by Guest Contributor | Aug 18, 2017 | Opinion
According to the OECD, basic income (BI) is not an effective tool for reducing poverty. However, the outcome would depend on the model chosen for implementing a BI system, as well as the changes made in other parts of social protection.
The Organisation for Economic Co-operation and Development (OECD) published in May a Policy Brief paper studying the feasibility of a basic income model in four OECD countries, one of which was Finland.
On June 16, Kela organized a seminar in which Herwig Immervoll, a senior economist at the OECD, discussed the findings of his study and analysed the strengths and weaknesses of a BI scheme. After the seminar, the national broadcasting company YLE reported: “Universal basic income might increase poverty and inequality”.
Apart from Finland, the OECD study includes France, Italy and the United Kingdom. The analysis was done with the help of the EUROMOD microsimulation model. In each country, the starting point for the analysis was to take all existing spending on social cash-transfers together and see what level of BI they would amount to. Eventually, the level of BI was set near the existing levels of guaranteed minimum-income benefits for single individuals in each country, adjusted so that it would not increase the public expenditures.
In Finland, this resulted a BI of 527 euros for the working age adults and 316 euros for children and youth under 18 years of age. Those entitled to old-age pensions within the current main statutory retirement age (in Finland over 65-year-olds) were excluded from the BI model.
In the BI model used in the OECD analysis, all existing working-age benefits (including social insurance benefits) apart from cash transfers for housing and disability would be abolished. Also, the zero-rate tax bands of income-tax schedules and equivalent tax-free allowances would be abolished, and all income-tax thresholds would be shifted downwards by a corresponding amount. BI would be made taxable under personal income taxation alongside other taxable incomes.
The OECD model would create many gainers and losers
The most important outcome of the OECD study is that the simulated BI model would strongly impact the income distribution in all studied countries. However, the effects vary greatly among the countries.
In all income groups, the BI model would create many gainers and losers. It would change the net income of most people in one way or another. It would lift some groups out of poverty and thrust others below the poverty line.
The simulated BI model would increase the income level of those small income groups who are currently not receiving any social benefits, or whose benefit level is very low. In turn, those receiving earnings-related benefits or several means-tested benefits would see a decline in their standard of living.
In Finland, those below 65-years-old receiving old-age pensions and single parents with low incomes would be among the losers of the model. The middle-income earners instead would generally benefit from the model.
The conclusion of the OECD is that particularly in countries with a comprehensive social protection BI is not an efficient tool for reducing poverty, since it does not target the benefits effectively. According to the OECD, a budget-neutral BI would not be distributionally neutral. High enough to be socially and politically meaningful and fiscally realistic, a BI would still require tax rises as well as reductions in existing benefits.
A very low basic income, instead, would have little other significance but increase poverty.
The outcomes of BI depend on reforms in taxation and social protection
How the findings of the OECD study are to be interpreted in the Finnish context?
Perhaps the most important issue that the research sheds light on is the fact that there are many institutional challenges in implementing a BI system, and those challenges differ among countries due to their different systems of social security and taxation.
As the OECD report (p. 5) notes, BI as an idea is simple, but the existing social protection systems are not. Therefore, there are grounds to argue that the same model of BI does not fit everywhere. If a reform such as BI were to be carried out, it needs to be adjusted to the existing institutions of social protection and taxation in each country separately. The parameters of the model should be adjusted so that it will not produce excessive changes in people’s incomes.
The greatest problems of the OECD’s microsimulation are that the income taxation is not changed to correspond with the BI model, and that the existing systems are demolished by the same means everywhere without examining the structures of social protection in each country separately. Due to this, BI seems to have unpredictable effects to income distribution.
The income distribution produced by a BI model can be influenced by adjusting the parameters of taxation and social security. In his presentation at the Kela seminar, Herwig Immervoll mentioned that tax reforms should be discussed in parallel with BI. Indirect taxes, such as environmental or value added taxes, have often been proposed as a complementary source for financing a BI scheme, combined with income taxation.
However, the OECD report does not mention these alternatives, and the premise seems to be that taxation in any form should not be increased.
In Finland, as well as in many other countries, some organisations and individuals have launched models of BI adjusted to the local context. Their objective has often (yet not always) been to not radically alter the income distribution or cause reductions in people’s after-tax incomes, especially in the lowest income groups. Microsimulation has been employed at least in the models of partial BI by the Green Party and the Left Alliance, and in the preliminary study for the national BI trial conducted by Kela.
