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The Case for Universal Basic Income
Posted on Aug 26, 2015
By Daniel Raventós and Julie Wark
This piece first appeared at Counterpunch.
Support for a universal basic income (defined here) is growing. In Europe, for example, the City of Utrecht is about to introduce an experiment that aims “to challenge the notion that people who receive public money need to be patrolled and punished,” in the words of a project manager for the Utrecht city council. Nijmegen, Wageningen, Tilburg and Groningen are awaiting permission from The Hague in order to conduct similar programmes. In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. On 16 June, the centre-right government of Finland, where 79% of the population is in favour of a universal basic income, made good on its electoral promise and ratified the implementation of an “experimental basic income”. A recent survey in Catalonia (13 to 17 July) shows that 72.3% of the population (basically excepting the right-wing and wealthiest sectors) would support a basic income of €650 per month, and, contrary to a tiresomely hackneyed claim, 86.2% say they would continue working if the measure were introduced. More notably, 84.4% of the unemployed say they’d still want to work.
These are tentative or incomplete measures but they’re also significant because they mean empowering individuals, economically – and also politically – in a situation where global power is largely in the hands of unelected institutions and other obscure organs, as the recent mauling of Greece has made more than clear. However, growing interest in basic income doesn’t mean smooth sailing ahead towards implementation. Long-disproved arguments are still being raised against it and dubious “alternative” proposals such as “guaranteed work”, “full employment” and conditional minimum guaranteed income are brandished. With a basic income people won’t engage in wage labour, women will be confined to the home, immigrants will “swarm” in (as British Prime Minister David Cameron would say), it would take a revolution to introduce it, and it would kill off the welfare state. Never mind that these assertions have been soundly rebutted in several different languages, they still rear their silly heads. There are still other misunderstandings (or downright lies) that need to be addressed because social and economic inequalities are increasing so fast, and basic income is an ideal measure for combating them.
Square, Site wide
First is the question of financing. There’s not a lot of detailed material on this key aspect yet but a recent study carried out in Spain, based on two million income tax declarations made in 2010 (in the midst of the economic crisis) is eloquent. The study was based on three criteria: 1) the basic income of €623 per month should be self-financing and not affect public spending in health, education, etc.; 2) the distributive impact should be highly progressive so that over 80% of the population would benefit; and 3) that effective tax rates after the reform should not be very high. The basic income has to be at or above the poverty line (€623 in Spain). It would not be subject to personal income tax and would replace all welfare benefits of a lesser sum than €623, while people receiving more than this in benefits would still get the full amount.
Financing this basic income for all adults in Spain – 43.7 million people – is possible with a single tax rate of 49% which, combined with a tax-exempt basic income, would be highly progressive. For the poorest decile, this 49% would effectively become -209% (negative because, in this case, it would be a net transfer). Approximately 80% of the population would gain and the total amount transferred from rich to non-rich would be some €35,000 million. This is not to take into account the problem of tax evasion (calculated at some €80,000 million) in Spain.
Ah yes, they say, but this model of financing would “adversely affect the middle classes”. Middle classes? In Spain, a person earning just €3,500 per month is in the top two deciles, while those earning €4,500 are in the top 5%. These figures come from official tax declarations! Whether from ignorance or bad faith, many people won’t recognise that this points to a huge problem of tax fraud, which needs urgent attention, especially if any tax reform in favour of the non-rich population is to be undertaken. Data published by the Swiss global financial services company UBS AG reveals that just 22 Spanish billionaires have a total fortune equalling 5% of Spanish GDP (or about 60% of the national healthcare budget, for example). If the real richest members of the population were detected through personal income tax, basic income financing would be easier, the tax rate lower and sectors that might lose in the present model would end up gaining. This stubborn idea that basic income would be an assault on the middle classes encourages some farcical fence-sitting postures. Hence, the PSOE (Socialist Party) claims it supports “basic income” (but means guaranteed minimum income), while others on the more or less postmodern left have entered the premier league of intellectual contortionism when asserting that basic income and guaranteed minimum income are “more or less the same”. These misconceptions are politically damaging because they’ve led progressives to support “more moderate” proposals.
