The Basic Income Debate: how much does it cost to enter Utopia?

My grandfather had a job in the freezing works for most of his adult life. He would usually work a standard forty hour week, occasionally working overtime at a higher rate of pay. One of his favourite stories concerned his co-worker, Steve, who in my grandfather’s words was ‘a bit odd’. Nobody knew exactly what Steve’s position was on the floor. He was a hard worker and was always willing to provide a helping hand. The other workers would guide Steve towards appropriate tasks that he was capable of, and watch out for him in case of any possible dangers. The bosses knew all about Steve but didn’t seem too bothered. He collected his wages at the end of each week just like the other men. Steve was one of the vast majority of male adults who had a job in New Zealand during the post war boom period of the 1950s and 1960s. Unemployment levels were tiny,  fluctuating around 1 – 2%, and most jobs were solid forty hour week positions with a strong union presence.

The point of this anecdote was to contrast Steve with the position of similarly vulnerable people in the much harsher world of the 1980s. Moving ahead another 30 or so years, it is hardly a difficult task to broaden the scope and relevance of such an anecdote. Unemployment levels have increased dramatically and have apparently stabilised somewhere around 5%. The prominent radical economist Yanis Varoufakis predicts that this level will drastically increase in the near future . Because of the incredible power of modern computer technology and the prospects of artificial intelligence, Schumpeter’s famous notion of ‘creative destruction’ will soon become outdated. Whereas technological change in the past both destroyed old jobs and created new ones in roughly equal measure, today we are looking at a future in which the number of jobs destroyed by new technology vastly exceeds the number of new jobs created. Varoufakis’ prediction is backed up by a recent academic study which states that because of computerisation, 47% per cent of US jobs are at risk.

Alongside these ‘rise of the machines’ dystopian projections is the increasingly bleak nature of the jobs that remain to be fought over. Guy Standing has coined a new phrase, the ‘precariat’, to describe the apparent growth of precarious employment. Positions similar to the one held by my grandfather in the freezing works have become increasingly uncommon, and a variety of piecemeal options are the new normal. Jobs are subcontracted out for short term periods, casualised and made more flexible. Unions and the certainties and securities they fought for and often won are increasingly marginalised, and jobs become more insecure.

Both of these bleak forecasts are of course subject to a number of caveats. Science fictional premises such as the idea that artificial intelligence will develop to a point at which robots will pass a ‘Turing Test’ are contentious. Guy Standing’s book has triggered a number of critical and  insightful responses which question the extent of precarious labour and the politics of distinguishing between an old fashioned working class and a 21^st century ‘precariat’. For the purposes of this essay I will put these complexities and doubts to one side, and draw attention instead to two certainties.

The first certainty is the fact that inequality has drastically increased because of changes to the shape of the labour market. At one extreme there is a growth in highly specialised, high income jobs. Outweighing this massively, there has been a growth in low wage jobs. Entry into the sphere of highly skilled and highly rewarded work is more restricted because of technological changes:

 “At the same time, with falling prices of computing, problem-solving skills are becoming relatively productive, explaining the substantial employment growth in occupations involving cognitive tasks where skilled labour has a comparative advantage, as well as the persistent increase in returns to education (Katz and Murphy, 1992; Acemoglu, 2002; Autor and Dorn, 2013). The title “Lousy and Lovely Jobs”, of recent work by Goos and Manning (2007), thus captures the essence of the current trend towards labour market polarization, with growing employment in high-income cognitive jobs and low-income manual occupations, accompanied by a hollowing-out of middle-income routine jobs.” From Frey and Osborne (2013),ibid., emphasis added.

 At the other end of the spectrum wages are so low as to be insufficient. Poverty hits a much bigger proportion of “first world” society than it used to. The unemployed, the under-employed, the precariously employed and those on low incomes generally are becoming more numerous.

The second certainty is that this large pool of poor and insecure people is much more diverse than it was in the past. Vulnerable people like Steve, ethnic minorities and those with low levels of education are joined by white males with university degrees. Taxi drivers have doctorates and supermarket workers are scientists waiting for a lucky break.

For most of these people, wages are hard to come by and frequently need to be supplemented by a variety of different types of state assistance. Even jobs which pay a ‘living wage’ are often insufficient for basic needs. A solo parent working a 40 hour week paying the current New Zealand living wage living wage ($19.80 per hour) would take home $672 each week after tax. If we make the very conservative assumption that she lives somewhere in Auckland and has to pay $500 per week in rent, she would also receive a total of $366 per week from the government (an accommodation supplement plus tax credits). That’s 35% of her income provided by the state and just 65% provided by her wages.

