by Citizens' Income Trust | Oct 16, 2012 | Opinion
Neil Fraser, Rodolfo Gutiérrez and Ramón Peña-Casas, Working Poverty in Europe: A Comparative Approach, Palgrave Macmillan, 2011, xx + 342 pp, hbk, 0 230 29010 5, £60
This data-packed book is one of a series of publications to emerge from the EU-funded Programme on Reconciling Work and Welfare in Europe (RECWOWE). The programme’s context is the tensions between work and welfare –
the tension between employer demands for more labour market flexibility and citizens’ need for economic security; the tensions between the increased participation in paid work and the importance of family life, the greater fluidity in family relationships, and the greater flexibility in the labour markets; the friction between quantity and quality of the jobs to be created, between job creation and maintaining or improving the quality of employment and finally the conflicts raised by the need to adapt (industrial) social protection systems to new labour market structures (p.xviii)
and the programme’s task is to understand the relationship between work and welfare in the many different national contexts across Europe. This book’s task is to understand in-work poverty, and in particular the institutional and policy factors which affect it. The editors identify as particular worries the growing segmentation and casualisation of employment and the downward pressures on the wages of low-skilled workers (p.3).
The first part of the book offers comparative statistical analysis of the situation across Europe. Amongst the conclusions are that in the UK in-work poverty is caused both by partners’ low labour market participation and by low wages (p.32) and that in an era of high unemployment active labour market policies cannot on their own prevent poverty.
The second part contains chapters on various countries. The chapter on the UK concludes that working poverty is rising, that it is due mainly to low work intensity (p.91), and that means-tested in-work benefits have kept in-work poverty down to average European levels, which our earnings inequalities would otherwise have taken us above.
The third part of the book tackles cross-cutting themes and finds high mobility (in-work poverty is often transitory and recurrent) (p.199). Studied as individuals, women more often suffer in-work poverty than men (a fact not often noticed because so many women are in households with men) (p.229), that standard of living inequalities correlate closely to individual wage inequalities (p.246), and that in-work poverty is higher amongst non-EU migrant workers than amongst migrant workers from within the EU (p.271). A chapter on the effect of tax and benefits policies on in-work poverty finds, unsurprisingly, that means-tested benefits mean that higher earnings often don’t translate into higher disposable incomes (p.281). It also suggests that there is a trade-off between redistribution and employment incentives, and finds that in-work benefits can cause a particularly acute disincentive problem for a household’s second earner, resulting in adverse effects on the incentive structure for couple households (p.302). The authors find that incentives are not an important determinant of employment rates amongst the low-skilled. In countries where work pays the least, in-work poverty is lower because general anti-poverty policies reduce in-work poverty as well as out-of-work poverty, and that in-work benefits most effectively increase employment and reduce inequality where wage inequalities are high. The authors ‘question the political pertinence of an instrument whose effectiveness is greatly reduced when approaching its apparent objective’. It is stating the obvious to suggest that in an economic downturn the priority should be generous universal unemployment benefits (p.302).
In their overall conclusions, the editors find labour market activation policies to be expensive and relatively ineffective, and the UK’s in-work means-tested benefits expensive and a source of disincentives, particularly for a household’s second earner: ‘Research … does not indicate a strong effect overall on employment levels in spite of claims to ‘make work pay’. This is likely to be affected by other aspects of the institutional context, notably benefits for those not working and the conditions attached to them.’ (p.314)
This comprehensive and thoroughly-researched book quite rightly offers no simple political programme for the reduction of in-work poverty. What it does offer is a sense of the complexity of this policy field, and a source of information and properly tentative conclusions which anyone attempting to develop policy in the field really ought to read.
by Citizens' Income Trust | Oct 15, 2012 | Opinion
The debt crisis persists. Bankruptcy is more common now than ever before, with bankruptcy attorneys in Harrisburg PA, and attorneys all over the world, dealing with increasing numbers of clients searching for advice on their debts and money worries. In the US, the Eurozone, and the UK, politicians are implementing dire austerity packages in order to reduce government deficits. Greece and Italy may be in the worst position, but the phenomenon deeply affects the majority of developed economies.
The new circumstances have led to the increase in the need for a debt collection agency for most banks. On the other hand, debt can quickly become overwhelming for companies who rely on business finance to stay afloat. If you’d like to learn more about ensuring your cashflow management system is as robust as possible in order to keep your business at its best, take a look at these debtor management tips.
