Thank your for your subscribe
Oops something went wrong. Please check your entry

Universal basic income: the contradictions of a simple idea

While certainly tempting, providing a simple answer to a complicated question is a straight road to failure. Ever since our alleged ancestors, Adam and Eve, were cast out of heaven, we all dream of a world where we will live a happy life, free from material contingencies. This dream is so deeply rooted that we embrace it immediately. Whether left-wing or right-wing, advocates of universal basic income generate a great deal of enthusiasm. Who wouldn't dream of eradicating poverty? Unfortunately, the path to dreams is strewn with pitfalls and overly simple or confusing reasoning gives improper advice.

December 2016
lire en français
lire en français
Executive Summary

The debate is quite messy because there are as many proposals as there are authors. This diversity concerns the amount, the conditions for granting and the financing of the operation. Basically, the idea is to offer every citizen (or resident?) a certain amount (how much?) from a certain age (which?). This would allow for the simplification of the various aids that built up over time into a huge mess. But let’s forget these details for a moment and try to keep a clear head.

Growth or degrowth

The essential feature of universal basic income is that it is a right granted to every individual. It is a powerful and attractive concept. Looking closer, it means that one can earn money without doing anything, and this is an essential aspect. An income allows to live, more or less decently according to the amount. This amount is important, I’ll get back to this in a moment. But income is also an incentive to work and to make efforts to get work – and even more efforts to get more work. It’s about getting up in the morning and going to work, but also trying to be successful and to cooperate with colleagues and hierarchy. It’s also about training, studying, continuing to progress throughout the career and, if possible, being innovative in order to seize opportunities. If universal basic income cuts the link between income and efforts, there will be less or no effort at all. Gradually, economy will become less effective and revenue will inevitably decline. Advocates of degrowth love it, but they are sorely mistaken because (almost) no one wishes to live with the expectation that their standard of living, and that of their children, will decrease indefinitely. There is a fundamental contradiction between wanting to fight against poverty and wishing for it. Blathers about the “new man,” free of material contingencies, overlook the only constant of human history: men have always wanted more, more amenities and more leisure (these are never free). We are so made, and there is no shame in that: on the contrary. The idea of finding a golden age of wisdom remains a utopia.

What is the goal of universal basic income? This raises the question of amount. For many, it’s about reducing poverty. But where is the threshold? Asking the question immediately shows the contradiction of the project. As soon as you mention a figure, it is both too much or too little. “To each according to his needs,” said Marx. But how do we assess needs? Having enough for eating, shelter and clothing? What about a car, holidays, a computer, etc.? Start with €500 per month per person, and very quickly you’ll reach €1,000... while some analysts already speak of €2,000! What’s bred in bone comes out in flesh...

The question of amount is not just anecdotal: it is essential. Let’s take an example: France. If all French citizens over 18, about 40 million people, were to receive €500 per month, that’s 240 billion or 12% of the nation’s GDP. If we were to pay the minimum wage, this figure would rise to 35% of GDP. Insofar as the universal basic income would be deducted from the existing transfers and wages paid to taxpayers, it would represent much less, say half. But still, the cost is considerable. One answer is to assume that employers will need to pay less to their employees and this difference will be enough to recover these amounts. In other words, companies will pay salaries in two parts: the universal basic income in taxes and the remainder as a salary.

But we need to take the reasoning even further. If the universal basic income is at the level of the minimum wage, a minimum wage earner won’t gain anything from working, without counting the cost of travel or childcare costs. Why work, then? If the universal basic income is €500, they will receive over €1,000 gross from their employer. With related costs, it will be much less and many people will stop working. Subsequently, the GDP will decrease. Without employees but with the same labor costs (direct wages and universal basic income paid to the government), businesses will not create additional jobs. Instead, they will reduce operation and GDP will decrease even more. There are no miracles and the automation of production and services hasn’t put into question this simple equation: the less people work, the more the standard of living of the country will keep falling.

A response to uberisation?

Another argument sometimes put forward to justify the universal basic income is the process of uberisation. The idea is that this process, which breaks the link between labor and wage-earning, has become widespread and leads to job insecurity. Universal basic income would provide minimum protection and therefore enable to exploit all the possibilities of this new economy. But the process of uberisation is just starting and for the moment, it escapes de facto all regulation, and often all taxation. The solution is to fit this form of work into an adapted general framework. Of course, existing regulations were invented for paid employment and have become excessively rigid over time. They are totally unsuited to the uber-economy, which operates through its inherent flexibility. However, creating an enormous and expensive system such as the universal basic income, which has no direct connection with the issue, will not prevent a regulation of uberised jobs. Let us not mistake the objective here.

There still remains the argument according to which it would simplify many existing welfare systems that target very specific categories. It would provide a much needed simplification. But there’s a reason for the proliferation of these systems: they are all conditional. Conditionality takes into account health, age or income level. Unconditional universal basic income follows a different logic and that’s its major drawback. If we pay people, unconditionally, to do nothing... they will do nothing.

Supporters of universal basic income challenge the fact that employment will decrease. This not only contradicts everything we know about the link between employment and income, but it ignores experiments conducted in the United States and Canada. Other experiments are announced in Finland and in the Netherlands. They will be conducted locally and focus on revenues between 500 € and 700 € in Finland and various forms in the Netherlands. Hopefully, they will be analyzed more seriously.

Behind the apparent simplicity and purity of the universal basic income hide many complicated issues and details with major implications. What happened in Switzerland, a few months ago, when the universal basic income has been subjected to referendum, is most enlightening. Early polls showed a very strong popularity. Then, the campaign began. Arguments were debated and voters discovered all the implications of the proposal. At the end of the day, the proposal was rejected by 77% of voters. In California, like in Europe, people are starting to talk about it. The subject is worth being discussed. But let us set aside the latest fads and superficial arguments.

Charles Wyplosz
Professor of International Economics and Director of the International Centre for Money and Banking Studies, Graduate Institute, Geneva