Unfortunately, the new left-wing party Podemos is trying to dodge the basic income question. Although its grassroots members are pushing quite hard for a basic income, Podemos has put forth a Guaranteed Minimum Income Plan, without apparently doing the sums. Our calculations show that 50% of the population would be adversely affected because of changing the present income tax structure without compensating with a basic income. This is very different from a policy affecting the richest 20%. It seems that some Podemos leaders, turning a deaf ear to the views of its grassroots members, are saying that basic income is “too radical”. But, really? Is guaranteeing the material existence of the whole population too scary when Spain’s wealth gap is the biggest in Europe and, in global terms, the top 1% will own more than the 99% by 2016?
What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion.
Money at the bottom is over three times more effective at driving economic growth than money at the top. It’s common sense, though the theory has the fancy title of “marginal propensity to consume”: people with small incomes spend their money quickly and the rich hoard theirs. With today’s monstrous wealth gap, the velocity of the dollar in the total money supply is lower than it has ever been. Also logical. Indeed, a new model produced by Ricardo Reis and Alistair McKay shows that “tax-and-transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility”. Even IMF data suggest that increasing the share of the top 20% by just 1% of total wealth lowers economic growth by 0.08 points. But if the bottom 20% receives the same 1% share, economic growth increases by 0.38 points. So wouldn’t it be a good idea to introduce a universal basic income? Scott Santens calculates that, in the United States, redistribution in the form of a basic income of $1,000 per month for every adult citizen and $300 for under-eighteens would cost about $1.5 trillion – about 8.5% of GDP – taking into account the elimination of benefits that are no longer required once a basic income is operational. The total cost of child poverty alone is around 5.7% of GDP.
If inequality is killing economic growth, then neoliberal economics have surely failed. The OECD finds that, “Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand over the past two decades up to the Great Recession. In Italy, the United Kingdom and the United States, the cumulative growth rate would have been six to nine percentage points higher had income disparities not widened….” The key point here is that anti-poverty programmes can never be enough because the, “impact of inequality on growth stems from the gap between the bottom 40 percent with the rest of society, not just the poorest 10 percent”. If the cash transfer programme is to be effective about half the population must benefit. This sounds very like the universal basic income proposal that has been presented in Spain. Reducing income concentration at the top where money makes money to hoard is more than a moral issue or matter of justice but is economic savvy, as increasing numbers of reputable economists are now realising, for example (Baron) Robert Skidelsky.
However sound the economic arguments may be and however long they’ve been around in Spain, partial solutions keep being touted as “alternatives” to basic income. Guaranteed work is one, pushed, inter alia, by the left-wing party Izquierda Unida (IU), although it’s much more expensive (€10 gross per hour would cost the state €233,422 million) in the long term and less effective than a basic income, which would come into immediate effect to alleviate the distressing working (or non-working) and living conditions of the poorest sector. Worse, “guaranteed work” (which doesn’t take domestic or voluntary work into account) has a pathetic notion of freedom. It assumes that people must work for a salary, the inference being that if people have a basic income they’d hang around all day twiddling their thumbs. Spain has the worst unemployment figures in the OECD countries (over 15% for 25 out of the last 37 years, while the second-worst showing, by Ireland, has hit this figure in only nine of these 37 years) and, moreover, guaranteed work proposals have been devised for economies with relatively small numbers of unemployed workers. In short, the idea is pure codswallop, especially when it is demonstrated that a basic income would strengthen workers’ bargaining positions and stimulate more small businesses.