Faulty thinking
How has this come about? The popular answer trotted out as the daily news mantra that governments have been reckless, bankers have been greedy, and consumers have been overspending, is too simplistic. The problem has deeper roots and causes, and will continue unabated unless these are better understood and addressed by policy.
Current talk is entirely monetarist. Economics is reduced to some sort of meta-accountancy. Keynes is derided by people who have never read him. Leading economics media commentators often have no formal economics training or degrees. Economics degrees themselves have often been restyled as ‘economics, finance and business’ degrees. The British Chancellor of the Exchequer tells the nation that it ‘cannot afford’ economic activity, which has to be cut because we simply ‘don’t have the money’. But the real economy is about real resources of people, skills, infrastructure, technology, land. All of these are available.
Standing back for a moment, isn’t it curious that human societies allow the money that they themselves create as an artefact to serve the real economy, then allow it to dictate their real economic behaviour? The tail really is wagging the dog. In the present structure, governments must raise money from the bond markets, who insist on repayment at interest rates which these markets determine according to their own level of confidence. Thus society and its governments are entirely subject to the prescriptions of bond dealers and credit rating agency speculators, who have no remit or capability in social leadership and management. Curious again, that UK political comment which is so troubled about ‘handing sovereignty to Brussels’, and to non-elected technocrats, is entirely supine in handing far greater sovereignty to bond dealers and credit rating agencies. Standard and Poor’s, Moody’s, and Fitch are entirely unelected and lack any democratic accountability, and yet are allowed to sit in easy judgment on our total economies, and to determine their prospects and scope for action. We can thank Michel Barnier, the EC Internal Market Commissioner, for seeking to constrain them. He deserves our support.
Rethinking money
We need a new paradigm in which we understand money and financial agencies as servants rather than as masters of the real economy. Money is virtual, not real. It does not obey the laws of thermodynamics : it can be created or destroyed. Commercial banks do this regularly. They operate lending ratios whereby they lend a multiple of the deposits lodged with them. Market economies ‘print money’ all the time in this way as a regular practice. A sustained total run on the banks would always cause them to collapse. The system is supported only by confidence. The only rule is that the amount of money in circulation has to be matched by real output, if its value is to be maintained. To allow monetary factors to determine policy for the real economy is like trying to drive a car by bending its speedometer needle.
An alternative diagnostic
So what alternative diagnostic of the ongoing debt crisis is available? A thought experiment might help. In an imaginary totally automated economy with no workers, there would be no wages, and therefore no effective monetised demand. Goods and services would therefore have to be allocated by government to consumers by some voucher or shareholder mechanism. As Bob Crow, the RMT union leader put it in his ‘Lunch with the Financial Times’ interview in March last year, ‘if you have robots build cars, how are robots going to buy them?’.
A more erudite version of the same concept comes from Professor Robert Solow, a distinguished emeritus professor at MIT and Nobel Economics Laureate, who points out that with burgeoning production from advanced technologies ‘the wage will absorb only a small fraction of all that output. The rest will be imputed to capital…the extreme case of this is the common scare about universal robots : labour is no longer needed at all. How will we then live? ….The ownership of capital will have to be democratised…(needing) some form of universal dividend…Not much thought has been given to this problem’ (in ‘Revisiting Keynes’ by Pecchi and Piga, MIT Press 2010, p92).
In this scenario, the total voucher spend by the government would represent an unavoidable debt which would never be paid off. We are not there, but we have strong elements of this scenario in our modern technological economies. The delinking of productivity and real wages makes debt inevitable, with people left trying to figure out how to dispute collections in an attempt to continue some sense of normalcy in their lives.
A general diagnostic for technologically advanced economies then emerges that whenever productivity exceeds real wages, and if the difference is not fed through to consumer demand via increased shareholder dividends or social transfer payments, then consumer demand will be insufficient to purchase output GDP. In this situation, which can and does occur, the shortfall in consumer demand can be made up by extended consumer credit and welfare payments, or output GDP can be cut in a recession. The diagnostic bears some resemblance to Marx’s and Keynes’s thinking on the implications for technology, automation and productivity on the economy, but should not be dismissed for this honourable association.
A recent history of the problem
2007 was the root of the present crisis. If we go back to UK economic data then, we find that between 2005 and 2007
- GDP and consumption continued to grow but household disposable income flattened
- in 2007 real household disposable income grew by only 0.1% whilst GDP grew by 3%
- household disposable income reduced as a percentage of consumption from 78.2% to 74.7%
- the gap was met by increased household credit which grew from £17bn to £55bn
This is shown in the following graphs (where ‘household borrowing’ refers to new household borrowing in each year):
The familiar dramatic increase in household credit is less apparent in the scale of the above GDP diagrams but is evident when graphed alone in the following diagram
£55bn new consumer debt in 2007 became essential to fund the purchase of output GDP. Without it GDP would have fallen due to decreased effective demand, and employment, wages and income would then have fallen as a consequence.
