Once again, the idea of a Universal Basic Income has entered onto my agenda. I have to say at the outset, that the greater exposure to the idea I have, the less I like it. I have been spurred to action by the publication of a policy brief by the OECD on the costs and benefits of adopting a Basic Income as a policy option. As always, it is instructive to consider the assumptions made in generating the scenarios. However, we are getting a bit ahead of ourselves.
A Universal Basic Income is a payment made by the government to every eligible adult living within it's jurisdiction. Those supporting this policy point to the advantages that it could generate in unleashing the innate creativity of a population, freed from the chore of earning a living. People would be free to pursue their leisure interests and to develop creative new businesses free of financial pressures. It is advocated as a measure of social justice.
As a general principle, the idea has some innate attractions. The point about social justice is well made, but is UBI the best way to achieve those objectives? On a more practical turn, how do we decide who is included and who is not? What about UK citizens living abroad? What about overseas citizens living in the UK? What about children? What about pensioners? Each proposal for UBI answers those questions in a different way, which makes comparisons of the different proposals difficult to make.
The OECD policy brief excludes pensioners but includes children, albeit at a lower rate. In this study, working age benefits and tax thresholds would be replaced by a UBI. No new money would be applied to the scheme, so it would be a simple redistribution of existing benefits, including savings on administration costs. In this case a UBI of £230 per month would be paid to all adults and £189 per month to all children in the UK. The problem is that the OECD calculates that the UK poverty line to be at £702 per month. As a means of social justice, it would leave many of the people currently dependent upon benefits below the poverty line and without any further recourse to state assistance.
This highlights a fundamental flaw in the idea of UBI. The proposal would take state assistance, which is currently targeted at those most in need of assistance, and give it to everyone. Without any new money to add to the initiative, it would increase poverty rather than reduce it. We would all still need to work, even those who are incapable of work - the sick, the infirm, those approaching retirement. This doesn't sound like an act of social justice.
The proposals that do address the issue of social justice, such as the proposal of the RSA for a Basic Income, do recognise the need for more money to be injected into the proposal. How much more is often very vaguely couched. The RSA proposal places the hit on Income Tax for those earning over £75,000 a year. Other proposals have placed a burden upon Corporation Tax. I have reservations about much of this being collectable.
People and finance are fairly mobile nowadays. When Francois Hollande was elected on a policy of soaking the rich, the rich upped sticks to go and live abroad. It is notoriously difficult for American governments to get US corporations to repatriate their profits and make them subject to US Federal taxes. In the absence of capital controls and restrictions on emigration, a policy of soaking the rich would be very hard to enact.
This, again, is a fatal flaw in the idea of UBI. A UBI is, in terms of economics, a transfer payment. It represents the transfer of value from one person to another without any corresponding transfer of value. Getting something for nothing, one might say. For this to work, there has to be a transferor as well as a transferee. The question arises of why the transferor would want to give value to the transferee. We do in our daily lives when, for example, we give our children their pocket money. However, extending this into adulthood does seem to stretch the point.
There have been other societies dominated by transfer payments. One thinks of the Rome of Nero and Caligula, the France of the Bourbon monarchy, the Russia of the Romanovs. None of these ended happily. Perhaps that is where we are headed? Our sense of entitlement is now so great that we believe that everyone else owes us a living? What happens if we find out that this isn't the case?
© The European Futures Observatory 2017
You hit the nail on the head. The cost of running any UBI is enormous.
ReplyDeleteThe best way to address this is, I think, taxing companies and individuals that become extraordinarily wealthy due to benefits from automation.
Hello Bryan, the problem with UBI, as far as I can see it, is funding the transfer payments. I take the point about taxing companies and wealthy individuals, but do we have an appetite for the concomitant restrictions on the movement of people and the resultant capital controls? Both of these will make us poorer, so the cake being divided for the UBI will be smaller. The funding of UBI is still, in my view, a major obstacle to it's creation.
ReplyDeleteMovement of people and capital - your objections remind me of the last chapters of Piketty's _Capital_. There he proposes an international tax on the wealthiest in order to ward off that very movement of population and money... and then deems it unlikely to occur.
ReplyDeleteYes, a tax on the wealthiest to forestall the mobility of capital and people would imply a degree of international consensus and co-operation that I believe is impossible to achieve. I think that the policy on climate change, where there is a broad consensus, highlight some of the difficulties ahead. On a wealth tax, there is not even a broad consensus about the direction of policy.
DeleteThis could be a fatal blow to UBI.
DeleteUnless the wealthy decide UBI's a good thing, and are willing to pay for it.