In these models, BI is linked with a reform in income taxation that is designed so that radical changes in after-tax incomes will not occur in any income group. The aim is also to make the models budget neutral, that is, to cover the costs of BI by reforms in taxation and replacing the existing benefit systems. In these models, the old system will be abolished only in those parts where the level of benefits is lower than the BI.
One of the problems with the BI trial currently underway is that due to time constraints, the taxation reform proposed by the research team that designed the experiment was not included.
Will Finland implement a BI?
Though there exist BI models in Finland that would technically allow implementation of a BI system without radical changes in income distribution or public financing, the road of BI will probably be rocky even here.
The preparations of the BI experiment scheme revealed many institutional challenges in implementation of a BI model. The greatest obstacles for a BI are, however, ideological.
In Finland, BI has gained interest especially as a possibility to improve the incentives for paid work. The possibility to combine wages with social benefits more smoothly than today is an issue that no party opposes. Yet, many still find it morally wrong to give people money with no obligations. The opponents of BI fear that the “free money” would reduce people’s willingness to work and give a moral legitimacy to not apply for jobs.
If the only, or at least the most important function of BI is to improve work incentives, the great promises of BI may not be fulfilled after all. The preliminary studies for the BI trial revealed that BI models do not always unambiguously remove incentive traps, if parts of the old social security stay intact.
However, it seems likely that in Finland, as well as in other industrialised countries, the social security will be reformed in a direction that may contain some elements of BI, but not necessarily a ‘pure’ BI model.
If the political thinking emphasizing the labour supply and austerity in public economy prevail, the prospects for more generous BI models seem to be low. In the framework of current economic policies, the implementation of a BI would most probably mean at least demolishing large parts or other forms of social security.
BI as a social dividend?
The OECD report (p. 8) ends up recommending some kind of ’partial’ alternative of a BI model. One option mentioned is a possibility to introduce BI as a separate system from the existing social protection, whose function would be to share the benefits of globalisation and technological progress more equally.
This idea of ‘social dividend’ has often appeared in BI discussions. The state of Alaska is already giving an annual share of the permanent fund based on oil revenues to each citizen as a social dividend. There is similar thinking linked also to the idea of “helicopter money”, originally introduced by Milton Friedman, a cash transfer paid by the central bank to people’s accounts to stimulate consumer demand in economic downturns.
Considering BI as a social dividend would locate it in a new frame, where its function would not be to fix the problems of social security systems, but to distribute purchasing power also to those who lose their jobs or end up in low paid precarious jobs in the labour market turmoil caused by digitalization.
If BI were paid on top of other social benefits, its level could even be lower, or for instance connected to macro economy indicators. In that case, it could also be used to stimulate economies in downturns.
Johanna Perkiö
M.Soc.Sc., Doctoral Candidate
University of Tampere
email: johanna.perkio(at)uta.fi
Original article:
Johanna Perkiö, “The OECD and the problems of basic income“, Kela, June 30, 2017.
by Kate McFarland | Jul 25, 2017 | News
Facebook founder and CEO Mark Zuckerberg has recently been traveling the United States on a listening tour, during which he aspires to visit every state in which he has not previously spent time, learning about the concerns and perspectives of residents. While in Alaska, Zuckerberg mentioned the state’s Permanent Fund Dividend (PFD) in a Facebook post, calling a “form of basic income” and commending it as a model for social welfare policy [1]:
Alaska has a form of basic income called the Permanent Fund Dividend. Every year, a portion of the oil revenue the state makes is put into a fund. Rather than having the government spend that money, it is returned to Alaskan residents through a yearly dividend that is normally $1000 or more per person. That can be especially meaningful if your family has five or six people.
This is a novel approach to basic income in a few ways. First, it’s funded by natural resources rather than raising taxes. Second, it comes from conservative principles of smaller government, rather than progressive principles of a larger safety net. This shows basic income is a bipartisan idea.
This post was Zuckerberg’s second public commendation of the idea of basic income. During his Harvard commencement address on May 25, Zuckerberg recommended exploring the policy, stating, “We should explore ideas like universal basic income to make sure everyone has a cushion to try new ideas.”
