Is universal basic income sustainable? - Population Matters · Is universal basic income...
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Is universal basic income sustainable? | 1
In October 2013, after gaining enough petition signatures to hold a referendum on UBI, Swiss activists celebrated by publicly dumping eight million coins. Source: Stefan Bohrer
Is universal basic
income sustainable?
Universal basic income (UBI) means replacing
means-tested benefits with an unconditional
regular payment that everyone receives. It is an
idea that has received considerable media
attention recently, following a Swiss referendum
on UBI on 5 June 2016. Although the measure
was comfortably rejected,1 the referendum has
made basic income a global debate topic, with
Finland set to launch basic income pilots at the
beginning of 2017.2
This briefing specifically evaluates the
sustainability of UBI in the UK, by looking at its
effects on population, consumption and
technology. It finds that, while there are some
risks, the overall picture from a sustainability
perspective is quite positive. This briefing
therefore recommends that UBI continues to be
researched, discussed and seriously considered.
What is universal basic
income?
According to political theorist Phillippe van Parijs,
UBI “is an income paid by a political community to
all its members on an individual basis, without
means test or work requirement.” (van Parijs,
2006, p.4).3 UBI is therefore significantly different
to more conventional methods of social security,
which are conditional, and paid to households.
The definition is loose, and actual basic income
schemes can vary greatly in terms of scale
(regional, national, supranational), sources of
funding, size of the income, and inclusivity (do
citizens receive the income or all legal permanent
residents?). UBI can also be given at different
levels for different individuals, for instance the
amount of income that children or pensioners
receive may differ from what working adults
receive.3
Background
Thomas Paine, one of the Founding Fathers of the
United States, is usually credited as being the first
to propose a form of basic income. Paine believed
that land was the common inheritance of
mankind, and therefore owners of land should
pay a tax, and this tax revenue would be used to
provide individuals with a lump sum upon
reaching adulthood.4
UBI, along with similar proposals like the negative
income tax, is notable for having attracted
support from economists both on the left, such as
James Tobin, and on the right, such as Milton
Friedman.5 Indeed, a form of basic income in all
but name was almost introduced by Republican
President Richard Nixon, when it passed Congress,
but was defeated in the Senate.4 Many on the left
see UBI as an effective tool for wealth
Is universal basic income sustainable? | 2
redistribution and poverty alleviation, while those
on the right often see it as less bureaucratic and
more efficient than existing welfare programmes.
What would universal basic
income look like in the UK?
A common objection that is made to UBI is that it
would simply be too expensive to be feasible, and
thus is a non-starter. As UBI advocates have
pointed out, however, the charge that UBI is
unaffordable in and of itself is misguided, since
the cost of implementing UBI depends on the
level of income on offer (Van Parijs, 2006, p.14).
What is usually meant, however, is that a basic
income sufficient to live on would be
unaffordable. For example, funding a basic
income of around £12,000 per person per year for
the approximately 65 million inhabitants of the
UK6 can be estimated as costing about £750-
800bn. This would be over 40 per cent of the UK’s
total GDP,7 and approximately equal to the
£772bn that the UK government is projected to
spend in 2016-17.8 Such a UBI programme would
require a mix of radical public spending cuts and
astronomical tax-rises that are likely unattainable.
However, UBI does not need to reach such levels
in order to access its benefits. Of course, a low
level of UBI that replaced all existing welfare
would be extremely regressive,9 so a successful
implementation of UBI would also need to be
combined with some elements of the existing
system of conditional welfare. The Royal Society
of Arts (RSA) fairly recently wrote a report that
advocated such a system, keeping housing and
disability benefits, while cutting other benefits in
favour of the basic income. The RSA’s model
would provide all individuals from the age of 25 to
64 an income of £3,692, with slightly lower
payments for children and higher payments for
over 65s. They sensibly also propose that basic
income is reduced to zero for the third and
additional children under five years of age, in
order to reduce costs and the incentive to have
large families. Because UBI would mostly be
funded out of existing welfare spending, and
would also create some efficiency savings since it
is less bureaucratic than other forms of benefits,
the RSA estimates that such a UBI scheme would
only cost one per cent of GDP.10 Such a cost is
very affordable, and could be funded through
increased taxes on higher earners, or through
implementing new taxes. The table below shows
the amount that five families would receive, and
compares this to what they would receive from
Universal Credit.
