Universal Basic Income: a worthy ideal, a contested idea, a bad deal

Universal basic income is the idea to give a sum of money (income) to all citizens (universal) in order to provide for basic necessities (basic). Such payment from government to citizens is unconditional, meaning that it is granted to everyone regardless of personal wealth, income and resources.

Departing from its theoretical formulation, this idea can be translated into a variety of designs. If, for instance, you were worried about giving money to the rich—who clearly don’t need more than they have—it would be uncomplicated to design a system that incorporates the income you are giving to the rich in the amount of taxes you are getting back from them.

This old-aged proposal has been a topic of heated societal debate for fairly a long time already, and has recently attracted renewed interest as an institutional design that might lead us to a different socio-economic system; a more just, equal and happy one. Perhaps.  

As few other topics have managed to do, this proposal has led to a polarization of positions in response to it. At one extreme, there are those who see it as the saviour of the world – a measure saving us from the poverty, oppression and insecurity of our times. At the other extreme, instead, those who conceive it as a waste of money and human potential; a dangerous interference in the ‘natural’ working of our socio-economic system.

Experiments on universal basic income have been popping up in different parts of the world, with different designs and with mixed results. To give us meaningful evidence, however, the experimental route has still got a long way to go.

In the meantime, I invite you to gain a fresh perspective on the proposal of basic income by looking at it in three-dimensions: as an ideal, as an idea and as a deal.

A worthy ideal

When thinking of universal basic income as an ideal, two questions are central:

1)    Which goals are we, as society, striving for?

2)    How can universal basic income contribute to achieve these societal goals?

For Guy Standing, an ardent proponent of basic income, this is essentially a matter of social justice, freedom and security. Giving everybody a sum of money big enough to meet basic needs would prevent situations of extreme poverty and would, to a certain extent, decrease the level of inequality in society. It would not make everybody financially equal—given that personal income, wealth and resources will continue to make the big part of the job—but it would set a minimum common to everyone. In other words, it would create a level playing field in our socio-economic arena; a common ground everybody could start from in order to build their chances of economic, social and political success.

A universal basic income would create a level of security and dignity, a society where people do not starve for food, sleep under bridges or remain prisoners of a chronic condition of precarity and uncertainty about the future.  A society that would allow for an unprecedented level of human flourishing, where people would have time and resources to develop talents and skills, to engage in entrepreneurial projects and contribute to their communities also through money-free, unpaid, work exchanges.

Now, given these ideals and objectives, why say no? Why would anybody stand up to object to it? To answer this question we need to leave the idealistic level—cradle of human creativity and innovation—and insert this ideal into our existing socio-economic system.

A contested idea

In Western economies, few trends are of interest in relation to the policy idea of a universal basic income. Firstly, there are revolutionary technological innovations and the threats that automation and the use of robotics pose to the future of the labour market, especially in relation to high-productivity jobs. Secondly, there is a declining share of national income going to labour with respect to capital, which basically means that less money in the economy are directed to reward the employment of labour and more to reward the use of capital. Thirdly, there are social considerations, with rising insecurity and poverty levels also in some affluent economies, and even among those individuals lucky enough to have a job. Finally, at a more pragmatic level, there are massive administrative and bureaucratic costs attached to the functioning of current welfare systems[1].

All these empirical trends seem pointing to an argument in favour of universal basic income. With such pervasive economic and social uncertainty, why not make life easier for people by giving them a safety net?

Some opponents might go arguing that the negative effects of automation on labour are over-estimated and that our economy will be able to keep producing high-quality jobs in amounts big enough to create low unemployment figures. But the truth is that this is not the real bone of contention; the ultimate question—on which people disagree—is a question about human nature.

Crudely put, the question is: by giving money to people unconditionally—that is, without any requirement—would we incentivize them to do more or to do less? Will people surrender to the lazy part of their genetic predispositions or will they take initiative, flourish their talents and skills, contribute to their communities, and take care of the elderly and the sick? Embracing the stereotypical (which we never should!), will we end up with a society of surfers and stoners or with one of entrepreneurs, artists and volunteers?

As plain or banal as these questions might sound, they matter a great deal as they relate to fundamental aspects of our social and economic lives: personal incentives to engage in some sort of productive and/or useful activity, distribution of labour and resources in society, degree of cooperation and civic engagement among individuals.

However, the truth is that there is no definite answer to them. It is not black or white. Those who claim to have one answer are—possibly unconsciously—doing a bet on human nature. There is no ready answer because, first of all, there is not such a thing as ‘people’; individuals differ in so many ways. Their tastes, preferences, talents and backgrounds are so different that the effect of the disposal of an unconditional basic income on individual behaviour is likely to diverge to a large extent.

Going beyond the individual level, there are also many economic, social and cultural factors that are likely to shape the effect of a basic income on individual economic behaviour.

