Guy Standing – Professorial Associate at SOAS University of London and co-founder of the Basic Income Earth Network – tells us why business should back basic income.
A growing number of distinguished entrepreneurs and CEOs have been coming out in favour of a basic income for all. The reasons are diverse, but the writer of this article, who has been advocating and testing basic income for longer than he cares to admit, is impressed, and has been invited to give talks in many places, including Davos for the World Economic Forum for three years in a row.
Ironically, the growing support in the business community has induced critics on the political left to attack the idea, on the spurious grounds that if leading business folk, like Mark Zuckerberg and Marc Benioff, CEO of Salesforce, back it there must be something wrong. Or that it is ‘a Trojan horse to dismantle the welfare state’, the common criticism from old-stye social democrats.
Of course, some in the business community remain suspicious or hostile to the idea. They believe it to be unaffordable or represent ‘something-for-nothing’ (quietly forgetting that this was what many of their friends received from birth). Or that it would lead to a reduction in labour supply (quietly forgetting that many businessmen keep working hard, even though they have enough money for several lifetimes).
These qualms should be respected. But as someone who has tested what happens if implemented, I believe those with open minds can have their concerns allayed. It is affordable without raising income tax rates. And evidence is strong that it results in more work, not less, and more productive work, not less.
The question now is whether it could be an instrument to help the economy, business and society to recover from the coronavirus pandemic. Before coming to that, let me explain what is meant by a basic income system.
The idea that everybody should have a right to subsistence goes back to the foundation of the British constitution, the Charter of the Forest, sealed alongside the Magna Carta in Westminster Cathedral on November 6, 1217. That principle is in our bloodstream. It is a matter of common justice, compensation for the illegitimate plunder of our commons.
Today, those who advocate basic income believe every usual resident adult should receive a modest monthly cash payment, sufficient to cover minimal needs for survival, as an individual right. It is a payment regardless of gender, age, work status or marital or household status, without conditions other than obedience to common law.
A smaller payment should be made to children and supplements should be given to those with disabilities or frailties determined by their extra costs of living and lower probability of income-earning capacity. The objective should be to give everybody an equal base on which to develop and respond to the vagaries and challenges of life. For pragmatic political reasons, migrants would have to be in the country legally for a year or more before becoming entitled. Help for them and for refugees should be covered by other schemes.
Note that I use the term ‘basic income system’, not the commonly used UBI, because there would have to be limits on who qualifies and additions for those with extra living costs, such as people with disabilities or frailties.
There are several ways by which a basic income could be funded without raising income tax. During the pandemic, it would be more equitable and efficient to convert the expensive, inefficient and regressive job-retention scheme into a basic income, which would remove the absurd must-not-work condition, which is subject to fraud, and enable the labour market to work better. The existing scheme defies economic sense and provides incentives to cut production; it may be partly responsible for the slump in output and lack of mobility from sectors of declining demand, to where labour is most needed.
Funding could also be found by converting the personal income tax allowance into an equal basic income for all. And funds could be raised by rolling back some of the 1,156 forms of tax relief, which according to the Treasury result in loss of revenue of over £400 billion a year. There is no evidence that they boost the economy.
In the longer term, a Commons Capital Fund should be built up, along the lines of sovereign wealth funds and the famous Norwegian Pension Fund, and be based on ecological levies, including a carbon tax. The Norwegian Fund, which invests in ecological sustainable businesses, has been incredibly successful. As a Commons Fund grew, the basic incomes could be paid as dividends. Such funds have been shown to aid a market economy very successfully.
There is one prejudice that should be refuted. There is no evidence that a modest basic income would reduce work. Numerous polls have shown that well over 90% of respondents say it would not lead them to reduce work. As summarised in a recent book, pilots in various countries, including Canada, Finland, India and Namibia, have shown that work increases. Even the World Bank concluded that there is no evidence that it reduces work. Normal people want to improve their lives and the lives of their families and communities.
There is also strong evidence that the existing welfare system disincentivises labour. If benefits are given only to the poor, there is automatically a poverty trap, since going from benefits to the low-wage jobs the unemployed are likely to be offered results in loss of benefits. According to the Department for Work and Pensions (DWP) itself, a typical unemployed person faces an 80% marginal tax rate, which might be slightly less with the expensive, inefficient Universal Credit.
This means an unemployed person faces a tax rate twice as high as a rich person. Not only is this unfair, it also acts as a barrier to taking low-wage jobs. And the situation is worsened by what I call a precarity trap, which any business person should be able to see is ridiculous. If a person loses a job, they must wait at least five weeks before becoming eligible for benefits, during which time the DWP requires them to do a lot of work. That is harsh. Most of us would resent it if we had to work for five weeks for free.
Anyhow, suppose, having started to receive benefits, the person is offered a temporary low-paying job. He would be irrational to take it, since he could anticipate being back after a couple of months, waiting another five weeks or more without an income.
If this punitive system were replaced by a basic income system, then anybody taking a job would start by paying the standard rate of income tax and not be penalised if a job lasted only a few weeks or months. This would encourage workers low on confidence to take a risk by taking on labour at which they might fear failing.
The economy has received a sharp demand shock. We need to boost demand, and a basic income system would do that in an optimal way. It would disproportionately benefit the precariat, so reducing inequality, one of the Eight Giants blocking the road to a good society. It would also help reduce the strength of several of the others, insecurity, debt and stress. All of those have been shown in experiments in various countries.
People who have a guaranteed base of resources are healthier and happier, and make for better workers and citizens. And there are useful side effects. The lockdown has highlighted a long-standing trend, linked to insecurity and stress, which is extensive domestic violence. Pilots have shown that once having an individual basic income, women in abusive relationships tend to leave them. That is freedom.
A consistent finding from all the pilots that have been conducted around the world is a reduction in stress and a consequential improvement in mental and physical health. And although the basic income is equal for men and women, women gain more proportionately because they have faced discrimination and tend to have lower earnings. It also, for the first time ever, gives women doing unpaid care work some income security.
Above all, at this critical moment, a basic income system would provide both individual and societal resilience, without which we will be unable to resist and recover from future social and economic shocks. The strength and resilience of all of us will depend on the resilience of the most vulnerable. Business will do better if the citizenry is secure. It takes courage to want for others what we want for ourselves and our loved ones. Now is the moment for that courage.
Guy Standing is Professorial Associate, SOAS University of London, co-founder of BIEN [Basic Income Earth Network], Fellow of the Academy of Social Sciences and the Royal Society of the Arts, and Councillor of the Progressive Economy Forum. The images to accompany this piece are stills taken from this video by Massive Attack x Young Fathers featuring Professor Guy Standing, part of Massive Attack’s Eutopia audiovisual EP.