Universal basic income: money for nothing?

11 minute read

The concept of a universal basic income is gaining renewed traction. But what is it, and how would it work?


As technology developers rush to create ever more sophisticated machines to replace a wide range of jobs, a new dream for society is gaining momentum.

That dream is based on the concept of a “universal basic income” whereby every citizen receives a guaranteed income to cover basic needs, that is unconditional and has no strings attached.

The concept is currently being spearheaded by the entrepreneurs and technology giants of California’s Silicon Valley, but the idea has a long history of proponents on the left and right of the political spectrum.

Free money? What’s not to love?

For those on the political right, such as libertarian economist Milton Friedman and former US president Richard Nixon, universal income would cut through complicated welfare systems and reduce the expenses of managing them.
Instead of means testing citizens, everyone would receive a monthly cheque to cover necessities such as food, healthcare and housing. That creates the double benefit of looking after the poor and keeping the government small and out of people’s lives.

For the left-leaning folk, such as Martin Luther King Jr and philosophers John Stuart Mill and Bertrand Russell, a universal basic income would ensure the safety and liberty of all citizens, freeing people from the “tyranny of wage slavery”.

In the last 12 months, there has been a resurgence in support for the idea, partly thanks to an increasing awareness of ever-widening social and economic inequality.

The world’s eight richest people now own as much wealth as the poorest 3.6 billion, according to Oxfam figures.

As of 2013, the top 1% of Australian earners took home 9% of the country’s income, up from 6% in 1990. Meanwhile, more than 13% of the population lives below the poverty line.

Austerity measures are also responsible for a renewed interest in policies such as universal basic income, Dr Mark Liddiard, senior lecturer in social policy at Curtin University, says.

These policies have led to stagnating economies across Europe and the spectre of deflation, which is back for the first time since the 1930s.

In Australia, economic growth has slowed, wages are stagnant or going backwards. There is job insecurity and underemployment. And rapid developments in technology look set to make a lot of jobs obsolete.

Alarming figures have emerged from the Committee for Economic Development of Australia, predicting that almost 40% of our current jobs – more than five million – have a moderate to high likelihood of disappearing in the next decade or so thanks to advancements in automation and artificial intelligence.

“The pace of technological advancement in the last 20 years has been unprecedented and that pace is likely to continue for the next 20 years,” the committee’s chief executive, Professor Stephen Martin, says.

This isn’t just blue collar workers either, artificial intelligence can already produce the basic reporting behind sports and business news stories, and looks set to almost entirely replace jobs such as accountants and auditors.

As well as being acutely aware of the potential for rapid upheaval in the labour market and its disruption to society, many in the technology industry see a universal basic income as providing a floor that would encourage more innovation.

Under this system, people would no longer be tempted to game the system, or waste time and energy meeting requirements when they could be spending time on fulfilling, community, or employment activities.

It would also allow innovators to invest their time and money in entrepreneurial projects, or developing skills to align with jobs they actually want. But giving people money for nothing is likely to prove to be a hard sell.

Belgian philosopher and political economist Philippe Van Parijs describes the dilemma thus: “The indignation of the jobless who are morally and legally expected to keep looking for what many know they will never find, is matched by the outrage of those who subsidise with their social security contributions the idleness of people who are overtly transgressing the rules of the game”.

It is all very well to use rhetoric like the “lifters and leaners” to create an idea that welfare recipients are dole bludgers, but the working poor increasingly need assistance, Dr Liddiard says.

However, the big hope for a universal basic income is that it would remove disincentives to work.

“It sounds counterintuitive,” says Dr Liddiard. “You give people unconditional money, and that’s supposed to increase incentives to work?”

“But for every dollar you earn in the labour market, the amount of welfare benefits you lose as a consequence can sometimes be so high that it actually works as a disincentive to gainfully seek employment,” Dr Liddiard says.

One selling point of universal basic income above and beyond other welfare systems is that everyone receives the same amount of money, whether you are totally unemployed or whether you are James Packer.

Different versions of the concept vary in how it should paid, but a common theme is people get to keep earnings on top of the basic payment. Another common idea is that earnings would have a progressive tax, meaning the well-off would pay back more than they received from the basic payment back via income taxation.

If you want to work, then you can go out and earn additional cash to buy luxuries. But if you don’t want to work, instead choosing to surf or play video games all day, then you’re not going to starve – just be tangibly worse off than the “strivers”, Dr Liddiard says.

It is all very well to use rhetoric like the ‘lifters and leaners’ to create an idea that welfare recipients are dole bludgers, but the working poor increasingly need assistance.

How would this work?

In Australia, anywhere from $10,000 to $30,000 have been suggested as the minimum wage. At a rate of $20,000 per person, per year, the cost to the government would be around $380 billion.

The administration of Centrelink alone costs taxpayers $3 billion per year. In 2015-16, the Australian government spent around $154 billion on social security and welfare – over a third of all government spending.

