Around the world, people are responding to changing economic, social and environmental pressures and discussions are often centred around how best to meet the needs of citizens and reduce high levels of inequality. In the face of increases in politically-motivated homelessness, food bank use, poverty and precarious work – not to mention the perceived threat of automation – the Universal Basic Income seems to offer a panacea for the ills of an exploitative capitalist system and inefficient government (a situation which has been exacerbated by the pursuit of liberalisation and deregulation). A further attraction of the UBI is that is it seen as having the welcome potential to replace current inefficient and unfair ‘welfare’ programmes and remove their associated costs and bureaucracy.
The permanent, unconditional Universal Basic Income (UBI) is described as a sum of money, sufficient to support a decent standard of living, given to every person in society, regardless of their need or existing wealth. It is motivated by the desire to allow citizens access to the capitalist system as it is, by providing an income. For some, it offers hope and comes with great promise since it gives people a stable income to allow them choices in life. It is argued that it frees them from the slavery of work, liberating them to pursue their own interests or money-making projects. It promises people more resources and greater freedom to enable them to rise out of their poverty.
However, we argue that the UBI alone fails to resolve the problems inherent in the economy; it does not address the institutional and structural faults that create inequality which proponents of the UBI are seeking to correct. A UBI doesn’t challenge capitalism, it simply maintains the status quo and allows continued participation in the current flawed system. It cannot provide good incomes and at best, it can only provide a minimum living income. It cannot generate good unionised jobs, healthcare and childcare. We argue that it does not go far enough. Much more is required, in particular, a Job Guarantee – see below.
Everyone has a right to a decent standard of living and the UK government is a signatory of the Human Rights treaties that entitle every citizen access to meaningful employment at a living wage. In the post-war period, UK governments pursued full employment policies and created and maintained a social security system to protect people in times of unemployment, illness, disability and old age as well as the setting up of public structures for publicly paid for free health and education services. State promotion of full employment as a policy objective, plus its involvement in the provision of public services, benefited citizens and provided solid foundations for securing higher living standards for the population as a whole. Ensuring the wellbeing of its citizens in the common interest was seen as a key aspect of the role of government.
Free market advocates never accepted this view of the state and the neoliberal period, post-1980, has seen different ideas come to the fore. We might consider Milton Friedman who argued for a basic income with the precise intention of eliminating welfare payments, social security, public housing, minimum wage laws and public health and social care and replacing them with a basic income. The neoliberal period has seen governments use unemployment as a deliberate policy tool to control inflation and to use unemployment as its price anchor. However, Modern Monetary Theory demonstrates that the price level in the economy is ultimately under the control of the currency-issuing government, as it is the monopoly issuer of the currency.
Whilst both the Universal Basic Income and the Job Guarantee seek to resolve the same problem the macroeconomic consequences of each would be very different. The Job Guarantee is a public sector option for employment paid at a living wage to anyone willing and able to participate. Funded by central government and locally administered as a permanent scheme, it provides the non-profit sector with additional labour, acting as a buffer stock in either the standard public sector or private sector. See GIMMS’ factsheet on the Job Guarantee.
Whilst MMT establishes that the government has the ability to finance both the UBI and the JG as stand-alone programmes, the UBI is an income for doing nothing, whereas the JG is a participatory income in exchange for contributing one’s time to public purpose. This is important as a mechanism for the government to preserve the value of its currency, as ultimately, the currency is worth, at the margin, what one must do to obtain it from the government. If a UBI were to be paid at a high enough rate for people to live on and pay their taxes, directly or indirectly, it would introduce moral hazard as it removes the monetary need for anyone to work.
This would mean that the government would no longer be able to use its currency to provision itself with the workers it desires to provide the public services necessary for it to fulfil its mandate to provide public infrastructure to serve the public purpose. Nor would the economy be able to hire workers to produce goods and services for people to purchase with that currency or, said another way, if supply capacity in the economy were to decrease due to a lack of workers and incomes increase it would create hyperinflationary pressures. Firms would raise wages (and prices) in an attempt to attract workers who have no immediate need to work. The universal basic income would not ultimately give the desired standard of living and would instead erode the value of that income. As Warren Mosler says, ‘If you (the economy) don’t have to do anything to earn the currency, it’s worth nothing.’
A JG, on the other hand, serves two very important macroeconomic functions; it acts as a price anchor to subdue inflation as it promotes the transition from unemployment to private sector employment and also provides a wage floor for the labour market, below which nobody can fall. It sets a conversion rate for what the labour is worth in currency. For example, a JG paid at £10 an hour would provide six minutes of labour time per £1, connecting the power of the currency and the power of labour thus anchoring the value of the currency in people. Furthermore, whereas the JG resolves the problem of involuntary unemployment and disciplines inflation, a country that had a UBI at a living wage would risk facing the need to either reduce its spending or raise taxes to control inflationary pressures which translates into reducing the UBI income to a level sufficiently below a living wage. This would create unemployment, so that some of those who want to work would have to be unable to find employment (and thus have a reduced income) in order to keep inflation under control.
