Slovenian version

Uroš Boltin

Ljubljana, Slovenia, July 2005

(English text December 2005)

1. Introduction
2. Unemployment
3. Transition
4. End state
5. Idlers
6. Globalization
7. Conclusion

1. Introduction

Universal basic income (UBI) is a way to take from the rich and give to the poor. It's not the only such mechanism. We've invented plenty of them, because we believe, that liberal capitalism does not produce socially fair wealth distribution, and we wish to correct it.

This article is not about defending this effort. It's not about if and how much to do it, it's about how to do it - in whatever extent we choose to.

The question is, whether to adjust the machine, which is yielding such an unfair distribution, or to correct the output outside the machine. The intention of this article is to argue, that it is much better to do it outside the market machine. UBI is the best way to do it. I believe that its introduction will be inevitable sooner or later, at least for the developed world.

UBI is an income which the state gives to all citizens in equal amount on a monthly basis, regardless of any other incomes or their activity. Of course, this means higher taxes and lower wages. It also replaces the existing social supports, which one receives on condition that he/she doesn't earn anything. The main goal here is to suppress the unemployment by a) removing this condition, and b) lowering the price of labor. The idea is not new, but it's gaining ground slowly. Its most noted advocate lately is Philippe Van Parijs. The only place where UBI is a reality today is Alaska (1680 US$ annually in 1999).

See also http://www.etes.ucl.ac.be/BIEN/Index.html

First, of course, the question is, if at all and in what extent we apply the correction of wealth distribution. If we are not doing it yet, then UBI is bringing it. Else, this is only about replacing the existing mechanisms. The situation is different in different countries. Roughly, there are two possibilities.

1. In the USA this is an ethic dilemma: to take more from the rich and give to the poor or not? Actually a dilemma whether to adopt a more "European" view of social justice. Given the American tradition, it won't go easily. Also, the economic problems in Europe are not exactly an encouraging example. America will probably wait, until we give a better example in Europe.

2. In Europe we have decided long ago, that fair wages are higher than the market price of labor (as would be formed by demand and supply), and also that the jobless need to be somehow taken care of. What is left is a technical question how to do it. High unemployment shows that the current approach is not very good. UBI offers a different approach to achieve the same goals. In Europe, this is more technical dilemma. Of course, there are some ethic dilemmas still left, but the problem is much smaller than in America.

 

2. Unemployment

So let's start with Europe, where the outlook for UBI is better. The main economic problem of Europe is unemployment. Usually we are told that the recession is to blame for it. That the economic growth would solve the problem. And look indeed, when a country with 10% unemployment comes out of a negative cycle and reaches 2% growth, the unemployment falls down to 9.5%. Conclusion: all we need is a 40% growth annually and the unemployment will vanish! If the Chinese manage 10%, why couldn't we be at least four times better!

This linking of unemployment to economic growth reminds me of problems with detergent supply back in communist times. There was a time when the detergent was only available twice a month. Then we worked harder, we achieved new "working victories"... And the result? The detergent was available three times a month! A proof, that we were on the right course, all we needed was to work even more diligently... Until we realized, that the problem was in the system and changed it. Today I can pick from 20 different brands of detergent anytime, regardless of working victories or defeats (which are now called recession).

Equally so, we won't get rid of the unemployment only by "working victories", i.e. the economic growth. So, where is the flaw in the system? We just need to realize, that the wage and the living standard can be two different things. The wage is the price of labor. The demand and supply on a market always meet if the price is right. There is no reason, why this wouldn't be the case on the labor market. Although some studies show, that the supply side here is rather rigid and that the labor is a rather specific market player, the demand side is no doubt elastic enough. For a market to function, that is enough.

The problem is, that we don't like the wage so established, since it is not "fair". Therefore, we correct it by various regulations and trade union pressures. Of course, if we identify the wage with the living standard, it is difficult to object this (at least in Europe). But right here is the catch. It's the living standard (not the wage!), what should be fair, whatever we mean by this. The wage is just a toothed wheel in a market machine, which should be big just enough to fit into the machine to run smoothly. It's pointless to discuss the unfairness of the fact, that the toothed wheels in a machine are of different sizes.

