by Guest Contributor | Jul 9, 2012 | Opinion
D.R. Thompson
I have watched with quiet fascination the evolution/resurgence of alternative politics since the financial meltdown of 2008. In my opinion, we have (at least) two broad camps developing: a Ron Paul brand of libertarianism that seeks to return to a prior vision of capitalism lost, and a new brand of Economic Democrat (often reflected in the Occupy Movement and/or Green Party or the ‘New Economy’ movement) that seeks a balance between capitalism as we know it and the people at large, who are more often than not suffering the brunt of capitalism run amok.
Both factions are reacting to an increasing corrupt two-party system that sees Big Business allied with Big Government. The result is an alliance that destroys the middle class, promotes elitist globalism devoid of democratic oversight, increases the power of the security state, enriches the upper one percent of society with corporate welfare, and engenders corporate socialism through unsustainable monetary policies. The result sections society into an increasingly enriched, globally based upper echelon that guts the wealth of whole nations and peoples.
How this has happened we may disagree on, but both factions are in firm unity that we have arrived at this situation and it has been slowly developing the past 30 to 40 years.
The question is, of course, what do to about it. This essay seeks to dissect some of the ideas behind Economic Democracy, and then to suggest how libertarians and other de-centralists actually might see benefit in them.
In my mind, libertarians in general need to grasp the fundamental contradiction that a Ron Paul style of political shift — specifically one that is devoid of actions to directly break up monopolistic, duopolistic or cartel-like aspects of Big Business — could devolve into a neo-feudalistic scenario where large corporations essentially create corporate fiefdoms through which transnational factions evolve and compete. This could mean less, not more, liberty. In other words, some aspects of libertarian policies could have the exact opposite impact than what is intended and actually just hand power over to the big corporate interests they so often rail against. This new level of corporate power would likely not make us any more free and continue — even expand — the cycle of abuse seen today.
On the other side of the equation, the alternative of centrally planned, top down governance, if taken to the extreme, would create a kind of global fascism that stifles innovation, punishes individualism, guts individual wealth and undermines democratic sovereignty. We don’t want that either.
My argument here is that we can avoid these extremes by recognizing that each political pole must understand the logical limits of its own zeitgeist and determine at what level of society a particular philosophy or approach will work best for the overall benefit of people. This often comes down to understanding what is best centralized and/or cooperative in nature, and what is best left to individual choice and freedom.
In my mind, a centrally planned, cooperatively managed government enterprise is best used to develop the infrastructure upon which a free, democratic, innovative and entrepreneurial society flourishes. Examples of how this can work are numerous: the Interstate Highway System, National Airspace System, the Internet (based on the government’s DARPAnet), and the standardized Electric Grid.
We should translate the same thinking to a rethought national financial infrastructure that provides a basic income guarantee (BIG) and sufficient monies to develop new energy technologies and ensure they are put widely into use. All of this could be done through a Cooperative Central Bank that is government sanctioned but subject to democratic input from its citizen members. Ideally, bank policies and programs would be managed by a board that is in turn subject to democratic approval.
Basic Income Guarantee
A universal basic income that provides a simplified social safety net and replaces Social Security, welfare and unemployment benefits, would ideally be provided to all adults with no required means test, even while the upper tier income brackets are still taxed. In point of fact basic income programs exist to a certain degree already with our large-scale pool of veterans (with their benefits), the earned income tax credit, Social Security and ever-extended unemployment benefits. It is a well-known fact that over 50% of Americans already pay no income tax. Templates for a BIG already exist in the Alaska Permanent Fund and the recently enacted basic income guarantee in Brazil. In this country, Social Security is the model we can build on; we could move toward a basic income by expanding that program, or implementing, as suggested by Robert Reich, a reverse income tax.
If you believe the idea of a basic income has no support, I urge you to do a quick Internet search and you will be astounded by the array of individuals that has supported a BIG throughout history, including Martin Luther King Jr., Thomas Paine, Milton Friedman, Daniel Moynihan, and John Kenneth Galbraith, just to name a few.
Rather than perennially watch the upper 1% obtain high earnings in ever more unjust, cynical and/or demeaning ways, it’s time to fight for a BIG and higher minimum wages for everyone. The reason: Americans earned almost 57% more per hour 40 years ago when accounting for inflation, even as productivity has continually increased. The situation continues to deteriorate and must be turned around.