In contrast to the UBI which doesn’t help control inflation, the JG also provides a counter-cyclical mechanism for maintaining total demand for goods and services in the economy in response to changing economic conditions. It helps to smooth out demand over time and enables nations to weather the cyclical downturns which are an unavoidable feature of modern economies. The societal cost of unemployment and low incomes is already substantial and damaging. A UBI has the potential to increase those costs as it would put families under tremendous pressure to find additional income from precarious part-time work. The empirical evidence of the advantages of having a job are well researched and charted and are also not just related to having an income.
A major concern of people who oppose the UBI is the effect on income and wealth inequality. The fear is that giving additional income to the already well-off will add to their income and tempt them to use their UBI to purchase assets; property or shares. Furthermore, a UBI of £20,000 per annum might provide a decent standard of living for a short time but would quickly be eroded by inflation and create pressure on individuals to find additional income. A Universal Basic Income in the hands of politicians concerned about the public finances or desiring to deliver an ideologically motivated agenda could replace much of the existing social safety net and welfare support as they seek to cut or cancel expenditure on social programmes. Indeed, that has been a motivation for some basic income trials already. The UBI is often referred to as being a neoliberal ‘Trojan horse’ designed to continue to allow the market to dictate the level of employment and as such it would do nothing to achieve its supposed aims. It would instead leave many people behind and ultimately deny them a decent standard of living.
Unemployment is currently used as a threat to discipline workers to accept poorer wages and conditions as the current employees can be replaced if other people will take the work. With a Job Guarantee in place, public sector work would always be available as an alternative and would become the labour standard. This would mean that if a firm fails to equal or improve on that standard, workers would be in a position to leave their jobs and take up a JG role, thus disciplining employers and not workers. A JG makes firms compete for workers, not workers compete for jobs. The JG aims to redefine work by tying the labour standard to the public good and not to profit-seeking. By redefining what constitutes “work”, a JG would enable communities to provide low carbon, public purpose work to meet their identified local needs.
One criticism of the JG is that it might be disruptive to the private sector because it would have to outbid the JG for workers. This could be resolved by beginning with a lower non-disruptive JG wage, accompanied by a policy of gradually increasing the JG wage over time. Businesses would continuously benefit from having customers with higher incomes to spend into the economy on their goods and services. The simple truth is that the private sector cannot provide jobs for everyone who wants to work given the current fiscal balance and institutional structure. The JG offers both a mechanism for supporting those who have been involuntarily unemployed in their efforts to find private-sector employment and provides the necessary automatic stabilisers during the economic downturns capitalism is regularly prone to.
The JG scheme applies to all those ready, willing and able to work. It gives everyone the opportunity to contribute to society and access the fulfilment that a job provides alongside all the additional benefits of employment such as enhanced self-esteem and vital social networks (see JG factsheet). People value the many benefits that come with working at any activity that they get fulfilment from. They often want to feel valued and be part of something bigger. A JG ensures that this need can be fulfilled. Unlike a UBI, a JG enables individuals to be part of their communities. It offers everyone, whoever they are, whatever their status, the possibility of training to develop their skills and make a valued contribution to the society of which they are a part. It ensures that all can be a part of a working community and not passive recipients of an income which commits them to dependency. Studies have shown that, when asked, most people prefer the varied benefits of employment as against the prospect of a universal basic income and staying at home. The JG would sit alongside other welfare payments necessary to support those disadvantaged by disability or homelessness. The needs of people who are unable to work are a separate issue from the provision of jobs for those who are willing and able to work.
Those advocating a UBI should take a cue from children who when asked what they want to do in life come up with ideas like being a nurse, fireman, teacher, doctor, writer or artist. Invariably they don’t usually want to sit at home and do nothing! They want to do something of value and make their contribution to the society in which they live.
Finally, we might consider a Basic Income. As opposed to a Universal Basic Income, Basic Income provision is a policy for providing income to those who don’t have a job and are not willing to work (and who may currently receive inadequate unemployment compensation) to ensure that they can meet their needs. The objective of this being to avoid anyone living in poverty, as this itself creates costly and damaging consequences for society and individuals. This would operate alongside a Job Guarantee and would ensure everyone in society could meet their material needs. It would provide a base level income, which although not at a poverty level, would be below the level of the Job Guarantee wage in order to incentivise people to take a JG position.
Further information:
Job or Income Guarantee – Pavlina R Tcherneva. Working Paper 29, Center for Full Employment and Price Stability, Kansas City, MO, August 2003. https://pdfs.semanticscholar.org/3172/bb4c545b54c243953e0b5fab78d65c24b8d3.pdf
MMTed Q&A – Episode 5