The Dangers of Universal Basic Income

In just a couple of years UBI has gone from the fringe to the mainstream of political discussion. What was once considered a rather wild response to the problem of inequality has become an apparently rational response to the way that the pandemic has accelerated the creation of an economic underclass. Desperate times call for desperate measures, and just as the concept of austerity has bitten the dust in order to prop up collapsing economies, so UBI has emerged as a credible solution to the problem of poverty.

No doubt UBI has an egalitarian appeal. The idea of taking people at the bottom of the pile and giving them a basic weekly income -just enough, perhaps, to make poverty a manageable condition – is, on the surface at least, a worthy one. It is a new way of delivering one of the central tenets of the Welfare State, the provision of a universal safety net. Furthermore, the awkward question of paying for such a sweeping measure could be addressed through adjustments to a progressive income tax system, offsetting UBI payments to those who don’t really need them by a graded increase in tax. Thus, nobody would be worse off, while those who need to be could be considerably better off.

Such an approach would have the added benefit of focusing the economic stimulus effect by rewarding those with a higher propensity to consume, while preventing leakage of UBI into asset acquisition (already creating stock market and housing bubbles) on the part of those who already enjoy a good standard of living. In a nutshell, with appropriate political will, UBI does not need to be a wasteful ‘give-away’. The required policy tools are already in place to prevent this.

So what are the key drivers making UBI a fashionable idea? For those on the left the welfare/inequality issues are at the forefront, but the broader appeal comes from a different direction – the feeling that AI and automation have reached a stage where they will inevitably lead to unparalleled levels of unemployment, part of a genuine step-change in the pattern of social organisation. This is not a new idea, nor is there novelty in the fear that radical new efficiencies in the processes of production will lead to dystopian outcomes. However, thus far the historical record suggests that such fears are misplaced: mechanisation of agricultural production has reduced the working rural population to a fraction of its former size, but without leaving those displaced without employment; word-processors have eradicated typing pools, automation is reaching into areas of production at an ever-increasing pace (not simply in terms of mechanised manufacturing, but also service provision) – all without concomitant levels of unemployment. Indeed, in some instances an increase in the use of AI and automation can be observed alongside a decline in unemployment. Some might argue that the increasing inequalities of recent decades are indicative of social gaps brought about by the way in which these new efficiencies favour better-educated minorities while reducing the economic power of those whose work is increasingly threatened by them. Attractive though some aspects of this case might be, it is equally easy to argue that inequality has been driven by a political agenda, one that has used carefully disguised changes in tax structures to benefit higher earners.

Does this mean that there is some hidden economic law at work, one that re-routes the surplus wealth created by any new productive efficiency, and then uses it to create new productive opportunities which, in turn, soak up any unemployment that may have been created by the original productive efficiency? On this view any unemployment arising from changes in methods of production would be merely frictional, a temporary phenomenon that lasts only until new productive employment is generated by efficiency-derived new surplus wealth. Social welfare concerns would then be driven by timescales and locational factors surrounding the creation of new employment. The problem with this account is the fact that lost well-paid manufacturing jobs are most frequently replaced by poorer paid service sector jobs.

The ‘Inertia of Entitlement’

This is an instructive piece from The Guardian, outlining unemployment and employment changes in a West Virginia town losing well-paid jobs. Decades ago, the victims of this process would have looked at moving to another part of the country where better paid jobs might be available – recent USA data suggests that this hope is not illusory. Now, it seems much less likely that this would happen. A number of reasons for this have been suggested, but I am convinced that a new factor, one not in evidence in the past when labour mobility was greater (though not necessarily easier). This new factor revolves around a particular American mythology, that of a ‘promised land’ where prosperity is available to all, and it has become the responsibility of politicians and industrial leaders to deliver it. This attitude leads to a subtle shift whereby expectations change: through a new kind of inertia prosperity comes to the labour force rather than vice versa, and this inertia is derived from a sense of entitlement.

Automation/AI or Globalisation?

Taking a careful look at the Chestnut Ridge example, it seems that globalisation is more of a driver for change than automation or AI. Citizens experiencing Inertia of Entitlement and the loss of well paid work through offshoring expect ‘somebody’ to ‘do something about it’. It appears that the Biden administration’s only (potential) response to this is to consider taxing companies that move jobs offshore in pursuit of higher profit margins. Is it appropriate to adopt a punitive stance in instances such as this? In effect, taxation introduces a market distortion, artificially raising the cost of pursuing lower costs! Perhaps it would be better to think in terms of using a combination of Sovereign Wealth Fund and UBI to address this issue. If companies are achieving cost reductions and improving their competitiveness by globalising, then it makes sense to invest in them via a SWF and then use the proceeds to finance a UBI scheme that compensates citizens who experience job losses. I have already written about this type of scheme at some length.