We all agree that the reason for wage stagnation is not that people are lazy. It is that trade and labor policies of the last 40 years have allowed it to occur even as overall productivity has increased substantially, based primarily on automation. A BIG simply recognizes these productivity gains are at least in part an overriding social benefit rather than solely a corporate benefit channeled toward investors.
Put another way, a BIG allows us to simplify what we have and admit that we need a universal requirement that will provide a sound foundation for social stability and income equity within an efficient, technologically based society. We need to fully grasp that while a modern society should always offer the opportunity to work, automation makes it possible — even desirable — that all do not need to work (in the traditional sense), even among those groups we have historically felt should work. Simply put, we need to redefine the term ‘productive.’ ‘Productive’ can mean doing something that one loves and has a passion for, rather than working for an employer. A basic income can allow this to happen on a wide scale. As robotics and software continue to evolve and eliminate a plethora of even more jobs, the end result need not need to be chronic unemployment; with a BIG we can empower people to choose to work or not, thus leveling the playing field in the relationship between labor and capital.
While some would argue this is a statist utopia at its worst, as such a program would be run by the Federal Government, I beg to differ. My first question is: why does it need to be a Federal Program? Is the Federal Reserve ‘federal’? Most understand it isn’t: it is privately owned.
What we can do therefore is to turn the Fed on its head by creating a completely transparent, citizen-owned, Internet-ran, Cooperative Central Bank that is separate from (although approved by) the Federal Government and can print money into existence for two primary reasons: a BIG, and infrastructure (discussed below). All adult citizens could be a member of the cooperative. What can back such money? The physical infrastructure itself, including public lands and assets. In other words, we either have or can build the assets and provide liquidity as we go. This new form of debt-free money would be an alternative to Federal Reserve Notes and could complement other forms of new currency (i.e., Treasury Notes) that would be backed by other forms of assets (i.e. Gold). While some would argue that Cooperative Banking should remain only at the local community, the Internet has re-shaped our concept of what ‘community’ is. In short, globalization and technology has made ‘national’ the new local.
The template for a Cooperative Central Bank already exists in the National Cooperative Bank established in 1978 under President Carter. Perhaps that bank’s mission just needs to be rethought and expanded. Also, while different in their mandate, some states have already implemented Cooperative Central Banks that become the ‘bank of banks’ to cooperative banks throughout that state. Countries that have implemented Cooperative Central Banking can also be looked to as models. Moreover, some writers, such as Richard Cook, even lobby for an international bank with a similar mandate as stipulated in this essay, based on a reformed International Monetary Fund.
A key mandate of Central Banks during the economic crisis has been to provide ‘liquidity.’ But rather than provide liquidity through quantitative easing (where the Federal Reserve purchases Government Debt directly, often from ‘too big to fail’ banks), that inevitably channels any wealth to the top while driving inflation at the bottom, non-debt money generated through a new Cooperative Central Bank could provide another flavor of liquidity in a way that benefits the general population instead of primarily channeling those gains toward the elites.
A Wider Net of Social Security
If we are honest, most Americans, even staunch conservatives, appreciate the modest guarantees of Social Security for elderly Americans and would grow to appreciate a BIG that would empower the individual and, ironically to some, create more independence in the same way that Social Security allows for many seniors today to be more independent. While we may idealize some agrarian form of the independent ‘gentleman farmer’ as envisioned by Thomas Jefferson or a survivalist as envisioned by Thoreau, in our modern age any lack of income (whether urban or rural) simply generates suffering, ill-health, malnutrition, and a variety of other socially negative outcomes. A basic income, particularly when complemented by a well-thought out Healthcare system and other incentives toward positive outcomes, could alleviate such problems. If we steer education intelligently, and human inventiveness and entrepreneurship are promoted, bottom up endeavors can be nurtured in a variety of altruistic and productive ways, using a BIG as the foundation.
For the nostalgic among us who wish to return to some ideal world of very limited government and no intrusive Powers that Be, we need to remember something about the history of life prior to the advent of our current (albeit admittedly corrupted) modern societies. Life was short, and it was brutish. To the extent human beings can cooperate together to alleviate overall suffering, they should. And technology makes that possible. Why shouldn’t we use the benefits of that technology for the overall good? What is the alternative? An atomized society of iPad-toting survivalists dodging the bullets of those that choose to organize, probably via transnational large-scale businesses? I don’t believe such a neo-feudal world is desirable. We joke today that Apple is as large as a country. If we move down a libertarian path it won’t be a joke: Apple will make internal laws and provide security for its people if nation states cannot.