So, it's the fairness of the living standard we need to take care of. Part of it, of course, is the wage. If wage alone is too small, something needs to be added. That is UBI. Of course, there is nowhere else to take but from businesses. The question is, how to take. We certainly do less damage if we take by a neutral tax system, rather than if the state interferes with the labor market by regulations. The total financial burden is equal, but here there is also a collateral damage. Not only does this throw the labor price out of balance, it also makes the labor market more rigid. On an unbalanced labor market, piles of regulations and trade union pressures are needed to sort out things which, on a balanced market, would simply be resolved by the principle: "If I don't like something, I go elsewhere.".

Liberalization of the labor market does not necessarily mean less social society. But we need a social state, not a social economy. Social concerns belong into the state budget, not into the labor legislation. Market economy is a powerful working horse. It can carry a heavy social burden. It only needs to be loaded properly, preferably on its back rather than dangling among its legs.

Of course, if you ask the horse (the business people), it would prefer to jump across the meadow without any burden. So, low taxes and low wages. But if that (in Europe at lest) is not an option, also because the meadow doesn't only belong to the horse, it might still be a good idea to think over the way of saddling.

 

3. Transition

In the current state, the labor market is completely out of balance. Relaxing this overnight would of course be a disaster. A precondition for deregulation is first a controlled lowering of labor prices toward some equilibrium values while simultaneously introducing and then increasing the UBI. While doing this, we would in the first phase probably try to keep total incomes (after tax wage + UBI) roughly around the initial value.

Later, the movement of UBI would split from wages which would gradually float on the law of demand and supply while taking off the regulated lower bounds. Of course, in deficient professions, this would happen sooner. Some proportions among wages would have to be corrected.

The final goal is a totally deregulated labor market, where social security is not tied to a particular employer and not relying on legal protection of a job. The latter type of social security is discriminatory, since it is not available to everyone, but only to those who already have a job. With UBI on the other hand, social security would be partly (in minor part) provided through UBI, while in major part through a balance on the market, where every (at least healthy) person can always find a job. For the handicapped, of course, additional state mechanisms would still be in place, much like now.

 

4. End state

A balanced labor market means that politicians will deal with the unemployment about as much as with the detergent supply, i.e. not at all. The problem just won't exist. But of course they will still deal with the dilemma of social justice, i.e. with more or less egalitarian society. Only the mechanisms will be different, not by interfering with the labor market.

Indirectly, UBI will still be connected to the labor market, but the dependence will be one-way. The state will not regulate the wages, just like it doesn't regulate the prices of stocks or gold. But it will react to their average movement by adjusting the UBI. If wages go down, the labor expenses will be smaller burden for businesses. It will be possible to rise taxes and prevent the fall of living standard through higher UBI. Or conversely, if labor price rises, the state will be able to lower the UBI and alleviate the tax burden for businesses.

This of course applies for the average burdening of economy. We'll have done nothing if the taxes are too directly related to oscillations of individual wage. But without it, for individual business there can not be a perfect burden compensation for market oscillations. Anyway, the compensation is not meant to be perfect. When it comes to long term trends, the structure of economy will have to adapt to the needs of the labor market. On the other hand, for hedging against short term oscillations, an appropriate futures market could be used. Among hedgers, the labor intensive branches will probably be on one side and those less intensive on the other.

Through such oscillations, even the diligence and laziness would get their market value, rather than their value being administratively set using some moral judgments. When the demand for work is smaller, the market will indirectly (through higher UBI) reward those who withdraw from the market, leaving their job to someone who needs it more. When, on the other hand, the demand is higher, the laziness will be less welcome, which will be reflected in falling UBI.

