Leading Indicators: A step closer to Universal Basic Income?

Policies that would have seemed unthinkable barely six months ago are now widely considered part of the mainstream. In the eyes of many, they constitute a sensible and measured response to an unprecedented set of macro conditions. Whether this ultimately proves to be a temporary aberration from the norm remains to be seen. As mentioned in previous columns, it does have the potential to be something rather more substantial: part of a wider rewriting of the economics rulebook.

This challenge to economic orthodoxy is, let us remember, something that predates the Covid-19 pandemic. Populist governments in many parts of the world have taken aim at core elements of the liberal agenda, such as globalisation and free trade. In light of this, it is unsurprising that talk is once again building about the role of Universal Basic Income (UBI).

Let me start with a little background to the UBI debate. The idea of regular monthly payments to all citizens of a country is most definitely not a new concept. Equally importantly, it is not ‘owned’ by a particular wing of the political spectrum. It is worth recalling that the ‘high priest’ of monetarism, Milton Friedman, was a keen adherent of the policy. Friedman, who led the counterrevolution in economics and conservative political thought through the middle of last century, made a forceful case for UBI in his book ‘Capitalism and Freedom’. And many libertarian groups today are still keen advocates – for reasons that I will return to.

Yet the concept also seems to have a natural home on the centre and the left of the political landscape. In the USA over the past year, it has been aggressively promoted by one of the contenders in the Democratic Party presidential primaries, Andrew Yang. Although unsuccessful in his bid, Yang did help to reignite interest in the idea. At the time, he promoted UBI as a means of tackling the impact of automation on employment; he has subsequently argued for its importance in addressing the Covid-19 crisis.

Meanwhile, from a radically different perspective, the United Nations Development Programme has also argued in favour of the policy. A recent UNDP note suggested UBI could mitigate “increasing social tensions that would cost governments even more and open countries to heightened risk of societal conflict.”

For the record, currently, no country has a UBI programme in place, although there have been several small-scale pilots and a few larger-scale experiences. And of course, there is Alaska’s Permanent Fund Dividend (PFD). Introduced in 1982, PFD is a means by which every Alaskan is able to share in the benefits of the state’s mineral wealth.

So, what are the arguments for introducing such a policy more widely? For some on the right, and many libertarians, the measure is viewed as an alternative to the panoply of existing benefits. Such benefits are costly to administrate, typically involve ‘welfare cliffs’ and, so goes the argument, undermine incentives to work. Providing that UBI was the extent of government support, it could also eliminate the stigma often attached to recipients of welfare.

From the leftist perspective, UBI can address some of the other shortfalls attached to ‘means-tested’ approaches, which are generally complex, intrusive and poorly targeted. They argue that the measure will be more efficient in redistributing income and alleviating poverty. Furthermore, it will shift the balance of labour markets, where the demise of trade unions has tilted the anchor heavily in favour of the corporate machine. Though he is not sold on UBI, Larry Summers, a former advisor to President Obama, has been strongly arguing in recent research that “workers need more power.”

Meanwhile, from somewhere near the centre, Andrew Yang sees UBI as a means of mitigating the deleterious impact that technology and automation will have on jobs. Projections from the likes of McKinsey suggest that, depending upon various adoption scenarios, automation will displace between 400 and 800 million jobs by 2030. Clearly, any such outcome will require a policy response. The challenge is, again, whether UBI is the answer. Can we learn the skills to adapt – as has been the case of past periods of technological advancement? Or is the scale of adjustment just too great this time?

To my mind, there is no doubt that the current system of providing support for poorer households fails on a number of different levels. But, despite some powerful arguments from advocates of UBI, I struggle to believe that any universal system can ever be generous enough. Those in most need will surely require additional support. It is worth remembering that Andrew Yang’s proposal, costed at US$2.8 trillion, would still have left many Americans unable to cover even their basic accommodation and food costs.

The price tag associated with UBI means it is likely to attract particular interest in an environment in which governments are under pressure to rein in spending. This was demonstrated pretty clearly in Alaska in the middle part of the last decade. Plunging oil prices badly damaged the finances of the state and forced the authorities to take some tough decisions on entitlement programmes. Predictably enough, PFD became a political football.

None of which is to say that the time will never be a ripe for UBI. We may decide that we can live with the vagaries of a means tested welfare system for now. But if opportunities for employment really do diminish as drastically as suggested by McKinsey et al, that will change. If, rather than most of us being in work, most of us are out of work, a universal support system may well become inevitable.

Though Andrew Yang faltered in his bid for the Presidency, it is too soon to write off the ideas that underpinned his ambitions.