Context matters, as always.

If basic income was to be received—in its universality—by individuals living in areas with high unemployment rates, low economic activity, a poor eco-system for entrepreneurship and innovation, and low-quality opportunities for education and training, what would this money change? What would a youngster unemployed do with such amount of money?  On this, you are free to make your own bet.

A bad deal

Now it’s time to get pragmatic, and the big question becomes: taking societal goals and economic means into account, is universal basic income a good deal for society?

Answering this question is—at its core—a matter of opportunity cost in the fundamental relationship between public means and public ends. To become aware of the opportunity cost, though, we must first get an indication about the actual cost of a universal basic income for the public budget.

The level at which the basic income should be set is another crucial passage in the discussion. In practical terms, which amount of money should be paid monthly to every citizen? As you would expect, even here there is divergence of opinions. Some commentators would propose to begin with moderately low levels to get things started, while others would argue that if the basic income is not high enough to cover for all basic necessities of individuals, such as housing, food, and engagement in social activities, then it would bring no change at all.

For sake of the argument, let’s say that if the basic income wants to remain faithful to its ideals, it should be set, at least, at the level at which the poverty line is in that specific country.  In a Circular Conversation, Prof. Giacomo Corneo claimed that a universal basic income reaching the poverty line would mean a transfer roughly equal to 1/3 of GDP per capita. Given that everybody would receive it, this would translate in the aggregate into an expenditure equal to 1/3 of GDP (around 33% of GDP). This is a lot of money. To understand it, consider that then ratio of tax revenues to GDP in a country like Germany is between 20% and 22%.

This is where the bad deal comes from. A truly universal basic income able to lift everybody out of the poverty line would imply an expenditure that, in the status quo, no government can probably afford. It is, in other words, unfeasible because too much of a burden for the public budget. This conclusion is likely to stand even if we recognize that the actual aggregate expenditure might be lower than 1/3 of GDP—e.g. if we got the basic income back from the rich as taxes—and that some financial resources, especially in terms of bureaucratic costs, might be freed up within such a system.

Looking at the opportunity cost side, the point is that the same objectives could be reached with fewer resources and alternative measures. If having a satisfactory income for everybody, entrepreneurial activity and civic engagement are our targets, we might pursue them by incentivizing job creation, providing funding and infrastructure for innovation and entrepreneurship, providing free education and training, and working towards a flexible and reduced-hours working week.

But things might change…

The fact that universal basic income is currently a bad deal doesn’t mean that it will always continue to be so. But for things to change, a structural change in public budget and revenues is needed.

To imagine how things might change, let’s take two possible scenarios.

First scenario: suppose that the government had a sovereign wealth fund—on the line of what Norway has—with an endowment big enough to pay for universal basic income. In this case, the government would invest in the international financial markets and the returns on investments would be used to finance a universal basic income.

Second scenario: suppose that the government started taxing systematically the use of the commons—those resources common to society and not property of any individual, such as nature and cultural heritage—and the advantages that people took from it, i.e. the unearned income. Wealth taxes, capital gains taxes and taxes on non-renewables and the extraction of natural resources might all enter the picture here. If these taxes ended up being of a consistent amount, there might be the possibility to give them back to the commons in the form of a universal basic income.

Going beyond the specific plausibility and merit of these scenarios, it should be recognized that in order to make universal basic income a good deal there must be a structural change in public finance and taxation. And, as an antecedent, the political will to recognize the role of the commons on wealth creation in our society.

For the moment being, it might be a better advise to carefully choose where to spend the resources of tight national financial budgets in order to create employment, decrease poverty, instability and uncertainty, and foster innovation. This will already lead us a bit closer to the ideals of a universal basic income.

And what about the eradication of poverty?

In conclusion, concede me one final consideration about the relation between universal basic income and the greatest evil of our societies: poverty. I firmly believe that giving money to the poor—even in the context of a universal basic income—is not the ultimate recipe for eradicating poverty or “abolishing poverty”, as populist Italian Economic Development Minister Luigi Di Maio said in relation to the government’s plan to introduce a basic income guarantee.

As any skilled researcher on poverty would tell you, having money (especially without the possibility of saving and investing that money) is not enough for an individual to get out of a poverty condition, which is often not only the result of economic factors, but also of social and cultural ones (e.g. see social discrimination, segregation, disadvantaged neighbourhoods).

And, if giving money to the poor is not the solution in a static sense, why would it be in a dynamic one? That is, are we sure that—if we had basic income implemented for 20 or 30 consecutive years—we would find ourselves living in a poverty-free society?

Personally, I am not quite sure.

Emanuele Di Francesco

[1] Because of its universality, a universal basic income might allow to save a lot of money and resources involved in administrative costs needed to ascertain when people would deserve assistance (means-testing) and other related issues.