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Universal income

Statesman News Service |

A few years after I settled in the Netherlands, I was utterly surprised when a colleague told me that a rich country like the Netherlands should give a fixed amount of guilders as basic income to all people older than 18 years in order to meet his/her living cost. He thought it was useless to have income-testing, filling up lengthy application forms and have individual privacy violated just to keep some bureaucrats employed. Individuals would then be free to find whatever employment they like or get, and might prefer not to work at all if they so desired. This would decouple, according to him, employment from welfare.

This looked to me to be an attractive and less violent alternative to Marx&’s idea of a classless society at the most advanced stage of capitalism. Now almost 40 years after this conversation, the Dutch city of Utrecht is starting a pilot project from January 2017 to see whether it is better to maintain the present system where it is mandatory for people on the welfare benefit to apply for jobs, or just leave them alone after paying them the current welfare benefits.

The idea is to do a type of social policy experiment that is termed weten wat werkt, or, “know what works.” According to the website of the municipality of the city of Utrecht, this social policy experiment will be jointly conducted by the municipality and the University of Utrecht. A certain number of welfare recipients will be divided into five groups: 1) Group 1 will have the same rules as the current one, receiving Euro 960 per month and continuing to have mandatory requirement to apply for jobs or follow some skill development programme prescribed by the local government; 2) Group 2 will have no obligation to “re-integrate” into the job market, which means that they would not have any obligation to apply for jobs; 3) Group 3 also would have no “reintegration” obligation and would be paid an additional Euro 125 if they do some chores for the municipality; 4) Group 4 would be paid Euro 125 extra in advance, but must return the amount at the end of the month if they decide not to do any of the chores mandated by the municipality; 5) Group 5 would have no “reintegration” obligation, but may work and keep (part of) their salaries, subject to the approval of the central government. The idea is to find out, at the end of the experiment, which group feels most satisfied, and what effect the rules on different groups have on the health and debt profile of the participants therein.

The whole point, according to the Dutch historian Rutger Bregman, is that the Dutch welfare system is flawed as it tries to tie employment to wellbeing. The same is, of course, true in all countries in the West. In his recent book, Utopia for Realists, he argues that the idea of connecting welfare benefit to mandatory application for jobs or skill development programmes implicitly assumes that “Free money makes people lazy.” Other cities, like Groningen and Tilburg, are also planning to start similar experiments in the near future.

The experiment in the Netherlands is still at the local level. By contrast, Finland is starting a similar experiment on the national scale staring early next year. A group of about 10,000 Finns will be given a fixed living income of Euro 550 every month for two years with no obligation to “re-integrate” into the job market. The public is supporting this programme with 69 per cent in favour of the experiment. According to Olli Kangas, research director of the Finnish Social Insurance Institution (Kela) and leader of the programme, the government intends to find out whether this guaranteed income without any obligation diminishes work disincentive. This is because Finland has many other benefits, in addition to the minimum welfare benefits, like housing allowance and special benefits, which often act as disincentive to accept short-term or low-paid part-time work that are becoming increasingly common with globalisation.

Interestingly, labour unions of export oriented companies and business leaders in Finland are opposed to the experiment, while the current centre-right government of Finland is solidly behind it.

The Finnish experiment is rather a timid one, in contrast to the referendum held in Switzerland on June 4 of this year. The proposal was to pay all adults an unconditional monthly income, irrespective of whether they worked or not. This is the ideal form of universal basic income. Proponents of the referendum did not think about the implications very well and suggested a monthly income of SFr 2,500 for each adult and SFr 625 for each child. Child support benefit is, of course, nothing new and exists in all European countries. The amount of basic income proposed for adults was ridiculously high. The referendum was overwhelmingly voted down with 77 per cent against, and only 23 per cent for the proposal. But it has set a precedent and most people believe that some form of basic income will be introduced in all western countries at some point in the future.

The idea of universal basic income is very old, although I knew nothing before my Dutch colleague told me about it in the late Seventies of the last century. Thomas Paine pioneered the idea in his celebrated book, Agrarian Justice, published in 1795. He categorically stated that this payment for everyone, rich or poor, healthy or disabled, “is a right, and not charity that I am pleading for.”

Economists and philosophers of various persuasions have since added their support to the idea, from Frederic von Hayek and Milton Friedman on the political right to Bertrand Russell and John Kenneth Galbraith on the political left. But the reason that the idea got traction only recently has to do with the new economic realities. Globalisation destroyed blue-collar jobs in the West as they moved to China and other Asian countries. Now disruptive technologies are threatening to destroy most white-collar and services sector jobs in the West as well.

The online transportation network company Uber is investing heavily on driverless cars that would make taxi drivers redundant. It is a short step to developing driverless trucks, the effect of which is going to be catastrophic. Millions of well-paid truck drivers in the West would lose their jobs. “Internet of Things”, the latest motto of Silicon Valley, would have a disastrous consequence on traditional jobs. It is no wonder that Y-Coordinator, an influential incubator for start-ups in Silicon Valley, is also advocating universal basic income and undertaking an experiment for that purpose in the Oakland area in the neighbourhood of San Francisco. Some Silicon Valley gurus believe that in the future huge wealth would be created by only about 10 per cent of the available work force concentrated largely in some big cities, and the rest 90 per cent would have difficulty finding meaningful employment. A small part of the wealth created in Silicon Valley and some other hi-tech centres could be used to pay basic income to the rest. The motivation for this generosity is clear. The unemployed would need some source of income to buy the services provided by the technological innovations. Otherwise, the whole system of innovations would collapse. It is as simple as that. So far the fear is most pronounced in the developed countries. If we just follow their lead we might end up in a worse situation than them. Already the love of hi- tech gadgets by our consuming middle class in cities is creating an economy with high growth and low job creation. With a narrow tax base and no interest of our politicians to expand it by taxing rich businessmen in the informal sector and agricultural income of the rich farmers, it is futile to talk about basic income in India. Whether our wealth creators would like to favour basic income for OBCs, Dalits and Adivasis is also highly doubtful. That would make the division between India and Bharat a permanent one. We should be careful in developing our economic policies without being unduly overwhelmed by technological developments in the West and over-influenced by the economic mantras of the western institutions.

The writer is former dean and emeritus professor of applied mathematics,  University of Twente, The Netherlands.