Basic Income and the Idea of a Good Society (Part-II)

This is Part II of the Blog series on Basic Income and the Idea of Good Society. Part I was published a few days ago. Find it here. Thanks for reading! Do subscribe, comment, clap, and share the blog pieces

A CASE FOR BASIC INCOME

Basic Income has been in the centre of the debate, primarily in terms of the social and economic context. For example, Philippe Van Parijs in his articulated work, Real Freedom for All posits that Liberty, Equality and Freedom works differently. Freedom is exactly what needs to be distributed in an equal way. To secure this purpose, the economic and social system needs to be sensitive.

Therefore, it must be real freedom of opportunity and just not the principle of formal opportunity, the latter of which finds its place in the 2nd principle of Entitlement Theory by Robert Nozick. Interestingly, the primary difference between these two ideas of opportunity is infact freedom. When we talk about Real Freedom, its agenda is to create positive rights through affirmative action or basic income to remedify even those disabilities which are not acquired but created out of birth, such as a son of a blade smith would not have equal freedom of opportunity as that of a millionaire’s son.

On the other hand, formal opportunity does not aim to trump these birth defects, i.e. economic or social disability arising out of being born in a certain class. The argument here is that we can achieve the aim of protecting freedom for common citizens (in making their decisions) through an unconditional income for everyone. One good argument to explain this idea here is ‘Public Health’. An important question is that people may be highly unequipped or disabled to fend off for themselves, and if they don’t have equitable access to a basic income or at least some unqualified monetary assistance, then it may not only dilute their participation in the civic society but would also be a missed opportunity for the state to have extra hands in the economic exchanges. To quote Parijs, he says that;

I am willing to have less in cash, for public spaces to be organized in such a way that people can be made autonomous, especially those who are disabled. Increasing basic income in a sustainable way as heavy taxation makes system crash-prone. For this insurance and BI per se, we can have a personal income tax. You can even Tax Consumption or even have Progressive Taxation or get alongwith Tax Inheritance. In the end, we will all have freedom through this Basic Income”.

Although there must be targeted system of transfer for the disabled ( for its common truth that greatest possible freedom must be given to people having the least to it) but it must work through the principle of insurance for mitigating the disabilities rather than positive assistance, which has the potential to create lethargy and disinterest among the beneficiaries.

Milton Freidman on similar grounds made an argument that ‘the welfare system is flawed’. “From the point of view of consumer welfare, money is always just as good as and probably better than in-kind transfer”.[1] Freidman for this matter was not against transfer of money to the poor labour class, but rather the idea of having an ever enlarging universality and unconditionality in terms of cash offerings to the disabled. The crux of the statement is that absolute unconditional income can create a disability in itself by nullifying the motives of individuals to participate in the economy and earn rewards through labor, further causing a misbalance in the economy. Though it can be argued that what happens to the ones, that don’t have any sort of job to secure a level playing field in terms of Negative Income Tax[2] or EITC credit system offered to them, the latter of which has been modelled on Negative Income Tax and followed in the US since Ronald Raegan 1970’s economic reforms.

An answer to this somewhere lies in between these extremes of absolute austerity and null social distribution. An answer that aims at increasing the productivity of the ones who are capable of reaching the parity and then balancing the competing interest of the lumpen few through charity and voluntary transfers. To quote it;

“If we compare Earned Income Tax Credit (EITC), to unconditional cash transfers — or what is commonly referred to as a universal basic income (UBI). The EITC helps families with low earnings but does not provide any support to those without earnings. It is an extremely popular policy because it redistributes income to low-earning families while encouraging work. In contrast, a UBI provides unconditional support to everyone and is often combined with a progressive tax on earnings”[3]

Despite the fact, that both of these principles works primarily on the idea to provide incentives to the masses in order to eradicate the larger threat of disruption by automation and poverty, there are some glaring contradictions within the two. But the contradiction between EITC and UBI is not the part of the central debate in here. What lies at the root cause of disruption is the surrounding plane of Automation and its effect on Employment alongside overhauling of Poverty Buildup.

AUTOMATION

The deficiencies in the world of welfarism and state welfare in particular has fueled a lot of fire in the advocacy of direct benefit transfers sans the means tested conditionalities. In the big stomping world of a diverse demographical order, and an increasing inclination towards automation or robotization of the economy, the idea of UBI has been started followed keenly. The experiments in Finland, South Africa, and Sweden etc. are just the tip of the beginning of a larger demand of unconditional wages in developed economies.