Green Energy Infrastructure
Another potential use of non-debt money generated through a Cooperative Central Bank is to create a green energy infrastructure, where the Central Bank could work with local cooperative banks to fund a multitude of sustainable energy projects. Regardless of where you stand on ‘climate change,’ a sustainable, clean, long-term energy infrastructure is a good thing. And again, the idea would be to ‘back’ the money with the asset created, i.e., the green infrastructure that creates the sustainable energy environment that could be the foundation on which long-term prosperity and entrepreneurial activity are built. The infrastructure would be publicly owned (perhaps by State) and corporations charged fees to use it. These use fees could then be channeled back into maintenance and any ‘profits’ toward a basic income in the form of a citizen’s dividend, just as in Alaska oil revenues are channeled back into the Permanent Fund.
Some of you are probably laughing that all of this is absolutely unaffordable and inflationary. But if we significantly downsized the military (something both Economic Democrats and Libertarians certainly agree on) and aggressively sought ways to create global treaties to outlaw open aggression, the energy and resources expended on maintaining the security state and Global US empire could be effectively channeled into more productive long-term objectives through a Cooperative Central Bank and a green infrastructure initiative geared toward fully integrating efficient, non-polluting energy technologies into our economies. Moreover, the Bank could be managed soundly through a systems approach so that expenditures would be monitored carefully and inflation kept in check. Certain levels of income could still be taxed, and fees for corporate resource utilization could be expanded.
We can look back to the New Deal infrastructure projects of the WPA, many of which are still used today by millions of people, as examples of intelligently channeled social energy into long-term infrastructure.
Simplification and Common Ground
The proposals above, including a new Cooperative Central Bank, Basic Income Guarantee, and Green Infrastructure development could be done in tandem with simplifying Federal Government as we know it. Agencies could be eliminated or downsized. Regulations that stifle innovation could be thrown out or rethought.
As a rule, the overriding mission statement of promoting the general welfare of the people should be revisited and integrated into every facet of government.
But can Economic Democrats find common ground with libertarians?
I believe Libertarians and Economic Democrats can agree to the following:
- Empower entrepreneurs
- Simplify government and make it more effective
- Downsize the military, repeal the Patriot Act and roll back Homeland Security
- Allow for alternative currencies to Federal Reserve Notes that are backed by Gold and/or Infrastructure
- Rethink the role of the Federal Reserve in monetary policy
- Simplify, not eliminate, the social safety net
- Support infrastructure with an eye toward sustainable business growth and prosperity, using resources such as https://m247.com/ to achieve this
- Support BIGness when it’s Goodness
By focusing proposals for Economic Democracy on the level of financial and energy infrastructure, we reconcile the two camps by allowing on one hand a cooperative, aggressive and activist stance that allows for a fair and sustainable economic system that promotes the general welfare, but on the other hand maintains a free and entrepreneurial business environment that can make use of that infrastructure in a fashion that is relatively unencumbered and free.
All of these shared stances I believe could be the basis for common ground where Economic Democrats and Libertarians come to agreement regarding a future America we can all feel good about.
About the author: D.R. Thompson is an award-winning film producer, playwright and essayist. He has also ‘done time’ on Wall Street. A compilation of his essays, A WORLD WITHOUT WAR, is available from Del Sol Press.
by Citizens' Income Trust | May 21, 2012 | Opinion
A big idea …
In December 2010, Iran became the first country in the world to establish a nationwide Citizen’s or Basic Income scheme. Interestingly, the scheme did not emerge by design but by default: it was the by-product of an effort to reform an outdated system of price subsidies that concerned primarily fuel products. A basic income proved to be the most practical way of compensating the population for the loss of subsidies that had been costing some US$100-120 billion a year.
When the first phase of the reform process became operational on 19 December 2010, nearly half of the subsidies were slashed overnight. At the same time, every Iranian became entitled to a monthly ‘cash subsidy’ of about US$40 payable to heads of households (e.g. $200 for a household of five members). In the first year of the scheme $40 billion were returned to households in compensation. Nearly the entire population of 75 million is now covered although some 1-2 million people have decided not to claim it. The second phase of the reform is expected to go into effect shortly, entailing further cuts in price subsidies and a corresponding addition to the transfer amount. Later phases will operate on the same principle until domestic prices of subsidised goods and services are brought into line with international or cost prices within the five year period of the reform effort.