Vicious circles
The current system faces two alternative vicious circles, either that
1. increased productivity reduces the wage and household income element of GDP and this demand drop leads to a GDP recession
or 2. the demand gap is filled by increased consumer credit and government debt to fund welfare payments, which becomes un-repayable in the next period.
Neither is sustainable and leads to banks reducing consumer credit, and government cutting the real economy in the mistaken belief that this will eliminate its deficit. This is where we are now, and without a radical rethink, we will be chasing our tails for ever in the doomed attempt to write off deficits from an ever shrinking GDP. Those who call for increased government expenditure under a Plan B to raise GDP (which would have the effect of raising the tax take and reducing welfare payments and hence reducing the deficit) are derided by their critics who ask how it can be possible to incur debt to reduce debt. But the coalition’s Plan A insistence on cutting the economy to reduce the deficit has to explain how GDP can be increased by cutting GDP.
New thinking
An alternative paradigm is needed to frame an alternative policy. There is nothing wrong with the real economy. Its factories, transport and communications infrastructure, skilled labour, restaurants etc. are all fully operational and highly efficient. There is also plenty of real demand for goods and services, especially globally from developing country consumers. It is purely the financial system which is disabling the real economy, and it is the financial sector which therefore urgently needs re-engineering.
It is commonly said that banks lent too much credit in 2007, firstly in the US sub-prime mortgage market, and then widely in the UK economy. But the above analysis shows that £55bn of bank lending was exactly the right amount needed to purchase GDP output, a claim which is substantiated by the lack of inflation in goods and services markets both then and throughout the NICE decade. It is true that asset prices inflated, but this resulted from any credit beyond that £55bn. The £55bn consumer credit matched against GDP output was non-inflationary.
Distributive considerations
Productivity growth in excess of real wage growth, and the gap between consumer income and GDP output that this produces, has distributive consequences. Between social groups, it tends to disfavour the poor, who rely more on the wage element of income, who suffer the loss of low-skilled employment when automation displaces labour, and whose access to credit as a replacement for wages is weak. Welfare payments are their only recourse. Surprisingly, the Institute of Fiscal Studies report ‘Poverty and Inequality in the UK: 2011′ shows that increased welfare payments did overcome income disadvantage. According to the IFS study, child poverty at 20% is now the lowest since 1985, and pensioner poverty is currently lower than at any point in the last 50 years.
The sectoral distribution of GDP is also affected by automation. Manufacturing employment and real wages per unit of output will fall, and much of this employment is transferred to low wage service sectors of the economy, only some of which, like banking, are subject to automation and productivity improvement. From anecdotal evidence, increased low productivity, low-wage service sector employment has absorbed employment reduction in more automated manufacturing sectors, and masked the effect of productivity in reducing aggregate real wages. Population growth is another factor masking the demand deficiency resulting from the delinkage of productivity and real wages.
We could of course take the view that reduced consumption is exactly what we want as part of a new ascetic paradigm to conserve world resources. Competition for natural resources from China and India may well force this choice on us anyway. But if we do pursue this option, income redistribution to those newly unemployed through productivity gains unmatched by new demand will be an essential part of the paradigm. Some form of welfare payment which does not add to government debt would be needed.
A Citizen’s Income – the only route to stop debt being inevitable as productivity grows
If it is accepted that the delinkage of productivity and real wages will make an element of debt financing inevitable, then a possible way forwards is a non-repayable financial instrument, a universal credit. This would have to be non-repayable at both consumer and government level. Proposals for a citizen’s income are longstanding. Such an income would not be repayable by the consumer and could be financed without incurring government debt. This could be done by creating a public sector bank with a government deposit, and a lending ratio set to exactly meet the shortfall between output GDP made possible by increased productivity, and flat or declining real wages. If the £55bn incurred as consumer credit in 2007 had instead been funded in this way then the economy would not face the crisis that it faces today. We have to think outside the box. Calls for a plan B are stuck within the present paradigm. This new paradigm would re-engineer the financial sector and the management of inevitable debt. It would release the real economy from artificial financial constraint, and deliver sound finances built on productivity advances. It would also greatly enhance social cohesion.
