The precariat, populism and robots: is basic income a political imperative?

In the previous two articles in this series, the precariat was depicted as the emerging mass class, experiencing falling real wages, chronic economic insecurity and growing anger, in a context best described as rentier capitalism, rather than free-market capitalism. Revolt is in the air, and is justified, even if we may detest the forms it is taking, because the system is "rigged" excessively in favour of the rentiers, those who earn income from property, physical, financial or intellectual.

What is to be done? The starting point – elaborated in a recent book, The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay – is that the 20th-century income distribution system allocating income to labour and capital has broken down, irretrievably. We should recognize this and have the wisdom to build a new system suited to the 21st century.

This article merely sketches what this might look like, focusing on one element. Whatever route is chosen must be compatible with a free-market economy, foster sustainable growth and development, and ensure that the precariat gains economic security and a growing share of total income.

Let us start by recalling the big picture. Real wages in OECD countries have stagnated for more than three decades and that stagnation is likely to persist. The precariat’s real wages will continue to fall and become more volatile, leaving millions more on the edge of unsustainable debt. Their fragility is greater than revealed by income statistics, because they are subject to debt deductions, have been losing non-wage forms of income and must do a lot of work that is not remunerated at all.

Meanwhile, rentier incomes from ownership and exploitation of assets are continuing to grow, sucking up ever more of global income. And the state is accentuating these two mega-trends by throwing more subsidies to the rentiers while cutting benefits for the precariat, and while the silicon revolution is channelling more income to those who own the robots, creating a perfect storm of economic insecurity.

A way out of this approaching impasse would be to create a new income distribution system in which more of the rent is captured for society, and used to buttress the precariat’s living standards. In 1936, John Maynard Keynes predicted the "euthanasia of the rentier" before the end of the 20th century. It did not happen. Now is the time to do it. One way would be by building up democratic sovereign wealth funds through a levy on various forms of rent, which are neither morally nor economically justifiable.

Most existing national capital funds have been built up from royalties from oil and other minerals. They need not be limited that way. Most are anything but democratic. That could be changed. The key point is that all assets, including intellectual property, are resources to which all of society has legitimate claim.

Thus, a special levy on income generated by patents, copyright and other forms of intellectual property could be paid into such funds. The IP system is an artificial construct that excessively rewards owners of intellectual property, granting them monopolies over inventions and ideas that in many cases are the product of generations of thinkers and/or publicly funded research.

Meanwhile, there should be a bonfire of subsidies, freeing up public spending that could augment the sovereign wealth fund. And a levy should be imposed on income taken by digital platform companies from app-driven labour transactions. The platforms are labour brokers, taking rental income of 20-30% from each transaction. The proceeds of this levy should also augment the sovereign wealth fund.

This leads to the key point. Such a fund, financed from rental income on assets of all kinds, could provide the basis for paying out a basic income to every legal resident.

A basic income: anchoring a new income distribution system

The essence of a basic income is that everyone legally resident in a country should have, as a right, a basic amount of money, paid regularly (monthly, say) without conditions. It would be paid equally to each individual, irrespective of family status, perhaps with a lower amount for children. Some advocates see a basic income replacing all or most existing state benefits; others envisage a smaller amount that could be paid as an extra transfer, as a form of social dividend.

The idea has a long history and over the years has attracted the support of some illustrious names including Nobel Prize-winning economists. However, recently, a unique combination of factors has broadened its appeal – rising inequality, widespread economic insecurity, the growth of the precariat, labour-displacing technological change and the drift to political extremism. Perhaps the clinching argument is that basic income is fast becoming a political imperative. Unless something like it is introduced, support for populists and demagogues will continue to grow.

A primary justification for a basic income is social justice. Land, natural resources, and ideas that become ‘intellectual property’ are all part of society’s collective wealth, created and nurtured by generations of our ancestors. So, it is reasonable to argue that everybody should have a modest share, a social dividend, in the form of an equal, modest, individual, unconditional basic income.

