Universal Basic Income: Leftist Fantasy or Pragmatic Necessity?

automation

With the predicted rise in automation as technology continues to advance throughout the developed world, the issue of Universal Basic Income (UBI) has become prominent again in politics, with the Finnish government having trialled a version of the policy recently and the Scottish National Party planning to pursue a similar trial. Put simply, the policy means paying a sum of money to every adult in the country, enough for them to live without employment.

The question, then, is whether UBI is sustainable or, indeed desirable.

First, desirability. The arguments many right wing economic thinkers make in favour of UBI are its ability to reduce the size of government and bureaucracy while also freeing up individuals economically, allowing even the less well-off to be entrepreneurial. Replacing much of the current benefits system and reducing the size of the government department responsible for it would indeed save a lot of money. In Sweden, where there is a generous welfare system intended as a safety net, start-ups have flourished, with the most notable including Spotify and Mojang. A UBI could have a similar effect.

Cultural differences, though, may be relevant here. While some people may see UBI as a nice complement to the income of a full or part time job, allowing them to increase their productivity and benefitting the economy, others may simply decide the money they receive is enough for them and become less productive members of society as a result. Setting the rate correctly is crucial for preventing this issue from becoming widespread.

Many argue that, further than being simply desirable, UBI is necessary as more and more jobs look set to be automated. We must look upon this claim with plenty of scrutiny. After all, capitalism has always tended to create new jobs when old ones disappear – one only needs a glance at the taking over of modern economies by services sector which once never existed in any substantial form to confirm this.

However, we have seen a rise in flexible and zero hours contracts, a contentious political issue in the UK, in recent years. Such contracts are exactly the sort of job UBI could function as a supplement to, if they are to continue to become more common in a world of automation.

Now, the rough numbers. With around 50 million adults in the UK, a UBI set at the current National Living Wage rate of £7.50/hr, which works out at around £13,900 after tax annually on a full time job, would cost the government to the tune of £700bn per year – only around £80bn short of equalling to the entire government budget for 2017.

This cost, of course, cannot be sustainably met anytime soon. An initial implementation of UBI, then, would have to be a supplement to work, with additional payments in place for the disabled and others. A £5,000 annual payment to adults under the age of 65 would cost the state around £190bn, a slightly more achievable figure, while allowing a significant reduction in the current social security budget. The net cost to the government would still be well in excess of £100bn annually.

The geolibertarian, or Georgist, view would be to impose a Land Value Tax (I argue for such a tax, albeit in a different context, here) in order to fund UBI. Such a tax has immense capacity to raise revenue in a progressive manner which does not discourage economic activity, unlike other taxes. However, governments do have some leeway in their finances, and the UK recently returned to surplus on current spending. To fully fund UBI through taxation may not be necessary, if the policy can drive growth to such an extent that income from existing taxation grows quickly and plugs the majority gap. Whether this would be effective is debatable, and experiments such as that upcoming in Scotland will give us a better idea of just how realistic this is.

A UBI, then, is more than a fantasy. While we may be a long ways from an economic situation in which the state is capable of providing every citizen with enough money to live comfortably, it could feasibly provide substantial supplementary payments which may be a huge boon to entrepreneurialism and thus growth. Yet, whether it is truly a necessity remains up for debate. Only the experiments and studies we expect to see in the near future can shed light on the issue.

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