Universal Basic Income

  1. Introduction

Some scholars argue that leaving poverty unresolved is actually more expensive than actively tackling it. Year after year, poverty costs many governments in the West enormous sums of money. Mounting medical care cost, ineffective education, wasted human capital, and rising crime rates, the list of a government’s ineffective spending stretches endlessly. By eradicating poverty and minimising unnecessary bureaucratic costs, a nation can save more money and thereby achieve the creation of a leaner welfare state. In response to such an inference, the arising proposition is the idea of providing all citizens with the income that can cover basic needs. Indeed, recently, the idea of universal basic income (UBI) has given some leftists a glimmer of hope as they have long lacked a practical vision other than merely being protesters or utopian. As is often the case for many new ideas, however, despite the lustre of its novelty, it is unclear as to what the UBI encompasses, thus the following briefly explores its pros and cons.

  1. Pros

As implied above, the elimination of poverty would probably bring various benefits. First, by eradicating poverty, unrealised human potential can be put to use, and the increased human capital will help a nation prosper. Those living in poverty are the untapped reservoir of human resources, which have to be nurtured and harnessed. Yet, poverty is the serious impediment to the acquisition of good education. If children grow up without adequate education, their career prospect is severely limited. Perhaps some of them are gifted in particular areas, yet those talents may simply be squandered unless they are discovered, explored, or sufficiently cultivated.

Also, a cumulative long-term impact of poverty on cognitive function cannot be denied. Poverty experienced during one’s childhood allegedly undermines the development of the brain quite seriously, which is likely to have a reductive effect on the cognitive capacity in subsequent adulthood, and there is a scientific ground for this argument, as a group of scientists found out that poverty actually impedes cognitive function (Mani et al, 2013). Based on the studies of how shoppers in New Jersey performed on spatial and reasoning exercises, it was found that the cognitive performance of the surveyed subjects was affected by financial worries such as how to pay the rent, car repairs and so on. The researchers computed the cognitive impairment caused by such financial worries as analogous to losing a full night sleep (Mani et al, 2013).

Similarly, the sugarcane farmers in India were also found to have performed differently before and after harvest. As they receive annual income at the time of harvest, after harvest with less financial worries, their performance was far superior to the result taken before the harvest (Mani et al, 2013). Their study seems to confirm that poverty creates the vicious spiral, in which being poor negatively affects one’s cognitive function, whereby poverty further perpetuates.

maslow-hierarchy-of-needs-diagram-1024x1024

Maslow’s hierarchy of Human Need (based on American subjects)

Secondly, crimes are often caused by people’s poor judgement. As Abraham Maslow’s famous hierarchy of need suggests, the pyramid that explains human motivation, our desire to satisfy basic needs are so strong that one’s moral standard can easily be compromised in the face of immediate gratification, particularly when many aspects of one’s life are already constantly compromised. And the immediate gratification is not only physiological but can be existential in nature.

The economist, Steven Levitt famously said in his co-authored book Freakonomics that, statistically speaking, it is better to work at a MacDonald’s than being a drug dealer in terms of wage rates. Yet, perhaps a poor judgement whispers into the ears of juvenile delinquents: “It is more glamorous to be a drug dealer! Never mind waiting hours for a client to show up in a grimy alley or being gunned down by other street gangs.”

If they spend their formative years in lousy neighbourhoods, they are more likely to mix with the wrong crowd, exposed to imprudent thoughts, and thereby dragged into criminal behaviours. With criminal records on their résumés, their career prospects become severely limited. On the other hand, if children are not raised in poverty, they are more likely to hold on to their higher moral standards that their middle-class parents instil in them. If eradication of poverty helps crime rates to decline, a country can save a lot on policing and security.

Thirdly, poor people are more susceptible to illness. Poor diet and inadequate nutrition often lead to poor health. By providing what is necessary for people to stay healthy, the country can save more money at a national level. In many countries, rising healthcare spending is one of the biggest fiscal burdens. Although doctors and nurses work extremely hard even unsocial hours, there is always a serious shortage of medical staff. Once the whole nation becomes healthier, the medical cost of the country as a whole will eventually drop.

In many advanced economies today, the wealth gap between the rich and the poor is widening exponentially. The French economist Thomas Piketty (2014) famously claimed in this publication Capital in the Twenty-First Century that only 1 % of the entire world population owns 90% of all the wealth in the world. While democracy potentially has the power to overturn this highly skewed dynamic, what we see today around the globe is fragmented societies without any social cohesion, reminiscences of the Hobbesian state he saw during the bloody English Civil War (Brooks, 2016; Hobbes, 1651). The concentration of capital and inequality in the distribution of wealth is, as ubiquitously acknowledged, the symptomatic characteristic of the current capitalist system, which privileges only those who are in proximity to the core of the system (Negri and Herdt, 2000). And whilst the widespread adoption of AI and automation is accelerating, the new economic landscape that entails such a new labour condition will leave even larger numbers of people out of a job in the not distant future. In the face of such a radical social and economic transformation, the UBI seems to offer a possible solution.

