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.

Copenhagen is just the start of a process

Most analysts and press coverage talked about the failure about negotiations on climate change. Yet, the outcome of the Copenhagen summit was largely foreseen. It is true that too high expectations were placed on the talks. So what went wrong?

Climate change is too big an issue to be resolved at once. It is thus difficult to judge on the sole fact that the agreements were not binding- the Kyoto protocol was legally binding but had essentially no effect on the global emissions. We can also mention the (morally justified) protests of the third world countries. So let's be realistic.

This is an issue of balance of power in which the actions of 20 nations really matter. This is the first time in history that all leading economies had come together to take action on global warming. In its final declaration*, the Copenhagen summit did not reach an agreement on quantified targets on global emissions by 2020. However, it registered a number of key advances. The US administration (unlike the previous one) is now committed to curb gas emissions. There is some financing from rich to poor countries to help combat the consequences of global warming. Nations have also agreed on a deal on deforestation, which is a major source of carbon emissions.

The big developing nations - which will be responsible for future growth of gas emissions- have come close to acknowledge that there will be no solution without a contribution from them. We are not there yet- and there will no doubt be more fractious negotiations to come. The whole issue is about what model of development all nations want to pursue. China, India or Brazil cannot simply continue in their development path in a business as usual scenario- which is in fact not simply an imitation of the development model experienced by the most developed nations. We're also talking about meeting basic needs of the population such clean water, electricity (especially in rural areas) and other public utilities.

The time has also come to change direction. The major producers of carbon emissions - above all China and the US- should agree on introducing a carbon tax. This proposal has been dismissed as being politically impossible, but this seems to be the only way forward. China and India will never agree on binding quotas. That is fair as nobody can predict how much fossil fuel the rapidly growing economies will need by 2020. These economies should instead not grow on a business-as-usual path, but pursue their economic development while decreasing their carbon emissions.

Another key lesson from the summit is also the role of the UN. There has been a lot of criticism on its ability to solve the world's most pressing problems. Should key nations negotiate among themselves, and let others endorse (or not) as they wish? This would in my view be morally irresponsible: all countries should be part of the deal as problems should be addressed equitably. This is perhaps more difficult, as countries must, according to UN rules, reach a consensus before a binding decision is made. For a climate change agreement covering many complex areas, hundreds of negotiators had to meet in dozens of working groups to work on draft technical documents. But in the long run, the UN method will pay off and will prove its effectiveness in forging a treaty on climate change. This will depend on common will which should prevail against narrow and selfish interests of the single nations.

* http://unfccc.int/files/meetings/cop_15/application/pdf/cop15_cph_auv.pdf

The Food Drama is far from being over

During the world summit on food security (16-18 November), there are alarming news coming not only from underdeveloped countries with more than a billion people suffering hunger but also from the wealthiest nation. According to the US Agriculture department, around 49 million, say 14% of US families, do not have access to sufficient food and a further 11% has bad nutrition. The economic crisis has worsen the situation especially for large families : in 2007, 12 million children lived in families without any food, now the figure is 18%; more children are also in a serious state of malnutrition, rising from 700thousand to a million. these figures tell the human drama behind the recession which is far from being over.

What happened in this summit ? As Shakespeare said, much ado about nothing . The only strong message came from the Pope Benedict XVI, in his address to the summit: "Hunger is the most cruel and concrete sign of poverty. Opulence and waste are no longer acceptable when the tragedy of hunger is assuming ever greater proportions (...) the Catholic Church will always be concerned for efforts to defeat hunger; the Church is committed to support, by word and deed, the action taken in solidarity – planned, responsible and regulated – to which all members of the international community are called to contribute”. Moreover he lamented the weakness of current food security mechanisms, and urged better market access for poor countries.

