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Basic Income


Money for nothing


By John Thornhill and Ralph Atkins


Demonstrators, some dressed as robots, campaign for the basic income in Zurich (Keystone)

Demonstrators, some dressed as robots, campaign for the basic income in Zurich

(Keystone)

As anxiety grows about technological disruption, the idea of a guaranteed basic income is being embraced by union leaders, libertarians and Silicon Valley executives. Is this the future of welfare?

Switzerland’s traditionally conservative electorate will next month vote on the superficially preposterous idea of handing out an unconditional basic income of SFr30,000 ($30,275) a year to every citizen, regardless of work, wealth or their social contribution.

Opinion polls suggest the June 5 referendum will be heavily defeated. And even if some kind of electoral convulsion results in the proposal being unexpectedly approved by voters, it is certain to be shot down by the 26 cantons that would have to implement it.

But the fact that one of the world’s most prosperous countries is holding such a vote highlights how a centuries-old dream of radical thinkers is seeping into the political mainstream. In countries as diverse as Brazil, Canada, Finland, the Netherlands and India, local and national governments are experimenting with the idea of introducing some form of basic income as they struggle to overhaul inefficient welfare states and manage the social disruption caused by technological change.

Daniel Häni, a chirpy Basel entrepreneurwho is one of the Swiss initiative’s main supporters, said modern welfare states provide basic social support but are failing to adapt to the needs and values of our times. The trouble is that they are too costly and cumbersome, assume that a citizen’s worth is determined solely by their value as an employee and rely on means testing by an overly intrusive state.

“Our social system is 150 years old and is based on Bismarck’s response to Industrialisation 1.0,” he said. “Our idea is simple. We want to render the conditional unconditional. UBI is about shifting power back to the citizen.”

Support for citizens

The idea of providing money for nothing to all citizens dates back centuries and was nurtured by a radical cult before resurfacing in recent times. In the 20th century it was championed by thinkers on the left, such as John Kenneth Galbraith and Martin Luther King, as a means of promoting social justice and equal opportunity. But it was also backed by some libertarians and economists on the right, including Milton Friedman, as a way of restricting the coercive state and restoring individual choice and freedom.

Incredible as it seems today, President Richard Nixon came very close to implementing a negative income tax (a variant of basic income) across the US in 1970. Nixon’s initiative, part of his Family Assistance Plan, was strongly backed by the House of Representatives but failed in the Senate, where some Democrats considered it unambitious, and several Republicans considered it too bold.

Interest in the idea has surged in recent years largely thanks to the technological revolution, which is convulsing labour markets worldwide. The decoupling in many countries of median household income growth from expansion in gross domestic product has created a sense of middle class crisis, fuelling anger over inequality and the rise of populism in the US and Europe. Whether it is because of a sense of guilt at the upheavals they are causing in society or simply a celebration of innovative thinking, some Silicon Valley entrepreneurs have taken to the idea of a universal basic income, describing it as a “digital dividend”.

At a conference in Zurich this month on technological disruption and social change, a succession of speakers from the US warned about further turmoil in the jobs market resulting from the automation of routine tasks, the application of machine learning and the rise of robots.

Citing just one of many examples, Andy Stern, the former president of the Service Employees International Union, said the introduction of self-driving trucks and cars would eliminate millions of jobs. At present, there are about 3.5m truck drivers in the US, forming the largest job category in 29 states. “There is the potential for the greatest disruption of jobs in the history of the world,” said Mr Stern, author of Raising the Floor, a forthcoming book advocating UBI as a partial solution.

Erik Brynjolfsson, an MIT professor and co-author of The Second Machine Age, said a convulsive “tech surge” was under way that was rapidly turning the promise of science fiction into a reality. But he insisted that technology remained the tool of humans and could be an enormous benefit so long as it was properly managed. With robots doing most of the work, he painted a picture of a “digital Athens” in which people had time to focus on sport and the arts.

He also warned of the potential for enormous upheaval if societies did not anticipate these challenges and adequately respond to them. “I can see revolution and violence and the failure of a lot of big companies. Our economy and political system has not adapted to this new world at all and we need to get out in front of it,” he said.

Robert Reich, a former Labour secretary in the Clinton administration who teaches at University of California, Berkeley, said the digital revolution was increasing economic insecurity and inequality. The development of car-hailing apps, such as Uber and Lyft, had brought great convenience for consumers but was also creating a “spot auction market” for labour.

This insecurity was fuelling too a crisis of aggregate demand in the economy, he said, adding that recently he had been visited by the boss of a tech group worried about who would have enough money to buy his company’s products in 10-15 years.

Cost-benefit analysis

A more equal division of the fruits of the technological revolution would revive that demand while providing a broader social good. The aim of all rich societies, Mr Reich said, should be to provide a basic level of subsistence, enabling people to do more of what they wanted and less of what they did not want to do. For all these reasons, he said: “I think that UBI is inevitable.”

Even if many experts agree about the scale and intensity of the technological and economic challenge, they remain divided about the appropriate social and political response. There is still less consensus about how it could be implemented and funded.

