by Andre Coelho | Jan 13, 2019 | News
Milton Friedman once gave a lecture in which he demonstrated, in a very particular logic, that the so-called “free lunch” was a myth. The origin of the term is unknown, but in early twentieth century it was already in use. Since then it has been so frequently employed that people have been explaining and rationalizing over it up to the present. In physics, to do something – which is called “work” – is to spend energy, and so, physically speaking, there is nothing ever for “free” (free from some energy usage). However, in economics, “free”, and particularly the “free lunch” term refers to an opportunity cost that always exists, because the human imagination is infinite (at least in possibilities), and the Earth resources are limited. So, Friedman’s logic is that there will never be a “free lunch” because spending money somewhere always takes money away from something else (the opportunity cost). Others believe, however, that these “costs” and the inability to provide “free lunch” is only a reflex of a scarcity mentality that, for instance, considers that money – an imaginary construct – is finite and that its management amounts to a zero-sum game (if I win, you lose). An alternative belief is that, while acknowledging that physical resources are scarce (Earth is a finite planet), their distribution can be made available to everyone, and we could be living in a “free lunch society”, if only we shifted our mentality of scarcity to one of abundance, and generously shared those resources among every human being on Earth.
Given this introduction of the “free lunch” dilemma and what could be the transformation of our way of life into a “free lunch society”, Christian Tod, an Austrian economist and filmmaker intelligently used the term to name his most recent production: “Free lunch society”. The film is due to come out on iTunes on January 22th 2019 and on DVD on February 5th 2019. Previously, a short version of the film (50 min.) had already been presented at the Basic Income Earth Network’s (BIEN) Conference at Tampere, Finland, last August 2018.
The movie is composed as a documentary, featuring interviews, animation and film footage from all over the world, and announces itself as follows:
“What would you do if your income were taken care of? Just a few years ago, an unconditional basic income was considered a pipe dream. Today, this utopia is more imaginable than ever before. FREE LUNCH SOCIETY provides background information about this idea and searches for explanations, possibilities and experiences regarding its implementation.
Globalization, automation, Donald Trump. The middle class is falling apart, but we hear more talk about the causes than about solutions. From Alaska’s oil fields to the Canadian prairie, from Washington’s think tanks to Namibian steppes, FREE LUNCH SOCIETY takes us on a grand journey to answer one of the most crucial questions of our times.”
The film’s trailer can be watched here:
More information at:
Free Lunch Society website
Free Lunch Society Twitter account
by Daniele Fabbri | Nov 23, 2018 | Research
Photo Credit: CC(Cindy Woods)
The last world development report from the World Bank is out. It investigates the changing nature of work and suggests what governments could and should do to address the phenomenon. Among the proposals there is the enhancement of social protection, to a degree disjoining it from formal wage employment, considering Universal Basic Income (UBI) as one of the options.
Digital transformation allows firm to grow rapidly, escaping the traditional patterns of production, and the rise of digital platforms make people more susceptible to the effects of technological change. The landscape of work is evolving and the skills required by employers around the world are changing: skills such as complex problem solving, adaptability and teamwork as central requisites. This in turn modifies how and at which terms people work, and short-term work is on the rise, bringing challenges to the existing welfare state, the report says. The World Development Report goes on suggesting three solutions governments should put into practice: investing in human capital, through the guidance provided by the Human Capital Project; enhancing social protection; and increasing revenue mobilization as a mean of financing the two aforementioned solutions.
The changing nature of work
Fears of technological based unemployment have their roots in history, spanning from the introduction of knitting machines in England in the XVI° century, to the Luddites distruction of textile machinery in the 19th century, but the overall effect of industrialization was to stimulate economic growth and to raise the living standards. This fear is also contemporary, supported by the trend of declining industrial employment in high-income economies in the last two decades. The Republic of Korea, Singapore, Spain, and the UK are among the countries in which it dropped by more than 10 percentage points but, on the other hand, millions of industrial jobs have been created in developing countries since the late 1980s.
Technology is disrupting, unevenly, the demand for skills, and its potential for the amelioration of living standards manifests heterogeneously: workers in elected sectors gains from technological progress, whilst others see themselves left facing displacement. The wealth created by the platform economy is huge, but its placed in the hands of a few, and A.I. raises concerns about the advent of a jobless economy following the rapid growth in the number of robots operating worldwide: if they are 1.2 millions in 2018, they will be 2.6 millions in 2019, an increase of 1.4 milion units in just one year. It should be noticed how, in the countries with higher robot density – Germany, Korea, Singapore – employment rates remain high, but in Germany the effect was a reduction in the hiring of new, young entrants; young workers, and economies anticipating larger numbers of entrants, may be more affected than others.