by Citizens' Income Trust | Oct 14, 2012 | Opinion
Marion Ellison (ed.), Reinventing Social Solidarity across Europe, Policy Press, 2011, xv + 270 pp, hbk, 1 847 42727 4, £70
Social solidarity is ‘a contested, fluid, multilevel and multifaceted concept within the European polity, civil society and the public realm.’ This volume treats this solidarity as ‘a lived experience, a shared learning experience and a normative construct,’ (p.11) at the heart of which is a conflict between the EU’s Stability and Growth Pact, with predictable inequalities resulting from competitive labour markets, and a European Social Model predicated on human rights and social protections from the inequalities generated by both a globalizing economy and such policies as the Stability and Growth Pact. In the context of today’s austerity measures, the book seeks both an understanding of social solidarity in Europe and new means to create an enhanced social solidarity, nationally, within Europe, and globally. So is globalization a problem to solidarity? No. There has been no ‘race to the bottom’ amongst European welfare states, and people still find their solidarities in their families and communities. And yes, in the sense that national institutional solidarities now need to be supplemented by transnational ones, such as those generated by the EU.
Different chapters study what solidarity might mean in terms of social policy related to children, social movements (such as trade unionism), energy policy, immigration integration policy, and a European politics in which policy instruments might reduce rather than enhance social solidarity simply because the political process will always prioritise certain interests over others. The chapter which describes this last process is appropriately followed by one which shows that in post-communist European states the establishment of market economies has caused governments to discard such solidarities as predictable local labour markets.
A particularly interesting set of empirical results is represented by a table on p.219 which shows how people in different European countries differ in their attitude to government intervention to redistribute resources ( – the UK is midrange), but also that those differences are small compared to average EU acceptance of government intervention. The author of this chapter, Béla Janky, concludes that ‘Eurosceptic claims about the lack of any common ground for a Europe-wide social policy framework are unfounded’ (p.223).
The editor concludes that, whilst there are pressures towards increasing individualization and fragmentation, there are policy areas in which European social solidarity is more of a reality than it was (for instance, in energy policy), and it doesn’t seem unrealistic when he calls for a reinvention of social solidarity on a variety of levels.
Whilst books such as this can sometimes suffer from a sense of fragmentation born of the fact that each contributor has written about the subjects in which they personally are interested, the overall impression of this volume is that there is something called social solidarity and that in terms of its future there is everything to play for. Social solidarity at every level faces challenges, but there are also signs of increasing solidarity in particular policy areas, and that a broader social solidarity is perfectly possible.
by Citizens' Income Trust | Oct 13, 2012 | Opinion
Emma Carmel, Alfio Cerami and Theodoros Papadopoulos (eds), Migration and Welfare in the New Europe: Social protection and the challenges of integration, Policy Press, 2011, xiv + 261 pp, hbk, 1 847 42644 4, £70
The introductory chapter of this timely edited collection outlines the issues to be discussed throughout: policy combinations, institutions and political structures, and the resulting integration and inclusion of migrants. This is followed by a discussion of the role of emotions, beliefs, preferences and opportunities in policy-making.
The first part of the book contains chapters on the differences between different national migrant integration regimes (always the result of different political economics of labour and welfare); on the European Union’s attempt at a coherent migration policy which links utility, security and integration policies; on the contradiction between the right to emigrate and a destination country’s ability to deny entry (meaning that we need a new European migration morality); and on the causes of migration and of different degrees of labour market integration.
The second part contains studies of migration and social protection policies in different EU countries. In Italy, the relative importance of social protection provided to employees in large companies disadvantages migrants, who tend to work in smaller companies. Migrants are also disadvantaged by their weaker position in relation to welfare rights and their security of residence. Germany practises differential inclusion, with guest workers the least included, second-generation German-born people somewhat more included, and ethnic German repatriates the most included. The social security regime, being based largely on contribution records, disadvantages migrants. In Hungary, EU accession has added new elements to an already complex migration pattern.
The chapter on Finland contains the most detailed study of a social security system and its relationship to migration. In Finland’s case residency is a more important criterion than employment status or length of labour market participation. Because immigrants often don’t achieve rights to residency, their access to the main social security provisions remains employment-based and thus precarious, leaving them reliant on a low-level means-tested safety net.
The chapter on the UK, accurately entitled ‘wilful negligence … the absence of social protection in the UK,’ details UK immigrants’ lack of access to the labour market and to social security benefits, and also a detention regime which includes the incarceration of children. The UK has a long history of both permanent and temporary immigration, which has resulted in complex and differentiated labour market patterns. It’s a pity that a detailed case study doesn’t include a section on immigrants’ social security experiences. What does emerge is a picture of insecure recent immigrants and of exploited migrant workers.