Perhaps we could protect ourselves from irresponsible (e.g. pre-election) rising of UBI, if the level of UBI were not determined by the government or parliament, but rather by the central bank, much like the interest rates. Keeping the desired inflation and budget deficit in mind. Politics could only decide about UBI level indirectly, by determining the tax rates. (Of course, this is not possible in the initial phase, while UBI is still tied to controlled lowering of regulated wages.)

 

5. Idlers

Today, people are largely suspicious about the idea of UBI because of the dilemma, is it fair, that also "the idlers get this gift". The lazy people, of course, are a small minority of the unemployed. Most would wish to work, but they can't find a job. Even bigger is the number of those who work. UBI is about all of them.

The economy needs labor. It is very unlikely therefore, that the UBI (which indirectly is the market value of laziness) would soon rise high enough, that a large part of population would no longer wish to work. Although the unemployment problem will also be partly solved by voluntary withdrawal of some from the labor market, it will mainly be solved by increased demand for (cheaper) labor. Most people will be economically active. UBI is, first of all, a mechanism to regulate the relations among the active. The level of UBI is determined by the market price of labor and by our perception of fair total incomes of the employed (within budget limitations). The fact, that also the unemployed get it, is a side effect.

Van Parijs and many others, however, address the matter from another end. For them, UBI is primarily a way to help the unemployed and to offer some certainty to those potentially unemployed. The need for the employed to get the UBI is primarily attached to the possibility of them becoming unemployed and vice versa. This reduces the uncertainty of an individual and his/her dependence on the employer. Therefore, they wish to calculate the level of UBI based on minimal life expenses assuming that someone needs to survive on this income alone.

On the practical level, there is no big difference here. In the developed world at least, the "market established" UBI would suffice for survival anyway. (A living standard which makes someone content is another matter, of course.)

Some less developed country could not afford this request so easily, given the ratio between the economy strength and population number. If they still wanted to take care of the unemployed this way, they would probably have to annihilate the benefit for the employed by income tax which would be strongly regressive in the lower part of the scale. Anyway, cutting the labor price is not what they need.

There is a difference, however, on the principle level. It is more difficult to argue, that "the idlers will be given as much as they need." It is easier to say, that they will be given as much as everyone else gets in no relation to one's contribution. If something does not stem from work (or at least so the market says), there is actually no reason, why the non-working should not be equally entitled to it. Otherwise, someone else is claiming their share.

What "stems from work" and what doesn't is to some extent relative, depending on market fluctuations. But we are used to this in capitalism. When there is higher demand for something I make, than for something my neighbor makes, then I'll make more money. Even if he works equally so hard and even if his products were more revered yesterday. We have accepted this as approximately fair. After all, we have no less bad orientation to determine the differences in earnings. That is just how capitalism works. So if we understood UBI as the market price of laziness, we could somehow accept this.

Whether this suffices to someone for survival or not is actually his or her problem. On a balanced labor market, everyone can always find at least occasional earning if in need. This adds on top of UBI, together it should suffice.

* * *

What people perceive as just is to some extent relative, depending on one's interests. We like to believe that we are unbiased when it comes to justice. That is why we need principle philosophical arguments primarily as a wrapping for our standpoint. But actually, we'll much easier embrace a view which is good for us. We'll tolerate idlers all right, if that is good for the rest of us. But as long as we doubt about it, the philosophical arguments are not enough.

Most people are poor and diligent. Those ideas which are good for the poor and the diligent have advantage in the start. It is not difficult to sell their "fairness". The rich and the lazy are in minority. What is good for them is suspicious for majority by default. In the most extreme form this leads into communist ideals.

The capitalism managed to prevail because people have realized that tolerating the rich also serves the poor well, even if it serves the rich better. Although, to get off our conscience, we need a philosophical argument, that it is fair for someone who contributes more to harvest the fruits. But this is primarily a wrapper for the prevailing interest.

Equally so, the UBI will be perceived as a fair system if the diligent realize that tolerating the lazy is also good for them. Simply because the system, described above, works more smoothly than what we now have. And that their jobs will go overseas if they continue to overprice their work.