The big idea has therefore been to convert price subsidies into cash subsidies. The objective is twofold: improving economic efficiency through rationalisation of subsidised prices, and reducing income disparities through cash transfers. These were reflected in the main provisions of the Subsidy Reform Law of January 2010 that is now being implemented.
… yielding results …
The reform process was launched over a year ago and evidence is now beginning to appear on the results. The Central Bank figures suggest that while the initial price shock accelerated inflationary pressures, the impact has not been as dire as had been predicted by some observers. The annual rate of urban inflation in the months preceding the reform was 9-10 percent. With the launch of the reform on 19 December 2010, this rate started climbing by about 1 percentage point a month to reach 20.6 percent in December 2011. The acceleration appears to have been entirely due to price reform. The relatively subdued impact on overall inflation – when subsidised prices had been raised several-fold – was due in part to price controls that were intensified when the reform was launched. Price controls have since been relaxed but not entirely withdrawn.
Official data also show substantial declines in the consumption of fuel across the board. Between 2010 and 2011, the years before and after the reform, the average daily consumption of petrol fell by 5.6 percent, diesel fuel by 10 percent, liquid gas by 10.6 percent, furnace oil by 36.5 percent, and electricity by 8 percent. These savings are all the more remarkable in view of past trends that witnessed growth of the order of 10 percent a year in the consumption of fuel and electricity.
Income effects too are likely to have been positive. The cuts in subsidies affect household incomes adversely in direct proportion to their consumption of subsidised goods and services. While some basic foods such as bread were among them, the cuts overwhelmingly concerned energy products whose consumption correlates positively with income. The compensatory transfers are however uniform for everyone and hence the short term impact of the reform on income distribution can only have been egalitarian, although the extent of it is not known since no hard data are available as yet.
… and some potential lessons
This basic income experience is in its infancy and it is still too early to draw definitive conclusions and lessons from it. Nonetheless, it may suggest possibilities that could help make basic income more of a realistic proposition in some contexts.
Advocacy for basic income:
The adoption of the subsidy reform and the birth of a de facto basic income in Iran owe much to the fact that cash transfers are universally seen as compensation for the loss of subsidies, not as a right or entitlement without a quid pro quo. That is how the hurdle of reciprocity was overcome. The rights-based arguments would have been a non-starter. Furthermore, a basic income was not a policy objective in itself but the fortuitous outcome of a broader effort aimed at correcting an inefficient and inequitable system of subsidies. It served to facilitate subsidy reform by making it more palatable to politicians and the public at large. In a sense, the country stumbled upon basic income while pursuing a different objective. This unique experience highlights the instrumental potential of basic income in smoothing the way towards better resource allocation and greater equality, the two objectives of Iran’s reform. The concept’s very simplicity appears to account for its emergence in the national search for an appealing alternative to an irrational system of subsidies. It just seemed to make sense.
Financing a basic income: A major hurdle facing a basic income scheme is often finding sufficient resources to fund it. In Iran, the problem was turned on its head: substantial funds were going to be available from price increases but a use for them had to be found. The basic income emerged as a way of using up a large portion of those funds. This method of financing a basic income is not discussed much in the literature but it has its merits. One is that it puts no new claim on existing sources, for example the national budget or oil export revenues. Another is pointed out by Philippe Van Parijs who contrasts Iran’s approach with that of Alaska, noting:
In many places, this is a far more realistic option than an Alaska-type permanent fund program…the Alaska scheme is funded out of the interest collected from investments made worldwide with revenues generated by the production of oil at some point in the past, whereas the Iranian scheme should be understood to be funded out of a tax on the current consumption of oil. The Alaska-type scheme is therefore restricted to resource-rich (sub-) countries that manage at some point to exercise sufficient political self-restraint to create and develop a substantial fund. The Iranian-type scheme, by contrast, is available to any country that wants to price the consumption of oil in an ecologically responsible way and to buffer the effect on people’s standard of living in a socially responsible way. For this road to basic income to be a real option there is no need to first accumulate a large fund, nor indeed to be an oil-producing or resource-rich country. (Philippe Van Parijs, ‘BIEN 2010 Congress: A Brief Personal Account,’ BIEN NewsFlash 62, 2010, pp. 2–4. www.basicincome.org/bien/pdf/Flash62.pdf)
Over the longer term however, the Alaska model has the advantage of a permanent flow whereas the Iran model does not. Since the subsidies are being cut permanently, one might presume that the compensatory transfers too would continue indefinitely. But this is by no means certain.