The final section of the book integrates into an understanding of migrant experience of a number of disparate cultural and political factors, and here the UK’s multicultural policies fare rather better than our treatment of illegal immigrants and asylum-seekers awaiting determinations of their status. The first chapter in this section asks that welfare right should be viewed in the context of each cultural situation; the second studies the influence of urban, sub-national policy actors; and the third compares Israel’s positive attempts to integrate (certain groups of) immigrants with Europe’s more patchy experience.
The concluding chapter finds social security regulations to be discriminating, and it puts to us the challenge of creating ‘inclusion, integration and social protection’ (p.253) for migrants across Europe. Advocates of a Citizen’s Income approach to benefits reform will recognise this as a challenge which a Citizen’s Income would meet, but only if a Citizen’s Income is to be paid to every current resident, including new arrivals.
by Citizens' Income Trust | Oct 8, 2012 | Opinion
The ‘sensible’ view of Citizen’s Income (CI) is that it would pool income tax allowances and welfare benefits, as far as possible, into a single uniform payment, varying only with age paid to every citizen, without conditions, funded in the main by income tax. This model has been studied extensively, and can be discussed with policy makers and advisors who understand the mechanisms and procedures involved. But politically this is a complete non-starter: In his latest book Future Money[1], James Robertson comments “The conventional assumption has been that there is no way of funding a Citizen’s Income except by taxing people’s other incomes highly, and it might have to be at a rate as high as 70%. For many years that has been seen as ruling out a Citizen’s Income. Like many objections to otherwise desirable proposals, the assumption is due to inability or unwillingness to think outside a narrow box.” (p135)
But over the years I have encountered another radically different view about the funding of Basic/Citizen’s Income. There is, it is claimed, a huge pool of money which has been hi-jacked by the banks: they have used their power to create nearly all the money in circulation and have thereby greatly enriched themselves. Most people are under the delusion that it is governments not banks that create new money, but in fact only 3% of all the money (M4) in circulation is official Bank of England notes or coins. The remaining 97% has been created within the banking system and it is they who reap the benefit. These ‘mavericks’ at our meetings of BIRG (Basic Income Research Group) and then later Citizen’s Income have always argued that this ‘seigniorage[2]’ – the benefit from creating new money – rightfully belongs to the people, and could/should be used to provide a Basic Income. In addition, Robertson reminds us that there is also a vast amount of ‘economic rent’ which flows from the ownership of natural assets like land and airspace. This should be charged for, and together with the proceeds of seigniorage would provide more than enough to pay for an adequate Citizen’s Income.
This ‘free lunch’ basis for CI might in the past be dismissed as either Mad or Bad. It did not help that advocates of money reform who spoke at meetings of BIRG did not always put forward their ideas with much tact either! I say that the idea that BI/CI could be funded by seigniorage might be seen as madness, because no mainstream, conventional economist could be found who would subscribe to it.
But an even more telling criticism is that the holders of this alternative view are Bad people. In a vitriolic attack, Derek Wall, who was once the co-leader of the UK Green Party, lays into ‘Social Credit’[3]. It was Major Douglas who inspired the Social Credit movement in the 1930s, which could be described as an earlier manifestation of Basic Income funded by seigniorage. In the hands of others, Wall claims, this degenerated into an evil anti-Jewish banking sentiment. Even today’s advocates, he claims, are similarly tainted. It is noticeable that the Green Party does not support money-reform, and the NEF are somewhat ambivalent about it as well, perhaps as a reaction to this whiff of ‘dangerous madness’.
Is it any wonder then that Basic Income funded by the common-wealth of seigniorage and resource-charges is seen as too hot to handle, too dangerous to be involved with, the deranged delusions from a lunatic fringe or worse? It comes as a shock therefore to find that James Robertson, the utterly reasonable, and tireless campaigner for fresh thinking about society and the environment, is entirely in favour of seigniorage reform and land- and resource-based taxation. Using the proceeds of these two revenue streams would, he tells us would be more than sufficient to fund Citizen’s Income and more besides.
In this, Robertson’s latest book, he follows up on earlier inspiring works such as The Sane Alternative (1983), Future Work (1985), Future Wealth (1990). Robertson ran Turning Point conferences (which was where, in the early 1980’s I first encountered Basic Income). He was a founder of TOES, the ‘anti’-G8 economic summit forum, and of course he is a leading light at NEF (New Economics Foundation). Later his output has explored the transformation of tax away from penalising earned incomes towards resource-based taxes, especially land-value taxes. Sharing Our Common Heritage: Resource Taxes and Green Dividends (1998) explains how it could be done.
