Covid19: a catalyst for Universal Basic Income

It would be hard to deny that the radical idea of Universal Basic Income (UBI) has been attracting increasing support in recent years, including that from a prominent candidate for the Democratic nomination in the US presidential election of 2020. One of the main reasons why this is so, almost certainly, is the growing perception that jobs which are both satisfying and sufficiently remunerative are increasingly hard to come by for most of the working population. At the same time the necessity of certain types of traditional work – e.g. bank tellers – is being increasingly called into question as the advance of automation enables human workers to be replaced by machines, at an accelerating pace.

Consequently doubt is being cast, probably as never before in history, on whether or how far human labour is necessarily required to fulfil all the tasks needed to satisfy society’s demands at a given point in time. If such is the case it might suggest that our civilisation has evolved to an advanced stage in its use of labour. Very crudely speaking, this evolution may be said to have been in line with the following pattern:-

  1. From pre-historic times to the Roman Empire. Heavy dependence on de facto chattel slavery;
  2. From the Middle Ages to the start of the Industrial Revolution (18th – 19th Century). Feudal structures in which labour was provided on a quasi-contractual basis (though with residual elements of effective slavery).
  3. From the Industrial Revolution to the present. What Karl Marx called wage slavery (where employers of labour provided some cash compensation but otherwise largely disowned responsibility for supporting it) has increasingly become the norm – latterly underpinned by state-funded benefits for the unemployed or destitute (otherwise known as the Welfare State). Concurrently chattel slavery was progressively outlawed by the end of the 19th century, at least in the Western world, although that has not prevented its being illegally revived in the present day (Modern Slavery).

(The changes over time referred to have mainly reflected the evolving technological environment, particularly since the start of the Industrial Revolution.)

Throughout these various phases of history it has evidently been understood that whatever structure of labour deployment was applied would also effectively constitute a mechanism for income distribution, thereby enabling all actual or potential operatives to receive more or less adequate compensation for their labour in the form of wages or welfare payments – or else, in the case of chattel slaves, payment (in kind) for the cost of keeping them lodged and fed. Today, however, the apparent lack of need for labour in certain activities or occupations means that such an understanding no longer holds good – so that (for example) many jobs, such as those offered on “zero hours” terms, may not guarantee any remuneration at all. Despite such anomalies many economists and others still maintain that the labour market is self-balancing over time, so that jobs lost to technological change in one sector or occupation are somehow “automatically” replaced by a comparable number of (more or less adequately paid) new positions elsewhere.

Serious economists and other social scientists should be quick to recognise this belief as simple-minded economic determinism. It has nevertheless been an implicit assumption of Western policy makers for generations and one that is still generally reflected in labour market policies everywhere – while “full employment” is still the avowed goal of most governments, even though it has become an increasingly meaningless term, especially as the average number of hours, days, weeks or years assumed to be worked by each worker varies so much.

Yet behind this simplistic assumption lies what might be termed an age-old superstition as to the nature and purpose of work itself. In fact it has hitherto been common to most, if not all, human societies to insist that an individual be required to make a contribution through work (however this is defined) in order to qualify as a member of society at all – although the aristocracy has been generally excused from this obligation. This view is enforced by moralistic pronouncements such as that made by the British Chancellor of the Exchequer in delivering his statement of July 2020 on support for employment following the Covid19 emergency, when he said “I believe in the nobility of work”. However, this traditional ideology has been increasingly questioned since the Victorian era, notably by such writers as Ruskin, William Morris and Oscar Wilde, and more recently by, among others, the American futurist Buckminster Fuller and the French philosopher André Gorz.

As noted above, it is by now almost self-evident that this shift in perception is largely a function of the displacement of labour by technological advance in production, even though this is still denied by some. Yet as most governments and political parties cling to the view that income can and should continue to be allocated by traditional market mechanisms, it is inevitable that its distribution is becoming ever more unequal, as more and more relatively low-skilled workers are forced to compete for a rather static, if not dwindling, share of aggregate value added (Gross Domestic Product), while those few with higher skills can remain assured of obtaining a high and probably rising share.