It is in this context of stagnant wages and technological upheaval that the proposal for a universal basic income (UBI) has gained momentum across the globe. The details of UBI schemes and ideas differ from country to country, but they all share the same simple and elegant concept of an unconditional regular payment to every citizen. Everybody would get exactly the same amount of money, rich and poor alike. There would be no readiness to work criteria, and hence no need of an expensive and humiliating bureaucracy to administer the payments. The payment would be modest but enough to survive on. In an era of inequality and work insecurity, the UBI would provide a solid floor of guaranteed income to everybody.

In stark contrast to the increasingly dystopian reality of 21^st century global capitalism, UBI proponents frequently invoke utopian aspirations in their arguments. The Belgian academic Phillipe Van Parijs is an eloquent example. He grounds his philosophical arguments upon the principle of  real freedom’. Whereas the traditional liberal concept of freedom is defined formally in terms of the absence of constraints, ‘real freedom’ requires a solid material basis. An unemployed person who is offered a low paying job with awful conditions is formally free to reject such an offer, but with bills to pay and a harshly judgemental welfare bureaucracy observing her choices, such freedom has little substance. A UBI would provide the real freedom she needs, the freedom to say ‘no’ to job options she would prefer not to pursue.

There are several other worthy arguments for the UBI proposal. The vast and important sphere of domestic labour is like the hidden part of an iceberg. Formally recognised paid labour forms the visible part of the iceberg. Basking in the sun of economic legitimacy, people do all sorts of important jobs which pay proper public dollars. Submerged beneath the ocean in unrecognised darkness, children are looked after, clothes are washed and meals are prepared. Most of this labour is performed by women, and almost none of it is recognised and paid for. A universal basic income would provide a modest level of payment to people who do this sort of work, and hopefully set the stage for a more radical system of recognition.

A green argument goes something like this: contemporary capitalism requires endless economic growth. This growth is the result of ‘work fetishism’, a system in which people are compelled to work long hours producing more and more goods and services. Because we have a fossil fuel based economy, all of this frantic activity puts a strain on our environment. A universal basic income would work like a pressure release valve, allowing people the freedom to work less and therefore relieve some of the impact of our carbon-heavy labour footprint.

Another argument questions the value and centrality of the work that is currently recognised by monetary reward. David Graeber describes the modern reality of ‘bullshit jobs’ in which more and more people feel that their work contributes nothing to the greater good of humanity. Activities which do contribute to the greater good such as volunteer work, looking after children or writing songs are not recognised by our economic system as being valuable. Again, the UBI would free people up to spend less time on bullshit jobs and more time on genuine activities which realise different types of values.

These utopian arguments are a welcome antidote to the limitations of the current political climate. They employ the language of philosophy and ethics, and deny the abysmal economic ‘realism’ and narrow mindedness of mainstream political commentary. Against a background of pessimism and corrosive cynicism, they embrace genuinely progressive aspirations for a better world. Yet they all rely upon the assumption that the UBI is set at an adequate level to satisfy basic needs. There are many problems with this assumption, and to investigate what they are we must leave the lofty realm of philosophy and ethics and return back down to the mundane level of politics and money.

The recent Swiss UBI referendum did not formally specify any amount of money, yet many of the advocates openly discussed a figure of 2500 francs per month. Guy Standing, who is also a prominent UBI advocate, was quite critical of this: ‘The amount being discussed […] is quite high, and it is useful to have a referendum on whether the Swiss approve the policy in concept. Let the details be decided later, and let the unconditional basic income be implemented gradually, so people can see that society doesn’t collapse, as some wilder critics contend it would.’ There are two concerns here: first, if the UBI is set at a high level it will come with a correspondingly massive price tag and proponents will have a difficult job convincing voters of its economic feasibility. Secondly, if the UBI is too generous, then large numbers of people will not bother working at all, and the economy will collapse. Standing, like many other prominent UBI advocates, is in favour of very modest UBI schemes which take into account these concerns. As with any political movement, there are both moderate and radical versions of the proposed reforms. Godfrey Moase's Australian UBI proposal involved a sum of $30,000 per year, clearly at the radical end of the UBI spectrum. Here in New Zealand  Keith Rankin has proposed a UBI of $9,080, Gareth Morgan offers $11,000 and Sue Bradford has suggested $15,000 per year with additional amounts for parents and over 65s. Although without doubt it is the larger sums that are necessary if we want to do justice to the utopian aspirations sketched above, it must also be clear that in today’s political climate the more conservative UBI proposals will much more easily gain legitimacy.

Michael Fletcher, in his recent article on Gareth Morgan’s book The Big Kahuna, disputes the claim that a UBI system will abolish the need for targeted state welfare assistance. He likens the variety of income needs for various types of households to a skyline of city buildings of various heights. Some people are single and able bodied with relatively cheap basic needs, whereas families with only one adult and several dependent children have much more expensive needs. In order to completely abolish the current welfare system,  Fletcher argues that we would need to provide “everyone with a level of assistance that matches the height of the tallest buildings. A UBI set to the height of the tallest buildings would give too much to many, therefore be too expensive, and risk undermining work incentives.”