The Great ‘Danger’ of UBI

As soon as the concept of UBI was mooted there was a series of objections based on the idea that it is somehow detrimental to ‘pay people for doing nothing’, and that this would lead to a fundamental corruption of the labour market’s great triumph- persuading people to work in return for financial reward. David Graeber’s dismissal of these objections toward the end of his excellent book Bullshit Jobs is exemplary. Nevertheless, we should not be too cavalier in disregarding potential dangers that accompany UBI. We are talking about radical, fundamental social change here. A change that calls into question all our longstanding assumptions about work, wealth, property, income and income distribution. It would be difficult to envisage such change as being without its dangers. I have suggested in an earlier post that the combined impact of AI, automation and globalisation could lead to a particular kind of social dystopia where the great majority of the workforce is engaged in social control (military, police) or maintenance (Vonnegut’s ‘Reeks and Wrecks’) activity – thoughtlessly applied remedial UBI would reduce the remainder (probably a majority) of the population to the status of couch-potato (writing in 1952, Vonnegut could not envisage multi-channel interactive ‘entertainment’) dystopians. So how should we weigh the Graeber view against the fears of a new dystopia? Part of the problem may be that even couch-potato dystopians have a use – it may suit ‘the owners’ in a new order to have an army of compliant consumers financed at just the right equilibrium point to maintain profits and a return on capital, while insufficiently impoverished to be a political problem.

And here is the big danger: there is no way that this does not entail major, fundamental social change. This point cannot be emphasised too strongly: change as fundamental and potentially as rapid as this cannot come without its negatives. We are heading into new territory and we cannot predict what those negatives might be. Denying the likelihood of their existence, as Graeber tends to do, is not a safe option.

Making UBI Work

A key element in making UBI work effectively is setting it at the right level. This will be the subject of endless debate with a tension between between those who fear that too high a level will act as a disincentive to work, and on the other hand those who will argue that too low a level will undermine the role of recipients as consumers. At the centre of this debate there is the issue of the minimum wage: how should UBI be set in relation to this? Of course, if UBI is truly universal (in other words paid irrespective of employment or welfare status), then a number of these issues simply dissolve. If paid employment is always incremental to UBI, then there will always be an incentive to work. Minimum wage is no longer necessary as a barrier to poverty, and can be set according to prevailing notions of ‘fairness’. At the same time, true universality can be viewed as a way of simplifying the welfare payment system and introducing a series of efficiencies by replacing many of the complexities associated with existing payment processes and structures. A simpler system is less expensive to operate and removes many of the costs embedded in current procedures. The inevitable ‘how will you pay for it?’ question is answered partly by these cost reductions, and partly by a restructuring of taxation as suggested above.

UBI cannot be expected to bring about positive or constructive social change if it not supported by appropriate infrastructure. This doesn’t necessarily mean second-guessing the direction of social change, but rather ensuring that whatever that direction is, there is a concomitant commitment to supporting it. Here are a few instances of how the right infrastructure can be deployed to make UBI work:

  • – Investment in expertise hubs to kick-start small-scale manufacturing enterprise. [Developments like 3D printing call into question the fundamentals of globalisation. Cheaper overseas unit labour costs become irrelevant when production methods take labour costs out of the equation and enable very small scale localised custom production.]
  • – Education and training to support and enable the altruistic elements of service provision. David Graeber’s argument that UBI is unlikely to lead to large numbers of recipients just not bothering to work is based in large part on a recognition of altruism as a powerful element in human motivation. People will volunteer to provide services (social care is the prime example) in large numbers if they don’t have to worry about paying their basic living costs.
  • – Setting up processes that co-ordinate education, training, expertise and financial support for business start-ups that emerge from UBI situations.- Enhancing UBI payments for those who choose to work in areas opened up by the UBI process. In effect, this can mean viewing receipt of basic level UBI as a penalty for not working.
  • – Enhancing UBI payments for those who choose to work in areas opened up by the UBI process. In effect, this can mean viewing receipt of basic level UBI as a penalty for not working.

Ultimately, the greatest danger of UBI is that we drift into it without understanding its implications for social change, and without taking the right steps to make it a positive force for human development. The couch-potato dystopia of an army of disinterested consumers is a reality that lurks in the background if we do not find an answer to the question of what people are for. In previous eras this question has found successive answers: serfdom; border guards; armies; an agricultural labour supply; factors of production – many of them overlapping and none of them ethically defensible. UBI can facilitate the latest shift, as factors of production become units of consumption, or it can mark a paradigm change in human progress and dignity.

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