Universal coverage and the transfer amount:
One of the main justifications for universality lies in the shortcomings of targeting, but universal coverage has its cost too when the resources available are exogenously given or “fixed,” as is the case in Iran since the funds available depend on the extent of price hikes and the volume of goods and services sold, not on the scheme’s coverage or the transfer amount. The distribution of the funds is thus subject to a trade-off between the number of beneficiaries and the amount of the transfer to each. The universality thus comes at the expense of the lower income people who could have received more had those with higher incomes been excluded. At the time of writing (April 2012), there is increasing evidence that the principle of universality in Iran’s scheme may be sacrificed with some better-off households being dropped from the programme. The current plan is to urge higher income earners to opt out of the transfer scheme voluntarily. Households with an income above a couple of thousand dollars a month (a fairly large amount of money in Iran) are being invited to consider giving up their cash subsidy in whole or in part (the options are the entire amount, half the amount or any addition to the transfer amount in the second phase of the programme). No one knows how they will respond. If enough of them agree to withdraw, the matter will have been settled. If not, the government will have to decide how to proceed.
Constituency building:
The subsidy reform in Iran was a government initiative that, far from enjoying public support, aroused deep anxiety throughout the society. It was the most radical economic transformation Iranians were going to experience in living memory. The cash transfer component of it was designed in part to alleviate public concern and build support for the reform on the strength of the argument that a large part of the population would in fact receive more in cash subsidy than they would lose from cuts in price subsidies. Universal coverage came about for lack of a practical alternative. It had few advocates per se and may yet prove to be short lived, even if retreating from it may be harder now that it is in place. But even if some of the better-off households are excluded from the transfer scheme, their number is unlikely to be large. The success of the reform depends on the vast majority of the people feeling that they are not being cheated out of their fair share of the oil wealth.
To sum up the potential lessons:
- overemphasis on rights may not always be the best political strategy for promoting basic income;
- the compensatory nature of the transfers can help overcome objections rooted in the principle of reciprocity;
- piggybacking on a larger issue may open up fruitful opportunities for the promotion of basic income;
- one can conceivably stumble on a basic income under certain circumstances;
- Iran’s model of generating resources for a basic income is potentially applicable in many other countries as well, even those that may not have fuel resources of their own or subsidized fuel;
- the Alaska model of dividend payment may have greater long-term sustainability;
- there is normally a trade-off between universality and transfer amount in the context of a developing country;
- universal entitlement need not mean universal payment if the better off can be induced to forego their entitlement voluntarily;
- cash transfers, once in place, can develop a large constituency behind them, for both economic and political reasons; and
- public support of cash transfers could be strengthened if they also addressed widely acknowledged problems (for example, irrational consumption patterns).
For more on the subject, see
Hamid Tabatabai, ‘The Basic Income Road to Reforming Iran’s Price Subsidies,’ in Basic Income Studies, vol.6, no.1, June 2011, pp.1–24, www.bepress.com/bis/vol6/iss1/art3
‘Iran: A Bumpy Road towards Basic Income,’ in Basic Income Guarantee and Politics, Richard Caputo (ed.), New York: Palgrave Macmillan, forthcoming;
‘From Price Subsidies to Basic Income: The Iran Model and its Lessons,’ in Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World, Karl Widerquist and Michael Howard (eds.), New York: Palgrave Macmillan, forthcoming;
‘Reforming Energy Subsidies: The Iran Model,’ in Oxford Energy Forum, Oxford, United Kingdom: Oxford Institute for Energy Studies, forthcoming.
by Yannick Vanderborght | Jan 16, 2012 | Opinion
Essay presented to UN Regional Commissions’ High Level Meeting on Transition to Democracy, Beirut, Lebanon, January 15 and 16, 2012
It is an honor for me to be invited to participate in this “United Nations Regional Commissions’ High Level Meeting on Transition to Democracy”, in this panel on “Balancing Growth and Social Justice”, concerning mainly the Arab Countries, held in Beirut, Lebanon, on January 15 and 16, 2012. This is a highly relevant opportunity to exchange ideas about the experiences of so many countries in the five continents about how we can raise the level of justice in our societies so as to live with a sense of solidarity and peace.