In general, Zuckerberg’s remarks on the PFD were well received by the basic income community, who welcomed the high-profile endorsement and opportunity to raise awareness of the PFD, which is widely perceived as evidence that a basic income can be practically implemented. (For more on Alaska’s PFD, including recent updates, see “ALASKA, US: Survey shows support for Permanent Fund Dividend amid continued legal controversy” in Basic Income News.)
Some commentators, however, were less sanguine. Writers like Clio Chang (in New Republic) and Sonia Sodha (in The Guardian) worry that Zuckerberg–like many right-wing and libertarian supporters of basic income–sees the policy primarily as an excuse to cut other programs, as evidenced by his praise for “conservative principles of smaller government” and apparent opposition to raising taxes, which might leave many low-income Americans worse off.
Despite speculation that the tech billionaire is contemplating a 2020 run for US President, Zuckerberg denies that he is running for public office, maintaining that his tour of the US is only a means to broaden his perspective and understand his customers.
Photo: CC BY-NC-ND 2.0 kris krüg
by Hilde Latour | Jul 17, 2017 | News
Investopedia published an article in May this year, “The Long, Weird History of Basic Income – And Why It’s Back”
In this article, written by David Floyd, the history of support of UBI is described from the period of hunter-gatherer societies and how the networks in those societies took care of people who could not provide themselves with a basic standard of living. The article then describes how agriculture and urbanization made an end to such networks and how problems were not handled well by the institutions that took the place of the original networks, referring to Charles Eastman who described this problem in 1915.
Thomas Paine was one of the famous people who noticed the creation of poverty, caused by cultivation, which did not exist before. He was the first to propose a UBI (Paine called it a “groundrent”) in the late 18th century, as a compensation for the dispossession of the majority of inhabitants of their natural inheritance. Cole first used the term Basic Income in 1953.
From Paine, via Henry George, Huey Long, G.D.H. Cole, Martin Luther King, Mc Govern and Nixon, the current boost of support for UBI in the 21st century is explained as a reaction to poverty and inequality, predominantly used as an argument by proponents on the left political spectrum, and inefficiency of the welfare state, used as an argument on the right wing.
In addition to the political perspective, a distinction between “reformers” and “futurists”, which cross-cuts left and right, is described in further depth.
The group of “reformers” is described as a group of basic income supporters who is mostly concerned with addressing problems in society as it is now, mostly caused by the broken welfare system, such as:
- “Employment traps” (where people are kept form leaving their job out of fear and bad employers are supported as a result of that)
- “Unemployment traps” (“earn a dollar from work, lose a dollar in benefits”)
- “Welfare cliffs” (where the effect tax on additional income even exceeds 100%)
- Stigma associated with public benefits
- Bureaucratic inefficiency
The group of “futurists” is described as supporters who see technological unemployment as a main threat in the future and offer basic income as a solution or who see a basic income as a cornerstone of an eventual utopia.
The two main criticisms of a universal basic income are its cost and the expectation that it would reduce or eliminate incentives to work.
This discussion is described with calculations of “The Economist” and views of Bill Gates, Karl Widerquist, Guy Standing, Philippe van Parijs and others. Brief attention is given to Alaska’s “Permanent Fund Dividend” and the outcome of experiments, such as Manitoba and India. Furthermore, the definition of ‘work’ is discussed, the effects of UBI on poverty and even the experiments in Finland, Oakland and Ontario get attention.
Floyd summarizes his article with a question: “Could doing away with poverty, sweeping away patronizing bureaucracy, neutralizing the threat of mass unemployment and increasing the value society places on worthwhile, but unprofitable, pursuits really be as simple as handing everyone cash?” He then uses Confusius’ quote to guide us towards the answer:
“The way out is through the door.”
Info and links
Full article at investopedia.com
Photo: Money! by Hans Splinter, CC-BY-SA 2.0
Special thanks to Dave Clegg for reviewing this article
by Hilde Latour | Jun 20, 2017 | News
Karl Widerquist, vice-chair (at the time of the interview he still was co-chair) of the Basic Income Earth Network (BIEN) was interviewed extensively by Keith Brown from the “We Are Here Podcast” on April 28th. During the interview, Widerquist explains Universal Basic Income (UBI) creates a market economy where income doesn’t start at zero and where people have a positive, rather than a negative, incentive to work.