Once we comprehend this, we'll need theoretical justification, why this is fair (as a wrapper). Here, Van Parijs and others have done a huge and precious work. This is particularly important because, unlike with capitalism, so far we don't have a good example of UBI system implemented, to see that it works. (Alaska is too untypical place. Also, their UBI is probably too small to significantly influence the economic system.) When purchasing a product we don't have experience with, the wrapper is even more important. But of course, our expectations are tied to the contents.

 

6. Globalization

The Asian competition only poses a threat to European economy because our current version of social state does not allow us to adapt. If we are flexible enough at the labor price, there is no reason why our production capacities could not be fully exploited. So, we can produce (and sell) as much as we physically can. If we get some gift on top of that (e.g. from the central bank of China, financing the trade surplus), we'll simply consume it all and live better than we would without this gift.

But then in the latter case, we'll be less dependent on what we produce ourselves. Then it will naturally be less important, how much each of us contributes to it. So it is logical that falling labor prices lead into more egalitarian society (through higher UBI). Not at expense of a free market, but rather as a result of its working.

100 years from now, Europe will no longer be able to afford much higher taxes and higher UBI than Asia. But as long as our buying power is so much bigger than theirs, we are developed and they are not. This privilege stems from inheritance, not from the value of present work. Therefore it will be easier to defend it as such for a while, rather than to maintain the huge difference in labor price. On the global market, the wages for comparable work will level much sooner than the GNP per capita. The latter is taxable one way or another and can reflect in the UBI.

If we adapt this way, there will be no more need for customs and other trade barriers. We can have more cooperation, with European and Asian economies developing complementary and both sides benefiting.

In spite of all, we might not save e.g. Europe's textile industry on a longer term. But it will only perish after it runs out of workers. Because they'll find themselves better paid jobs or (at high UBI) voluntarily stay at home. Of course, complementary development means also, that some things will no longer be done in Europe. But this can only happen to some branches if others are more successful. Otherwise, the labor price would simply fall down to Chinese levels, causing very high UBI. Which would after all still be no catastrophe. But that won't yet happen tomorrow.

But, for this to work, we might first need to come to senses about insisting on the Maastricht criteria. Otherwise, the never sated safes in Beijing could bring us huge deflation. But this is a soluble problem. If it suits everyone, why create an unnecessary problem? If it suits the Chinese to work instead of us, there is no point fighting it. After all, there was no firm promise made, how much those euros will be worth in 30 years, if they choose to cash them. In such circumstances, it might be wise to have a percent or two higher inflation. So that the gift is really a gift.

It is also possible that once in the future, we might transitionally (for a decade or two) live in a world, where free movement of people across the globe will be possible. Wages for equal work will be more or less leveled thus preventing too big migrations, especially if the prices in Europe will still be higher. What will not yet be leveled, is UBI, which will (at least partly) be tied to citizenship rather than to residence. This way, the citizens of the old developed word could partly prolong perhaps for another generation the privilege which we now have by birth. The fact is that we won't give it away just overnight, whatever one might think about the ethics of it. While for people from poorer continents, such discrimination might feel less painful than administrative restrictions of movement and economic cooperation.

 

7. Conclusion

Social justice is certainly a positive goal for the society. But every goal is best achieved by the means and tools designed for the purpose. To cook the lunch, one won't use the washing machine.

Capitalism is not a machine for production of justice. It is not designed for a fair distribution of wealth. But it can do many other things. It can produce wealth optimally. But first of all, it can balance the demand and supply of almost anything if allowed.

There is no point in adjusting the capitalism to be more just. Let the machine do, what it is good at. Let's not pour the sand between it's wheels! Let it take care for the market balances and for production of wealth. While for correction of fair distribution, we should use another, more appropriate device. UBI is very convenient for the purpose. Let's not push justice through the market mechanisms, let's bypass them.

Let's not "repair" the washing machine if it can't roast the beef! But we don't need to starve for that reason. Let the washing machine wash the table-cloth and let the oven roast the beef.

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