Financial and Monetary Systems

5 things you need to know about guaranteed basic income

An employee counts Indian rupee currency notes inside a private money exchange office in New Delhi July 5, 2013. India's central bank was seen selling dollars via state-run banks on Friday as the rupee approached its record low of 60.76 seen on June 26, four d

Are we on the brink of a work-free golden age? Image: REUTERS/Adnan Abidi

Alexander Starritt
Editor, Apolitical
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Money for nothing – it sounds like a utopia, but is now being trialled as government policy around the world. Variations on the idea of a guaranteed basic income are attracting global headlines as pilot studies are devised in the US, Canada, Finland and the Netherlands. Here we dig down into what those pilots actually mean; are we on the brink of a work-free golden age? Is it because the robots are taking all the jobs? Does this mean that Finns and Canadians will be paid to do whatever they like?

The idea has been around for decades. Richard Nixon proposed a variant in 1969 (run by Donald Rumsfeld and an assistant called Dick Cheney) and Canada ran a pilot in the town of Dauphin, Manitoba, in the 1970s. Those ultimately failed to overturn resistance to the very notion of simply giving poor people money. Now, however, the idea is enjoying a resurgence across the political spectrum as regular, contracted employment seems to be in danger of breaking up: either being chopped up into ‘gigs’ and freelance work, or being made obsolete by new technology and automation.

 How much are the basic income pilots actually proposing to give people?
Image: apolitical

Because a guaranteed basic income appeals to people from the socialist left to the libertarian right, from European Green parties to the tech entrepreneurs of Silicon Valley, these trials are being constructed in very different ways and with very different objectives. Nevertheless, the government schemes in Finland, Holland and Canada are working in the same materials as the trial being set up by investment firm Y Combinator in Oakland, California, and the universal adoption proposed by citizens in Switzerland (pictured top, and now rejected by referendum). Moreover, NGOs have been running schemes like this for more than a decade in countries such as Namibia, India and Brazil. The biggest ever trial is now being planned in West Africa.

 Basic incomes around the world
Image: World Economic Forum

Here are the five key things you need to know:

1) Governments are not thinking the same as tech optimists

The schemes in Switzerland or California are trying to achieve something different from the government equivalents. You can see that in how much money they’re offering. Y Combinator are thinking of giving people up to $2,000 a month, more than if they worked 40 hours a week at the minimum wage, while the Dutch example is half that, and the Finnish one is almost half again.

Technology will eliminate traditional jobs and create massive new wealth

Aside from the question of ready money, Y Combinator is making preparations for a future in which, according to its president, Sam Altman, ‘technology continues to eliminate traditional jobs and massive new wealth gets created’. The belief is that we are on the brink of a paradigm shift in how people get an income; that automation will make vast swathes of the populace unemployed, but will also create enough wealth to guarantee everyone a minimum standard of living. So instead of having to slave away at tedious tasks in exchange for our monthly pay packet, we’ll all be freed up to think of brilliant new entrepreneurial or creative means of contributing to the economy.

For governments, however, it is about a more efficient and humane way of providing welfare benefits to the poorest people in society. In Holland, for example, councillor Lisa Westerveld has said, ‘In Nijmegen we get $116million to give to people on welfare, but it costs $20million a year for the civil servants running the bureaucracy of the current system. We will save money with a “basic income”.’ And Finnish prime minister Juha Sipilä said his scheme was to ‘reduce bureaucracy and simplify the now complicated benefit system’.

2) People already get money for nothing

There are lots of ways in which governments already give people money to live, such as unemployment benefit. What supposedly makes a basic income different is that the money comes without any strings attached, i.e. no obligation to perform community work or look for a job. It is not supposed to be temporary. But money for nothing already exists in the state pension. And there are places where it – or something very close to it – already exists for people of working age.

 Selma Ferreira, the first recipient of Bolsa Escola, the precursor to Bolsa Familia, in 1995.
Image: apolitical

Selma Ferreira, the first recipient of Bolsa Escola, the precursor to Bolsa Familia, in 1995.

Alaska pays every resident an annual Permanent Fund Dividend – a share in the profits from the state’s oil wealth. It’s nowhere near enough to live on, with the biggest ever payout, last year, set at $2,072. But it does work on a principle that is closely related to the arguments about a basic income: that society holds assets that all citizens own in common, like shareholders, and that can pay them a dividend.