“Its appeal seemingly transcends ideological divides, with contemporary thought leaders as different as Charles Murray (self-professed libertarian at the American Enterprise Institute) and Andy Stern (the left-wing president emeritus of the Service Employees International Union) both advocating the adoption of the concept. Each has written books espousing the idea.”[4]

“McKinsey forecasts that between 75 million and 375 million workers globally and between 16 and 54 million in the United States will have to try to find new jobs over the next decade, because 60 percent of existing jobs will have on average 30 percent of their current activities automated. Also White House Economic report suggested that jobs that pay $20 or less per hour have an 83 percent median probability of automation. And a 2013 report from Oxford University suggests that 50 percent of jobs could be taken by robots in 10 to 20 years.”

The main reason why UBI is proposed in this paper as a viable way of counteracting the effects of automation is because it would replace jobs as people’s primary source of income.

Within the contemporary global world, jobs are the major means of sustainability and catalyst to “feed the economic feedback loop”. The ever rising automation on such wider scale as predicted will take people out of jobs. Hence an alternative source of income is ever beckoning. Basic Income works out to be the key to success here. A no means tested Basic Income would not only provide the source of income necessary for people to consume and sustain themselves, but would also ensure the essence of work-culture (by creating an incentive for people to work even more productively as they would be psychologically free from the burden of job-losses, and wage reductions.

In a country like India, an upsurge of automation can turn out to be a huge problem, with an increasing population graph (most of them being youth) and decreasing marginal profits for the enterprises in the current context. Consequently, a greater upward mobility by these enterprises in creating more capital for business would mean that Artificial Intelligence and Robot Labour would replace the working class labour in the long run.

Such experiments have already started taking place, not only in unorganized sectors[5] but also in organized labour sectors such as manufacturing industries[6], and to a certain extent even in commercial law firms (one of such example being AZB and Partners). This will eventually turn out to be a major risk for the blooming economy and may even spiral it downwards to major recession and economic breakdown.[7] To mitigate the risk of this automation and large scale unemployment, a unconditional sans means tested income can ensure parity in means of sustenance and can lift the masses out of poverty, if not give them equality as such.

Such schemes can be funded through progressive capital taxation, VAT, carbon taxes, investment vehicles, resource revenues, reduction on national security measures and even national consolidated funds etc. This would not disfranchise the capital builders or creators as it would also be provided to rich and poor alike, creating an incentive for all and reducing the reliance on labour after all.

POVERTY

To take cues from the federal budget in US, the government currently spends almost $688 Billion on Anti-Poverty measures through more than 100 schemes. More than 15 Trillion $ have been spent on reduction of poverty in US since the end of the great world war. Yet with the burgeoning finances on reduction of this poverty and welfarism, bureaucracy, opaqueness and complexity of these measures has only led to wider wag gaps and curve bending inequitability. Though libertarians like Charles Murray have argued for a charitable system to fill the voids of this structure, the charitable endowments have been largely a failure in light of their voluntary nature. It has been time and again proved that only a strong predistributive system like Basic Income can guarantee the softening of the hard case of poverty. To quote Martin Luther King, who says that;

the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”

A major shift towards UBI is largely driven by the notion of inequality and more so by the factors of universality and freedom, both of which in consolidate form have the spirit of alleviating the poorest of poor, out of the clutches of poverty. It also been argued elsewhere, especially by the Obama Cabinet, that the power of UBI is so strong that it can shift almost a 40 million Americans out of poverty.

What becomes more important in this context, is the fact that the causality or the causal relations between cash transfers and end to poverty is at an all-time high as per some theorists like Thomas Piketty.[8] It would further also help fuel investments in developing critical life skills, improve transparency in distributive justice mechanism, increasing efficient income, consumption, asset building, less segregation of poor geographically, improved households, better political choices and lastly but more importantly, increase in the whole efficiency of the dilapidated bureaucratic state welfare system based on adequate taxation.

Even though the cost would be high as 3 Trillion US $ to fund such a system of UBI, it can be further reduced taking in the mean of rich households and poor households, thereby reducing it to the level of approximate 1.3 Trillion US$ which becomes manageable in the long run. At comparison, the system of NIT only costs 558 Billion US$ but it majorly misses the point of unconditionality and alleviating the status of the employment, which brings it back to square one.

THE COMPULSIVE CONTRARIAN

To analyze the proposal of poverty and automation seems a redundant exercise in perspective. I have argued above that though I agree with the theoretical expositions of the concept of UBI, I would like to argue for their non-implementation in the current form, even in the developed economics, let alone the developing economies. To start with automation, I agree that unemployment is a huge problem but intervention of state in ensuring maximization of output is and always be an intrusion in privacy and guarantee of liberty. The effect of automation are increased in the light of maximal profit making aspirations of businesses, but it does not necessarily means that the worth of profit would undermine the importance of human labour. It’s just that more skilled and arduous human capital is required to get the best opportunities in a formally equitable system.

Other hassles in automation include the administrative disaster of putting out several workers in federal agencies out of work, as the technology needs to be in place for ensuring transparency within the distribution of UBI. During this transition phase between the distribution of UBI and loss of employment, the economy can get crippled and regressive.