The extent to which robots replace workers remains unclear, with automation of routine work estimated to have also created 23 million jobs across Europe starting in 1999, and evidence suggesting that its overall effect is that of raising demand for labor, specifically in the technology sector, by providing the tools necessary for online work, or for taking part in the gig economy. It’s sure that jobs based upon repetition, which are “codifiable”, are those more endangered by automation, but estimates of the number of jobs at risk varies widely, for the US from 7% to 47%, the latter figure the result of automation probabilities developed by machine learning experts at the University of Oxford, a speculation which cannot account properly for the rates of technology absorption, which have been observed to vary greatly depending on the kind of technology, both internationally and intranationally.
The effect of automation on skills demand and on the production process is somehow more discernable. On the skills side, the demand for cognitive abilities which allow workers to be more adaptable, as critical thinking and socio-behavioural skills, is increasing; on the side of the production process there is the rise of global value chains, the changing nature of the boundaries of firms, and the fluid geography of jobs. The process has favored the more educated, and human capital seems the more effective protection against automation driven unemployment: “A big question is whether workers displaced by automation will have the required skills for new jobs created by innovation”. Innovation has the greatest impact on low and middle-skilled workers, either because they are more suceptible to automation, or because no complementarities with technology (human-machine cooperation) manifest.
The paper identifies how technology has disrupted the demand for skills: firstly, the demand for non-routine skills (i.e. cognitive and socio-behavioural) is increasing both in advanced and emerging economies; secondly, the demand for job specific-skills is declining; thirdly, payoffs to combination of different type of skills, allowing for greater adaptability and easier transfer among different jobs, appear to be increasing. The risk is growing inequality, as the report states:
“In advanced economies, employment has been growing fastest in high-skill cognitive occupations and low-skill occupations that require dexterity. By contrast, employment has shifted away from middle-skill occupations such as machine operators. This is one of the factors that may translate into rising inequality in advanced economies. Both middle- and low-skill workers could see falling wages ⎯ the former because of automation; the latter because of increased competition.”
Technology changes the way in which people works and the term under which they work. The gig-economy and jobs based on on-demand services, arising in an environment created by the advance of technology, don’t rely on long-term contracts but rather on extreme flexibility. There is a minimum productivity level at which firm find it optimal to employ workers formally before resorting to globalization, this means that informality is prefereable for everyone exept for the most productive workers.
If globalization and automation were to act simultaneusly, increasing the productivity of workers, the number of informal workers may decline, but if more requirements –minimum wage, required benefits – are imposed on firms, the positive “formal employment effect” may be reversed, and informality actually rise. The management of risk through employers doesn’t fit well with the new nature of jobs, and the use of payroll taxes to finance pensions and social insurance may no longer be sustainable, even for advanced economies, as the percentage of the workforce taking part into the formal economy decreases. Indeed, the changing nature of work stimulates informality, as taxation, ragulation, and social protection schemes don’t provide businesses with incentives to grow, particularly in developing economies. The issue is present in both emerging and advanced economies, and convergence is occurring among them, with increased informality in the advanced ones, leaving workers without access to benefits or protections and making the case for direct intervention of the government through benefit provision. “If automation pushes up the cost of distorting labor markets, and development improves the efficacy of the public sector, government should move away from regulation-based redistribution to direct social welfare support.”
Lifelong Learning
“Skill acquisition is a continuum, not a finite, unchangeable path”.
The advance of automation increases the demand for high-order cognitive skills, while simultaneously decreasing the demand for repetitive, job-specific skills. At the same time, the retooling of existing jobs make adaptability a fundamental requisite: the idea of a career for life seems no longer plausible, and shifts between jobs will be the norm. Thus, the profile of the ideal employee changes, as a single job may require the combination of skills from multiple disciplines: jacks of all trades will surclass the masters of one. How well countries respond to the changing demand for skills depends on how fast the supply of skills can shift, but the education system is traditionally adverse to change, and adjustment occurs predominantly out of compulsory education. Tertiary education, given its flexibility, allows for enrollment whilst participating in the workforce, and so will be the main provider of the cognitive skill-set required. Government should take action in enhancing instruction during youth, the period in which the learning capabilities are higher, and simultaneously helping to shape a better framework for adult learning as a complement to schooling, in order to “inoculate against job uncertainty.”
A new social contract
Old and new pressures calls for a renovation of the social contract, which the report defines as “a policy package that aims to contribute to a fairer society.” The changing nature of work is costly for workers and adjustments are needed: a global new deal is necessary. This new deal should be different from the one adopted in the US after the Great Depression, as the Depression was a transitory shock, whilst the advance and automation and informality are here to stay. Any social contract should be tailored to the specific country context, but some core elements remain: following the indications of Amartya Sen in “Development as Freedom”, the instruments for equality of opportunity are political freedoms, freedom of opportunity, and economic protection from abject poverty.