The Summit formulated the objective of achieving food security for all through an ongoing effort to eradicate hunger in all countries, with an immediate view to reducing by half the number of

undernourished people by 2015. But once again, rich States did not show any concrete gesture to alleviate hunger in the most in-need countries. The final resolution sets a number of commitments, but no additional money. Where are the promises made at the G-8 in L'Aquila?

Concretely, the main message is the central role of agriculture in fighting climate change and ensuring food security. Agricultural production has to increase but at the same time the impact n the environment has to be mitigated. Specialists recommended governments to use bioenergy as a positive force for rural development. There are opportunities and risks for the environment and food security which need to be taken into account.

But, let's be clear, it is not about technology. The Brazilian experience has been successful, despite many difficulties, in achieving ahead of schedule the Millennium Development Goal to halve poverty and hunger by 2015, including through political will and social programmes for smallholder farms and women. So why not follow this example?

Is Free Market Ethical?

I read recently an article from Philip Booth ('Ethics alone will not prevent financial crises' in FT 15 Nov.) from the Institute of Economic affairs*, a British right wing think tank which supports the revival of free market ideas on 'ethical' grounds. Basically, he argues that free market as such is not against catholic social teaching as laid down in recent encyclicals of the Church. But his main argument is also to fight against the idea that the crisis has deep ethical causes such as bribery, greed and other immoral sentiments.

He writes: "governments and regulators have distorted incentives and, as a result, the self-interest of bankers has not been in harmony with the interests of society and disaster has followed". In other words, if the economy was ruled solely by free market ideas, the crisis would have never happened. This is an 'immoral' argument which owes more to Hayek and Friedman than to the Church social doctrine.

I agree that the crisis does not have as such an ethical root, although it is clear that immoral behaviour has contributed to aggravate the crisis leading to the financial meltdown in 2007. Speculative bubbles are the fruit of greed and lust for money, not the result of rational economic behaviour.

However, the topic raises more profound philosophical issues which underpin the whole debate about ethics and economics. Adam Smith referred to the 'invisible hand' to describe the apparent benefits to society of individuals behaving in their own interests. He writes in his 'Theory of Moral Sentiments' (1759): "... In spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose ... be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society". In other words, Smith explains that man pursues his self interest while commanding himself based on the principles of natural law.

A. Hirschman departs from Smith's moral philosophy and develops a powerful reconstruction on the 'ideological' origins of capitalism. His main argument is that the rise of capitalism depended on the activity of merchants and bankers, which was originally considered sinful. So, what changed? How could an immoral enterprise become ethically acceptable? The answer lies in the moral justification of the interest as opposed to the passion - which by essence is unpredictable and irrational. Following his thinking, it is not an argument in defence of capitalism, but rather a cause of its birth and rise over more than two centuries. But, while acknowledging some virtues of capitalism, Hirschman also admits that interest driven behaviours might be dangerous, and therefore might need to be contained. His arguments have gained some validity in the context of the crisis as self interested economic behaviour, e.g. in the financial sector, will require more stringent and transparent rules.

When the Pope suggests that self-interest should be put in harmony with collective interest, he expresses a moral view. But, what is the dominant conception of economic virtue today? Isn't market competition extended to many segments of the economic and social sphere, including education and health?

In fact, Ethics matter as much as Economics. It is hardly impossible to draw a dividing line between the two. We must understand that Economics is a moral science which pursues the achievement of common good. But as every (honest) economist knows, it is more difficult to translate those principles into practice.

* http://www.iea.org.uk/
** The Passions and the Interests:Political Arguments for Capitalism before Its Triumph, Princeton University Press 1997

Climate change, poverty: two defining challenges

Climate change and poverty are the two defining challenges of the 21st century and they must be tackled together. It means that if we fail one, we fail the other. The aim is to meet the environment's carbon constraints while creating the growth necessary to raise living standards for the poor.

It is true that climate change affects gravely the poorest in many parts of the world. Natural disasters have a devastating impact on human lives and also on means of subsistance.

