Rethinking the welfare state would be disruptive – the Economist

Rethinking the welfare state – Basically flawed

Proponents of a basic income underestimate how disruptive it would be

Jun 4th 2016 | From the ECONOMIST print edition

Labour CostsWORK is one of society’s most important institutions. It is the main mechanism through which spending power is allocated. It provides people with meaning, structure and identity. Yet work is a less generous, and less certain, provider of these benefits than it once was. Since 2000 economic growth across the rich world has failed to generate decent pay increases for most workers. Now there is growing fear of a more fundamental threat to the world of work: the possibility that new technologies, from machine learning to driverless cars, will cause havoc to employment.

Such worries have revived interest in an old idea: the payment of a “universal basic income”, an unconditional government payment given to all citizens, as a supplement to or replacement for wages (see article).  

On June 5th Swiss citizens will decide in a referendum whether to require their government to adopt a basic income. Finland and the Netherlands are planning limited experiments in which some citizens are paid a monthly income of roughly €1,000 ($1,100). People from all points on the ideological spectrum, from trade unionists to libertarians, are supporters. It is an idea whose day may come. But not soon.

The basic income is an answer to a problem that has not yet materialised. Worries that technological advance would mean the end of employment have, thus far, always proved misguided; as jobs on the farm were destroyed, work in the factory was created. Today’s angst over robots and artificial intelligence may well turn out to be another in a long line of such scares. A much-quoted study suggesting that 47% of today’s jobs could be automated in the next two decades looks too gloomy, for example (see article). Machines may one day be a match for many workers at most tasks. But that is not a reason to rush to adopt a basic income immediately.

If the need for a basic income is unproven, the costs are certain. Its universality is designed to encourage citizens to think of the payment as a basic right. However, universality also means that the policy would be fantastically costly. An economy as rich as America’s could afford to pay citizens a basic income worth about $10,000 a year if it began collecting about as much tax as a share of GDP as Germany (35%, as opposed to the current 26%) and replaced all other welfare programmes (including Social Security, or pensions, but not including health care) with the basic-income payment.

Such a big jump in the size of the state should make anyone wary. Even if levied efficiently, on an immovable asset like land, tax rises on this scale would have unpredictable effects on growth and wealth creation. Yet an income of $10,000 is still extremely low: it would leave many poorer people, such as those who rely on the state pension, worse off than they are now—at the same time as billionaires started getting more money from the state.

A universal basic income would also destroy the conditionality on which modern welfare states are built. During an experiment with a basic-income-like programme in Manitoba, Canada, most people continued to work. But over time, the stigma against leaving the workforce would surely erode: large segments of society could drift into an alienated idleness. Tensions between those who continue to work and pay taxes and those opting out weaken the current system; under a basic income, they could rip the welfare state apart.

Household income inequality: ladders to climb

Lastly, a basic income would make it almost impossible for countries to have open borders. The right to an income would encourage rich-world governments either to shut the doors to immigrants, or to create second-class citizenries without access to state support.

Basic questions

Make no mistake: modern welfare states leave plenty to be desired. Disability benefits are for many people an unsatisfactory version of a basic income, providing those who will no longer work with enough to get by. But rather than upend society with radical welfare reforms premised on a job-killing technological revolution that has not yet happened, governments should make better use of the tools they already have.

Labour-market reforms—to crack down on occupational licensing, say—would boost employment growth. More generous wage subsidies, such as an earned-income tax credit, would help people stay out of poverty. Long-overdue public investment in infrastructure would foster demand. Relaxing planning restrictions would create jobs in construction, and homes for workers in places with robust economies.

A universal basic income might just make sense in a world of technological upheaval. But before governments begin planning for a world without work, they should strive to make today’s system function better.

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  • demerwater  On June 3, 2016 at 10:32 am

    Years ago, thanks to Mr. Nowrang Persaud, I got hooked on “The Need Hierarchy”. It remains, for me, the essential motivator. “A starving man thinks and does, wholly and solely, to put food in his belly.” Don’t ask me who first said that.
    It explains aberrant or deviant behavior. If a person perceives a barrier to the satisfaction of a need, (s)he will behave in a manner to get around said barrier. To the observer, the reaction is ‘strange’; out of character.
    A satisfied need ceases to be a motivator. A person seeks a job to satisfy basic needs of food, shelter etc. Having obtained a job (s)he moves on to the next tier – Safety needs – and will join a Trade Union to safeguard her/his job.
    When I (and hopefully, you) were younger, we knew what it was like to chop wood and fetch water. In these times of electricity and running water, youngsters do not have to worry about such basic chores. Instead they skip ahead to the “Individual” and “Self – fulfillment” tiers; not always with positive results!
    “Give a man a fish and you give him a meal; teach him to catch a fish and he won’t starve.” Every source claims this one.
    It is the best reason to be very circumspect when addressing societal needs – at every level. I would carry around food bars and cans of soda in my work truck. Many times, stopped at a red light, a ‘panhandler’ would approach; and refuse my offer of food or drink!

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