Table: RSA
Such proposals are not without their problems;
for instance, lone parents are likely to be worse
off, and may need some additional financial
assistance.11 Nonetheless, it does show that UBI is
economically viable, and therefore its advantages
and disadvantages are worth assessing.
Is universal basic income sustainable? | 3
How should the
sustainability of universal
basic income be evaluated?
A society can be said to be sustainable if the
lifestyle of its members could be maintained
indefinitely, while an unsustainable society will
inevitably deplete its resources until it is
impossible to maintain the lifestyle of everyone in
that society. To become more sustainable,
societies need to reduce their environmental
impact, and environmental impact can be defined
according to the Ehrlich equation:
𝐼 = 𝑃𝐴𝑇
Where I is the total environmental Impact; P
stands for total Population; A stands for
Affluence, which is the average quantity of goods
and services consumed per person, and T stands
for Technology, which is how inefficiently goods
and services are produced.12
The Ehrlich equation is useful for assessing the
overall sustainability of UBI. While in and of itself,
UBI is very unlikely to make unsustainable
societies sustainable, we can look at whether or
not UBI would make societies relatively more
sustainable by looking at its effects on population,
affluence and technology.
UBI has impacts on all three components of the
Ehrlich equation in a multitude of ways. This
briefing considers the effect of UBI on four
different sustainability issues: poverty,
employment, migration and innovation. Each of
these areas has an effect on population,
affluence, technology or some combination of
them.
There are, of course, other factors besides
sustainability that should be considered, for
instance, UBI proponents often make a
philosophical case that UBI enhances the freedom
and welfare of individuals (Van Parijs, 1995).13
Nonetheless, given the urgency of moving
towards more sustainability to prevent
environmental calamities, it is incredibly
important that UBI is sustainable, because welfare
schemes need to consider not just the well-being
of the current generation, but also that of future
generations.
Assessing the sustainability of
universal basic income
Poverty
The importance of poverty alleviation from a
moral and social perspective is unambiguous.
However, poverty alleviation is also a crucial pillar
of sustainable development, for three reasons.
Firstly, poverty tends to cause population growth.
This is because individuals in poverty are less
likely to have access to contraception and sex
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education that allows individuals to limit family
size, and because people in poverty may have to
rely on their children to look after them in their
old age. This problem is exacerbated by the fact
that population growth also increases poverty, as
it means that resources used to combat poverty
are divided amongst more people, thus creating a
vicious cycle.14
The second reason is that those in poverty are
often more likely to face problems such as poorer
health, less access to education, higher crime
rates, etc., and the cost to governments of coping
with these effects is huge. It is estimated that
child poverty alone costs the UK £29 billion per
year in dealing with the consequences of such
poverty (Hirsch, 2013).15 This means that poverty
often causes an increase in the quantity of goods
and services that a society requires.
The third reason is that poverty perversely
incentivises governments to pursue unsustainable
economic growth. The logic is that if the economy
can be made to grow, then everyone will have
more and poverty can be reduced without
redistribution. The issue with this argument is that
economic growth goes hand in hand with a
negative environmental impact, such as carbon
emissions and resource depletion (Laurent,
2014).16 It is therefore critical that alternative
solutions to poverty are implemented, because
attempts to solve poverty via economic growth
will inevitably just move burdens from those in
poverty now to future generations.
Conventional welfare policies and poverty
The main methods utilised in the UK to keep
families out of poverty is through minimum wage
legislation and the provision of means tested
benefits, often conditional on applicants working
or proving that they are looking for work.