Then, hesitantly at first (as I read it) but later as in this book currently under review, Robertson has experienced an epiphany. It was indeed true that the money-system had been hi-jacked by the banks, and that huge wealth was being diverted to the top 1% thereby; that the control over the issue of new money should be returned to a public authority and used for the public good. Together with Joesph Huber, Robertson became converted to the idea that our money system should be prised away from the clutches of the bankers in Creating New Money: A Monetary Reform for the Information Age. This appeared in 2000, long before the 2008 financial crash. Since then Robertson has continued with the monetary reform theme, something which became much more pressing following the banking crash when vast sums were needed to rescue the financial system. So Future Money is a synthesis which knits together his earlier ideas, with the all-important reclamation of the money system. The aim, as always with Robertson’s books is to show how a credible “sane” alternative could give everyone a better life, while at the same time creating an ecologically sustainable world.
Robertson has a wealth of experience in the ways of government and governing, including spells at the UK Treasury and commercial banks, but his background is in Arts, not economics “In retrospect, I am glad not to have had a formal education in economics and money and to have learned about them in practice later within a wider context of ideas.” (p13)
Since Robertson has long been a supporter of the idea of CI, it comes as no surprise when he says that these revenues should be used in to fund a “Citizen’s Income payable to all citizens as a right. [..] It will recognise that responsible Citizen’s in a democratic society have a right to share a significant part of the public revenue from the value of common resources. It will enable people to become less dependent for welfare and work on big government, big business, big finance and foreign trade. Because all of those incur environmentally wasteful overhead costs, it will also have a conserving effect.” (p130)
There are a small number of ‘heterodox’ economists who would agree with Robertson about the existence of seigniorage, that it has been captured by the private banking system but that it could be re-directed for the benefit of the citizenry. Perhaps the most high-profile (although not referred to by Robertson) is Steve Keen. His book Debunking Economics (2011 2ed, Zed Books) is about the whole range of failures of the dominant neo-classical economics, especially their inability to recognise and incorporate money into their models. Few establishment figures will engage with Keen, and even open-minded economists like Paul Krugman still do not agree that money is ‘endogenous’[4]. However compelling evidence that the banking system benefits from a huge public subsidy can be found in a recent Bank of England paper[5] where the ‘free lunch’ of the banking system is estimated to be of the order of £120 bn. p.a., enough to fund a £40 per week Citizen’s Income for every man, woman and child in the U.K.
I would encourage readers of CI News to closely study this book. There is much more detail about the environmental and humanitarian reasons for reforming the way currency is produced and how resources should be taxed. You will have to decide for yourself if you think reclaiming seigniorage is a realistic method of funding CI, or is crazy dangerous nonsense. The safe alternative is to continue studying the present job-system and see how an added-on CI funded by punitive rates of income tax might work, however futile and politically infeasible that might be.
[1] Future Money: Breakdown or Breakthrough Green Books, Totnes, Devon 2012
[2] Robertson avoids the use of the obscure term ‘seigniorage’; I use it because it precisely defines the feature of in the money system which could be the main source of funding for BI.
[3] Derek Wall (2003) Social Credit: The Ecosocialism of Fools in Capitalism Nature Socialism, September 2003
[4] see Paul Krugman’s blog article deriding ‘endogenous money’: 2 Apr 2012 https://krugman.blogs.nytimes.com/2012/04/02/oh-my-steve-keen-edition/
[5] Noss, Joseph & Sowerbutts, Rhianon (May 2012) The Implicit Subsidy of Banks: Financial Stability Paper No 15 Bank of England.
by Yannick Vanderborght | Oct 1, 2012 | Opinion
What did I learn from this splendidly organized gathering of academic and activists from over thirty countries? As usual, many things. About people and about things. About facts and about dreams. I discovered, for example, that Götz Werner was perhaps even better at reciting Goethe than Eduardo Suplicy at singing Dylan. I also admired how much progress had been made in the sophistication of the study of small-scale basic income experiments. Long gone is the time when all that seemed to be needed was to hand out some cash and enthusiastically report that all recipients were delighted to get it and that at least some made laudable use of it. Serious assessments of the effects of duly specified basic income schemes require control groups of similarly situated communities who do not receive anything, or who receive the same total amount but distributed according to different rules. And even the best assessment of this sort cannot claim to tell us what a real-life basic income scheme would bring about, if only because the funding side tends to be left out, or because of the recipients’ awareness that the experiment is limited in time, or because the political packaging of a real-life reform is most likely to affect individual responses. Nonetheless, these experiments are instructive in all sorts of ways and are well worth the hard work they require: conducting laborious interviews and processing recalcitrant statistics, sometimes even in flooded villages, as reported by Guy Standing, with water above the waist and the laptop above the water.
