Keynes and the Universal Basic Income

One of the most famous Keynes' predictions is that people could afford to work less hours   and have more spare time for leisure. His Essay 'Economic Possibilities for our grand-children" was written before the Great Depression and published in 1930. But his point seems to be misinterpreted bymainstream economists. His prediction was that, in the long term, say a hundred years, living standards in 'progressive countries' would be between four and eight times as high. The main arugment is that the society would be more productive with technological progress and resulting increased productivity. Hence  "mankind would  have resolved its economic problem".   

A book published  eight years ago by some of the world's leading economists explores the reasons Keynes was mistaken about a new era of leisure. One argument is Keynes' forgetfulness about distribution.  The trend in recent years, though, has been towards more income inequality, between and within groups. The gap between the top 1% of earners and the rest has widened, but so has the gap   among all other sub-groups of society. The rich  spend more as they get richer, which leads to others wanting to spend more as well. Not all of them can afford to maintain the spending habits of those better-off  , and as a result they borrow. The result, contrary to what Keynes may have imagined, has been a collapse in savings ratios in the US and Britain, and a rise in debt levels and bankruptcies. The other main argument is about working hours. There is no country that conforms to Keynes's ideal of a 15-hour working week. However, France has introduced the 35 hour week that right wing governments wanted to scrap and ask people to work longer. Recently, Sweden has voted for a six hour working day for all workers.  The question is why with sustained technological progress, people still work longhours,  in the US 30% more than in Europe.

Over the last 50 years, living standards in developed western economies have seen rapid growth; by 2030 it is likely that they will have risen at least eightfold if there is a strong recovery from the financial crisis.  But rising living standards have not seen people deciding to satisfy their material needs.  People with low wages have no choice but to work long hours. In his essay in 'Revisiting Keynes" , Richard Freeman notes that more Americans than Europeans say that they want to increase hours worked than to decrease at given wage rates, and that's probably a function of a lower minimum wage and stagnant real incomes for all but the highest earners. Furthermore, widening gap in earnings may create an incentive to work longer hours. 

Keynes's  failure might be  to recognise that distribution matters. The economic problem will not be solved while a quarter of the world lives in abject poverty, nor while a good slice of those living in developed countries are not sharing in economic prosperity or feel they need to spend longer and longer on the workplace.

Keynes' view might be ethnocentric but his argument referred to progressive societies such as France or Sweden. It had to be put in context, bearing in mind the accumulation of capital and the wide variety of goods that technological progress offers. What he had in mind is the ' good society' that Galbraith attempted to lay out twenty years ago.

 In our unequal societies,  a greater degree of income equality would indeed help to improve the welfare of low earners. The new frontier is the introduction of a universal basic income (UBI)whatever the form it takes. Y. Varoufakis made convincingly this point :  "A universal basic income allows for new understandings of liberty and equality that bridge hitherto irreconcilable political blocs, while stabilizing society and reinvigorating the notion of shared prosperity in the face of otherwise destabilizing technological innovation". His proposal is to fund UBI not with taxation but from returns on capital, i.e.. profits. This could be an important step up towards a more equal society.

A basic income for all

Despite moderate optimism on the economic outlook, there seems, however, to be a broad agreement that unemployment will continue to increase in 2010 and beyond. Apart from a minority of those unemployed who will find a job in line with their qualifications, the mass of unemployed will be divided in three categories: those that will have to accept lower wages for living below their qualification and education level; long term unemployed who will wait years before being employed; those, mainly over 50 who will never find a job. The main reason is that the crisis will lead to major restructuring of businesses; as a result of productivity gains the number of people made redundant will increase dramatically.