Against this background the outbreak of the Covid19 pandemic is now set to result in a sudden and sharp diminution of demand for less skilled workers which, other things being equal, will cause their remuneration to shrink even further – in relative if not also in absolute terms. It is thus easy to imagine that there will be an irresistible outburst of popular demand for a drastic shake-up of the welfare and social protection systems across the world so as to ensure a more equitable distribution of income in favour of those who are presently more disadvantaged. This seems all the more likely to the extent that the latter are now experiencing real hardship if not destitution.

Basic income: the obvious starting point

In the present circumstances, as outlined above, it is clearly difficult to define a market mechanism whereby wage or salary rates could be set on a sustainably equitable basis. It is impossible to determine, a priori, the appropriate basis for allocating shares of value added (GDP) between different activities or occupations, and experience suggests that any attempt to impose rates of pay for different positions, based on some kind of arbitrary administrative fiat or collective value judgment, is bound to fail. Furthermore, in the post-Covid economy, which may increasingly resemble a “zero marginal cost society”, it is virtually certain that, after a period of adjustment, relative costs and values of different activities will differ greatly from what they are now. This will apply particularly to those factor costs – e.g. real estate or energy – which may be sharply depressed thanks to suddenly reduced scarcity or lower production costs, while broader trans-sectoral dynamics will tend to push down costs and values across the economy generally. Thus, for example, lower real estate values will sooner or later cause the market prices of many financial securities – which are typically related to property prices – to fall, ultimately perhaps precipitating a sharp and permanent contraction of the financial sector as a whole. Clearly, however, it is impossible to predict the exact pattern of such fallout in advance.

The huge level of uncertainty surrounding this complex process serves to underline why it would be unwise to try and pre-determine as a given what absolute or relative values to assign to particular labour activities or occupations in any given economy. On the other hand we have also noted the growing dissatisfaction with the extreme levels of inequality in the existing pattern of income distribution in most economies. Hence there is an urgent need to find a mechanism or mechanisms that could facilitate the distribution of income on what might be accepted as a more equitable basis than that which currently prevails. It should be stressed that any such mechanism for income determination should be sufficiently flexible to allow for dynamic processes of adjustment in the labour market while ensuring that the minimum needs of all are met. Equally, it should be based on the presumption that, where necessary or appropriate, collective provision of services (or goods) should be made available on a universal basis, paid for out of general taxation. An obvious example is health and social care, the first of which is already provided on this basis in Britain (where, as in several other countries, it has been conclusively demonstrated that collective provision is far more cost-effective than private commercial provision), while the second seems likely to be provided on the same basis in the near future, especially in light of the UK’s disastrous experience to date with private care homes during the Covid19 pandemic.

Aside from such obvious instances where collective provision is more appropriate (also likely to include housing) , it seems entirely reasonable to begin an attempt to establish a more equitable and acceptable structure of income distribution by formulating a Universal Basic Income (UBI) at an adequate level to meet the basic consumption needs of a typical individual. As the word universal indicates, this would be paid to all adults within an identified economic jurisdiction at a flat rate, unconditionally for a defined period, which should be long enough to allow the dynamic impact of

the system to become observable and adjustments made accordingly. In addition to the basic UBI all special needs – such as schooling for handicapped children – should be provided at cost as required.

The potentially high cost of such a UBI – which would need to be set initially at or close to the prevailing poverty line – has been identified as a significant objection. However, it is important to note that

  1. It would be paid in lieu of all existing cash benefits, including the basic state pension and personal tax-free allowance;
  2. The administration of social protection would be vastly simplified and its cost reduced accordingly;
  3. Those individuals who are sufficiently well-off not to need the extra income from UBI would have it clawed back through the tax system;
  4. It is likely that the poverty line would be reduced over time in line with the falling cost of goods and services in a dynamic “zero marginal cost” economy.

As already mentioned, it is not possible to foresee the detailed fallout of such dynamic processes, especially bearing in mind that no country has yet introduced such a UBI on a comprehensive and sustained basis. Nevertheless, bearing in mind that Britain – along with several other countries – has been compelled to engage in unplanned fiscal expansion (deficit financing) on a massive scale in response to the Covid19 emergency, it would be entirely reasonable to expect that a similar approach could be adopted in respect of the implementation of a UBI.

In any event, the only thing it is possible to say with certainty about the long-term shape of the post-Covid economy is that it will be barely recognisable from what it is at present. On the assumption that a form of UBI is widely adopted it may be expected that the disparity between the highest and lowest incomes will be enormously reduced.

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