Proponents of UBI argue, however, that these
methods suffer from many deficiencies.
While UBI proponents do not necessarily advocate
abolishing a minimum wage, it has the major
drawback that, if the minimum wage is too high, it
will cause higher levels of unemployment, as
businesses will reduce the numbers of workers
they employ, and/or will automate jobs, limiting
its capacity to combat poverty.17,18 Additionally,
minimum wage laws only help those who actually
have jobs; such laws do little to provide for the
unemployed, or those who provide unpaid care.
Conditional welfare has three inherent problems:
the first is that conditional welfare creates what is
known as the welfare trap, which is a perverse
incentive for those on welfare to not seek work.
This effect occurs because as welfare recipients
earn more income from work, their benefits are
withdrawn — the net gain in income from working
more hours, or in better-paid jobs, can therefore
be so small that seeking work is unattractive.19
The effect can be mitigated by withdrawing
benefits more slowly as income increases; this,
however, substantially increases the cost of
providing welfare.17
The second problem is that some individuals who
are in poverty may not take up conditional
welfare that they are entitled to, either because
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of a lack of knowledge of how to access welfare,
or because of the time required to prove that the
conditions have been met (Van Parijis, 2006, p.9).3
For example, in the United States, there are four
million poor Americans who qualify for Medicaid
(the US healthcare programme for individuals
with low incomes), and yet are not enrolled.20
The third problem is that conditional welfare is a
public expenditure that is aimed at a group
without a great deal of political influence, and this
makes them more susceptible to being targeted
as a source of public spending cuts, compared to
services that are protected by lobby groups, like
healthcare or pensions.17
Universal basic income and poverty
UBI avoids many of the above deficiencies of
minimum wages and conditional welfare: unlike
the minimum wage, it provides assistance to
those who are outside the labour force, and it
does not cause employers to lay off workers.
Unlike conditional welfare, it removes welfare
traps, since basic income is not withdrawn from
individuals who increase their income. As a
universal payment, it will potentially be easier to
protect from cuts than existing welfare schemes,
and removing existing obstacles to accessing
welfare is likely to ensure that more, if not every,
individual in poverty receives assistance.
Proponents of UBI also offer two additional
reasons that UBI would be more effective in
eradicating poverty than conditional welfare. The
first is that a welfare system that is constructed
around work may face serious problems as more
tasks become automated and unemployment
begins to rise. A well-known study suggests that
47 per cent of jobs are at risk of being automated
in the next few decades (Frey and Osbourne,
2013).21 UBI may allow society to enjoy the
benefits of automation without driving so many
people out of work and into poverty.22 It would
also ensure that the benefits that automation
brings are distributed throughout society, rather
than just to the owners of machines.23
The second reason is that UBI improves the
bargaining position of low-paid workers: instead
of feeling compelled to take the first job that
comes along, UBI allows workers to look around
longer for better-quality and better-paid work, to
negotiate with their employers for better terms of
employment, or to gain more qualifications to
achieve a higher standard of living. (Olin Wright,
2006, pp.3-4).24
Evidence
There is, at present, limited evidence of the
effects of UBI. However, between 1974 and 1978,
there was an experiment with basic income in the
town of Dauphin in Manitoba, Canada. Evelyn
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Forget (2011) analysed the data collected from
this experiment, and found that Dauphin saw a
significant reduction in hospitalisation compared
to other parts of Canada, as well as lower rates of
high school dropout.25 Forget argues that since
poor health and education is indicative of poverty,
this suggests that the income security that basic
income provides can have significant effects in
tackling poverty and its effects.
Graph: Forget
There is, overall, a strong case that UBI could
make serious headway in combatting poverty
without resorting to unsustainable levels of
economic growth. While more research is
certainly needed to be sure of such conclusions,
UBI still seems incredibly promising in this regard.
