No Strings Attached: Universal Basic Income as the New(er) Deal for society

May 21, 2018

In the last few years, a number of distinct and distant communities around the world independently implemented pilot projects to test the effects of an innovative and revolutionary social policy: Universal Basic Income. Oakland in California, Ontario in Canada, small Kenyan villages, Finland, and Iran, have all become pioneers of the Universal Basic Income frontier.

 

Universal Basic Income (UBI), the idea that every adult citizen would receive a stipend from the government, without preconditions and in a permanent bases, to help cover basic living expenses, could drastically change not only the role of the government, but also the idea of work, income and the organization of society. UBI is not a new idea, but rather a concept that has picked up momentum in recent years due to changes in the social, economic and political fabric and organization of current society. Given its transformative nature and the speed at which it has been tested around the world, UBI has been the subject of many recent studies, which demonstrate, perhaps unintentionally, the differing motivations behind its implementation and its adaptability to diverse local conditions.  

 

Most UBI programs so far have been pilot projects adjusted to local circumstances; thus it is not surprising that, while the fundamental principle remains the same, the details of its requirements and rules vary between each program. The table below summarizes some of the characteristic of the different programs:

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CORE INNOVATIONS

 

The idea of cash transfers on its own is nothing new, as countries have provided monetary benefits for some time, including unemployment, retirement pensions, as well as conditional cash transfers (CCTs), best represented by the popular Bolsa Familia program in Brazil. Despite this, UBI represents a radical policy shift for several reasons.

 

Historically, UBI could represent the greatest change of the welfare state as we know it. The modern welfare state started in Europe in the late 19th century, and spread across most developed countries in the 20th century. The welfare state promoted social and economic wellbeing by providing a range of benefits for its citizens, such as education, health care, unemployment benefits, and minimum wage laws, among others protections. These benefits made the continuous, disruptive transformations of the economic system tolerable. In this regard, UBI can be seen, as the key policy that would allow people to bear the new changes underpinning the current economic system, such as rapid automatization and flexibilization of work, “just as the welfare state underpinned the 20th century, so this new idea defines the 21st.” (The Guardian, April 2016).

 

The implementation of UBI would also differ significantly from current government cash transfers, such as unemployment benefits or conditional cash transfers (CCTs). UBI is, as its name states, universal, targeting not only disadvantaged or recently unemployed citizens, but rather all adult citizens. Secondly, UBI is unconditional and permanent, meaning citizens are not expected to change their activities or behavior in order to continue to qualify and it never expires.

 

Furthermore, UBI could have conceptual changes on how society views work, leisure, productivity, income, and the purpose in life as a whole. Ever since the industrial revolution, most people have had to sell their time in exchange for wages, allowing them to participate in the new economic system that engulfed their life. Working to earn a living became standard practice and societies structured themselves around this routine. What is more, seeking and achieving a career path became, for good or bad, the source of purpose and pride for many people. Thus, a UBI could effectively alter the notions of how societies structure themselves, how wealth is generated, how people spend their time, and how citizens interact and participate in an evolving market economy.

 

MORE THAN ONE MOTIVATION

 

There are different motivations behind this new interest to test and implement UBI, in particular as people and governments look for ways to cope with the consequences brought by fundamental changes in the production system, the nature of employment, and energy sources.

 

The production system has experienced profound and rapid changes in the last several decades, with the automatization of an increasingly high number of jobs and sectors of the economy, previously considered out of reach. This rapid advancement of technology with ever more powerful machines, computers and algorithms, threatens to render a great number of workers and skills obsolete, as the market will not be able to absorb them at the same rate that automation replaces them. This will create chronic unemployment, resulting in a production system, not so far in the future, that would require limited human intervention. Universal Basic Income becomes increasingly appealing for governments that are starting to face high unemployment rates despite economic growth, and are looking to smooth the adjustment to the new labor market reality.  

 

In addition to the immediate unemployment question that rises from this labor market trend, there is the bigger, more psychological question, as people who are used to finding meaning and pride in work, may no longer need to or simply cannot find one. Advocates for UBI explain that this policy would allow for people to receive enough income to sustain themselves while dedicating most of their time to unremunerated activities within a society; it will allow, they argue, for people to follow their true passion and goals in life. As important, citizens could also develop, without much economic constraints, alternative forms of economic activities on their own that would contribute to the economy and would generate extra taxes for the government in the future.

 

Another profound change within the economic system, is the increasing flexibilization of work with the rise of the gig economy and the spread of on-demand jobs, such as those offered by Uber, Freelancer, Airbnb, and many others. There are undisputable benefits brought by the introduction of these new technologies and services into society, from helping to increase competition and reducing prices, to allowing people to have flexible schedules that adjust to their routines or allows them to earn extra income.

