16 March 2016
Basic (Income) Instincts
An end to poverty or the end of work?
by Frank O’Nomics
In a recent trip to a coffee shop I was struck by the words written on the barista’s t-shirt: “More than just a button pusher”. Sadly for him, while many of us may like some cheery banter as our coffee is prepared (for what it is worth he was mono-syllabic), the truth is that machines are being developed that will create a better and more consistent brew than he will be able to. The replacement by machines of the barista, and a great many others, will be one of the main developments in our society over the next few decades. It is not surprising that governments and think tanks are looking at ways of managing the consequences of this change, with many starting to talk about the introduction of a universal basic income. The concept might be very old, but on the face of it UBI, otherwise known as guaranteed or citizen’s income, may look compelling. Instead of a complicated welfare system, everyone would receive a guaranteed subsistence income. The obvious concern would be that this would encourage widespread indolence, a huge rise in government spending and a significant fall in productivity. However, the concept has sufficient backing to have been recently considered by India, Canada and Finland, with the Green Party in the UK also supportive, and a trial scheme proposed in some areas of Scotland. With the likes of Tesla boss Elon Musk supporting the idea we should probably give it proper consideration.
Why might it be a good thing? Theresa May has raised the plight of the just about managing, or JAM, sector of our society. The Resolution Foundation sees JAMs as comprising of six million working-age households on low to middle incomes, and includes those earning as much as £50,000 if they have several children. Typically they have less than a month’s income in savings and are highly vulnerable to low income growth (particularly “gig” economy workers on zero hours contracts) and to rising costs. Guy Standing of SOAS has developed a term to describe the most vulnerable group, the “precariat” – those in a precarious existence of temporary or short time work, often without the assurance of state benefits. There is clearly no shortage of people who could benefit from a universal basic income and this cohort is set to rise as a result of automation.
Some estimates see 47% of the jobs currently existing in the US being automated over the next 20 years. We might hope that other roles will develop for these workers over that period (who could have predicted many of the current jobs that people do two decades ago?), but the rate of job creation will struggle to keep pace with the introduction of robots. In fact, the process has been underway for a long time already. More than 7 million manufacturing jobs have been eliminated in the US since 1979, and, between 2005 and 2010, 600,000 factory jobs were lost in the UK. The prospect of fewer and fewer jobs that are not capable of being done by a machine has prompted Elon Musk to suggest that a universal basic income will need to be considered to counter the consequences of widespread automation and the unemployment thereby created.
Looked at this way, UBI might even seem unavoidable, with the added benefit of sorting out a highly complex system of benefits that exists in countries like the UK. The problem is, beyond fears of creating a generation that will be paid not to work, that it is likely to be very expensive. The Swiss recently voted against a UBI after being told that it would result in a doubling of welfare spending and, logically, if you set UBI at 30% of average income, it will cost around 30% of GDP.
Given the current constraints on public finances it is hard to see this ever coming in. If you decide to set the level much lower than this (as Finland has done) the result is that you do not cover people’s needs and finish up still needing to have a system of welfare benefits. Further, if it is a universal benefit you will be paying it to many people who don’t need it, adding the administrative issue of claiming it back in tax.
Proponents of UBI do have counters to these objections. Firstly, they argue that poverty is very expensive – one study estimated the cost of poverty in the US at $500 billion a year against a UBI cost of only $178 billion. Secondly, ending poverty would have a great benefit in reducing healthcare costs and crime. Perhaps most significantly, they argue that wealthier people who receive UBI would pay it back in tax so that the net cost would be much lower than the gross figure. Indeed, the key to success will be dependent, as Rutger Bregman argues in his book “Utopia for Realists”, on how UBI is financed. If it is done by a tax on consumption then the benefits are negated given the impact on the poor, but if, as Bill Gates has suggested, we levy a tax on machines (effectively income tax on robots) the process may be more egalitarian.
Universal Basic Income has been proposed over the years by thinkers as diverse as Milton Friedman, Martin Luther King, and Mrs Thatcher’s favourite, Fredrich von Hayek. It existed for over thirty years in the nineteenth century in Speenhamland in Berkshire and was even nearly introduced in the US by Richard Nixon in 1969. So far the costs and logistics of introduction have meant that, even if the moral arguments of paying people to be idle could be overcome, the concept has been regarded as unworkable. However, if the rise of the machine continues without the creation of new forms of rewarding occupation, then there may be little alternative to some form of UBI.
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