer than the endless rules, regulations and bureaucracies associated with many current social welfare programs, without necessarily requiring any additional cost to the taxpayer. This is important to note – a UBI need not increase the size of the welfare state by itself in order to enjoy these efficiency gains from a simpler system. But for countries with relatively small social safety nets and high inequality, a UBI in addition to a generally larger welfare state is indeed likely to not only improve social outcomes, but also economic ones by helping the lower end of the socio-economic spectrum become productive members of society, not get locked in an endless cycle of disadvantage and dependency. The IMF itself highlights this positive link between income equality and economic growth.

With a UBI, we may also be able to do away entirely with the idea of a minimum wage – how stoked would business and industry be about that. Of course, for the government to cover the difference (to compensate the workers being paid below minimum wage), additional taxes would have to be collected from business and industry, at least partially offsetting some of these benefits. But by allowing the free market to entirely determine the level of wages, rather than forcing a minimum wage upon it, additional efficiency gains would be generated that may offset these additional taxes. For example, if McDonalds were able to pay its burger-flippers less than minimum wage, they may be inclined to hire more burger-flippers during busy times/ in busier branches – maybe even open entirely new branches. And the workers would be no worse off because the difference would be covered by the government.

And it’s not just Finland. Elsewhere in the world:

·         High costs of living and concerns about automation resulted in Switzerland having a referendum last year on a proposed UBI (though it was defeated, with only 23% supporting it)

·         The Dutch city of Utrecht is also developing a pilot project scheduled to begin in January 2017

·         California is trialling a $20 million UBI this year

·         Scotland in trialling a UBI this year in Fife and Glasgow in light of, among other things, increasing employment insecurity in the ‘gig economy’, as well as health inequality in Glasgow, and generally stagnant living standards

·         The Canadian province of Ontario is proposing its own $25m pilot project, scheduled to be formally launched early this year. This trial is in light of:

o   High child poverty rates across Canada

o   The success of a mid-1970s basic income policy for seniors in the province in reducing senior poverty from over 30% to 5%, improving food security, longevity and independence from the health care system, which was consequently spread to seniors countrywide

o   The success of a basic income experiment in Dauphin, Manitoba in the 1970s in reducing hospitalisations, accidents, injuries and mental health issues, with minimal reductions in work incentives (except some extended maternity leave uptake and high school retention rates) before the program was cut short due to budget tightening

·         The Indian government may be endorsing a UBI soon, with two pilot schemes already launched in Madhya Pradesh in 2010, and one other in West Delhi. As a result, “welfare improved dramatically in the villages, particularly in nutrition among the children, healthcare, sanitation, and school attendance and performance”, as well as improved emancipation of women, and individual debt reduction

·         Uganda and Kenya are also trialling their own programs

This possibly reflects an increasingly held belief that society as a whole has the capacity to support all its members – no questions asked – without destroying incentives to generate wealth. Perhaps society always had this capacity and we’re only just now coming around to the idea.

I hope the results of these trials are definitive – one way or the other. And if these programs prove to be a successful means of improving the government’s income redistribution role, the full benefits of globalisation can be enjoyed more fairly within nations – not just at the top end – without the need to succumb to the desires of rising right wing nationalists to retreat and isolate one’s self from the rest of the world.