Opinion: The promises and perils of basic income

Job seekers queue up for an employment fair in midtown New York
Basic income is proposed as an answer to fears that automation will bring an “end to work” to middle-class people like these job seekers at a New York employment fair (source: dpa)

In June 2016, Swiss voters massively rejected a proposed “unconditional basic income” of 2,500 Swiss francs per month. Intellectuals and politicians in various countries seem quite attracted to the idea. In the United Kingdom, the Labour Party just set up a working group to study the feasibility of the concept. In France, the socialist candidate in the presidential elections, Benoit Hamon, suggested a “universal income” that could reach 750 euros.

The idea is by no means exclusive to the left. It has also emerged in India, where Prime Minister Narendra Modi’s right-nationalist government issued a report on how basic income could help combat extreme poverty. Even a liberal think tank in France, Generation Libre, champions the idea, whose inception can be traced to the works of free-market economist Milton Friedman. Given the concept’s current resurgence, a “cost-benefit” analysis is probably in order.

Noble goals

Belgian philosopher Philippe Van Parijs is certainly one of the main influences behind the concept of basic income, which he defines as “an income paid by a political community to all its members on an individual basis, without [a] means test or work requirement.” The measure’s first aim, of course, is to eliminate extreme poverty. It stems from a conviction that the classical liberal concept of “negative freedom,” or the absence of coercion, cannot ensure real freedom, which requires lifting the tyranny of basic needs. The idea is that by giving people a decent basic income, they achieve a measure of individual autonomy and personal dignity.

A second potential positive effect of basic income is to simplify welfare systems. In many countries, governments have piled up various types of welfare benefits for decades, producing a complex maze of means-tested aid. Many of these rules are opaque, create poverty traps and require armies of civil servants to manage. Some critics of modern welfare systems see basic income as an opportunity to replace these various benefits at one go, while downsizing the bureaucracy and giving individuals the opportunity to be “free to choose.” To some extent, this idea is libertarian in origin. Economist Milton Friedman (who wrote a book called Free to Choose) proposed a negative income tax that appears to closely correspond with basic income.

Arguments about the "end of work” look suspiciously like the old Malthusian vision


A third argument for basic income is its timeliness. As we enter a digital age in which computers and robots replace human jobs at a rapid pace, some argue that we are approaching what Jeremy Rifkin calls “the end of work.” Drawing incomes from human work will become increasingly difficult for individuals. A basic income distributed by governments could help overcome the supposed scarcity of jobs and could even be paid for by a tax on robots – as advocated by billionaire Bill Gates and Benoit Hamon, the presidential candidate of France’s Socialists. In this sense, it really seems to be an idea for our time.

Serious caveats

While the goals of basic income are noble, many experts have doubts. The third argument, about the “end of work,” looks suspiciously like the old Malthusian vision and the Luddite “fear of the machine” that have been floating around for at least two centuries. As Austrian economist Joseph Schumpeter famously described it, the capitalist process is innately one of “creative destruction,” as innovations destroy old jobs and create new ones. Evolutions in the structure of employment, with drastic changes in the relative shares of sectors, have accompanied innovations since the industrial revolution. If lack of jobs is the issue, more could be created by a rational liberalization of over-regulated labor markets and business environments.

French socialist candidate for president Benoit Hamon
Benoit Hamon, the Socialist candidate for France’s presidency, has proposed a “universal income” for all citizens that could reach as much as 750 euros a month by 2022 (source: dpa)

That such a basic income could replace all other welfare benefits and thus help downsize the welfare bureaucracy is certainly appealing to many reformers –including Milton Friedman, who saw this reason as topping the list in favor of his negative income tax. Yet, the history of bureaucracy offers few examples of successfully shrinking the system. Chances are high that basic income would simply become another in a long list of welfare benefits.

Milton Friedman’s idea was to have a negative tax rate that would begin to apply under a certain income threshold, mirroring the “positive” tax rate. Poor individuals would receive a specified percentage (the tax rate) of the difference between his or her actual income and the income threshold (for example 50 percent of $2,000, which is the difference between $8,000, the actual income, and $10,000, the income threshold). Friedman’s proposal could work like what is being discussed today as a basic income, but its core philosophy is not the same. The assistance provided is variable and temporary. Its goal is a return to remunerated work, not a “right to laziness.”

Indeed, the notion that more autonomy can be had by more dependency is puzzling from the moral point of view. The idea that civil society should not be seriously involved in the fight against poverty is also disturbing – as it was to Friedman himself.

The version proposed by the French Socialists could cost a staggering 400 billion euros per year


The fiscal consequences of basic income also need to be seriously examined. The version proposed by the French socialists, for example, would generate estimated costs of a staggering 400 billion euros per year – about one third of France’s current public spending. The effect on incentives must also be considered, especially if the right to a basic income is universal. To take the most obvious example: would this not stimulate immigration and block integration of new arrivals through the labor market, further unraveling the fabric of civil society?

The biggest issue mentioned by detractors of the measure is that basic income would increase the potential for moral hazard. For example, it would be very easy for recipients to take money from the government while working off the books (an issue that exists today, but could become much worse). Besides the disturbing moral aspect, the economic cost of such behavior for the community in terms of lost taxes and contributions, along with correspondingly heavier taxation of the legally employed, would be considerable.

Converging trends

The ways governments might seek to counter such abuses are also disturbing. One could be tighter administrative control of individuals – an especially paradoxical consequence of a measure supposed to create more autonomy.

Another possibility would be to ban cash as a way of making sure that all transactions are visible in bank accounts. This trend has recently picked up speed with the withdrawal of 500- and 1,000-rupee banknotes in India, the impending retirement of the 500-euro bill in Europe, or the ban on cash payments above a certain amount in several European Union countries (the threshold is as low as 1,000 euros in France and Portugal). A cashless society would be a technocrat’s dream, since all transactions could be tracked. Unfortunately, the other side of the coin is an immense potential threat to personal freedom.

One obvious effect of a basic income would be to make governments less accountable


These trends toward less and less “personal space” for individuals and citizens are converging with another – diminishing democratic control of governments and bureaucracies, despite the pretense of electoral systems. One example of the mystification involved is the so-called “tax illusion.” Even as the role of direct taxation declines, public debt grows larger, more indirect taxes are levied and a greater share of income tax is withheld. Direct taxes have the merit of inflicting “pain” on citizens, which keeps them aware of the cost of government and allows them to demand accountability.

Conversely, painless, diluted taxation can lull citizens to sleep, generating the illusion that services are being paid for by other people’s money. In this context, one obvious effect of a basic income would be to make governments less accountable – since people dependent on public funds for their income will not want to bite the hand that feeds them. Under such a system of government patronage from cradle to grave, it is difficult not to see the potential for an end to genuine democracy.

Behind the rosy picture painted by its intellectual proponents, basic or universal income could become an instrument for promoting clientelism. As such, it would further strengthen anti-democratic trends that are advancing – and not only in Europe. Basic income thus raises ethical and political issues that deserve serious discussion.

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