Employment
One of the major objections made against UBI is
that providing individuals with unconditional
payments will disincentivise them from actively
pursuing work, since they can just live on their
basic income.17 This perceived effect is seen as
unfair, since it would involve those who work
subsidising the idle. It also may be a problem from
a sustainability perspective; the challenges of
transitioning to more sustainable societies are
great, and are likely to require a skilled, adaptable
and active labour force.26 Reductions in work
participation may also make it more difficult to
continue to fund UBI from taxes, undermining its
long-term economic viability.
It is, however, unclear what exact effect UBI is
likely to have on incentives to work. As noted in
the previous section, existing welfare systems
create their own disincentives to work, and UBI
removes these disincentives. So, for some less
well-off individuals, UBI may increase the
incentive to work.
How much less will people work?
The major difficulty of trying to evaluate the effect
of UBI on work incentives experimentally is that
those receiving the income know that it is
temporary, and therefore may not change their
behaviour. Nonetheless, the Canadian trial lasted
for four years, and so may have been long enough
to give some indication of the effect of UBI on
work incentives. It was found that UBI had a
moderate effect on reducing work effort; one per
cent for men, three per cent for wives and five per
cent for unmarried women (Hum and Simpson,
2001).27
This reduction effect is certainly modest, though
given enough time, or an overly generous UBI, it
may reach a level that is problematic.
Is universal basic income sustainable? | 7
What do people who work less do instead?
Figuring out how much less people work,
however, is not the only issue to consider. Paid
work is not the only way individuals can offer a
valuable contribution to society — individuals may
use their time to perform unpaid care, or seek out
greater levels of education. It therefore needs to
be considered which individuals may reduce their
level of paid work, and what they do in its place.
The evidence from Canada suggests that primary
earners hardly reduce their working hours at all;
instead, most of the reduction comes from
secondary earners and young people.28 A likely
scenario is that secondary earners are often more
able to spend time looking after children and
other dependants, while young people choose to
spend more time in education. In fact, Forget
(2011) found that during the basic income pilot in
Dauphin, the percentage of students that
completed high school was significantly higher
than it was prior to and after the trial.25
Graph: Forget
Having more young people finish education is
important for having a diverse and skilled
workforce to deal with future challenges of
sustainable living, while having more individuals
provide voluntary care to their family members
can be important for reducing the use of
healthcare resources. Both of these tendencies,
therefore, may be important from a sustainability
point of view.
It is therefore unclear what the exact effects of
UBI will be on the work individuals do, and
whether these effects are positive or negative.
This is something that should be viewed carefully
in future basic income experiments.
Migration
One serious concern raised about implementing
UBI is the effect it will have on migration. It is
argued that if a country like the UK implemented
UBI it would face a serious dilemma: the income
could be made available to all residents, in which
case UBI may precipitate an unsustainable influx
of immigration. Alternatively, UBI could be
restricted to citizens, but this would have the
undesirable effect of labour market dualisation,
where lower income foreign workers without
access to welfare would dominate low-income
menial jobs.17
Migration is a serious issue for UBI; most
proponents take a middle route through the
dilemma, preferring to make UBI conditional on
residency, not citizenship, but requiring a certain
number of years of residence prior to the receipt
of the income (van Parijs, 2006, pp.6-7).3 This
route mitigates the potential dangers of labour
market dualisation and high immigration without
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necessarily eliminating them. It is important to
note, however, that research has found that
migrants are not attracted to countries by
unemployment benefits (Giulietti et al., 2013):29
they tend to care much more about access to jobs
and speaking the language of the country.
It is, however, true that UBI may provide a greater
incentive than contemporary unemployment
benefits, due to its unconditional nature. It is
therefore important that if UBI is implemented, it
is done so in conjunction with well-constructed
migration policies.
Innovation
While technological innovation is unlikely in and
of itself to be sufficient to promote a sustainable
lifestyle, it is nonetheless an important factor in
making sustainability goals more attainable, by
ensuring we use our resources as efficiently as
possible.
One potential advantage that UBI offers in this
regard is that it may significantly spur innovation.