At first glance, the expected return on investment at a national level appears to be greater than risks involved in the implementation of the idea, and if this enables the creation of a leaner welfare state, it is perhaps worth a try.

  1. Cons

On the other hand, some realists may counter these arguments by claiming that the universal provision of basic income is simply impractical and rather utopian. The most serious and simple concern is that people would become indolent. When people lose incentives to work hard, they would probably resort to the comfort of inactivity. When people stop working hard, the productivity of the whole nation will decline. If the GDP slacks slothfully, of course, the system grows unsustainable.

A great risk seems to be lurking precisely in the lustre of the idea, and the outcome is not entirely certain. The idea postulates that the provision of a UBI will help increase human capital, as more people will engage in meaningful work. Also, the boosted human resources will consequently bring more prosperity into a country. Contrary to such an optimistic expectation, when a nation goes through the process of industrialisation, meaning many people are engaged in menial tasks and often repetitive physical work rather than highly complex and intellectually demanding work, the country’s growth tends to be on an upward trend. Examples to illustrate this are plenty: China for the last few decades; in the post-war America and Japan; America during the times of Carnegie and Rockefeller in the early 20th century, particularly between the recession in 1921 and the beginning of the Great Depression in 1930; and Great Britain after the Industrial Revolution. It is because an essential driving factor of an economy is productivity over the long-term period, irrespective of some monetary policies adopted by governments, or fluctuations in stock markets, so says the head of the world largest hedge fund (Dalio, 2016).

Thus, when a country is caught up with the idea of over-intellectualising its citizens, higher education becomes overrated, many universities start charging astronomical amounts of tuition fees for teaching obscure and unproductive subjects, and consequently, the economy tends to stagnate and the debt piles up due to low productivity. Exacerbated by aging populations and low birth rates, welfare systems in many countries are growing unsustainable. Under such circumstances, a country becomes like a modern Caligula who uses credit to sustain his unsustainable extravagant lifestyle in the forms of quantitative easing and the zero interest rate, while being intoxicated by the overinflated sense of entitlement.

We all are hesitant to condone the proletarian, harsh and often physically demanding work, yet the expectation that everyone will engage in noble, intellectually stimulating, creative work that makes a meaningful contribution to the society is certainly utopian. It should be accepted, without condensation, that not everyone is built to handle intellectually complex and innovative work that makes the world a better place.

  1. More research results are under way

Another point of concern is that more data is needed to justify the universal applicability of the idea because depending on socio-economic conditions and demographics, the sustainability of the scheme differs. For instance, the young Dutch journalist, Rutger Bregman, the advocate of the UBI, bases his advocacy on the well-known research conducted in the 1970s in the small village in Canada, Dauphin where the basic income reduced the recipients’ stress levels and the rates of developing health problems. Yet, many critics of the idea have been arguing that the data does not seem to be sufficient enough to support the universal applicability and sustainability of the system, and more research data and longitudinal studies in different contexts are needed to confirm the validity of the idea definitively.

In 2016 when the referendum was held in Switzerland on the implementation of the UBI, the plan was rejected by 75% of the electorate, and the details of the proposal reveal the obvious reason (Henley, 2017). It was to provide every citizen with an unconditional minimum monthly income of SFr 2,500, approximately €2,300, which would push up the country’s welfare spending from 19.4% to whopping a third of the country’s GDP without any government backing, utterly unsustainable.

Example 1: India

In response to growing concerns as to the viability of the UBI, there have been a number of pilot testing taking place in various places. For instance, India, the largest democracy in the world, has confirmed that the government will test the UBI, not at a national level, but a regional level in order to test the practical application of the idea in the country.

Today, the population of India is approximately 1.3 billion, whilst about 29.5% of the nation is believed to live under the poverty line, as reported by the government in 2014, and poverty is particularly rife in rural areas. The government spends a lot annually to help the poor through various welfare programs, and yet it remains unclear as to whether the welfare actually reaches them due to the widespread corruption (The Economist, 2017). The multiple streams of welfare programs are putting an unnecessary bureaucratic strain on the state’s finance and thus should be simplified. Now, the experiment at a sub-regional level will prove the efficacy of the UBI, which is expected to be particularly effective in India for the reasons mentioned above.