In this regard, traditional policies consisting of providing temporary benefits to the unemployed appear inadequate today. It is time to replace the old scheme with a new system which could yield huge benefits for the individuals as well as for the society as a whole. The idea of a Basic Income or Guaranteed Minimum Income is now gaining support in many countries such as Germany and Brazil. In substance, it aims to decouple income and work; as there are less jobs - but not less persons with their own needs and rights, governments need to find a way to distribute resources to people without a job. In its ideal form, a Basic Income is granted independent of other income (including salaries) , with no other requirement than citizenship. A Basic Income scheme aims to provide each citizen with a sum of money that is sufficient to live on. In some cases it is proposed in the form of a citizen's dividend (transfer) or a negative income tax (a guarantee) for citizenship. According to its supporters*, it has the advantage to grant to each unemployed the freedom to find an adequate job without having to accept unfair conditions for employment . But it is also seen as a powerful means to combat poverty and avoid economic insecurity (which is the main enemy of stability and democracy!) . However, critics have pointed out the potential work disincentives created by such a program, and have cast doubts over its implementability.

In fact, the idea of a Basic Income is an old one. It was put forward for the first time by the British political writer Thomas Paine as compensation for "loss of his or her natural inheritance, by the introduction of the system of landed property"(Agrarian Justice, 1795). It was an issue for debate among left wing parties for many decades. In his book Where Do We Go From Here: Chaos or Community? (1967) Martin Luther King wrote: "I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income". In 1968, James Tobin, Paul Samuelson and John Kenneth Galbraith and another 1,200 economists signed a document calling for the US Congress to introduce in that year a system of income guarantees and supplements. In the US, a commission nominated by President Johnson published in 1969 a report which recommended to substitute all anti-poverty measures with a special program to provide to all American citizens an annual guaranteed income. It was not unconditional, as the income was dependent on economic needs. But the bill on a guaranteed income was rejected by the Senate after being approved by the Congress.

In France, there were many discussions in the 80s about the issue of a basic income on the basis of the arguments put forward by French economist and philosopher André Gorz** . He wrote:

"The connection between more and better has been broken; our needs for many products and services are already more than adequately met, and many of our as-yet- unsatisfied needs will be met not by producing more, but by producing differently, producing other things, or even producing less. This is especially true as regards our needs for air, water, space, silence, beauty, time and human contact...

"From the point where it takes only 1,000 hours per year or 20,000 to 30,000 hours per lifetime to create an amount of wealth equal to or greater than the amount we create at the present time in 1,600 hours per year or 40,000 to 50,000 hours in a working life, we must all be able to obtain a real income equal to or higher than our current salaries in exchange for a greatly reduced quantity of work...

"Neither is it true any longer that the more each individual works, the better off everyone will be. The present crisis has stimulated technological change of an unprecedented scale and speed: `the micro-chip revolution'. The object and indeed the effect of this revolution has been to make rapidly increasing savings in labour, in the industrial, administrative and service sectors. Increasing production is secured in these sectors by decreasing amounts of labour. As a result, the social process of production no longer needs everyone to work in it on a full-time basis. The work ethic ceases to be viable in such a situation and workbased society is thrown into crisis..."

In the 90s, many studies from different countries and institutions (notably ILO) have found common ground for the idea of basic income. The Basic Income Earth Network (BIEN) has argued that one of the benefits of a basic income is that it has a lower overall cost than that of the current social welfare benefits. Research based on local cases show that a basic income does not lead to the formation of an idle class nor companies offered lower wages. Simulations suggest that the budgetary cost could be sustainable in view of the fact that it would replace existing social schemes (unemployment benefits, early retirement schemes, etc.) that are often inefficient and costly.

In fact, there are different models of basic income support. Pro-free market economists Friedrick Von Hayek and later Milton Friedman worked on the idea of creating a minimum income for all citizens to become “public services buyers”. All services would come from this income. From a practical point of view, this proposal would be relatively easy to implement, but in practice, it would lead to the necessity of redirecting all government resources receipts to a single and universal provider. In possession of these resources, the citizen would decide which type of education, healthcare or food he would utilize; he would analyze costs and make the best choice. The idea of universal income derives in their view from the assumption that the State is inefficient at distributing resources efficiently, leading to wastefulness and deviations.