The reason for this is that UBI reduces the cost of
failure when it comes to setting up new
businesses, since one can depend on the basic
income for financial support even if the venture is
a failure.30 While most UBI proponents have
largely seen this as an economic benefit, a
measure that makes it easier for individuals with
good ideas to pursue them may increase the
probability of developing technology that allows
us to move towards more sustainable lifestyles.
This outcome is highly uncertain, but does provide
some additional weight to the idea that UBI is a
promising step towards more sustainable
lifestyles.
Conclusion
UBI is not a totally riskless policy: it will require a
substantial restructuring of existing welfare
systems; it may be expensive or regressive if
implemented poorly; it may have damaging
effects on worker motivation for some, and it may
encourage unsustainable levels of migration.
Nevertheless, the potential benefits that UBI can
offer are massive: it could have a decisive impact
in reducing poverty and eliminating welfare traps,
undermine the damaging idea that we need
perpetual economic growth, and promote
valuable innovation.
Given these benefits, UBI must be very seriously
considered. The study in Finland and others
elsewhere could bring important insights about
the effects of UBI and the best way to implement
it; these should be watched carefully. UBI could
offer a very effective way for the UK to
restructure our welfare system in a more
sustainable way; it should continue to be
researched and debated.
1Switzerland's voters reject basic income plan. (2016, June 05). Retrieved July 15, 2016, from http://www.bbc.co.uk/news/world-europe-36454060
Is universal basic income sustainable? | 9
2 Matthews, D. (2015, December 08). Finland's hugely exciting experiment in basic income, explained. Retrieved July 15, 2016, from http://www.vox.com/2015/12/8/9872554/finland-basic-income-experiment 3 Van Parijs, P. (2006). Basic income: A simple and powerful idea for the 21st century. In B. Ackermann, A. Alscott, & P. Van Parijs (Eds.), Redesigning distribution: Basic income and stakeholder grants as alternative cornerstones for a more egalitarian capitalism (Vol. V, Real Utopias Project Series, pp. 4-39). Lon: Verso. Retrieved July 15, 2016, from http://www.ssc.wisc.edu/~wright/Redesigning Distribution v1.pdf 4 Shafarman, S. (n.d.). A brief history of basic income ideas. Retrieved July 15, 2016, from http://basicincome-europe.org/ubie/brief-history-basic-income-ideas/ 5 Matthews, D. (2016, April 25). Basic income: The world's simplest plan to end poverty, explained. Retrieved July 15, 2016, from http://www.vox.com/2014/9/8/6003359/basic-income-negative-income-tax-questions-explain 6 Time series: United Kingdom population mid-year estimate. (2016, June 23). Retrieved July 23, 2016, from https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/timeseries/ukpop 7 World economic outlook database. (2016, April). Retrieved July 23, 2016, from http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/weorept.aspx?sy=2014 8 Gauke, D. (2016). Budget 2016 (Great Britain, HM Treasury). Retrieved July 23, 2016, from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf 9 Greenstein, R. (2016, May 31). Commentary: Universal basic income may sound attractive but, if it occurred, would likelier increase poverty than reduce it. Retrieved July 15, 2016, from http://www.cbpp.org/poverty-and-opportunity/commentary-universal-basic-income-may-sound-attractive-but-if-it-occurred?version=meter 10 Painter, A., & Thoung, C. (2015, December 03). Creative citizen, creative state. Retrieved July 23, 2016, from https://medium.com/rsa-reports/creative-citizen-creative-state-a3cef3f25775#.t3amk5bm9 11 Review of the RSA report on universal basic income. (2016, January 25). Retrieved July 23, 2016, from http://www.basicincome.org/news/2016/01/review-of-the-rsa-report-on-universal-basic-income/ 12 Sustainability and the Ehrlich equation. (2011). Retrieved July 23, 2016, from http://www.populationmatters.org/wp-content/uploads/ipat.pdf 13 Van Parijs, P. (1995). Real freedom for all: What (if anything) can justify capitalism? Oxford: Clarendon Press. 