There is no alternative to a low carbon economy. Current growth patterns are characterized by high prices for fossil fuels and undermined by a hostile physical environment that climate change is already creating. If risks are not addressed, the eventual consequences will be worse.

Climate change poses a profound threat to our economic future and to the economic possibilities of our grand children (to quote a famous essay by Keynes), while low carbon growth promises decades of sustainable prosperity.

The Stern report* concluded that "the benefits of strong, early action on climate change considerably outweigh the costs". It proposes that one percent of global GDP per annum is required to be invested in order to avoid the worst effects of climate change, and points out that failure to do so could risk global GDP being up to twenty percent lower than it otherwise might be.

However, there is a continuing rich-poor divide on sharing the burden of curbs on greenhouse gas emissions in a drive to avert droughts, wildfires, species extinctions and rising seas. At the G-20 on 7 November, Britain pushed to reach a $100bn deal to meet the costs of climate change by 2020 but developing nations held firm they would not accept.

The forthcoming UN summit in Copenhagen will probably not lead to an agreement on the costs of climate change. Economic interests from rich and emerging countries seem difficult to reconcile. But rich countries should also endeavor on helping the poor to adapt to climate change, sharing technology and cutting emissions from deforestation. The selfishness of the rich countries is in fact the main source of division.

* http://www.hm-treasury.gov.uk/stern_review_report.htm

Tobin Tax is back?

At the G-20 in St Andrews on 7 November, the British PM Gordon Brown has proposed a levy on financial transactions to stabilize markets and raise new resources. This is nothing else than the so-called 'Tobin tax' ( proposed by the Nobel Price for Economics James Tobin in 1972) . Since then, that proposal was discussed in several occasions, but in particular after the two important financial crises which preceded the current one: in 1992 where the European Monetary System was under threat after the massive speculative attacks against the Sterling and the lira (which lost about 30% of its value) putting the Italian economy in a quasi default situation; the Asian crisis in 1997, which had devastating consequences for some Asian economies with riots and demonstrations for hunger.

The Tobin tax consists in a minimum levy on financial transactions , for instance 0,5% (as proposed by Prof. Tobin in an interview to Der Spiegel in 2001). In global finance, gains could be infinitesimal but the high frequency of operations and the large sums involved yield gigantic profits . So even a low tax could result in cancelling a large volume of transactions, which would not be profitable, although markets would gain in stability. Furthermore, tax revenues would be significant : at 0,5% it is estimated that they would represent more than 80 billion dollars a year, which according to many would be sufficient to eradicate extreme poverty in the world.

Such tax requires a large consensus among the most powerful governments and so far it has been opposed by all financial agents- which is not surprising- and also by many economists. According to opponents, speculation may be bad ethically speaking but has an important role in financial markets operation to guarantee financial liquidity. We can still think that the risks deriving from the Tobin tax might be deliberately overstated: even George Soros, who gave rise to the currency crisis in 1992, declared that the tax would have undermined his interests, but that it could have beneficial effects for the world economy.

It is not surprising that the proposal has been endorsed by all opponents of globalization, but Prof. Tobin himself argued that his idea was intended to make the world economy work better, although he also supported the idea to use it as a remedy to fight poverty. Created in 1998, an international organisation called Attac* supports the idea of introducing such tax to promote social justice.

Hitherto Europe was divided on the tax, with on the one hand France and Germany in favor and the United Kingdom against it. Gordon Brown's declaration in support of the tax is most welcome, although he made clear that the tax revenues would go into a fund for the State to intervene in bailouts. There is thus an important nuance: it would be reinvested in the country for emergence purposes not to redistribute resources to eradicate poverty. In any event, an agreement among European states will not suffice, and would need to be endorse by G-20. In the final declaration**, there is no mention of this tax but the discussion is far from being over.

* Attac (Association for the Taxation of Financial Transactions for the Aid of Citizens ) - http://www.attac.org/
¨** http://www.hm-treasury.gov.uk/d/2009_communique_standrews.pdf