Meanwhile, Brazil, which passed a law mandating a guaranteed basic income as long ago as 2004, runs a system which its government considers an intermediary step. Like equivalent programmes in other countries, notably Mexico, it gives cash to 12million poor Brazilian families in exchange for them doing things that are in their own interest, like keeping their children in school or attending medical check-ups. The obligations are minor and, in a context of extreme poverty, the results can be striking. When the Mexican programme started, children who were in it from birth grew a centimetre a year taller than those who weren’t. Nevertheless, conditional cash transfers do still operate on the principle that public servants know what is best for poor people and should incentivise them to do it.

3) The schemes in the developing world aren’t really analogous

Although basic income programmes in Namibia, India and rural Brazil have all had a striking impact on people’s quality of life, the context that they’re working in is so different that their findings can’t be easily transferred. For them, it’s not about the transition to an automated economy or efficient administration of a complex welfare system, it’s about borderline starvation among society’s poorest.

 A Namibian participant in the basic income trial holds his first 100 dollar note
Image: apolitical

A Namibian participant in the basic income trial holds his first 100 dollar note

The Namibian study, for example, handed out 100 Namibian dollars a month, which was still significantly below the level of food poverty (defined as 152 NAD a month). The Indian and rural Brazilian schemes gave or give out a handful of dollars each month and one of the organisers of the Indian scheme, Professor Guy Standing, wrote in his summary of results that, ‘Perhaps the most important finding was the significant improvement in the average weight-for-age of young children.’

The crucial finding that could be transferred to the developed world is that the people in the studies didn’t work less; instead, they were more entrepreneurial and invested in their own long-term prosperity, buying things like better seeds or sewing machines. Where the analogy breaks down is in the way the schemes create incentives. Those incentives depend on comparison with the incentives created by other forms of support in those countries. And a semi-employed person in, say, Holland, is guaranteed vastly more than one in Namibia.

4) It actually all comes down to incentives

The main criticism of a basic income is that it will disincentivise people from working, a criticism that’s also made of existing welfare systems. Hugh Segal, who is in charge of advising Ontario on its basic income pilot, told Apolitical, ‘One of the problems we have with existing systems is that if someone does find work, there will be a clawback of benefits, not just financial benefits, but things like free medical care and housing support, so you end up with the contradiction that welfare programmes keep people trapped in poverty. So the challenge becomes: can you craft a programme that has a better impact than that?’

In any of these schemes, achieving that better impact will depend on the precise calibration of payments against welfare benefits and the living wage. For that reason, the proposed Canadian pilot would actually test various means of giving people money, such as a negative income tax (which was used in the Canadian ‘mincome’ pilot in the 1970s), a universal grant or upgrading existing income support. The Dutch scheme will have variations in which people are obliged or have the option to do work for the community.

Economic security will give people freedom to create a better job

Moreover, the incentives are not just about finding jobs. More than 60% of Canadians living in poverty are actually in work, for example, and the state can also place a value on incentivising people to do things like stay in education. In California, Y Combinator president Sam Altman writes, ‘We hope a minimum level of economic security will give people the freedom to pursue further education or training, find or create a better job, and plan for the future.’

What makes a guaranteed basic income different from giving people benefits in other ways is that it removes the paternalistic apparatus of carrot and stick. The fundamental divide on the subject is between those who believe that if you remove sanctions and obligations, people will get lazy or mess things up and those who believe that people will use their new freedom to achieve more. Proponents also believe that if you trust poor people to order their own affairs, they will do so better than public servants can plan.

5) It’s not utopia or bust

Just as we are not going to switch to an automated economy overnight, a basic income is not an all-or-nothing proposition. These pilots are not attempts to create a new kind of society this year or next; they are milestones that, if passed, will lead in that direction. If they succeed, they will establish the principle that you can simply give people money and trust them to use it in a way beneficial to themselves and, indirectly, to society. Once that principle is established, the system could be expanded in both scope and generosity, depending on whether the tech utopia actually comes to pass.

So what will a success look like? At its simplest, the schemes will have to demonstrate that guaranteeing people a basic income is a cheaper means of giving money to poor people than the means we have already, and that it encourages them to keep working and look after themselves better than a paternalistic state could.

If the participants in these schemes do that, we may well see basic income extended and replicated elsewhere. The pilots in the developing world suggest that it will come off. But the question boils down to one about human nature: if government stops using carrots and sticks to get people to move in the direction it wants, and instead gives them more control over their lives, what will they do with it?

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