Monday, March 13, 2017

Why paying people for not having jobs is a bad idea

Jonathan Eyal
Europe Correspondent

Mar 13 2017

Support for a universal basic income is growing but the idea is as ill-conceived as communism

LONDON • Would you like to live in a country where the government pays you a salary from the moment you're born and continues to transfer into your bank account each month a sum of money sufficient to cover all your necessary expenses for the rest of your life, regardless of whether you work or not?

Some would no doubt view such an arrangement as the nearest thing to paradise, while others would recoil with horror, dismissing such a vision as a classic example of the welfare state gone mad. But the idea of providing everyone with a "universal basic income" (or UBI as it is now known) has already gone beyond utopia, and is now all the rage among politicians.

It is touted by Mr Benoit Hamon, the Socialist candidate in France's presidential elections. It is also a central plank in the electoral campaign of Mr Lee Jae Myung, one of South Korea's three leading presidential candidates.

Furthermore, the concept is currently being trialled in Finland, with the local authorities and national governments in a variety of other developed nations also giving it serious consideration. And it enjoys a distinguished intellectual pedigree; UBI was first proposed by English-American radical political philosopher Thomas Paine as far back as the 18th century.

Still, UBI remains an ill-conceived and potentially deeply harmful proposal, as are other ideas trying to prevent change in the global economy; the real task for today's Western politicians is to guide economic change rather than prevent it. And that remains perfectly feasible, without hare-brained schemes.


As often happens with new and attractive political ideas, the case for the provision of a UBI appears superficially persuasive. Current welfare programmes are not working as intended; instead of diminishing, wealth disparities are widening.

Lower rates of economic growth have also made the politics of welfare much uglier than before. Welfare benefits are increasingly rationed and claimants are frequently penalised if they don't meet increasingly rigid criteria, thereby fostering both a culture of dependency and resentment at the same time.

Current welfare systems also find it difficult to avoid perverse negative incentives: A single mother with young children is, in almost all Western nations, better off staying at home and claiming unemployment benefits than going to work.

A scheme which provides a UBI, its advocates argue, will sweep away all this cobweb of welfare regulations, with their unresponsive bureaucracies, and replace it all with a single national scheme which will provide an equal opportunity for all, a national guarantee that no citizen would fall below a certain poverty line. And because it will come instead rather than on top of current welfare programmes, it does not need to be very expensive.

But above all, UBI could provide an answer to one of the biggest challenges about to hit developed societies: the rise of robots and automation, which will render many of today's jobs irrelevant, hitting particularly hard skilled workers and professionals.

[IOW, the solution to irrelevant skills is not finding relevant skills, but to just give up and accept that humanity is largely irrelevant?]

A hugely influential study compiled a few years back by Dr Carl Frey and Professor Michael Osborne of the Oxford Martin School, a social policy unit of the university, has argued that almost half of all the current jobs in the US are at risk of being automated "relatively soon, perhaps over the next decade or two".

Advocates of UBI argue that only by paying people money for doing nothing would Western societies be able to avoid the massive political upheavals which are otherwise an inevitable outcome of such job losses as a result of automation. And they also claim that, far from encouraging people to remain idle, the security of a regular income will mean that people made redundant by robots would be able to spend more time reinventing their lives. Believers in UBI also frequently point to opinion polls indicating that their scheme is widely popular with the public.

[This is an extension of the social security argument - that welfare programmes allow the disadvantaged time to recover and bounce back, instead of spiralling down into oblivion. This is all very Star Trekky.]

All potentially very persuasive arguments but, still, all fundamentally wrong.

To start with, claims that UBI schemes are popular with voters should be dismissed as either irrelevant, or downright dishonest. Voters in every country invariably support proposals to increase government spending, as long as they are not confronted with the price for these schemes, a matter which almost all pollsters currently testing reactions to UBI studiously ignore.

What we do know, however, is that when the voters of Switzerland were faced last year with a referendum which set out the costs of adopting UBI for their country, almost 80 per cent of them rejected the idea outright.