The resistance to the idea of introducing UBI in Switzerland - a recent GFS poll found 71 per cent of respondents were inclined to reject it - is instructive. It is far from obvious that the Swiss social model is broken and in need of repair. Switzerland remains one of the richest and most productive economies in the world. Its much-praised apprenticeship system generates a steady stream of well-trained employees and provides opportunities for all. Its unemployment rate is just 3.6 per cent.

Vania Alleva, a Swiss trade union leader, said it is worth debating the possible benefits of UBI and the principles of a just society but she does not see the need for such radical change. “We are critical of UBI. We have a social system in Switzerland that works,” she says.

Labour leaders elsewhere remain equally wary of introducing UBI, fearing it might only be used by rightwing politicians to shred the existing welfare state. By setting the rate too low and withdrawing other welfare benefits, it could end up hurting the very people it was designed to help most. As one participant in the Zurich conference put it, there was a danger of “fattening the frogs to feed the snakes”.

Many executives are also lukewarm about the idea, objecting to the delinkage of economic reward and effort. It is notable that support for UBI is lowest in the predominantly German-speaking cantons of Switzerland where the work ethic is particularly strong.

Ulrich Spiesshofer, chief executive of the engineering company ABB, says: “There has to be a basic level of social provision for people in need but beyond that, economic rewards should be based on actually creating economic value.”

Picking up the bill

The government estimates full implementation of UBI would cost SFr208bn, about three times current annual federal spending of about SFr67bn. Even then, it would not replace all existing social services, such as healthcare for the elderly.

Alain Berset, a Social Democrat member of the Swiss cabinet, has described the UBI initiative as “utopian”, saying it would require significant extra funding of at least SFr25bn. 

“The unconditional basic income would be a risky experiment. It’s not clear how this basic income would be designed by parliament or how it would be financed. The precise implications are unknown,” he said in an interview.

Supporters of UBI accept many of these criticisms and are launching pilot projects to help answer the objections. One of the most interesting initiatives is in Finland and basic income will be rolled out on a national scale if the experiment proves effective.

The centre-right government will this year begin making tax-free monthly payments of about €550 to a random sample of 10,000 adults of working age as part of a two-year experiment. The intention is to see what effect a basic income has on work incentives and life choices and how it interacts with the existing welfare model. The city of Utrecht, and 19 other municipalities across the Netherlands, are conducting similar experiments.

Matthew Taylor is chief executive of the RSA, a British institution that looks for practical solutions to social challenges, that recently published a
study on the viability of UBI. He said societies will need to become a lot more innovative in the face of the latest technological revolution. In particular, far more flexible ways will have to be found to support part-time workers or those who wish to retrain or look after their children or elderly parents.

“What excites me about UBI is that it could act as a catalyst for a broader shift in public attitudes,” he said. “I think that UBI can potentially help overcome the attitudes that we have between strivers and skivers. It can help the state enable people to have autonomous lives.”

While acknowledging the near- certainty of defeat in the coming referendum, the Swiss backers of UBI believe that their campaign signals the beginning of a global debate on basic income, rather than its end. It may be premature to introduce UBI today but its appeal will grow as societies learn to prize creativity over productivity.

Mr Häni said that, irrespective of the result, he is delighted that every Swiss newspaper has been furiously discussing the principles of a basic income. He said the Swiss debate is like a movie trailer for the main event and “trailers always end with the phrase: coming soon . . . ”

Back to basics: An idea long in the making

The Basic Income Earth Network, which links campaigners around the world, traces the original concept of basic income back to Thomas More (above), the 15th-century humanist scholar and author of Utopia, who wrote about the need for a minimum income.

But BIEN suggests that the true father of the idea of a guaranteed minimum income was Johannes Ludovicus Vives, a Spanish-born humanist and close friend of More.

After fleeing the Spanish inquisition, Vives moved to Bruges, where he wrote tracts in support of the poor. “Even those who have dissipated their fortunes in dissolute living - through gaming, harlots, excessive luxury, gluttony and gambling - should be given food, for no one should die of hunger,” he wrote.

The idea was developed by the 18th-century radical Thomas Paine (above), who argued that every person should receive £15 on their 21st birthday and £10 a year thereafter to be paid out of “ground rent”.

John Stuart Mill, the 19th century utilitarian philosopher, wrote sympathetically about the idea of a basic income in his Principles of Political Economy, although he did not develop the concept.

The Nobel Prize-winning economist James Meade argued for a “social dividend” in the 1930s as a means of alleviating poverty and creating a just and efficient economy. In 1962 the American economist and Nobel laureate Milton Friedman (right) argued for a radical simplification of the welfare state and introduction of a “negative income tax”.

Jay Hammond, the Republican governor of Alaska, created the Alaska Permanent Fund in 1976 to distribute some of the proceeds of the state’s oil wealth to all its residents. Every Alaskan still receives a dividend of about $2,000 a year in what is arguably the only full universal basic income system in operation. The poverty and inequality levels in Alaska are among the lowest in the US.

Speed read

Growing insecurity - UBI’s proponents say a more equal division of the gains made by technology would lift demand

Productive economy - Although Swiss will vote on a UBI, many insist that the country’s social model works well

Tests in Europe - Finland is running a pilot scheme; Utrecht and other Dutch municipalities are holding similar trials

Copyright The Financial Times Limited 2016
 

Financial Times

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