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Money for nothing: are we ready for universal basic income?

Daniel Howden
Daniel Howden

Daniel was a VP of Comms at Workable. He writes about the world of work. He was formerly with the Economist and Guardian.

Several years ago I went to visit a radical experiment in the remote west of Kenya near the shores of Lake Victoria. A handful of villages had been chosen as among the poorest in the East African nation and given a cash windfall. Their poverty had been measured using satellite images showing they had more thatched than tin roofs — a sure sign of their indigence.

The idea was to find the poorest people on earth and see what would happen when you gave them money for nothing. When you do this in the developing world it’s called an unconditional cash transfer. It’s an approach that has been pioneered by a charity called Give Directly, that’s well connected to some of the Silicon Valley tech behemoths.

The organizing principle behind the giveaway was that development aid was inefficient, ineffective and ripe for disruption. Devising and monitoring conditionalities attached to this assistance is expensive. Why spend a fortune on foreign aid bureaucracies, development programs and workshops when you can just give $2,000 to the poorest of the poor and let them climb their own way out of poverty?

A similar idea is being touted in rich countries where it’s known as universal basic income and it’s being talked about more seriously than ever. The notion of paying everyone a fixed basic income was put to a recent referendum in Switzerland, pilot schemes are planned in Finland and the Netherlands and a private experiment is being conducted across the bridge from San Francisco in Oakland, with the backing of a well-known tech accelerator, Y Combinator.

Giving away money with no-strings attached grabs attention. Adding to the excitement and the sense that this is an idea whose time has come is its apparent appeal to groups and individuals from entirely different parts of the political spectrum.

There’s little or no common ground between Charles Murray, a U.S. libertarian and polemicist who has argued that all welfare programs fail; and Tony Atkinson, a British economist, the father of poverty studies and a firm believer in taxing the rich to reduce inequality. But they’re both interested in versions of the universal basic income.

They’re not alone. From the left, economist and popular columnist Paul Krugman, and Robert Reich, a former labour secretary who is now professionally anxious about the future of work are considering it; while from the right Yuval Levin, hailed among the most influential conservative intellectuals is also interested.

Mainstream politicians are for the most part still wary of it, which makes sense when one considers the fate of George McGovern, the Democratic candidate in the 1972 election, who ran on a version of this idea. He proposed a $1,000 popular grant to citizens (today worth $5,700 adjusted for inflation). He lost 49 states.

At first glance, the interest from the left in the UBI is more predictable. It’s a straight-forwardly redistributive program. Whether it’s set at $5,000 or $20,000 per year, it would still require the redistribution from haves to have-nots. If a way could be found to pay for it — of which more later — it would in a single stroke end poverty as it’s currently understood.

On the right its support flows in two currents. One is the vogue for simplification that has made ideas like scrapping progressive taxation in the U.S. in favor of a “flat tax” on all income levels. In its American form it would mean a huge shrinking of the federal bureaucracy, a cause dear to conservative hearts and minds.

It’s the second current that is the more interesting though, and it’s where the tech sector comes in. In recent years vast wealth has been accumulated by tech companies without correspondingly vast workforces. The reasonable conclusion that some have taken from this is that mechanization and automation will accelerate this trend. Capital will need less and less labor.

As many as half of our current occupations will disappear in the face of computerization, a recent Oxford University study argued. In this scenario, a universal basic income could help societies adjust to the disappearance of large swaths of today’s jobs in the second machine age. This view has attracted influential supporters among them Martin Wolf, the chief columnist at the Financial Times.

Even here there is a light and dark way of looking at this future.

Reich and others see a basic income as an expansion of the welfare state to battle widening inequality in a future where there are comparatively few winners and a whole gig economy of losers and flat-out unemployed. This is essentially a tech pessimistic left who believe labor is losing (or has already lost) its leverage over capital, and want to sue for peace before everyone realizes.

Sam Altman, the president of Y Combinator, who also believes that traditional jobs will be eliminated by technology while massive new wealth is created, is predictably more optimistic. He eschews conservative fears about a society of loafers getting by on the minimum. Many expect the Oakland research project the accelerator is paying for, to bring back data to back the hunch that recipients create more economic value than they receive.

“50 years from now,” says Altman. “I think it will seem ridiculous that we used fear of not being able to eat as a way to motivate people.”

Albert Wenger, a venture capitalist with Union Square, is one of the entrepreneurial tribe who believe that people, freed of the need to earn a basic income to survive, will use this freedom to invest in the “startup of you.”

Appropriately the ideas that are now gaining currency have been anticipated in science fiction. One author popular with libertarian thinkers is Robert Heinlein, whose 1938 “For Us, The Living,” anticipated over-production and a guaranteed basic income. Although he is much cited, this work was only published after his death in 2003.

Iain M Banks’ Culture novels, begun in 1987, are set in a post-labor future in which artificial intelligence has liberated humanoids from work and non-sentient machines run the economy, leaving people to indulge their passions or hobbies.

While it sounds futuristic the original idea of a universal income is quite old. Thomas Paine argued in an essay in 1797 that in return for respecting property rights a tax should be paid by its owners to “create a national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling.”

There are some solid reasons why nearly 220 years later, a universal basic income remains an idea not a policy. Chief among them is cost. When the Swiss were asked recently whether they would like to pay everyone a monthly income of $2,500 at a cost of 30 percent of GDP, more than three-quarters of them said no.

James Tobin, an economist and adviser to the ill-fated McGovern, devised a formula for estimating the cost of a UBI. Working from the basis that existing essential spending on education and policing requires taxing national income at 25 percent, he calculated that a UBI equivalent to 10 percent of the average income would require another 10 percent tax burden.

Poverty, as the residents of Lake Victoria know well, is relative. On Tobin’s scale eradicating relative poverty, defined in the European Union as beneath 60 percent of national median income, would mean an income tax of 85 percent. This is way above the taxation levels that even Scandinavian societies have been able to bear, let alone Britain or the U.S. where it’s currently 27 percent. Whatever the economic arguments mustered in its defense the political economy of this doesn’t look workable.

Before planning for life after the job-killing revolution it’s worth noting the dissonance between the reports of the gig economy and its actual scale. As Lawrence Mishel, president of the Economic Policy Institute puts it: “evidence of an exploding gig economy is showing up everywhere but the data.”

Modern welfare states with their ugly scar tissue of incremental reform cannot possibly match the compelling elegance of a universal basic income. It’s harder to love the “earned income tax credit” but it may be worth trying. Essentially a subsidy for low-income working families in which the amount received rises alongside earnings until a fixed point where the credit reaches its maximum. The EITC achieves the tricky balance of rewarding participation, while directing dollars to those in the most need. A substantial proportion of U.S. economists favor expanding the credit but it’s a harder standard to rally to. In other words, testing and other forms of conditionality have not necessarily had their day.

In Koga village in Western Kenya there was no welfare state to reform or invest into. In this case early research showed that unconditional cash transfers worked. They didn’t create an army of layabouts addicted to handouts, the poor were less feckless than some imagined. Undoubtedly the same would be true of the poor in wealthier societies. The problem for the no-strings evangelists is that conditional cash transfers, with all their attendant messiness, have been found to work even better.

Conditions, such as tying payments to parents vaccinating children, can deliver public and private benefits simultaneously. The roots of poverty are as important as the imperative to alleviate it. There will always be a debate on the balance between the cost of administering conditions and the benefits of the outcome. And we will always be drawn to elegant solutions but the reality of poverty reduction is almost always messy.

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