“The labor market is increasingly valuing advanced cognitive and socio-behavioral skills that complement technology and make workers more adaptable. This means that inequality will increase unless everyone has a fair shot at acquiring these skills.”
Strengthening social protection
Social protection should be enhanced through the improvement of its three main components: a guaranteed social minimum, social insurance and market regulation.
A guaranteed social minimum, with social assistance at its core, should be based on the concept of progressive universalism, with programs providing financial support to the largest possible share of the population, in order to account for the risks in the labour market. Social assistance needs to be reformed, as the Bismarckian model is no longer satisfying, and should be coupled with subsidized social sinsurance, not strictly based on participation in formal wage employment, financed through mandatory earning based contributions limited, at least initially, to the formal market. In order to provide equal opportunities, a social contract should also include means to provide education and upskilling, necessary for navigating the job market, starting from early childhood development, as knowledge is cumulative and pays more the earlier it starts.
“As social contracts are reimagined, subsidizing a basic level of social insurance — especially for the poor — could be considered. Such a reform could also equalize the costs borne by different factors of production, such as capital and labor, as the financing of the system is at least partly shifted away from labor taxes toward general taxation.”
Universal Basic Income
Universal Basic Income is being hotly debated as a mean to expand the guaranteed social minimum, the report says. It wouldn’t be a substitute for health, education, or other social services, but a supplement to existing social programs, and could end up replacing some programs with income support functions, increasing efficiency by reducing programs fragmentation. It’s monetary nature is an advantage: analysis of cash transfer programs showed advances in school enrollment rates, test scores, and cognitive development, food security and use of health care facilities, especially when combined with forms of intervention. The available evidence seems to disprove one of the main concerns related to UBI, that of work disincentives, as the Alaska dividend program shows no impact on employment (if not for the increase in part-time employment), and a study on the Iranian basic income program found that it did no harm to employment. The regular provision of welfare benefits granted by UBI would contrast with the arbitrarity of means-tested anti-poverty measures, which facing the dynamism of poverty ends up generating winners and losers.
The costs of UBI would depend on the level at which it is set, and its effects would depend on how it is financed. Simulations setting UBI at the level of existing cash transfer programs show that it would have significant fiscal impact, costing an additional 13.8 percent of GDP in Finland, 10.1 percent in France, 8.9 percent in the United Kingdom, and 3.3 percent in Italy. The taxation of UBI alongside regular income and the elimination of tax allowances were then used as sources of revenues for covering the additional costs: “in Finland and Italy, these measures were more than adequate to cover the additional costs of a UBI. In France, those revenues almost offset the cost of such a program. In the United Kingdom, taxing cash benefits and eliminating tax allowances were not enough to cover the UBI.” Simulations for developing countries found significant distributional effects: in Nepal most people would gain, in Indonesia 40% of the poor would be worse off and in South Africa most of the elderly and the poor would be worse off. This is due the structure and performance of the existing schemes, UBI being set at their level. A debate remains around whether some of the “cousins” of UBI, as a Job Guarantee or a Participation Income, conditional to the fulfillment of public jobs, or to volunteering, could be more beneficial, the report states.
Financing social inclusion
A basic social minimum package which uses UBI, set at the average poverty level, and aimed at adults would cost 9.6% GDP in low-income countries, 5.1% in medium-income countries and 3.5% in upper middle income countries. If the UBI was to be for everyone, the figures would be in the double digits in the poorest countries, 9% of GDP for middle income countries and 5.2% in upper-middle income countries. And the invesment for UBI should be coupled with investments in the creation of human capital, the report mantains. A significant mobilization of capital becomes necessary. Taxation patterns diverge from low income countries to high income ones; if the former rely mostly on indirect taxation –consumption and trade taxes – the latter rely on direct taxation. The paper analyzes sources of potential revenues to finance the global new deal, as excises taxes on tobacco and alcool, that even if considered regressive, have usually a long term positive impact on health. Value added tax could have a significant role in developing economies, whilst they are already diffused among advanced ones. A carbon tax may have strong impact, with a study finding that for the top 20 carbon emitting countries, optimal taxation could rise almost 2% of GDP, and be paired with the elimination of energy subsidies, which globally amouts to $333 billion. Personal and corporate income taxation may be aided by technology in avoiding tax avoidance.
“The virtual nature of digital businesses makes it even easier to locate activities in low-tax jurisdictions. The provision of goods and services from abroad without a physical presence in countries where consumers are located escapes the traditional corporate tax.”
Digitizing property registration systems will improve the collection of property taxes, and withholding taxes on payments of services will become more important in economies with strong digital presence and a prevalence of intangibles. Social protection should be enhanced keeping in mind financial costraints, and expanded as more resources are mobilized through improved taxation.