But this view must be challenged on the grounds of equity, not only efficiency. The basic income should not be seen as a means to dismantle the Welfare State. In times of crisis, such form of income support becomes essential to ensure economic security and avoid social chaos. Of course, this will not happen overnight; we still need feasibility studies, experimentation at local level, impact assessments and political discussions. In Germany, the left wing party, Die Linke has promoted the idea of an unconditional basic income at the level of a federal work community and it is gaining support from many NGOs, including from Austria and Switzerland.

European left parties - or what remains - should make similar proposals to their own electorate- as an alternative to proposed tax cuts by right wing parties- not for mere electoral reasons, but because mass unemployment is putting our democracies in danger.

* See the paper of Ph. Von Parijs from Catholic University of Louvain (UCL) http://www.basicincome.org/bien/pdf/2000VanParijs.pdf

** A.Gorz, Critique de la Raison Economique Eds Galilée 1969

Healthcare reform: a victory for democracy

The Senate voted Thursday 24 December the bill to overhaul the US health care system and to guarantee access to health insurance for tens of millions of Americans. If the bill becomes law, it would be a milestone in the history of US social policy, comparable to the creation of Social Security in 1935 and Medicare in 1965. It is a historic achievement - after several attempts by Roosevelt, Kennedy and Clinton- putting an end to an iniquitous system where healthcare is mostly controlled by private insurance companies which provide coverage only to the healthy and those which can afford the high costs of the premium. The significance of the reform is that health is not a market good but a right, something which cannot be left to market forces for people most in need. Incidentally, the USA has one of the lowest life expectancy index among the wealthiest capitalist economies.

The reform should cover 95% of the population giving access to health insurance through public subsidies. The Congressional Budget office estimates that the bill would provide coverage to 31 million uninsured people, but still leave 23 million uninsured in 2019. One-third of those remaining uninsured would be illegal immigrants.

It is not meant to be a national health system like in most European countries. The funding mechanism is, however, complicated and expensive. The bill would require most Americans to have health insurance, would add 15 million people to the Medicaid and would subsidize private coverage for low- and middle-income people, at a cost to the government of $871 billion over 10 years.

The strong opposition of the republicans and right wing ideologists show how this reform is far reaching and limits the power of the health insurance companies. It is a victory for democracy and human rights.

The Robin Hood Tax

The actual health care reform bill (House Bill 3200) reported by the Congress on July 14 - which aims to " provide affordable, quality health care for all Americans and reduce the growth in health care spending",- is vigorously opposed by conservatives as well as the insurance companies which regard the proposed publicly funded system as a threat to their profitable activities.

But there is one fundamental point which deserves attention on the revenue side. The bill introduces an additional tax of 1% on wealthiest Americans to finance health expenditure of 20% worst-off citizens. This might be seen as one of the most radical proposals ever passed through US legislation. It contrasts with Bush policies which introduced tax cuts benefiting mostly the rich Americans. Yet it might appear modest by European standards, notably in continental countries which provide a high level of social protection for all citizens.

The bill contains however the recognition of the principle of solidarity, that is, in the US society the rich should pay for healthcare of the poor who cannot afford it. This will not affect much the wide disparities in income which exist in the US. According to Robert Reich, former US Labour secretary, 1% of the wealthiest in the US has about 20% of total income, the highest level since 1928.

Critics on the conservative side argue that this measure will affect the tendency to invest and innovate and therefore future jobs. But, if a small fraction of this wealth means a better access to healthcare for a larger number of American citizens, who will get more regular checks and live longer in a better health and therefore be more productive, the positive effects on the US economy will be much greater and long lasting.

This is less an issue in Europe, although European societies are increasingly confronted with widespread poverty. Why not introduce a similar Robin Hood tax in Europe, not to finance healthcare but consumption for the poorest to meet their basic needs? This would give a signal that democracy is not only for the rich but also promotes social justice and solidarity.