Example 2: Finland

The pilot scheme in India has ensued from the announcement made in 2016 by the government of Finland to introduce a trial that involves its 2,000 unemployed citizens. The recipients of a UBI will be provided with the monthly stipend of €540 for the duration of 2 years unconditionally, even after they find work. The primary purpose of the social experiment is to find out if the provision of a UBI will boost employment, which the nation desperately wants to improve. In the meantime, the pilot scheme will replace the existing social benefits for the purpose of leaning down the nation’s welfare program as a whole. The current unemployment rate in the country stands at 8.1%, and the present system is designed in such a way that low earnings trigger a significant reduction in state benefits to be received, which deters the unemployed from actively seeking employment (Henley, 2017). In a fairly desperate attempt to break this vicious cycle and cut back the unnecessary bureaucracy expenses, the Finnish government expects the UBI to incentivise people to come off the welfare program and seek work, as well as perhaps finding meaning in life through work they enjoy.

 

  1. In closing

Often people on the Left vehemently oppose neoliberalism, globalisation, the trickle-down economy, the establishment, and the monopoly of wealth by the elites, but fail to propose any practical alternatives to the currently adopted policies in many liberal democracies. It may be suspected that, being solely protesters, they would actually be incompetent to govern a state, had they been given an opportunity to do so. As a way of circumventing such a concern, the idea of providing a whole nation a basic income appears to offer a seductive rhetoric, having an affinity with Plato’s Republic, Thomas More’s Utopia, or Karl Marx’s Communist state. Yet, from the more practical standpoint, the utopian idea requires further scrutiny and vigilance. Even Thomas More predicted in his Utopia that his humanist principles and monastic morality would come in conflict with Hobbesian political reality, which, in the end, he fell victim to. Marx’s vision of the proletarian communist state is another primary example of the epic failure as well. The concept of utopia has existed so long as the opposing idea of dystopia. Indeed, whether or not the UBI is feasible seems to remain yet unanswered. Even though the UBI intends to achieve a leaner welfare state, there is a risk of a UBI turning into another addition to the existing welfare programs rather than replacing them completely. So much as we wish to change the status quo, when we crack it open, more often than not, we find that a consensus is built into the status quo. Perhaps, there is no such thing as a magic wand that can solve all the problems in the world. Instead of adopting a radical reform, perhaps, incremental improvements need to be made over time, which Japanese manufacturers call “kaizen.” Now, given a number of pilot projects are well under way and more data will come in, the wider applicability of the UBI will soon be confirmed. If it does, the universal basic income is certainly the answer to the lack of a vision of the Leftists.

 

Reference:

Abraham, H, Maslow. (1943). A Theory of Human Motivation. Psychological Review, Vol.50, (4), July, pp.370-396.

Bregman, Rutger. (2016). The left needs fresh ideas and a new language if it’s to win again. The Guardian. [Online] 19 August. Available at: www.theguardian.com/commentisfree/2016/aug/19/socialism-left-hard-well-morally-superior-right [Accessed on 24 April 2017]

Brooks, David. (2016). The Fragmented Societies. The New York Times. [Online] May, 20. Available at: <https://nyti.ms/254RZdB&gt; [Accessed on 16 October 2017]

Dalio, Ray. (2017). The Big Picture. Linked-in. [Online] May 12. Available at: < https://www.linkedin.com/pulse/big-picture-ray-dalio/> [Accessed on 15 October 2017]

Henley, Jon. (2017). Finland trials basic income for unemployed. The Guardian. [Online] January 3. Available at: <https://www.theguardian.com/world/2017/jan/03/finland-trials-basic-income-for-unemployed> [Accessed on 15 July 2017]

Hobbes, T. (1996)[1651]. Leviathan. Cambridge University Press.

Mani, Anandi., Mullainathan, Sendhil., Shafir, Eldar., and Zhao, Jiaying. (2013). Poverty Impedes Cognitive Function. Science. Vol.341, Issue 6149, pp.976-980.

Marx, Karl., & Engels, Friedrich. (2015)[1848]. The Communist Manifesto. Penguin Classics.

More, Sir. Thomas. (2002)[1517]. More: Utopia. Cambridge University Press.

Negri, Antonio. and Herdt, Michael (2000) Empire. Harvard University Press.

Piketty, Thomas. (2014). Capital in the Twenty-First Century. Cambridge, Massachusetts; London, England: The Belknap Press of Harvard University Press.

Plato. (1968). The Republic of Plato. (Trans). A, Bloom. New York: Basic Books.

Steven D. Levitt, and Stephen J. Dubner. (2005). Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. William Morrow and Company.

The Economist. (2017). Bonfire of the subsidies: India debates the case for a universal basic income. The Economist. [Online] February 2. Available at: https://www.economist.com/news/leaders/21716027-india-should-replace-its-thicket-welfare-payments-single-payment-india-debates-case [Accessed on 15 August2017]

Image:  

“Utopia”, the original book cover. – Sir Thomas More

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