Basic Income: Good In Theory – Maybe Not In Practice

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Basic Income: Good In Theory – Maybe Not In Practice

There has been increasing interest in the idea of a basic income. The idea is currently being piloted in Finland where 2000 unemployed people will be paid €560 a month for two years regardless of whether or not they find paid employment. This figure will replace their current social welfare payment. It may also be rolled out in Fife and Glasgow after the Scottish Nationalist Party passed a motion in favour of it in May 2016. Economist Brian O’Boyle investigates.

The idea is deceptively attractive. It promises every citizen a basic income that would be in the words of Basic Income Ireland enough to “live a frugal yet decent lifestyle without any supplement from paid employment”.

This definition is telling. There is no agreement on how much the basic income would have to be or who would pay for it.

Social Justice Ireland have estimated that every Irish citizen could get €150 per week until retirement and between €230 and €240 per week after the age of 70.

The cost of this would be roughly €40 billion annually requiring a universal flat income tax rate of 40%. This would be a regressive policy, increasing taxes for poorer people disproportionately more than wealthy people and paying everyone the same basic income.

Right wing economists such as Milton Friedman have proposed similar policies in the USA. The devil is evidently in the detail

Left-Wing Arguments in Favour of a Basic Income

The key arguments put forward by progressive people involve the reduction of stress associated with the poverty and precarious employment of modern day capitalism.

If people at the lower end of the socio-economic spectrum had a basic guaranteed income they would be less vulnerable to poverty and/or unscrupulous, predatory employers.

This is particularly relevant in the era of zero hour contracts and labour market activation programmes.

Having a basic income would potentially increase choice and allow people to escape dangerous, unrewarding and low paid work.

It would also potentially end the stigma associated with the welfare system by being a universal payment.

People at the low end of the income scale would also gain more from a basic income if it meant that their real needs were being met. An extra hundred euros for someone on welfare helps someone more than the same amount for someone rich.

Finally, it could potentially end poverty traps as, unlike welfare payments, it is not designed to be replaced by wages. Instead any income earned from paid employment is on top of the basic income. To achieve a genuine increase in working class living standards a number of conditions have to be met, however.

Meeting the Conditions for a Left Wing Basic Income

For the left to support a basic income it would have to be paid for out of progressive taxation. This means it would have to be redistributive in the sense that the basic income is paid for by taxing the rich and then redistributing the resources to all citizens. The state would also have to stop capitalists from putting up prices to claw back what they lost in taxation. Unfortunately, neither of these things are remotely likely in capitalist society.

Governments under capitalism would be very reluctant to impose a genuinely progressive tax as it will hurt the power of capital. Instead they are far more likely to either print money to pay for it, or worse, to impose flat – regressive – taxes that hit the poor and working classes harder.

They are also extremely unlikely to freeze prices in a way that stops capitalists inflating prices to claw back the income lost through progressive taxation. They promised to do this in the 1970’s through an ‘incomes and prices policy’. The reality was that governments controlled workers income and let prices increase. This hurt working people by undermining their real purchasing power. If people get 50% more income and prices also go up by 50% they are no better off in real terms.

Suddenly the promise of more freedom is lost. People have more paper money but as prices have gone up they may be forced back into low paid employment.

Right wing economists rely on the difference between real and nominal income to argue for a basic income. It is deceptively appealing to get more paper money, but if this does not buy any extra stuff then you are no better off.

If the scheme is paid for by printing money it will inevitably become inflationary. Extra paper money printed and handed to people will also eventually push up prices. Either way, a basic income in this form would not allow the working class to gain more of the output of the capitalist system. It would just be extra pieces of paper.

Finally, if the scheme is paid for through flat taxes on all workers then it is obviously regressive. The capitalist economy rewards people in extremely unequal ways. If all workers were taxed at 40% this would be a step back from the current system of mildly progressive income tax. The right wing of the Republican Party argued for this during the presidential debate, as did Renua during the last general election.

To sum up this point, the basic income would have to be paid for through progressive taxation, but this is unlikely under capitalist conditions. It is also vulnerable to being eroded by capitalist power over prices.

The second key condition is that the basic income could not be a substitute for state run services.

For the left to support a basic income it would have to be on top of the current provision of housing, healthcare and education. This means that it could not replace things like medical cards, access to hospitals, special needs assistants, back to school grants etc. Instead it would have to supplement all welfare services currently provided except the direct payment for unemployment and pensions. Even here it could not be lower that these welfare payments.

Once again this is not how the scheme is likely to be rolled out under capitalist conditions. Hard right economists like the idea of a basic income as it is designed to replace the welfare system. This would replace real things with pieces of paper.

Socialists support the welfare system as it provides actual goods and services to the working classes. If people lose these real services and gain pieces of paper they are extremely vulnerable to having less of the fruits of a capitalist economy.

Instead of a basic right to services, they have a right to access them with their basic income. This opens up the route to privatisation. If prices are subsequently inflated – a real possibility – then people could find that their new paper incomes gets them less than the welfare system used to provide.

The third condition is that a basic income could not act as a battering ram for lower wages. In the neoliberal era, working class families often receive income supplements from the state as a substitute for a living wage. This is a subsidy from tax payers to private capitalists. Under a basic income policy, private employers are very likely to reduce wages in line with state supported incomes.

This gets to the nub of the problem. The basic income leaves the power to set prices and wages in the hands of the bosses. This makes the scheme very vulnerable, as capital will use their power to erode any real gains for workers.

We want workers to gain more of the value they produce through their wages rather than allowing capitalists to have subsidised wages.

Once again this bar is a high one, as the reality of capitalism is that a basic income would be used to erode wages.

Summary

Our support for a basic income is dependent on it making life easier for working class people. The following conditions would have to be in place for the left to support it

  • Paid for through progressive taxation.

  • Linked to prices so as to be a real distribution from capital to labour.

  • Supplementary to all welfare services and no lower than current direct unemployment assistance payments.

  • Supplementary to a living wage.

The reality under capitalism is that none of these conditions are likely to hold singly and they are almost impossible to achieve collectively. Without them, the basic income will become a Trojan horse to reduce people’s standard of living through privatisation and the end of welfare provision.

For this reason socialists should generally be very wary. There is a reason that right wing thinkers like basic income. For socialists the fight for a living wage (more obviously redistributive) and universal services are better demands than a basic income.

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2017-02-22T11:48:10+00:00 February 22nd, 2017|Economy, Policies|0 Comments