Thorny question

Why the issue of universal basic income is relevant now

In modern times, economic growth and technological change have been occurring at an astonishing pace, radically transforming our lives. However, these have also brought about severe damage to the natural environment and made employment growth much slower than the rate of macroeconomic change. The current outlook for technology promises robots that replace human beings, and intelligent machines that learn new things on their own. In a global economy characterized by uneven and unpredictable growth, high unemployment among low-skilled workers and rising inequalities in income and wealth make the prospects of capitalism appear bleak and harsh. Markets are no longer considered assuring wealth and opportunities for all. New technologies are creating jobs at a far slower pace than the rate at which they are displacing existing jobs. Now the possibility of even white collar jobs being taken away by intelligent machines is real.

Even the most die-hard believers in the free market are unsure whether everyone can get a job, and what kind of social and political consequences high rates of unemployment might lead to. For capitalism to survive something must be done to keep markets alive, demand buoyant and wealth and power concentrated in the hands of those who already have them in abundance. On the other hand, those who are sceptical about the outcomes of a capitalist market economy want (short of a complete overthrow of the system) a more just distribution of access to markets and creation of basic capabilities like primary education, food security, basic health and sanitation. For them, more purchasing power in the hands of the poor and the deprived appear as a short-term solution to the systemic problems of capitalism.

It is in this context that recent debates about a universal basic income have been supported by thinkers from both the Left and the Right of the political spectrum. There have been criticisms from both sides too. The roots of this idea of a social dividend go back to Milton Friedman, a staunch believer in free market capitalism, as well as to G.D.H. Cole, a British socialist. The idea of a universal basic income is that every legal resident of a nation would get an assured monthly sum of cash unconditionally, and free of any obligation. In other words, it would be independent of wealth or income, employment status, age or gender. Nothing would be required as proof of entitlement other than legal residency. The amount would be fixed and pre-announced. The level would be an amount that brought someone with no income or wealth just above some measured poverty line. Of course the literature considers many variations of this - some conditionality, some differences in entitlements such as those in urban areas versus those living in rural areas and so on. There has also been debate about the level, and how frequently the level needed to be revised to correct for inflation. These issues are thorny issues, and technical. If one sets them aside, what would the possible effects of such a scheme be?

The right-wing supporters believe that this is a much more efficient way (administratively less costly) to provide means to access social services than targeted social security measures that are prone to corruption and errors. This unconditional basic income could then replace all government welfare schemes. People armed with assured purchasing power would depend on the market for the provision of all goods including education and healthcare. Unemployment would not be a social or political evil. The trappings of the welfare state would give way to a really free market economy with assured minimum endowments for all. People would have the choice to work or not, and how much to work at what wages. It might turn out that low paying tedious work would face a decline in labour supply and wages would rise. This would hence induce mechanization if the work was considered essential, like cleaning floors or toilets. Some other low paying jobs not considered so tedious could see a rise in labour supply and fall in wages. However, since people had a supplementary source of income with certainty, it would not significantly reduce earnings. Finally, this would keep intact the political and economic structure of society and all the associated trappings of concentrated wealth and economic power.

People on the Right who have objected to this idea have argued that this would kill the work ethic altogether, producing a society of idlers. True, one per cent of that society could pursue creative activities and out of a handful could come a Raphael or a Beethoven. The remaining 99 per cent would be likely to blow the basic income on alcohol and drugs. Capital, to survive, must draw on live labour. That would become impossible, leading to a decay of the economic system and moral fibre of a capitalist society.

The liberal Left, surprisingly, agrees with the Friedman argument that this scheme would be the best and even inevitable in the age of rapid automation. It would make society more just by allowing all people to choose the capabilities they wanted to acquire. The scheme would lead to more creative pursuits and bring out greater innovative and artistic talent in society. It would, in short, lead to greater freedom for the poor and deprived. The left-wing critique, on the other hand, is more basic. The universal cash transfer would actually strengthen capitalism and hardly have any impact on the structure of power and the ability to exploit human labour. It would be an illusory freedom where inequalities would be completely frozen. To use an analogy from science fiction, it would not be a world of Star Trek but rather a world closer to Matrix.

Surprisingly, there has been much less debate about the problems of financing the scheme than one would have expected. The debates usually assume that the scheme would replace all other welfare expenditures including social security, wherever it exists. Moreover, the possibility of tweaking income and corporate profit tax rates could be an option. Finally, some have even considered using the Tobin tax on cross-border capital flows, or introducing wealth and inheritance taxes as sources of cash.

There is an obvious lot to learn from various experiments actually being carried out in many mature market economies. Random trials could help one understand the effects on people, on markets and on incentives much better. The trials would also help one know more about the levels of transfer that would be affordable in the macro sense and yet not kill off all individual incentives in the micro context.

An interesting thing to note is that the recent debate arguably started from the Silicon Valley, one of the richest and most modern capitalist geographies. The rich nations and the rich tycoons have been greater supporters of the idea. The Modi government in India, too, is seriously considering some limited version of the scheme as a starter, possibly to be announced before the next parliamentary elections.

While the debate continues, a doubt remains; in poor countries, such as India, can a universal basic income be a substitute for assured access to education, housing, health services, sanitation and a variety of other infrastructure that are already available in countries of Europe and America? One thing appears certain: whether this scheme is implemented or not in the next one or two decades, the rise in inequalities and the loss of low-skilled and even medium-skilled jobs will continue to challenge governments, communities and individuals all over the world.

The author is former professor of Economics, IIM Calcutta

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