“An important feature of these programs is that the benefits the individuals receive are not necessarily cash income in which the recipients can freely utilize. This disallows them the ability to save, which is a vital action to raise their standard of living in the future. Instead, welfare programs force recipients to maintain a state of constant mediocrity. It should be also noted, regardless of the increase of expenditure on welfare programs, there has been little effect on the poverty rate”[9]

In Finland for example, it was found that UBI though made people more happier and merrier, it also disincentivized them to see work or for that matter, even choose to go for employment opportunities.

It’s true that due to automation some industries will become obsolete in nature. But the advent of big technology at the helm of affairs, is also a sort of guarantee for a new rising demand of opportunistic jobs.

“Emerging tech will create more jobs than it destroys. At least for the next four years. Specifically, The Future of Jobs Report 2018 predicts the loss of 75 million jobs by 2022, and the creation of 133 million jobs over the same period, for a net increase of 58 million jobs.”[10]

The fear of automotive industry is a misnomer. Probably, it can actually reduce the poverty levels as seen in US through the Richard Nixon and Ronald Reagan era. Statistically speaking, incentive tax credit based system almost brought 10 Million US citizens out of the poverty. Larger automation definitely causes unemployment and poverty to a minimal extent but at the same time, gives viability to the commoners for a better standard of living, ensuring the luxuries reach the lower classes, maintain a steady purchasing power of real income (when exchanged against consumer goods) and increasing marginal utility of the consumers.

Whereas on the other hand, substitution of welfare measures with UBI is not even economically tenable as the program would cost more than 5 Trillion US $ at a UBI of 10,000 US Dollars per month. This completely goes out of picture as the economy of US itself is just above 2 Trillion US Dollars. Hence to fund such a system, more than three times the economy and federal budget is required, something that is economically not feasible. So, on this note, tax credit advocated by Reagan and Freidman is more suitable to reduce poverty levels instead of an overwhelming austerity measure. More importantly, UBI has the potential to leave large families having more children at the brink of poverty due to the way UBI works at the household level in contrast to the individual level. [11]

CONCLUSION

Largely, I have argued the effects of automation on unemployment’s and has characterized it as an incentive for better standard of living. Similarly, poverty levels can also be reduced by the in-kind charitable measures or for that matter even private charity, without a strict implementation of Basic Income. Conclusively, it is now well established above that a means tested unconditional basic income is not a universal solution to all the problems, as questions still remain over its feasibility.

However and despite its limitations, I still find hope in the implementation of Basic Income within developed economic circles as a testing measure, but on the other hand, it seems to be economically, socially and politically not feasible for informal economies like that of India in my opinion.

End-Notes:

[1] Milton Freidman, Capitalism and Freedom, 1962.

[2] ‘The negative income tax is a way to provide people below a certain income level with money. In contrast to a standard income tax, where people pay money to the government, people with low incomes would receive money back from the government’, See Rebecca Linke, Negative income tax, explained, Accessed at https://mitsloan.mit.edu/ideas-made-to-matter/negative-income-tax-explained#:~:text=What%20is%20negative%20income%20tax,money%20back%20from%20the%20government.

[3] Maximilian Kasi, Why a Universal Basic Income Is Better than Subsidies of Low-Wage Work, Accessed at https://maxkasy.github.io/home/files/papers/UBI_EITC_Kasy.pdf.

[4] Vanessa Brown, Universal Basic Income — Disease or Cure?, Accessed at https://www.cato.org/publications/commentary/universal-basic-income-disease-or-cure

[5] Kris Punia, Future of unemployment and the informal sector of India, Accessed at https://www.orfonline.org/expert-speak/future-of-unemployment-and-the-informal-sector-of-india-63190/.

[6] Leslie Monte, Robots are after our jobs: what can we do?, Accessed at https://www.livemint.com/Specials/L3KWdmbMBa1UqUZpPuZjvM/Robots-are-gunning-for-our-jobs-what-can-we-do.html.

[7] James Vincent, Economists worry we aren’t prepared for the fallout from automation, Accessed at https://www.theverge.com/2018/7/2/17524822/robot-automation-job-threat-what-happens-next.

[8] India Needs Basic Income Scheme To Make Lockdown Work: Thomas Piketty, Accessed at https://www.bloombergquint.com/economy-finance/india-needs-basic-income-scheme-to-make-lockdown-work-thomas-piketty.

[9] Logan Davies, Case Against UBI, Accessed at https://beinglibertarian.com/universal-basic-income-not-answer/

[10] Id.

[11] Maximilian Kasi, Why a Universal Basic Income Is Better than Subsidies of Low-Wage Work, Accessed at https://maxkasy.github.io/home/files/papers/UBI_EITC_Kasy.pdf.

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