“Employers currently have an incentive to pay very low wages because income starts at zero. You can work fulltime a whole year and still live in poverty.” In almost every country, there are conditional systems for people who do not work. Widerquist argues that these systems supervise recipients and create high overhead costs. “If you can show you can’t work or can’t find a job, then you are eligible for something. If not, you will get nothing. This means people have a negative incentive to work and will accept jobs with very low wages to prevent them from falling into [extreme] poverty.”
UBI is going to help people that are afraid of becoming poor when they lose their job for whatever reason. According to Widerquist, “UBI can free people from that anxiety.” Widerquist explains UBI is not just for the poor, but also for the middle class. It gives people a choice to leave their dead-end jobs and do something else they really want to do. If you are struggling to meet your basic needs, you will be miserable. If you have UBI that meets your basic needs, you will not be in misery. We will get a situation where money no longer buys happiness. Freedom is the power to say no.
UBI can also be seen as compensation to people for the duties that have been imposed on them, according to Widerquist. For instance, a plumbing system is created because the water is polluted, and people have to pay for it, even if they are not the ones that polluted the water. They don’t have a choice. He gives an example of how this can be compensated: The state took the land from the natives (Inuit) in Alaska to let companies drill the oil from it. These companies pay the government and a small part of it is given ‘back’ to the citizens (Alaska’s “Permanent Fund Dividend”).
There are many variations on what people think UBI should look like around the world. Most people agree that it has to be at least enough to meet your basic needs (food, shelter, clothing and enough to live on is the minimum). The maximum is the highest sustainable income possible. Widerquist’s personal view is that “you should be compensated at the highest sustainable level, as it is a compensation for non-equal duties that the government is opposing on us.”
Starting at $12,000 in the US a year would be okay, in hopes of building up to $20,000 or more if it proves to be workable. But starting off at a higher level than $20,000 without building up to it gradually would be risky.
According to Widerquist. “The government is already spending over 2 trillion dollars a year to maintain people’s income and we still have 13.5% of the population living in poverty. So the current system is not working and extremely expensive”.
Widerquist does not believe that UBI requires cuts in other programs, but he gives some examples of government spending that can be replaced by it, including foodstamps and most unemployment benefits.
“It is feasible; the only thing we need is the will to do it. It has not been attempted before on a large scale, but there is a first time for everything”.
On the topic of the “Alaska permanent fund dividend”, which started in 1982, Widerquist argues, “In Alaska they have a very small basic income of one thousand US dollars a year for every resident (man, woman, and child) and even that very small amount has made Alaska one of the most equal states with very low poverty rates. It has been going strong for 35 years now. It makes a huge difference when you realise that a single mother with four kids will get 5000 US dollars a year. In a good year even 10000 US dollars a year.”
UBI can be popular across the political spectrum once it is in place, because the benefits are diverse. “We are tired of inequality growing and poverty staying where it is. The middle class needs a pay raise. Nothing else has worked for the middle class. Let’s try UBI”.
Widerquist continues, “Realize it is also a good deal for people who like capitalism, because it gets out a lot of the bureaucracy and paternalistic attitudes. It is simple and without supervision. The market economy will still exist, but without poverty.”
We spend so much time making our living that we never have time to live our lives.
With UBI, a lot of us would still want to work to get our luxuries, but we can take our time to reflect and do things we really want to do.
Info and links
Full interview podcast: we are here # 006 universal basic income
Special thanks to Josh Martin and Dave Clegg for reviewing this article
by Jason Burke Murphy | Jun 7, 2017 | Opinion
An economic study of Iran’s Basic Income, which was implemented to make it easier to phase out expensive (and ecologically destructive) fuel subsidies, shows that there have been no negative effects on employment. In the first section, I will summarize the study. In the middle, there is a list of past contributions made by Basic Income News authors. In the final section, I will make a few observations.
Iran’s Fuel Subsidy Reform and Employment
The unconditional grant program was launched in 2011. The monthly grant amounted to 29% of median household income, or about $1.50 extra per head of household, per day. Around 90% of Iranians are funded through this program. (Wikipedia has a good summary of the program at the time of this writing. It does not include the end of the universal cash grant program.)