Framing it in this way should overcome the hypocritical objection that a basic income would amount to giving "something for nothing" – as if private inheritance or a privileged upbringing does not amount to that – or to "lack of reciprocity" (ditto). It also sidesteps arguments about the impact on labour supply (on which more shortly). It is a matter of justice.

A second fundamental justification for basic income is that it would be a transparent, feasible way of enhancing full freedom. Libertarians on the right have come to appreciate this, including the likes of Milton Friedman and Friedrich Hayek, although many have wanted it as a cover for dismantling the welfare state. Advocates of republican freedom, normally on the political left, see basic income as enabling people to avoid domination, and the possibility of domination, by figures of unaccountable power. Either way, many politicians and commentators, while claiming to support freedom, conveniently forget that the chronically insecure are not free. They live in fear.

This leads to the third justification for supporting a basic income. Basic social and economic security is essential for rational decision-making. Yet today, with flexible labour markets and open economies, millions face low and volatile wages and a low and declining probability of escaping income poverty, however hard they work. In the UK and in a growing number of other countries, a majority of the income poor are in jobs. The increasing use of tax credits and the like over three decades has not arrested the upward trend in working poverty. Rather, they have helped to hold down wages, distorted labour markets and provided a subsidy to low-wage employers.

There is also strong psychological evidence that people with basic economic security have greater "mental bandwidth" for reasoned and long-term decision making, are more likely to be tolerant and altruistic towards others, and work harder, more productively and more cooperatively.

Ironcially, for the precariat in particular, moving from today’s means-tested welfare system towards an unconditional basic income would increase the incentive to take low-wage jobs. It would overcome the notorious poverty trap, whereby those dependent on state benefits face marginal "tax" rates of 80% or more by taking a low-paid job. The salariat would take to the streets if they were confronted by such penal taxation.

The situation is even worse than this suggests, since the precariat also face what I have called precarity traps. Because of paperwork and delays in gaining benefits, many unemployed people have a strong incentive to remain on benefits rather than take a short-term job, since they would soon be back queuing for benefits after making very little extra income. By contrast, pilot basic income schemes have shown that people given a basic income increase both paid wage labour and other forms of work.

This leads to an ecological justification. A basic income would reward and encourage forms of work that are not currently remunerated. Care work, voluntary work, community work and the ‘work’ many do in retraining are all statistically unrecognised today, but they are socially valuable, and are not resource depleting, unlike many forms of labour. A basic income would tilt the economic system towards socially and ecologically sustainable growth.

A fifth justification is that a basic income would be a defensive strategy against the march of the robots. Evidence is mixed for the claim that robots and other forms of automation are about to displace human labour on a huge scale, leading to an era of mass unemployment. However, what is clear is that the new technologies are disruptive, have increased the ease by which corporations can redesign and relocate production and labour, and have added to the growing inequality and insecurity. It is those aspects that deserve our immediate attention.

A new breed of protectionists, led by US President-Elect Donald Trump, is threatening restrictions on labour outsourcing to lower-cost locations. This will raise production costs, precipitating an acceleration of automation that will leave the atavist part of the precariat even more embittered and demanding to "get our jobs back". Instead of foreigners and migrants, the new scapegoat may be those robots. Will the Trumps of the world respond by slapping heavy taxes on robots or even ban them?

So, the automation argument should not be dismissed. A basic income system would be a sensible precaution against the possibility of mass displacement by robotization and artificial intelligence. Moreover, it would enable society to share the economic benefits of automation, which after all offers the enticing prospect of displacing many onerous forms of labour. This would free up human time for other forms of work and even more productive forms of leisure, such as civics, art and culture, that might also strengthen our democracies in favour of liberal values and a rejection of political populism.

In sum, a basic income must be part of a new income distribution system. It may take time to build up the funding base. That is why policy-makers must prepare the ground carefully and offer an evolutionary approach, one that gradually dismantles the old welfare system, built in bits and pieces in another era, while constructing a new one suited to our times. The task for the rest of us should be to strengthen the backbones of politicians and the institutions behind them. Basic income is, indeed, a political imperative.

Guy Standing will be interviewed by the editor of the Economist in Davos on 17 January 2017 on the subject of the precariat, and in a session on basic income on 18 January 2017.