One outlandish (but no less widespread for that) criticism of basic income is that it wouldn’t combat the “sexual division of labor”. Neither would the public health system put an end to the sexual division of labour! Basic income would tackle quite a few social problems but not this one. What it can do is give women a lot more autonomy in many aspects of their lives, which is no small thing. Basic income isn’t a whole economic policy. It would be part of an economic policy favouring the non-rich population. Other social problems like the sexual division of labour, generalised indifference to scientific knowledge, private powers imposing their Weltanschauung on everyone else, corruption, human trafficking, brutality towards refugees and immigrants… must also be dealt with, but with specific, appropriate instruments. It could be argued that a society with less inequality and more concern for human beings would be more likely to produce such instruments.
Then we get to some more economic argy-bargy. Wielding Austrian School arguments, some right-wingers proclaim the advantages of low tax rates on a broad base. An increased tax rate for a basic income, they say, would reduce the tax base, the tax collected and the elasticity of the tax base, adding that not taking this elasticity into account would annul any conclusion. In fact, the empirical evidence from studies in Spain shows that increased taxes wouldn’t cause lower elasticity with a negative effect on economic activity but would give higher elasticity: more tax, more GDP, and higher tax collection. Higher taxes for the rich allow for more public spending, which has a positive effect on economic activity, generating more income and compensating for possible disincentives. It was beyond the scope of the Spanish basic income study to calculate in detail the positive effects the basic income might have on economic activity and hence tax collection but, clearly, the poorer 80% of the population which gains would consume more than the richer 20%, so a strong welfare state, financed by taxes and with a system of social benefits, including a basic income, would achieve higher labour force participation and employment rates and, it follows, greater equality and general well-being, as well as a much more resilient economy in an unstable global system.
Basic income isn’t just a measure against poverty but would be an integral part of an overall economic policy which would stimulate economic growth and give a guaranteed material existence and hence effective freedom to all members of society. This effective freedom of the non-rich bears the seed of subversive political power, which is why the right presents sops such as the minimum guaranteed income which Hayek enthusiasts, who believe that taxes are robbery, support as a kind of charity. But charity is the antithesis of justice. It depends on the freely determined whims of the better-off giving to the unfree poor who are denied human dignity precisely because they’re forced to be on the receiving end of charity. Basic income doesn’t benefit everyone but is concerned to improve the lot of the non-rich part of the population. Its anti-neoliberal foundations are to be found in classical republican thought and its insistence that a person can’t be free if the means of his or her material existence are not guaranteed. One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence. A basic income upholds not just the right to a dignified life but, in practical terms, would allow people to expand their lives and defend themselves against assaults on their freedom and dignity.
Finally, since these basic human rights are declared as universal, there’s one more basic income myth that should be knocked on the head, namely that it’s a policy that only rich countries can contemplate. Experiments in Brazil, Namibia and South Africa, Mexico, India, Kenya and Malawi show that modest, partial, basic income projects have impressive economic and social results. In Namibia, for example, a two-year pilot project (2007–2009) in Otjivero-Omitara, a low-income rural area, where 930 inhabitants received a monthly payment of 100 Namibian dollars each (US$12.4), reduced poverty from 76% to 16%; child malnutrition fell from 42% to 10%; school dropout rates plummeted from 40% to almost 0%; average family debt dropped by 36%; and local police reported that delinquency figures were 42% lower; and the number of small businesses increased, as did the purchasing power of the inhabitants, thereby creating a market for new products.
The main obstacle to basic income today is political (and psychological if greed is understood as pathological) because, no, it doesn’t favor the rich but, rather, in moral terms and sound economics, it calls on them to contribute just a smidgen of their wealth to safeguard the right of a dignified existence for everyone. But, it’s not just a matter of getting the rich to pony up. The real snag is that people at the bottom, instead of helplessly holding out their hands to catch the non-existent trickle, might start transforming society and the economy according to their own lights and in defence of their own dignity. It’s unlikely that the 1% of revoltingly rich people will sit back and let their own extinction happen.
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