Welfare systems in Australia, and in most jurisdictions, have incrementally changed over time, becoming more and more complex. This can result in a tax system and a welfare system that are so opaque and convoluted that administering them becomes increasingly expensive.

Proponents of universal basic income see this as an alternative. But even if all administrative savings was redistributed to a universal basic income, Australia would still be looking at around a $200 billion annual shortfall.

One of the reasons the basic income proposal hasn’t really gained much political traction is because it looks really, really expensive, Associate Professor Gigi Foster, at the school of Economics at the University of NSW, says.

The key is to look at evidence from other countries, Professor Foster says.

Right now, Finland is trialling its own version of a basic income, whereby 2000 unemployed people will receive €560 ($A790) per month, no strings attached.

Though it falls short of a true experiment of a universal basic income, which includes a central tenant that the money goes to everyone regardless of employment status and earning, the world will wait with anticipation for the results.

The Finns are not alone either, the Fife and Glasgow councils in Scotland are also looking into pilot trials of the concept, and one Canadian province has voted to launch its own trial this year.

The Netherlands, Kenya and India have all floated similar plans. Meanwhile, a Swiss campaign to introduce a universal basic income of 2500 Swiss francs per month was voted down, among fears of immigration and unaffordability.

US data shows workers today produce five times the value per hour if workers in 1947
US data shows workers today produce five times the value per hour if workers in 1947

The benefits

But the benefits of a universal basic income can be significant. Previous experiments with the concept suggest this kind of “free” money can actually lead people to drink and smoke less.
An experiment in Manitoba, Canada in the 1970s also found that hospitalisations, accidents, mental health disorders were all reduced while individuals were receiving a universal basic income. Moreover, teens were more likely to finish high school, and women appeared to be more likely to leave unhappy or abusive relationships.

In India, a trial of universal basic income led to greater spending on food and healthcare and an invigoration of business start-ups. Children’s school marks improved dramatically and the amount of time spent in school almost tripled overall.

So far, there is little evidence to suggest that people are discouraged from working by a minimum income.

Perhaps most powerfully, a universal basic income promises to be a market pump, encouraging individuals to spend and boost the economy. Low-wage workers are more likely to spend the money they make, whereas high income earners often put that money into savings or investments.

But does Australia even need a universal basic income? Are our struggling poor in such a dire situation that we need to implement such a radical money-creation expedition?

None of the studies so far has been long-term enough to properly evaluate what the overall impact would be, Professor Foster says.

There is the risk that injecting that money straight into the economy would lead to inflation, as the buying power of everyone would rise sharply.  And some argue it would act as a wage subsidy for employers, leading to a downward pressure on wages.

Although it could go the other way, too. With basic needs covered, workers may be more empowered to reject unappealing or low-paying jobs.

“I could see maybe after we have waited another year or two to see what has happened in Europe, that Australia may decide to at least trial a universal scheme because of the perception that, for example, our existing targeted welfare schemes are not effectively meeting the needs of struggling Australians,” Professor Foster says.

While Professor Foster says she believes the drive for success would keep most motivated people to continue working, alarmist suggestions that machines would totally gut the workforce were naïve.

“It undersells the potential of humans and is also blind to roles that people can play that cannot be outsourced and have a lot of growth opportunity,” she says.

Already the labour market is shifting in Australia, with manufacturing jobs increasingly moving overseas and service work becoming more prominent.

And it has never been true that increasing efficiency through technology has led to a reduced number of hours needed to work. The oft-cited example is John Maynard Keynes who, in 1930, predicted we would all be working a 15-hour week within the century to fulfil our basic needs.

Instead, what has happened is that a more efficient company keeps their workers doing more, instead of sending them home early.

US data on work productivity shows that workers produce five times the value per hour than they did in 1947. Despite this, the number of hours that individuals are expected to work remains the same.

Critics of a basic income question why the technological developments of today would necessarily create a world so different to that which we’ve experienced in the past seven decades.

“I think it is a bit of a specious argument,” Professor Foster says. “There are a lot of stories about artificial intelligence and how it is so scary, but I think it’s kind of overblown.”

To implement a successful a universal basic income, the devil will be in the details.

In a country such as Australia, with a relatively well-targeted welfare system, energy may be better spent tweaking our existing programs, Professor Foster says.

Issues of unemployment and poverty could be addressed with a slightly more innovative and more targeted assistance programs such as the jobs-guarantee scheme, she says.

“That is potentially a really good way to keep people who are at risk of being disengaged from society more connected, with both skills development and job opportunities and networks more generally.”

Labour networks and social networks are what keep people healthy and happy, give them the potential to generate an income stream and give them hope, Professor Foster says.

“I think that is the main problem with people in Australians who are struggling – they lose touch with society, they become isolated in various ways and it becomes difficult for them to re-enter a successful occupational trajectory that will actually be income generating.”

For every vision of people being empowered to start their own businesses and properly look after their community, there is the equally compelling suggestion that without the need to earn income, many will become even more isolated and disconnected from their communities.

Top image credit: Joshua Rappeneker

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