Universal basic income will not free us from inequality

A view from my desk: In this series of personal essays, discover the questions and thoughts from the world of work that keep our writers up at night.

Universal basic income would be great if it wasn’t all going to end up in your boss’s pocket.

The lockdown has given us a taste of a terrifying future. One in four British workers have been furloughed thanks to Covid-19 rendering their jobs temporarily untenable. The figure carries eerie echoes of the quarter of jobs a US report warned last year are at “high risk” of being lost to robots in the near future.

In the face of the pandemic and the dawning of the age of the automated employee, universal basic income, or UBI, is having a moment.

Unusually for an economic policy, UBI has fans across the political spectrum.

The idea has been floating around in various forms since the 16th century but didn’t really take off until the early 1970s**, when Nobel Prize winner Milton Friedman convinced then-US president Richard Nixon of its merits. UBI has drifted in and out of fashion ever since but has never gone away completely.

Unusually for an economic policy, UBI has fans across the political spectrum. The libertarian right wants it to replace all other forms of social welfare, handing responsibility back to citizens and removing the tentacles of “big government” from their lives. The progressive left, meanwhile, sees it as a way to lift millions out of poverty and offer them leverage against employers who might otherwise force them to work under exploitative conditions.

Friedman was fond of saying that every crisis was an opportunity to change a society. The crises that history will most remember him for exploiting were the CIA’s installation across Latin America of military dictatorships, whose economies he used as testing grounds for his radical, free-market theories.

Today, though, Mother Nature has handed advocates for UBI a ready-made crisis. With the Government forced to pay the salaries of a quarter of the British workforce, many are arguing that now is the time to roll out a basic income to all.

It’s easy to see why the idea is proving so seductive. But would UBI really free us from the shackles of wage slavery and the indignity of poverty? Or would it act as a covert transfer of wealth to the already wealthy, like so many seemingly benevolent schemes before it?

…employers paid less than adequate wages for as long as they knew the Government would top them up

A common and widely discredited fear with UBI is that it would lead to mass idleness—who would work, cynics ask, when the essentials of life are already taken care of? Setting aside the question of whether the world would actually be any worse off if less of its inhabitants pulled a nine-to-five, there is no evidence to suggest UBI would lead to mass shirking.

Real-world trials in communities from rural Kenya to New Jersey have seen little to no reduction in what economists term “labor market participation” from recipients of UBI. When participants in the trials did reduce their paid work, as many did in several US trials, it was most often to devote more time to education or caregiving.

Ordinary people like you and me can be trusted to pull their weight regardless of how well their needs are met, it seems. But what about the businesses that employ us and the owners who enjoy their profits?

In 2015, the British Government laid out a plan to knock £12 billion off its welfare bill by cutting the amount of tax credits it paid out to low-income workers. Defending the move in Parliament, the then Treasury minister, Damian Hinds, said: “For too long… low pay has been addressed not by genuine reform and driving productivity but by subsidizing the tax credit system.” In effect, employers paid less than adequate wages for as long as they knew the Government would top them up.

…while our hard day’s work produces more profits for our employers than it did half a century ago, a greater share of those profits is ending up in their hands rather than ours.

Last year, global trade union federation Public Services International commissioned a study of UBI that, to the surprise of many, came out against the idea. It found that while small-scale trials in both developing and developed countries had seen living standards improve for many participants, the large amounts of money involved could have been put to more effective use through the provision of services, without which “cash payments cannot lift people out of poverty or improve their prospects for the future”.

Moreover, none of the trials was sufficiently broad to fully gauge the long-term and macroeconomic effects of UBI. This gives the study’s lead author, Dr. Anna Coote, cause for concern, she told me when we spoke.

According to her, far from remedying wealth inequality, UBI will likely make it worse. While wages have risen over the past 45 years, they have not done so anywhere near in line with productivity, she says—meaning that while our hard day’s work produces more profits for our employers than it did half a century ago, a greater share of those profits is ending up in their hands rather than ours.

“[UBI] will certainly exacerbate that trend, I don’t see how it can avoid doing that,” she said. “Why should people be paid more by their bosses if they’ve got this money coming from the State?”

We tend to think of minimum wage as a fundamental right for all workers. It is easy to forget that it was only made law in 1999 under fierce opposition from the Conservatives, who now hold power in Britain. With the introduction of UBI, the most obvious moral argument in favor of a minimum wage—that nobody should be paid less than they can sustain themselves on—starts to lose its force. If UBI is about granting people economic freedom, why not grant them the freedom to work for less money, it would doubtless be argued.

The response may well come, why not indeed? So long as people can put food on their tables, a roof over their heads, and clothes on their children’s backs, what does it matter whether the money is coming from the State or their employer?

The simple answer is because money is power, and those words have never been truer than they are today. We live in an era defined by the whims of the super-rich. Four years on from the Brexit referendum, parliamentarians, and the press are still trying to get to the bottom of which billionaires bankrolled its outcome and why. Across the Atlantic, the legions of dollars that fossil fuel companies have at their command have induced politicians to deny climate science for decades.

…there is no way for extreme wealth inequality and democracy to co-exist without the latter being “structurally impaired”.

If UBI subsidizes salaries just as tax credits did, then businesses’ profits will increase by the value of UBI multiplied by the number of employees a company has on its payroll. Workers will be just as well off as they were the day before, but overnight the value of their bosses’ shareholdings and dividends will have increased enormously.

Relatively speaking, employees would be poorer. This may sound like a purely academic problem, but it has serious implications for how much of a say you have in the way you and your society are governed. A 2014 analysis by Professor Jeffrey Winters of Northwestern University concluded that there is no way for extreme wealth inequality and democracy to co-exist without the latter being “structurally impaired”.

Dr. Coote pointed out to me that UBI is contingent on the continuous distribution of money by those who distribute it. If business owners are allowed to get exponentially richer while the rest of us maintain the same level of wealth, their ability to influence policy will grow. There is a reason the oil and gas industry donates tens of millions of dollars to US politicians each year: it works. Every dollar they donate produces a $100 return on investment. Money makes policy. And what happens if one-day business owners get together and decide the hundreds of billions of pounds being spent on UBI each year would be better directed at supporting businesses?

It may sound radical to suggest that UBI would empower the already rich rather than ordinary people. But it would not be the first, or even the second, or third time a policy designed to elevate the less well-off ended up broadening the wealth divide.

A pilot study in France found that for every euro of housing benefit provided, rents increased by 78c.

Housing benefit, for example, is designed to address the problem of tenants too poor to afford their rent. As such, it superficially appears to be a way of supporting low-income families. In reality, it subsidizes the mortgages of already wealthy landlords. In 2014 alone, landlords pocketed £26.7 billion in housing benefit money.

A pilot study in France found that for every euro of housing benefit provided, rents increased by 78c. A scheme purportedly designed to make life easier for the poor has enriched already rich landlords at four times the rate it did their tenants.

Part of UBI’s appeal is that it is such a simple solution to a myriad of this complex world’s problems. People can’t afford their rent? With UBI they can. Robots take their jobs? UBI will sustain them. Lack of financial security preventing them from taking entrepreneurial risks? UBI will be their safety net.

But without a near-total overhaul of our economic system, and the way it is regulated, the long-term impact of UBI would seem to be an acceleration of the already breathtaking speed with which the wealth divide is widening.

Illustration by Patrik Antczak for Welcome to the Jungle.

Follow Welcome to the Jungle on Facebook, LinkedIn, and Instagram, and subscribe to our newsletter to get our latest articles every day!