Ecological sustainability and basic income: three links
In these brief remarks, however, I shall concentrate on two points that struck me particularly because of they ran through several of the workshops I attended. The first one is the link between basic income and ecological sustainability, which featured was central in many presentations and the subsequent exchanges. On reflection, however, there is not one but there are three such links, logically independent and profoundly different from each other.
The first link is connected to the theme full employment. In good Keynesian fashion, an unconditional basic income is sometimes defended on the ground that it boosts economic growth and thereby employment. Like any other minimum income scheme, it redistributes from the rich, who save more, to the poor, who spend more, and it thereby helps sustain effective demand and business confidence. More often, however, and in contrast to many other schemes, an unconditional basic income is defended instead on the ground that it provides an alternative to the pursuit of full employment through economic growth: Freiheit statt Vollbeschäftigung. The underlying idea is that we must manage to tackle involuntary unemployment in a way that does not rely on a growth of production that constantly outpaces the growth of productivity, indeed — as discussed in a fascinating session of our congress — in a way that is consistent with de-growth. This way consists in transforming both some involuntary employment and some involuntary unemployment into voluntary unemployment. Or, to put it differently, some people make themselves sick by working too much and must be enabled to work less, while others get sick because of being excluded from work and must be enabled to access the jobs freed by those working too much. There is one simple way of achieving this: an unconditional basic income. This is a conclusion reached in the early eighties by some of the earliest basic income advocates in the context of the first signs of awareness of the “limits to growth”. It is also, fundamentally, the view now held by Baptiste Mylongo and the décroissants. The recognition of the right to idleness is here meant as the supply-side, anti-Keynesian, earth-friendly solution to the problem of unemployment
The second link passes through the price mechanism. Prices are a handy tool for guiding both consumption and production. They condense in a single figure millions of data about the preferences of consumers and the scarcity of factors of production. But they can go badly wrong because they do not spontaneously incorporate either the damage inflicted on the environment or the right of unborn generations to use their share of the resources of the earth. In order to correct this twofold major defect, some prices must be dramatically increased to reflect so-called negative externalities and to protect the legitimate interests of the unborn. One salient example of this is a carbon tax sufficiently high to keep the total of emissions below the ceiling that should not be exceed, or equivalently the sale to the highest bidder of carbon emission permits whose total amounts to this ceiling. In either case, the consumers will ultimately pay the price, but something must be done with the huge proceeds. Whether at the world level or at the European level, there is one simple way, both efficient and fair, of distributing them: an unconditional basic income. The logic is fundamentally analogous to the equal distribution of the rent on land advocated in Thomas Paine’s Agrarian Justice (1796). Three “eco-bonus” proposals along these lines were proposed at one of our sessions, in greatest detail by Ulrich Schachtschneider.
There is, however, yet another quite distinct link between basic income and ecological sustainability. At its core is the role that will need to be given to trans-national transfers. Those who make this third link may share with the décroissants the view that we in the “North” need to reduce our consumption. But they do not conclude that we need to reduce our working time, because there is no good reason to believe that we should reduce our production as well as our consumption. This sounds paradoxical but is easy to understand. No one visiting, for example, the Democratic Republic of the Congo can resist the conclusion that achieving a decent standard of living for all inhabitants of the world through local production within a foreseeable future is simply out of the question. This is so because of a combination of sustained demographic growth, deeply dysfunctioning and under-resourced administrative, judiciary and educational systems, and sheer climatic conditions which, in the absence of unaffordable generalized air conditioning, cannot but keep productivity down in quite a large number of countries. To believe that fair trade or the end of exploitation of the “South” by the “North” would enable these countries to get out of trouble is sheer self-serving wishful thinking. The growth of production in poor countries can and will help, of course, but access to a minimally decent living standard for all within a foreseeable future cannot count on it as its main means. It must also count on a massive dose of one or both of two other means: massive migration to the North and massive transfers to the South.