Perhaps the Swiss are a masochistic lot, or just don't know what's good for them. But it's more likely that they were simply frightened by the costs involved, for all the indications are that the resources required to implement a UBI scheme are far higher than its proponents claim.

A study completed two years ago by Britain's Royal Society of Arts concluded that even if most of existing welfare payments are abolished, the United Kingdom's basic income tax rate would have to rise by around 15 per cent in order to pay for the distribution of just £4,000 (S$6,900) a year to every British citizen, a sum which in itself is insufficient to live on.

Besides, it's a myth that, with the introduction of UBI, demand for other welfare payments will disappear.

The handicapped and the elderly will always need more resources, so the result could well be that UBI simply becomes another welfare payment scheme along others, with the poverty gap remaining as big as ever.


And there is no scientific evidence that a payment scheme which allows people to get money for nothing will spur innovation; all the existing experience with unemployment schemes suggests precisely the opposite.

What UBI is guaranteed to achieve, however, is a huge increase in the powers of a state over its people; politicians will literally dominate all economic activities, and each electoral campaign will become a tussle between parties, each promising to increase basic income payments and little else because, in electoral terms, few will be interested in wealth creation, but everyone will be interested in wealth distribution.

UBI will also disconnect people from any personal responsibility for their deeds: Why not produce as many children as possible with as many partners as one can meet, if the state takes over their livelihood from the moment they are born? And why bother to invest anything in their education if they are guaranteed a livelihood?

[Here's an argument for increasing the TFR of Singapore.]

In short, UBI amounts to advocating the wholesale nationalisation of a country's economy; it is not different in its potential outcome to efforts to introduce communism, schemes which were tried in many countries and every continent during the past century, and failed in every single case.

Still, the fundamental idea that the state should exercise its powers to slow down the introduction of new technologies which generate economic change continues to gain new adherents. The latest is a proposal by Bill Gates, co-founder of Microsoft and the world's richest man, who has suggested that robots should be taxed in order to retrain the people whose jobs they displace.

Yet again, this is an idea which sounds good, but does not survive the slightest scrutiny.

There is something deeply ironic in the fact that the man who derived his fortunes from PCs which have made redundant previous generations of typists now decries precisely the same practice.

Mr Gates' ability to predict technological change is also far from perfect; he once famously proclaimed that the Internet was "just a passing fad".  

But even if one assumes that his fears are correct and that many jobs are about to be lost to automation, why single out robots as the culprits which need to be taxed when there are many other emerging labour-saving technologies which also destroy jobs?

Taxation clearly plays and will continue to play a key role in regulating national economies. Yet its most important purpose is not to pick technological winners and losers; governments everywhere are notorious for failing this test. Nor should governments slow down innovation or change; instead, they should encourage both and simply aim to tax the extra output and wealth which such changes produce in order to alleviate the plight of redundant workers.

For, to paraphrase Winston Churchill, Britain's war-time leader, capitalism may well be the worst form of government, except for all other forms that have been tried from time to time.

[I am one of those enamoured with this idea of Universal Basic Income, or at least some variations thereof. If not universal, then perhaps targeted at the lower (or lowest) income, or no income individuals. 

The problem is as stated above - how do we decide who should get "money for nothing" if it is not universal? Should it be for "nothing" or should it be for "something", and if it is for "something" what is that something? How much should the payments be - a fixed sum, or a scale, what should this scale be, and for how long - as long as they qualify/meet the criteria, or will there be a lifetime cap? 

Should it be framed as "Unemployment Insurance", given the increasing risk of job loss and job redundancy? Or "Retrenchment" or "Redundancy" insurance? If it is insurance, who pays for the premium, and who is in the risk pool? Will there be an individual mandate?

I do share the concerns of Mr Eyal, but at the same time, these are the usual philosophical or ideological rebuttals for welfare schemes in Singapore. Not to say that they are wrong, sometimes old is tried and true. But maybe these are sacred cows that we need to consider if they still serve the purpose in this changing world.]

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