More information at:
World Bank. 2019. World Development Report 2019: The Changing Nature of Work. Washington, DC: World Bank.
Human Capital Project: https://www.worldbank.org/en/publication/human-capital
This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by the World Bank
by Andre Coelho | Oct 27, 2018 | News
Guy Standing has just posted an article on the Great Transition Initiative website. Titled “The Precariat: Today’s Transformative Class?”, the essay describes social evolution in the last few centuries and present-day neoliberal “rentier economy”, which has created the conditions to the rise of a new social class for which Standing has named the “precariat”.
Guy Standing defends that it will be through this new “precariat” that profound changes to humanity’s social organization will come about. First, because by not knowing stable employment, it does not believe jobs are the answer to insecurity, like many politicians on the Left tend to think. Jobs are, in this framework, representatives of an already falling hierarchical way of organization, which he considers contrary to human nature. Ancient societies – ex.: Greeks – for all their problems and prejudices, valued much more leisure than work, and so, nowadays, would make more sense to pursue knowledge and meaning, rather than endless consumption.
For this to come about, however, a new economic system must flourish. One that recognizes ecological limits and insures basic security for all. A profound philosophical shift lies at the heart of this process, and that’s one that ceases to consider each person as a separate individual – who to have something must own it, depriving others from it – to another where interdependency and sharing are the utmost values. From there, Standing recalls that the Commons are shared prosperity between humans and should be strengthened as a way to reverse decades of neoliberal enclosure, commodification, privatization and colonization.
He then devises a general idea on how the Commons should generate revenue for redistribution among all people, in a similar process adopted by some Social Funds around the world (ex.: Norwegian Pension Fund Global, the Alaskan Permanent Fund). That revenue would be derived, then, by taxing all those exploring Commons resources, such as land, the atmosphere, the rivers and oceans, even intellectual work. Since the Commons are, in principle, shared equally by all the commoners, it only makes sense to redistribute the Social Funds setup this way as an equal share to all of them, unconditionally. That’s where basic income ste ps in, as a crucial and structural piece of social policy, within this new kind of social contract. This will, according to Guy Standing, provide basic security for all, strengthen social solidarity and shift work time and energy towards reproductive, sharing and resource-conserving activities (away from resource-depleting ones).
More information at:
Guy Standing, “The Precariat: Today’s Transformative Class?”, Great Transition Initiative, October 2018
by Andre Coelho | Oct 10, 2018 | News
There is a plan for distributing dividends, unconditionally, for all Americans. It has been coined as the Social Wealth Fund (SWF), an idea developed and pushed by the People’s Policy Project (3P) founder Matt Bruenig, a known lawyer, blogger and policy analyst in the United States. 3P is a think tank founded in 2017, focused on studying policies benefiting citizens at large.
This plan, described in greater detail in a booklet, rests on the idea of turning national a kind of wealth fund such as the Alaska Permanent Fund (APF). However, unlike the APF, the SWF would have to rely on other sources of revenue (other than oil). Bruenig’s suggestions range from voluntary contributions, managing state-owned physical assets through the fund, various kinds of taxes (including eliminating tax breaks for the rich), leveraged purchases, to monetary seigniorage. This income is supposed to come from the highest earners in society (ex.: corporate taxes, financial taxes, philanthropy, stock exchanging), distributing it by all people.
Peter Barnes, an advisor to the Economic Security Project, has written about the SWF. According to him, the SWF is “refreshing”, because apparently none of the past policies have solved or even reduced inequality, such as “greater funding for education, infrastructure investment, low interest rates, a higher minimum wage, trade wars, tax cuts, or even a federally guaranteed job”. The inequality problem runs deep in society, and that’s where an unconditional dividend distribution of commonly owned assets could really be effective.
As for distributing dividends, Bruenig’s idea is to set this as a percentage of a five-year moving average of the fund’s market value. This could equate to a withdrawal rate of, say, four or five percent. If, at a given moment, the total fund value is $10 trillion, then the available dividends for distribution are $400 billion (Note 1).
On an article published by Anne Price and Jhumpa Bhattacharya, on wealth funds and racial inequality, the concept is summed up nicely:
“Often referred to as a Social Wealth Fund, Citizens Wealth Fund or Sovereign Wealth Fund, this concept rests on the principle of shared ownership, and builds from the foundational vision that all Americans have a right to reap benefits from wealth that we all created together.”
Note 1 – billion = 1 thousand millions
More information at:
Matt Bruenig, “Social Wealth Fund for America”, People’s Policy Project, 2018
Peter Barnes, “Opinion: All Americans would get an income boost under this new plan to share the country’s riches”, Market Watch, September 10th 2018
Anne Price and Jhumpa Bhattacharya, “Why a Social Wealth Fund Must Account for Racial Inequity”, Medium, September 19th 2018