Phillipe Van Parijs, probably the most eloquent and intellectually formidable advocate of UBI, is very forthright on this issue. In a 2002  interview he insists that “Unemployment benefits must not and will not be replaced even by a generous universal basic income. They must keep operating with amounts adjusted, as job-seeking-conditioned, time-limited and earnings-related top-ups on people’s basic incomes.” Echoing Fletcher’s concerns about the variety of individual and household needs, he predicts that even in the long term “sensible levels of basic income will not enable us to dispense with means-tested top ups for people in specific circumstances.”

Whereas the more radical UBI schemes would clearly have a range of far reaching consequences for those currently living on benefits or scraping by on low incomes, the situation is far less transparent and straightforward for the more moderate versions. In order to evaluate such schemes we need to look very carefully and critically at the details of the UBI policies. Would beneficiaries receive adequate top-ups to their basic income? How would the basic income affect existing state transfers such as tax credits and accommodation supplements? What changes would be made to the income tax regime, and how would these affect those on low wages?

To illustrate these thorny and complex issues, consider the example I made use of above: a sole parent with two children living in Auckland working 40 hours per week at the current living wage rate of $19.80 per hour. Assuming she pays around $500 per week in  rent, the  current system would provide her with a net weekly income of $1038. This consists of her net wage ($672), plus $366 worth of state transfers (tax credits plus accommodation allowance). Suppose that Gareth Morgan’s Big Kahuna version of basic income were to be implemented by a new government. This would involve an $11,000 annual net basic income, which translates into just over $211 per week. Morgan’s UBI policy also involves a flat tax rate of 30%. To work out exactly what she would receive under this new system, we would need to know how the existing system of tax credits and accommodation supplements would be affected by the basic income. At the left extreme we might imagine a UBI policy which did not disturb existing transfers at all. Our solo parent would be better off in this case, receiving $1132 net income each week (about $90 more than the status quo). At the right extreme we might imagine a UBI policy which reduced her current state transfers by an amount exactly equal to the new basic income of $211. Instead of $366, she will now only receive $155. Her net weekly income (taking into account the higher flat tax rate of 30%) will be $920, meaning that she is now $118 worse off than she is under the status quo.

Now suppose that our hard working solo mother wants to change direction in life. She might want to further her studies, write poetry or leave her job in order to have more time and energy for her growing children. According to the utopian arguments I sketched above, a basic income would provide the means for her to exercise ‘real freedom’ and make such a choice without fear of dire material consequences. Again, the crucial consideration would have to do with the level of the ‘top-ups’ rather than the basic income payment of $211, an amount which would not even pay for half the weekly rent. Even if we assume that she can easily access additional top-ups which would bring her income up to the current status quo entitlements, her prospects look fairly grim. The current sole parent benefit plus tax credits and accommodation supplement totals just under $708 net per week. Let’s assume that she can access this under the new regime, and somehow figures out how to budget for three people on the $208 she has each week after rent is paid. If you find that assumption a bit hard to swallow, then try imagining her writing poetry at the same time. Of course, back in the real world thousands of Aucklanders have found a solution to similarly impossible budgeting scenarios: they live in their cars.

Gareth Morgan’s UBI scheme is certainly not the only version, and it is surely conceivable that an appropriately tweaked system of a modest basic income with targeted top-ups would be more progressive than the clumsy and unjust system we live under today. Yet there are clearly many reasons to be wary of the supposed benefits such schemes propose.

The elephant in the room is the problem of low wages. People such as my grandfather and Steve were able to accomplish modest tasks such as paying for food, clothing and shelter on the basis of their wages alone. In Marxist terminology this is a fundamental part of capitalistic ‘reproduction’: in order to keep the wheels of industry turning, workers must have their basic needs met so that they can continue to provide their labour. It is an obvious and yet fundamental observation, with an increasingly complex and obtuse relation to the neo-liberal structures of contemporary capitalism I sketched at the beginning of this essay.

In a book apparently aimed at a conservative American audience, Phillipe Van Parijs likens the UBI to a subsidy paid from the state. Instead of paying the subsidy to the employer, Van Parijs argues that it should be paid to the employee: “At the other extreme [from employer subsidies] we find the UBI, which can also be thought of as a subsidy, but one paid to the employee (or potential employee), thereby giving her the option of accepting a job with a lower hourly wage or with shorter hours than she otherwise could.” Much as we might like to endorse the values of the utopian arguments for UBI, we must acknowledge and critically engage with these other, potentially more sinister forms of reformist logic.