The challenges of Universal Basic Income
There is little doubt amongst most of today’s political elite that the welfare state we see in some social democratic countries needs to be reinvigorated. One idea, in particular, has featured prominently in the media recently, and has been put forward as an answer to this problem: universal basic income (UBI). However, while UBI receives a marginal level of support, many economists, both from academia and industry, oppose the concept. I also do not believe that it would be an appropriate or successful solution to the issues which its supporters claim it challenges. I wish to suggest that the lessons of Russia’s Soviet past in particular indicate that it would be unwise to introduce UBI into any developed Western society.
The concept of UBI is not a new one. The idea of a guaranteed minimum income in the form of public assistance can be traced as far back as the 16th century in European thought. During the Enlightenment and beyond, UBI was reincarnated by Thomas Paine and others, and different versions of the idea have appeared sporadically throughout the 19th and 20th centuries.
Only now however, does the idea appear to be emerging from the radical fringes and into the political mainstream. In June, the concept was discussed in the FT, the Guardian, the Wall Street Journal and the Economist, among other respected news sources.
The FT’s report on UBI came ahead of a national referendum in Switzerland on the 5th June, where the country was preparing to vote on the introduction of a CHF 30,000 (£21,000) annual allowance for all citizens, regardless of their professional activities or existing wealth. Although it has now been rejected by the Swiss electorate, similar ideas have recently been trialed in Finland and the Netherlands, and have been suggested in the US, marking a significant departure from historical norms.
But what is driving this quest for change? Recent enthusiasm appears to have come about because middle income households are no longer seeing their incomes increase in line with reported GDP growth. This situation has arisen in part due to an increase in the use of technology in many industries which both makes human workers redundant, and radically alters the productivity calculus for any given worker. Some businessmen in the technology sector are thus backing the idea out of – as the FT suggests – a guilty feeling of respect for the economic transformations that their innovations have caused.
However, UBI is viewed negatively across most sectors, largely because its introduction would break the link between effort and economic reward. Dutch leftwing politicians interviewed by the Guardian insist that this will not be an issue, and are confident that providing a basic income will not leave people exposed to vice or lethargy. Tellingly, the parts of Switzerland with the least support for UBI are German-speaking areas with a strong work ethic and belief in reward for effort.
This leads us to a point which few commentators have yet made, namely the connection between the idea of UBI and the former-Soviet economic policies of full employment and the universal provision of the basic needs for everyday existence. In the Soviet Union, these were theoretically implemented in line with the old Marxist slogan ‘from each according to his ability, to each according to his needs’ (От каждого по способностям, каждому по потребностям).
Yet whilst it is true that the supply flows on the government side were highly flawed, the main impact of the planned economy was to demoralise the workforce. As captured in the old Soviet joke ‘they pretend to pay us, and we pretend to work!’ (Они делают вид, что платят, мы делаем вид, что работаем), motivation was famously low and slacking on the job was commonplace, with many people looking to other means to secure their needs, and to supplement their lifestyles.
In the early days, the Soviet system was more productive, but as observed in an influential 1978 article by US economist Abram Bergson, by 1960 gross material product per Soviet worker was just 31% of that in the USA and things did not improve much in the ensuing years. Decades of Soviet experience thus show that without incentivising work by offering proportionate rewards for effort, governments will eventually undermine the work ethics of their populations.
While spectres of the Soviet idea continue to haunt Europe and any lasting effects that the idea will have on Finland, the Netherlands and Switzerland remain to be seen, I believe that we should tread extremely cautiously when approaching this kind of policy.
Image: On 4 October 2013, Swiss activists from “Generation Grundeinkommen” poured eight million 5-cent coins (one per inhabitant) onto the Bundesplatz, in celebration of forcing the Government to hold a referendum on basic income. In 2016, the referendum resulted in 76.9% of votes against the introduction of a basic income.