14 Poverty. (2011). Retrieved July 23, 2016, from http://populationmatters.org/wp-content/uploads/D15Poverty.pdf 15 Hirsch, D. (2013). An estimate of the cost of child poverty in 2013. London: CPAG. Retrieved July 23, 2016 from https://dspace.lboro.ac.uk/dspace-jspui/bitstream/2134/16983/1/Cost%20of%20child%20poverty%20research%20update%20(2013)_0.pdf 16 Laurent, E. (2014). Inequality as pollution, pollution as inequality. <hal-01070526>. Retrieved 23 July, 2016 from https://hal-sciencespo.archives-ouvertes.fr/file/index/docid/1070526/filename/laurent-inequality-pollution.pdf 17 Sighing for paradise to come. (2016, June 04). Retrieved July 15, 2016, from http://www.economist.com/news/briefing/21699910-arguments-state-stipend-payable-all-citizens-are-being-heard-more-widely-sighing 18 Worstall, T. (2016, June 25). Bernie Sanders' influence on the Democratic platform - The $15 an hour minimum wage that kills jobs. Retrieved July 15, 2016, from http://www.forbes.com/sites/timworstall/2016/06/25/bernie-sanders-influence-on-the-democratic-platform-the-15-an-hour-minimum-wage-that-kills-jobs/#42df7bb9fff9 19 Flowers, A. (2016, April 25). What would happen if we just gave people money? Retrieved July 15, 2016, from http://fivethirtyeight.com/features/universal-basic-income/ 20 Barry-Jester, A. M., & Casselman, B. (2015, September 28). 33 Million Americans Still Don’t Have Health Insurance. Retrieved July 23, 2016, from http://fivethirtyeight.com/features/33-million-americans-still-dont-have-health-insurance/#fn-6 21 Frey, C. B., & Osborne, M. A. (2013). The future of employment: How susceptible are jobs to computerisation. Retrieved July 15, 2016 from http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf 22 Schneider, N. (2015, January 6). Why the tech elite is getting behind universal basic income | VICE | United States. Retrieved July 15, 2016, from http://www.vice.com/read/something-for-everyone-0000546-v22n1
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23 Skidelsky, R. (2016, June 23). Basic income revisited. Retrieved July 15, 2016, from https://www.project-syndicate.org/commentary/unconditional-basic-income-revisited-by-robert-skidelsky-2016-06 24 Wright, E. O. (2006). Basic income as a socialist project. Basic Income Studies, 1(1). doi:10.2202/1932-0183.1008 25 Forget, E. L. (2011). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy, 37(3), 283-305. Retrieved July 15, 2016, from http://public.econ.duke.edu/~erw/197/forget-cea%20%282%29.pdf 26 Sustainable development | Employment | Jobs. (n.d.). Retrieved July 23, 2016, from http://www.sustainable-environment.org.uk/Economy/Employment.php 27 Hum, D., & Simpson, W. (2001). A guaranteed annual income: From Mincome to the millennium. Options Politiques, 22(1), 78-82. Retrieved July 15, 2016, from http://archive.irpp.org/po/archive/jan01/hum.pdf 28 Dubner, S. J. (2016, April 13). Is the world ready for a guaranteed basic income? [Audio blog post]. Retrieved July 23, 2016, from http://freakonomics.com/podcast/mincome/ 29 Giulietti, C., Guzi, M., Kahanec, M., & Zimmermann, K. F. (2013). Unemployment benefits and immigration: Evidence from the EU. International Journal of Manpower, 34(1), 24-38. doi:10.1108/01437721311319638 30 Pugh, J. (2016, June 05). Why Switzerland's universal basic income referendum matters, even though it failed. Retrieved July 23, 2016, from http://qz.com/699739/why-switzerlands-universal-basic-income-referendum-matters-even-though-failed/