If the migration of hundreds of millions of Africans to Europe is regarded as undesirable for both the communities they leave and the communities they join, only trans-national transfers are left. And to be sustainable at a high level, such transfers arguably need to be both inter-personal (as opposed to inter-governmental) and universal (as opposed to means-tested), i.e. take the form of something like a universal basic income. As was the case with the first link I mentioned above, sustainability here requires a reduction of consumption in the North and the introduction of a basic income. But in the first case, the basic income was there to help increase the leisure enjoyed in the North, and in the second case to channel wealth to the South. Unlike the former, this latter argument, frankly, has nothing to do with what triggered my interest in basic income thirty years ago. But it is closely related to the argument I used in my contribution to one of the sessions of this congress to explain why the buffering device needed to save the euro needs to take the form of a universal basic income.[1]
Universality and unconditionality: the crucial conjunction
The second point I want to mention emerged particularly clearly from the session that hosted a conversation between Götz Werner, CEO of the large drugstore DM, and Wolfgang Strengmann-Kuhn, member of the Bundestag for the Green Party. A central part of the background of any discussion on social policy in Germany is the dramatic reform of the German welfare state by Gerhard Schröder’s red-green government known as Agenda 2010 or Hartz IV (2005). By reducing the duration of unemployment benefits, lowering the average level of social assistance and increasing the pressure on benefit recipients to seek and accept jobs, it is fair to say that the reform has improved the competitiveness of the German economy. But in a free trade area, making one country more competitive means making the other countries less competitive, and if this free trade area is also a single currency area, this means, for these other countries, deficits in the balance of trade, persistent unemployment and a pressure to restore their competitiveness by similarly scaling down their welfare states. For this reason, Hartz IV is no small factor in the current crisis of the Eurozone.[2]
Nonetheless, it is also fair to say that nothing ever happened in Germany that was better than Hartz IV at triggering a lively basic income debate. To understand why, note, first of all, that about half the recipients of the new social assistance scheme officially called Arbeitslosengeld II (but colloquially called “Hartz IV”) are at work. The reform massively extended the possibility of the Kombilohn, of low earnings combined with benefits. As such, this is not something basic income supporters should object to, as it is inherent in a universal basic income that it would generalize this possibility. But there is a major difference. Gerard Schröder himself complained that Hartz IV was “misused” by employers, as they used it to get workers into lousy jobs, with harsh conditions, no on-the-job training and no prospects of improvement. This is precisely why basic income supporters find unconditionality so important: a benefit granted to (potential) workers irrespective of whether they are willing to accept a job enhances their bargaining power and enables them to turn down poorly paid jobs of no intrinsic interest.
Put differently, the universality of the basic income — its not being means-tested — is what enables a person to say yes to a low-paid job. Its unconditionality — its not being work-tested — is what enables a person to say no to a low-paid job. Universality without unconditionality is a recipe for exploitation, because of the potential misuse of the Kombilohn by employers. Unconditionality without universality is a recipe for exclusion, because of the trap created by means-tested handouts. Instead, the conjunction of universality and unconditionality — so central to the basic income movement since its inception — is a path to emancipation. How emancipatory it can be will of course depend on its level. As stressed by Wolfgang Strengmann-Kuhn, however, the emancipatory effect starts being produced even with a level of basic income far below what would be deemed sufficient to live on for one’s whole life, even in a city, even on one’s own. Even a much lower universal and unconditional basic income broadens life options and thereby empowers its beneficiaries: it can make it realistic, for example, to accept an internship or an apprenticeship, or to combine further education with a part-time job, or to take the risk of becoming self-employed or of starting a cooperative, in situations in which today, in the absence of a basic income, one would be forced to accept a lousy full-time job.
A “partial” basic income, i.e. a low but genuinely universal and unconditional basic income, is therefore one obvious way in which one can move forward. But there are many others, more or less suited to local circumstances, more or less achievable in a particular political context, more or less likely to trigger a sequence of further emancipatory steps rather than unleash a damaging backlash. To move forward, we must dare to be “visionaries”, as emphasized by Götz Werner, while not hesitating to be “opportunists”, as demonstrated by Wolfgang Strengmann-Kuhn. Guided by our vision of a just society and a just world, we must be on the lookout for political opportunities to get closer to it, without denying the size of the challenges ahead — not least those arising from globalization — and without too much optimism about immediate success. Some good surprises are then bound to come our way…
[1] “No Eurozone without euro-dividend”, downloadable from www.uclouvain.be/8609.
[2] See my response to Gerard Schröder’s defence of Agenda 2010 on the occasion of his visit to Brussels in April 2012 : “L’Agenda 2010: un modèle pour l’Europe?”, downloadable from www.uclouvain.be/8611
