BASIC INCOME: AN OLD IDEA WHOSE TIME HAS COME

Posted: 2016-12-25

Eamon Murphy argues that a universal basic income (UBI) has many advantages in the modern age. The idea is gaining momentum, with pilot projects in Finland and in the Netherlands currently in progress.

 

 

 

IN June 2016, the people of Switzerland held a referendum on the whether or not to implement a system of Basic Income in their country. The proposal was defeated comprehensively, by a ratio of 3:1. But the fact that the debate on the issue has been advanced to the point where a developed western economy was voting on it speaks volumes about how far the concept, and support for it, has progressed. It begs the question: is Basic Income an old idea whose time has finally come?

Basic Income is not actually a new idea, having been proposed in some form or another many times over the last couple of centuries. It is attractive to ideologues on both the left of the political spectrum – who view it as a useful poverty reliever and an acknowledgement of the right of all citizens to an unconditional share of the wealth of the state – and also on the right, where the removal of poverty traps and the accompanying dissolution of many welfare payments appeals to many.

Basic Income is a system whereby every citizen receives a non-conditional payment from government, regardless of income, employment status, or wealth. It can be the same amount to all citizens, or can be dependent on the age of the recipient.

It is granted to every individual – as opposed to according to household – without means-test or work requirement. It would be tax-free, with any additional personal income being taxed in the established manner (it’s imaginable, however, that the taxation system would change upon the instituting of such a radical change to social welfare).

It would replace most or all social welfare payments, as well as, potentially, all tax credits and tax reliefs. Some variation of certain welfare payments might be maintained, in order to target specific issues, or groups that are particularly vulnerable or at risk of poverty. However, the general idea is that these payments, and much of the administration and means-testing that goes with them, would be abolished.

Receipt of a Basic Income is not affected by the acquiring of other income. Indeed, individuals are encouraged to top up their income from other sources and, unlike more traditional means-tested welfare systems, payment of Basic Income is not affected by changes in employment status. In this way, Basic Income differs fundamentally from the traditional welfare state model, giving people the freedom to engage in productive activity (or otherwise) without having to meet certain criteria as outlined by the welfare provider.

For many of us, the idea of ‘money for doing nothing’ conflicts with our most basic assumptions about work, income and personal responsibility, and how they interact. Yet forms of guaranteed income already exist in child benefit, disability payments, and  old  age  pensions. They also exist in unemployment benefit, tax credits, and maternity benefit.

Such payments were originally initiated because they were the simplest way to target a particular issue or incentivise certain behaviour. However, the result is an unwieldy system of payments, credits and reliefs, with attaching conditions that often disincentivise productive activity, prohibit the pursuit of altruistic action, or trap people in a cycle of poverty. A system of Basic Income would be more efficient and would remove many of the anomalies that have caused such a situation.

There are other reasons why Basic Income may be the way in which welfare will be delivered in the future. The structure of work and employment is changing. Many full-time jobs in the modern economy provide neither a living wage nor guaranteed hours. The traditional labour market faces wage-stagnation and technological disruption, and already we are seeing some skills being made obsolete, with others becoming less valuable. This is likely to lead to a fall in wages over time. A system of Basic Income would underpin living standards in such a precarious labour market.

As well as this, our society is gradually ageing. In the future, there will be a requirement for more people in caring roles. A system of Basic Income would allow people to care for family and neighbours without having to account for their time to the state. Developed western economies need to take account of these facts, and transform how social welfare is delivered.

As noted earlier, the idea of money for ‘doing nothing’ goes against many of our instincts as a society. Among other things, it may be assumed that such a system will make people lazy. Experience, however, does not bear this out. Pilot projects in societies as diverse as Namibia and Canada produced some interesting results, including:

An increase in the number of small businesses;

An increase in numbers enrolled in education;

A reduction in the number of people suffering from chronic illnesses;

A fall in hospital admissions  and mental health consultations among participants.

As you might expect, there was an accompanying fall in employment. This was not, for the most part, lazy people giving up work in order to live off their unconditional payment. Most of this fall was accounted for by teenage males (i.e. those traditionally under most pressure to become self-supporting) who were staying in school longer.

Broadly speaking, the experience has been that adults with full-time jobs do not reduce working hours very much under systems of Basic Income. The exception is women who want more time off work after giving birth. Primary earners rarely reduce hours. A well-designed Basic Income creates incentives for people to work, as they do not face losing their payment from the state and get to keep most of the income they earn, and does a much better job of supplementing the incomes of the working poor than most kinds of social assistance.

Given the minimal effect on the incentive to work shown in many of the studies conducted to date, it could be argued that the burden of proof is shifted to those who claim a Basic Income would lead to a significant shift in attitude towards work.

Basic Income would have many other benefits compared to the welfare systems currently in operation around Europe, including:

1. Greater ease of administration, given the reduced number of payment types and the much-reduced need for means-testing;

2. The elimination of poverty traps inherent in traditional means-tested welfare systems. Employment is always worth pursuing, as the Basic Income will be received in addition to money earned through employment, rather than withdrawn. It is also untaxed;

3. Welfare fraud would be more-or-less eliminated;

4. Basic Income would assist in alleviating poverty, and with payments being universal, there would be no stigmatisation for recipients.

Basic Income would also be good for the environment, as it would facilitate a society and an economy that does not have full paid employment as an overarching goal. Full employment relies on ever-expanding GDP growth, which conflicts with our concerns for the environment.

The momentum behind a Basic Income is growing, with pilot projects in Finland and in the Netherlands currently in progress. The results will be very interesting, and policy-makers should watch this space, for they may be watching the evolution of a system whereby welfare is delivered in the 21st century.      

 

Eamon Murphy, November 2016