Most people in Iran and in the government came to believe that the grant discourages employment. One often hears anecdotes and assertions in national and local Iranian press. The Iranian Parliament called for cuts in the program. (See Tehran Times, April 19, 2016.) After some wrangling, cash subsidies were finally ended in 2016, with funding reserved now for low-income citizens, they could possibly begin performing a criminal background check on applications for this funding in the future. Costs were cited. It is important to note half of the cuts in fuel subsidies went to business grants and other government expenses. (See Kate McFarland in Basic Income News, “Iran: Parliament Slashes Cash Subsidies to Citizens”). What is frustrating here is the fact that the program did not undermine work participation at all.
This study shows that some people in their twenties reduced work hours, often to go to school or improve their schoolwork. But this only averaged out to a matter of months (and is likely to yield medium- and long-term benefits.) Many people increased work time a little, especially in the service sector. The authors think that these businesses used the income to find more work opportunities. Empirical evidence contradicts a lot of presuppositions about the impact of an unconditional cash grant.
The study, “Cash Transfers and Labor Supply: Evidence From a Large-Scale Program in Iran“, is put out by the Economic Research Forum and was authored by the economists Djavad Salehi-Isfahani and Mohammad H. Mostafavi-Dehzooei.
The World Economic Forum posted a summary of the Economic Research Forum study here.
Past Articles on Iran’s Basic Income
Basic Income News has repeatedly covered Iran’s Fuel Subsidy Program to make sure it is regarded as a basic income policy. Here is a list of additional articles on the subject:
Djavad Salehi-Isfahani wrote an earlier piece for the ERF. Josh Martin writes about it at Basic Income News here.
Mathieu Ferry writes about Jacques Berthiller’s piece in Basic Income News here.
The Citizens’s Income Trust, based in Britain, wrote this opinion piece for Basic Income News here.
Karl Widerquist wrote four articles early in the program’s history. “Iran: Basic Income Might Become Means Tested” and “Iran: Basic Income Gets International Attention.” “Iran: On the Verge of Introducing the World’s First National Basic Income” and “Iran Might Be Moving Toward a BIG”
Hamid Tabatabai wrote an article that, very early on, points out that a country that had not been debating a basic income implemented substantial basic income grant.
III. Observations
These are conclusions reached by the author, Jason Burke Murphy, after reading the ERF study and the other articles on Iran’s program. I wanted to separate them because the first section of this article is meant to review an important study and past contributions by BI News authors.
(1) There was no point at which this program was embraced as a way to promote real freedom or to roll back poverty. Fuel subsidies were just unleashing such strong side effects that something needed to be done. It is amazing to know that a program that raises average income by 29% could be launched in order to solve a problem other than “lots of people would be better off with more money”. Had this been debated as a basic income guarantee, maybe things would turned out better.
(2) The idea that some people who can work might not work seems to bother people so much that the government ended a program that raises income for a majority of its people and for its least-well-off.
The idea is so powerful that the fact that people are NOT refusing to work can’t seem to overcome the fact that many people MIGHT or COULD refuse to work. There is a lot of work to be done here.
(3) Everyone should ask the question: What sort of percentage of people not formally working is even a problem? Most of them will do work for their families, after all. Many will gain expertise with the idea of applying it to future. Some will do work for their communities or as entrepreneurs.
(4) The impact of this grant was likely affected by the fact that it was never been presented as permanent. It also is not large enough to sustain most people at a standard of living that Iranians find decent. This may not serve as the rock-solid proof that a sizable grant won’t affect employment.
(5) In the US, an equivalent percentage of support would be around $16,000 a year. Can we assert that the Iranian experience shows that this amount would not trigger a mass refusal to work? Hard to say. Would a small-to-medium dip in job seekers even be a problem? Probably not. Lots of places in the US have average income below $16,000. Can we really say that they would be worse off with this grant just because some of them quit their jobs?
(6) All countries should take a good look at their subsidies, especially ones that benefit the already wealthy. They should cut them and fund an unconditional dividend. We get rid of something bad and replace it with something good. We see how high the dividend would be and think about the next step.
(7) As Basic Income advocates, we need to list Iran alongside Alaska and Macau as regions with a Basic Income. This is difficult because only Alaska has described its dividend as “permanent” and only there have recipients come to believe it is dependable. In the US, it is a little unusual to say “let’s do what Iran did” but that is our fate as a truth-telling movement.
