Policy proposal: Universal Basic Income

Even if it was ever effective, the welfare state has reached its expiry date. It’s time for a successful successor.

A certain form of social security has been exciting the worldwide media recently – and the craziest part is that it has the potential to align itself as a platform to enhance freedom and minimise government.

With unsustainability, work disincentives and stigmas historically troubling most national welfare states, a new approach to safety nets is welcome. A universal basic income is thin on the ground as implementations go, but might just be the solution to the welfare state’s ills.

As of late, curiosity around the idea has not been scarce. Not only will a Swiss referendum on the basic income occur this year, as well as a pilot programme in Utrecht in the Netherlands, a nationwide adoption of a universal basic income is reportedly being considered by Finland’s government. Juha Sipilӓ, Finnish Prime Minister and leader of the Centre Party, has long been publicly toying with the idea of a universal basic income, which will see a final proposal possibly materialising in November 2016. Justified by himself and his government, it would ideally serve as a solution to both superfluous bureaucracy and poverty traps caused by the welfare state at present.

Before dismissing a universal basic income as a far-fetched, communistic suggestion, due to the state’s requisite role in its distribution, we should acknowledge its parallel with the debatably libertarian Negative Income Tax proposed by Milton Friedman in the 1960s or Friedrich A. Hayek’s floor “below which nobody need fall.”

Firstly, it is important to note the distinction between a universal basic income and a basic income that is tapered according to income. The latter would probably align more with Milton Friedman’s preferred Negative Income Tax, where the amount you receive reduces with your increasing income. Finland’s proposal (as far as we can tell) would, on the other hand, see each and every citizen receiving €800 per month regardless of income. Richer Finns will of course be taxed according to this, however.

Due to a lack of national implementations of the universal basic income existing, until we can analyse its effects if and after Finland implements it, it is difficult to determine its functionality on a country-level as well as the net balance between negatives and positives. What is more, one must account for potential differences in outcomes between homogenous social democracies and more innately competitive and heterogeneous societies such as the USA and UK. What is not difficult, however, is outlining the numerous reasons a universal basic income would be preferential to the present welfare state. I will attempt to summarise some of them in this piece.

Taking the initial view that the government has a role in providing a safety net, a universal basic income is attractive in its implementation: A simple lump sum as opposed to the means-tested payment that is eternally susceptible to the next failed government reform or cut.

Perhaps the most common concern about a basic income is that it reduces the incentive to work. Simultaneously, the most fascinating feature of previously trialled basic incomes, universal or tapered, is that they do not seem to reduce the incentive to work.

Experiments, such as those in Dauphin in Canada, Uganda and Kenya, have suggested that work incentives are not perverted as you might expect. The Ugandan government, for example, found in its trial that the participants they gave a basic income to actually invested the money into business and attainment of skills and were subsequently 65% more likely to practise a skilled trade. They also worked an average of 25 hours more per month within four years, which works out as 17% more hours than the participants they did not give the income to, and a 49% higher income even two years later. In Dauphin, the only two groups who worked significantly less as a consequence of the universal basic income were teenagers and new mothers.

Were this trend in trials to be replicated in national implementations, this would mean that work incentives are not visibly reduced or harmed by a universal basic income, but perhaps even improved.

This makes sense, since we know that work provides dignity and identity, and the level of basic income provided (by any prudent government) would certainly not be anything substantial to live on. In the UK, were we to implement a universal basic income that was fiscally neutral (i.e. what we spend now on welfare), each citizen would receive £423 per month. Even at around £580 a month (which Finland’s €800 sum roughly works out at), citizens would avoid unintentional poverty but still be incentivised enough to work for an income and basic standard of living.

Another appealing reason to replace welfare states with a universal basic income revolves around the welfare state’s tendency to distort the market and choke individual freedom. Benefits in multitudinous forms complicate markets – housing, energy and childcare to name but a few. With a simple universal basic income, individuals would be freer; freer to choose how to spend their money and without excuse to direct blame about any straitened circumstances at government failure.

Civil society may even thrive more to help those in true need, as libertarian Charles Murray suggests. It is certainly easy to see the decline of civil society ever since the state assumed a more prominent role in individuals’ finances via the welfare state. A universal basic income could reverse this. What more could a libertarian ask for: individual freedom and a revival of voluntarism?

In fact, a recent Guardian piece found only one major fault with a basic income. It was however one fault too many in the verdict of authoritarian thought, and precluded the author’s support for it:

“[the universal basic income] promises a division of labour between government and market that is neither feasible nor desirable, in which the government’s role in ensuring economic security is to redistribute income and then stand back.”

Ironically, this is exactly why it should be supported. Cutting the government’s tie to the individual’s personal finances is as attractive now as it has ever been.

A basic income, universal or tapered, would also be more likely to tackle the root of poverty rather than its symptoms. Whereas an easy argument can be made that inequality in the UK is irrelevant, poverty is another issue that all sides of the political spectrum should be addressing. The current welfare state exacerbates the bane of low incomes with poverty traps, whereby an increase in income (e.g. from getting a job) is offset by tax and/or a reduction in benefits, which obviously reduces the incentive to work.

Does it make sense that we give people money (via unemployment benefit) on the condition they don’t work, and then simultaneously try and make them get a job? This seems to be the scenario with too many welfare systems.

A case study of a woman who lived under Germany’s ‘Hartz IV’ reforms (the bundling of social welfare benefits and unemployment benefits) recently came to my attention, which is a classic epitome of the problem at hand.

Working at an environmental institute, then studying late into her life and taking on voluntary jobs, she lived with the stigma of claiming welfare. After finding it difficult to live and pay bills on the amount she was entitled to, she found herself compelled to find another source of income, in her case self-employment in the area of making children interested in science. To her horror, after just managing to calculate a sufficient income to live on, she received notice from her Jobcentre’s review of her business plan that she would lose her benefits in accordance with the new income stream going into her account. This was to avoid her having any money in excess of her entitlement. Clearly, this is nonsensical and goes against basic human nature.

Why should it only be the likes of the Green Party, which with its Citizens Income included a type of basic income in its manifesto, who promote ending this nonsense? In a WSJ piece, Arthur Laffer diagnoses the problem of work disincentives well. His solution, however, of enterprise zones in which marginal tax rates are changed for both employers and employees in high poverty areas, seems to be needlessly complex. Moreover, it does not cover the widespread issue but merely that of certain areas in which poverty is extreme.

Working with the security of a basic income to guarantee your subsistence means that low-paid jobs are made more realistic and attractive. It would also further negate wage floors such as the National Living Wage, which with its disastrous consequences prices out labour market ‘outsiders’ and separates low-skilled workers from their respective jobs and wage equilibriums. With a guaranteed income instead alleviating low wages, there is more chance for units of labour to live up to their potential as factors of production.

Naturally, too high a universal basic income would end up subsidising unemployment and also subsidising people who do not need extra income. However, this can easily be avoided with a prudent approach. Ultimately, do we believe the state has a role in providing a safety net? If we do, we should champion this simple approach that can even work out to cost the taxpayer less, if replacing the welfare state.

Social security should replicate what we know to work – incentivising work for those who can, empowering individuals as well as civil society and avoiding bureaucracy, all whilst providing a safety net. The universal basic income is capable of achieving these objectives. It is time to reinvent social security as we know it, and take poverty and the government out of people’s lives in the process. The left and right have been feuding over welfare for too long. This truly is the grand compromise.

Elena is a proponent of the free market, enthusiastic about a much smaller role for the state that will facilitate liberty and economic freedom. Follow Elena on Twitter: @ElenaAtt

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