 

However, the spread of these type of jobs has also deteriorated the benefits workers received in the past, such as paid vacations, health insurance, and sick leave; benefits that helped to provide security for workers and their families. Given the rise  of the gig economy, accompanied by the automatization of production described above, an increasing number of workers have found themselves depending on the gig economy as their main source of income, without the benefits and protections of a stable job and career.

 

Due to the spread of the gig economy, several communities and governments have started to look for policy innovations to cope with the increasing flexibilization of work. Many stakeholders within the gig economy have, quite understandably, rushed behind UBI as a way to adapt to the limitations their industry is creating for workers and society. Providing a basic income would allow workers within this sector to maintain certain stability in terms of income as well as allow them to more easily reject badly remunerated on-demand jobs, ultimately putting pressure on big gig companies to improve their workers terms and conditions.

 

Lastly, another motivation behind UBI has been the drastic changes in the energy sector and its ramifications, from declining costs of renewable energy to the fast development of electric cars. These developments have put downward pressure on prices of conventional energy sources, significantly lowering the current and expected rents received by producing countries. Accustomed to high rents, many countries have in place extensive energy subsidies to protect their citizens from price fluctuations. However, declining rents have pushed governments to look for alternatives. In this respect, UBI has proved to be a useful political economy tool, as it allows governments to dismantle some of the most inefficient subsidies while providing people with the means to afford unsubsidized energy prices, thus preventing potential social unrest.  

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The changes experienced within the world economy have undoubtedly unleashed an incredible new dynamism and created vast opportunities. The problem arises when the policies that govern the economy and society do not evolve and adapt to the new realities. As the interaction between a society and the economy changes, so should the policies that govern them. In this regard, government’s increasing experimentation with UBI must be seen as their efforts to find innovative ways to evolve and adapt to the new challenges. These innovative efforts, however, could create costs and encounter opposition.

 

POTENTIAL PROBLEMS

 

There are several criticisms against a Universal Basic Income. Critics fear about the negative effect it could have on people’s incentives to find and maintain jobs. They argue that with an unconditional income, people will likely stay home rather than search for jobs. These legitimate concerns may be the main reason why most countries or communities have so far implemented pilot projects, in order to assess its effect on people’s productivity and employment. A clear sign that governments are taking this debate seriously, comes from the Finnish government decision not to extend the experimentation period of its pilot UBI longer than it first planned, until it can evaluate the initial results that will be available in 2019/20.

 

Supporters of UBI argue that given the lack of conditionality, people would not be afraid of losing their UBI once they find a job, unlike people collecting unemployment benefits. Furthermore, preliminary results of certain pilot projects demonstrate the potential positive social ramifications of a UBI, as people have used the extra money to start their own business, or to support themselves while finishing university. Results from the Kenyan UBI pilot project, for example, show that school enrollment rate increased in villages receiving UBI.

 

The second critique relates to implementation cost and the overall sustainability of such a policy, as governments would require increasing deficits to cover the costs, with few explanations on how the government can secure sustainable funds for its implementation. Some experts explain that implementing a UBI would allow governments to consolidate several existing welfare programs into the UBI, such as social security, food stamps, unemployment benefits, among others, thus pooling resources, gaining efficiency and reducing bureaucratic costs. Others point out to the relative low costs of implementing such a straightforward program, as the government would not need to spend resources monitoring people’s behavior, their changing employment conditions, etc. However, these results would depend on how countries implement their program, their current coverage and spending on social welfare, the transfer amount, etc.

 

On the other hand, in the case that such programs represent extra costs for the government, the changes in the economic system could represent new funding options. Some UBI advocates argue that with the increase in automation and the gig economy, there has been an increase in productivity and a reduction of production costs. This scenario would allow the government to collect extra taxes on such companies in order to cover UBI costs. Such a tax would help to reduce the short-term cost of market disruptions, thus avoiding the “privatization of benefits and socialization of cost” effect, leaving the government to pay for unemployment costs and job insecurity.

 

Another concern has been the potential inflationary effects that this program could create, as an injection of cash in people’s pockets and therefore in the economy would put upward pressure on prices, which could lead to inflation. While there is not yet enough evidence to test in practice the inflationary effects of a UBI, economists have said that this would depend on several aspects. For instance, how the program is financed, either with a sales tax or by adjusting government spending, could be an important difference among UBI programs. Furthermore, the effects would depend on the unemployment situation of a country, and on a government’s efficacy in dealing with other inflationary pressures, such as military spending or an expansionary monetary policy.  

 

While it is clear that the implementation of such an innovative concept could potentially bring about unintended consequences, governments are heading in the right direction by cautiously testing the effects of this policy and using the results to adapt the policy to local realities. Oakland, Ontario, Finland, Iran and Kenya demonstrate societies testing different forms of Universal Basic Income to ensure a stable future for their population. Although there is not a one-size-fits all approach to such a policy, our collective imagination can help re-shape solutions to put us closer to the future we want to live in.

 

 

 

 

 

 

 

 

 

Sources

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