Saturday, July 12, 2014

154. A basic income

For democracy and capitalism to survive, in addition to a change of perspective on equality and solidarity, discussed in the preceding items in this blog, a corresponding system change of the economy is needed, in the distribution of work, income and wealth. For that I recommend the introduction of a basic income (BI).[1]

A BI is a free, unconditional, fixed subsistence income for everyone above a certain age. I propose something like this: 1000 euros per month in a developed country such as the Netherlands. On additional income there is a tax, at a flat rate of 20 to 30 %, except for very high levels of profit income for which a rate would apply of 50 to 60%. I claim that the step to a BI is inevitable, sooner or later. Here are my arguments.

Work has been shrinking for a long time, as a result of increasing productivity (reduced cost per unit of production), mostly due to technology and innovation. First in agriculture and then in industry. Until recently it was thought that employment would be maintained in services, where productivity growth was supposed to be small.

However, innovation, especially in information and communication technology, such as the internet, have increased productivity and reduced employment in a whole range of services, especially those involved in the processing of information, such as administration and communication, e.g. in banking, insurance, booking, publishing, media, parts of entertainment, surveillance, security, retailing and physical distribution, etc.

This has produced a polarization of work and income, between highly paid professional and managerial jobs and low-paid, unskilled work, such as cleaning, serving (cafes and restaurants), call centres, harvesting, parts of construction, and parts of care. Especially the middle classes have suffered from this, which contributes to widespread discontent.

A next wave is that of robots, replacing labour in harvesting, driving (automated cars, trucks and airplanes), cleaning, forms of care and nursing, which will eliminate much of the work indicated above.

We should be happy about this reduction of dirty, exhausting, dangerous and boring work. We are in fact unhappy because it threatens employment and income. How much work will be left, how much employment, and what source of income? The BI offers a solution.

Forms of work that will remain are: all forms of culture, entertainment, teaching, forms of care that entail human interaction, social activities (community work, help of elderly and handicapped), day care for children, etc. Ironically, those activities of the future are the ones that are currently curtailed to reduce government spending.

How would a basic income help? One major benefit of it is that it eliminates the ‘poverty trap’. Currently, receivers of social benefits (for unemployment, rent, health insurance,…) lose their benefits when they enter employment. It is as if on wage income they pay 100% tax. This keeps them locked into poverty. With a BI they would pay tax on additional income, but only 20-30%.

This gives an incentive to perform the social and cultural services that remain to be done, and do it at a low wage, on top of basic income, which makes those services more affordable. There would no longer need to be a minimum wage.

In addition to that, there would be an incentive for enterprising people to voluntarily leave traditional jobs to become self-employed, since they can fall back on the minimum of the BI when the enterprise fails. Also, the BI would sustain them through the difficult period of developing and introducing innovations, under an uncertainty that discourages suppliers of capital.

I suggest that an impulse of enterprising self-employment is good for the economy, society and culture. Also, it makes room for people who have no aptitude or drive for self-employment, want jobs but can’t get them.

From what would a basic income be paid? A number of existing social benefits could be abolished. It would be financed from tax on wage incomes above the BI, and on a high tax on profit income from capital. An immediate objection would be that this would drive investment abroad, thus eliminating that tax base. But wait. The robots to be used are location bound, in harvesting, cleaning, transportation, care, etc. To earn profit from them one would have to pay the local taxes on them. Robots do not earn an income for work but pay for it. They are the slaves of the future.

Finally an ideological argument. Entrepreneurs and firms claim that they are the ones who add value and deserve the reward for it. But what they add value to is the fruit of many generations of genius, sweat, blood and tears. Why should they have an exclusive claim on its fruits? The BI is to be seen as the fruit (called ‘social dividend’ in the literature) of that common heritage, with equal rights to all.

The advent of robots makes the time ripe for a BI. 

[1] In several publications, I argued for a BI in the 1980’s. It was not politically viable at the time. And I am afraid it still isn’t, but I think the time is becoming ripe for it.