Tag Archives: Universal Basic Income

Universal Basic Income is a problem dressed as a solution

Slowly but surely Universal Basic Income (UBI) is becoming a totem policy on the left. Longer standing readers of this blog will know that I am sceptic. But should I be reluctantly reconciling myself to the idea in some form?

Recent impetus for UBI has come from the US, where it is favoured by high tech businessmen worried about the implications of progressive automation. They worry that there is a great hollowing out going on, with mid-skilled jobs disappearing, and the workforce being divided between a very well paid elite of professionals and business owners, and a majority of low skilled proletariat in ill paid and insecure jobs. If the latter can have their income topped up by some form of UBI, then they will be able to afford a higher standard of living, and they will be less beholden to the elite. Many businessmen think that the latest advances in artificial intelligence are about to make the problem much worse – hence the need for such an intervention.

The left is worried by similar issues. The more thoughtful are concerned by a breakdown of consent for the welfare state, where state aid is doled out based on need. If everybody is entitled to the same level of state aid (with allowances for age and disability, perhaps), then there will be less resentment by the slightly better off members of the working class against those receiving aid. Since the left is generally bereft of ideas that are not simply reinventing the 1970s, this one is getting a lot of support. The Green Party in Britain has adopted it; many in Labour (and the Lib Dems) are sympathetic.

Various small-scale pilots are being set up in America and Europe. In fact something like it has been in operation in various places in the US for some time. Alaska pays all its citizens a dividend from its natural resources wealth (the Alaska Permanent Fund). The amount is modest and variable: since 2010 it has ranged from $878 to $2,072 a year – but it is popular. Meanwhile a number of Native American reserves pay a fixed income from gambling concessions. The social effects of this are not so benign, which is no doubt why so few UBI never mention them. The money does not make up for a lack of decent jobs and social infrastructure, and the money is spent on things that do not engender long-term well-being, though enriching unscrupulous salesmen.

One thing should be very clear from any but the most superficial analysis. If the level of UBI is to be set high enough to deal with basic human needs, so that it can replace the bulk of state benefits, then taxation will have to be unfeasibly high. So high that instead of fostering consent it is just as likely to breed resentment as the current system, and a massive drive by businesses and rich people to smuggle their profits abroad to evade payment. That is before recipients of UBI start complaining that the system is unfair because their circumstances (living in a high-cost area, educational needs, health problems, disabilities) create greater need. The idea that UBI can replace a whole series of benefits with a massively simplified system is for the birds. I also think such a system would lead to alienation which would exacerbate social ills. Alienation results unless people are engaged in genuine dialogue resulting in some form of contract; the idea behind UBI is to reduce the need for dialogue and contract.

If UBI-max – the replacement of most state benefits -is ruled out, what we are left with is  much more modest. It might replace the personal tax allowance and extend it to those who aren’t working, and re-badge the basic state pension, removing it from the contributory principle (something that the Coalition advanced in the UK in 2010 to 2015). This would effect a modest level of redistribution and ease life slightly for some groups of hard-pressed. No doubt it would mean higher taxes, though some benefits might be clipped to help pay for it. I’m not sure that this is worth it – and it is hardly very radical. The tax free allowance is only worth a couple of thousand pounds a year.

But there is another approach that is worth mentioning – suggested by the former Greek Finance Minister Yanis Varoufakis. This goes back to the Alaska Permanent Fund. The state acquires stakes in major businesses, and especially the big monopolistic businesses that are increasingly dominating our daily lives. A dividend would be distributed annually from the income generated by this fund. Over time this fund would grow and start to produce respectable sums.

Mr Varoufakis is a socialist; the idea of states taking over chunks of privately held capital will not bother him. Others might be nervous; the state has not proved to be an effective shareholder on the whole, the less so the more management is politicised. It might also create public acquiescence with monopoly profits, compared to more efficient models. But it is an intriguing idea. It does go to the heart of the problem – the excessive accumulation of capital in the hands of relatively few people, and its control by corporations that funnel disproportionate rewards to a few. It also starts to tackle another often-overlooked problem: how hard it is for people on modest incomes to accumulate savings without them being eaten up by transaction costs. This is why so many private sector pension plans are so ineffective, and why a state-funded basic pension is such a good idea.

How would the state fund its capital acquisitions? There are broadly three ways: appropriation, taxation or borrowing. Appropriation is simply tax by another name – maybe businesses could be forced to offer shares to the state instead of corporation tax; and by the same process a minimum distribution might also be forced. There a couple of problems with this, though. First of all it would confine the fund to domestic assets, when so much of the surplus capital is held by international businesses. Second, businesses come in all sorts of legal structures, some of which are more conducive to income distribution than others. Any attempt to appropriate shares could cause businesses to evade by changing legal structures.

But a sovereign wealth fund funded by taxation or borrowing gets around the need for direct appropriation. The problem is that it would take an awful lot of money before it reached a size that it could generate an income that the public would notice. Take the UK. One thousand pounds for 60 million people is £60 billion. At a 2% yield that is £3 trillion capital value – getting on for twice the level of the national debt. Even a New Monetarist might that feel state borrowing on this level carries risks. Of course the idea is that capital growth will help to fund this over time, and if built up slowly, it would be easier to accommodate – but cash distributions would also be tiny for a long time.

All this leaves me thinking that UBI is a symptom of the problem, and not the solution. The world is becoming too dominated by big institutions, such as companies like Google or governments and state agencies. These try to simplify processes in order to make them manageable – and this leads to excessive accumulation of power by elites, in government and business – and the alienation of the majority. UBI is just another simplified solution designed to fit this general pattern. It is advocated by people that support such one-size-fits-all approaches – be the monopolist businessmen or advocates of a mighty central state (such as socialists) .What we actually have to do is tackle those excessive concentrations of power. And that is much harder.