Universal Basic Income: A Necessity for the Future Economy?

In January 2017, Finland embarked on an experiment that sought to transform the economic landscape. The Scandinavian nation randomly selected 2000 people, giving each €800 a month to spend in any way they wish. Universal Basic Income is a radical idea that has been discussed in political circles since American Revolutionary Thomas Paine first conceived the idea in the 18th century, yet few have taken taken the plunge into the depths of welfare economics to put this idea into action. Many have dismissed this as economic fantasy, unaffordable and negatively effecting work ethic, claiming that free money is too costly to justify. Yet as the era of artificial intelligence dawns, this innovative model may be the only solution to prevent a slide into mass inequality and poverty.

Support for this policy has garnered support from across the political spectrum, as well as in the heartlands of Silicon Valley. With trials from Ontario to the Netherlands, governments around the world are now beginning to take this model from philosophical circles into reality. As the dawn of the technological age draws nearer, an adaptation of the modern capitalist system will be necessary to provide sufficient support to the waves of people who are set to lose out. In past Industrial Revolutions, the cries of the workers who lost to technological progress were drowned out by the prosperity that followed, with enormous net benefits for consumption and productivity. Whilst the English working class were subjected to terrible living conditions and stagnant real wages until the 1840s, as Engels showed, substantial increases in average real wage and life expectancy in the 1800s proved that the people benefited from economic progress. With the rise of ‘Fordism’ – the US creation of the factory assembling line – technology was more often a complement to labour than a replacement.

Yet this time, things are different. Creative destruction is destroying more than it is creating, dislocating labour markets without increasing the anemic productivity rate. The self-service kiosks at McDonald’s may be welcomed by the average fast-food junkie, yet this kind of technological progress is estimated to eradicate 15mn jobs in the next two decades, according to the Bank of England. This profound transformation shaking up the labour market will drastically diminish the supply of full time jobs, rendering the labour of our species increasingly obsolete.

There is reason to fear. Gordon Moore, the cofounder of Intel, coined his famous Moore’s Law in 1965 that has come to define the pace of technological change that confronts us. Just as the number of transistors in an integrated circuit doubles every 2 years, so does the acceleration of technological change. The AI Revolution has begun; and in our consumerist world where corporations seek any new innovation to maximise profits, the unskilled workers will be the ones left behind. As the managers and the computer scientists fly ahead, the low-skilled workers will fall to new depths. Inequality is already rampant across the world, with the top 1% in Britain holding 24% of the nation’s wealth. As economic insecurity threatens millions due to labour market dislocation, a radical new welfare system is needed to prevent a slide into greater inequality. And UBI could be the answer.

UBI would not merely just compensate; it also holds the power to fundamentally transform the future social hierarchy. Mark Zuckerberg devotes his success to the high-income family he was born into, allowing him to expand the proportion of his time assigned to leisure, where he learned to code, rather than for work to earn an income. The greatest successes come from having the freedom to fail; yet for households in poverty, they often cannot afford failure. With income barely paying for the necessities they need to survive, gambling their money on a new entrepreneurial venture is rationally deemed a risk that one cannot afford to take. In this world, the barrier to what one can and can’t do lies in the numbers on a bank statement. UBI trials in low income regions of Namibia and India are evidence of this; the rate of business creation increased in both following the introduction. UBI is effectively government investment in the creativity of its people, a venture capital for the poor. The growing social pressures from inequality may provide the light to spark the political scene into action, so that everyone can have the opportunities that Zuckerberg could afford.

This follows on to the core human principle that defines the nature of the economy; incentives. By breaking the bond between welfare payments and labour market effort, UBI encourages the part-time and low-income to free ride on the work of others. Yet Juha Jarvinen, a member of the Finnish experiment, was not actively seeking work when previously unemployed since taking a small part-time job would jeopardize his unemployment benefits. In means-tested systems, claimants are discouraged from working due to the removal of their current welfare payments. UBI has been attacked by critics for disincentivizing work since labourers can now afford to substitute greater work time with leisure. Yet Mr Jarvinen is evidence that a decoupling of welfare from employment status can increase the total number of people in the part-time gig economy – an area of increasing significance as technology begins to replace large-scale labour.

Yet the desirability of UBI is not only dependent on its economic outcomes. It must also have a philosophical foundation. Critics from across the political spectrum are all in unison on one basic principle; welfare should be proportional to need. Milton Friedman hailed the single welfare payment for ending the excessive bureaucracy surrounding social security, yet it would also reduce economic efficiency by giving free money to those who inherently do not need it. The wealthiest will only invest or save, which via inheritance will serve to trap this wealth in the upper echelons of society – although financing UBI by taxing high incomes would solve this problem. With even traditionally high-paid jobs such as banking at risk of computerisation, the future income distribution remains uncertain; justifying a universal payment to compensate in advance for the gradual crumbling of industries to automation. But the time is yet to come. Universal payments at present would be inefficient and counteract the intended goal of reducing inequality, if financed – as expected – by a mixture of income and sales taxes.

Whilst the results of the Finnish experiment will not be released until 2019, some conclusive outcomes are evident. Sini Martinnen, one of the original 2000, says that her €800 has opened up a world of new opportunities – she is able to substitute greater working time with leisure, using it to volunteer and visit her father with Alzheimers. Our lives are often so geared towards paying the bills that our core skills – compassion, creativity and innovation – are rarely used to their full extent. The cushion of universal income can permit a temporary exit from the labour market to enhance education or training, acquiring skills to adapt to the gig economy.

As conflict rages amongst academics over the pace of automation, the transformation to the gig economy has begun. By allowing people to balance their labour and leisure more flexibly and encouraging investment in human capital, UBI does have the qualities to be the foundation of a new welfare state. How it is designed and funded will be the keystone to it’s distributional consequences in an attempt to reverse the incoming tide of inequality. Early successes in Namibia and Indian provinces have proven that for low-income countries, a supplement can unleash productive potential from entrepreneurial skill. This radical new inception seems the best model of welfare state for the new digital economy. And soon, it may become inevitable.

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Craig Stock

Second Year Economics Undergraduate at Warwick University.

Craig Stock has 15 posts and counting. See all posts by Craig Stock

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