As a Brazilian Senator, member of the Workers’ Party (Partido dos Trabalhadores), author of Law 10.835/2004 that institutes a Citizen’s Basic Income to all residents of Brazil, including those foreigners who are living in Brazil for five years or more, no matter the origin, race, sex, age or socioeconomic condition, and also Co-President of Honor of the Basic Income Earth Network – BIEN – I am happy to bring you information about what is going on in my country, and about the development of this proposal in other parts of the world.
According to the law, approved by consensus of all parties, in December 2002 in the Federal Senate, and in December 2003, in the Chamber of Deputies, and then sanctioned by President Luiz Inácio Lula da Silva in January 8, 2004, the Citizen’s Basic Income will be an annual monetary benefit, equal to all, sufficient to attend the basic needs of each person. It may be paid monthly, in equal parcels. Its level will consider the level of development of the nation and the financial possibilities. It will be instituted gradually, under the Executive criteria, taking into account those most in need in the first place, such as the Bolsa Família Program does today.
In his “The Idea of Justice” (Penguin Books, 2009), the Nobel Prize economist Amartya Sen tells us about the importance of searching for justice, of building democracy, of the government built by debate, as well as of the nature, the viability and the extent of the demands of human rights. He mentions the sense of perception of clear injustices that could be overcome that characterized the actions of the Parisians in the French Revolution of 1789, Mahatma Ghandi in India and Martin Luther King Jr in America.
Amartya Sen mentions several examples of how democracy, freedom of expression and of the press have contributed for societies to solve their problems including that of severe famines.
Sen asserts that the history of the Middle East and of the Muslin people includes a large number of episodes of public discussions and participatory politics through dialogue. In the Muslin kingdoms centralized in Cairo, in Baghdad and Istanbul, in Iran, in India or even in Spain, there were many defenders of public discussions. He argues that the degree of tolerance with respect to different points of view was frequently exceptional in comparison to Europe in the XVI and XVII centuries. I am sure that Amartya Sen is regarding very well the development of this Meeting in Beirut.
Sen’s starting point is the Theory of Justice as Equity elaborated by John Rawls. In his “A Theory of Justice” (Harvard University Press, 1971), Rawls establishes the principles of Justice that should be put into practice in a society:
- Each person is to have an equal right to the most extensive system of equal basic liberties compatible with a similar system of liberty for all (the principle of equal liberty);
- The inequalities of social and economic advantages are justified only if (a) they contribute to the improvement of the less advantaged of the society (the principle of difference), and if (b) they are linked to positions that everybody has equal opportunities to occupy (the principle of equal opportunity).
In 2005, I had the opportunity to attend the first lecture given together by Professors Amartya Sen and Philippe Van Parijs, in their discipline, “Justice and Cultural Diversity”, for the graduate students of Harvard University. Van Parijs asked the students who had a mother language other than English among them. About one third raised their hands. He observed that even having different backgrounds – in terms of origin, race, language, religion and so on – we could have common views on our criteria about how to build a just society.
Then, Amartya Sen explained that in that discipline they would examine what are the institutions that would help us in raising the level of justice. For example, when slavery was abolished, it raised the level of justice in society. If we provide a good level of education for all boys and girls in the society, we are raising the level of justice. “In this course we will examine”, Sen mentioned, “to what extent an Unconditional Basic Income, as argued in favor of by Professor Philippe Van Parijs and Senator Eduardo Matarazzo Suplicy, who is visiting us today, will or not raise the level of justice in society.” I felt quite happy.
We could think of other instruments that would help in this direction, such as the stimulus to cooperatives, the expansion of microcredit, the agrarian reform, a good public health system, the participatory budget and so on. John Rawls mentions in “A Theory of Justice” that a negative income tax that would guarantee a minimum income to all would help the application of the principles of justice.
According to Professor Philippe Van Parijs, in “Real Freedom for All. What (if anything) may justify capitalism?” (1995, Oxford), much better than the Negative Income Tax to Guarantee a Minimum Income is the Unconditional Basic Income to all, no matter origin, sex, race, age or socioeconomic condition, for the purpose of applying the three principles of justice.
What follows is the development of the paper that I have prepared for the Book of essays for Philippe Van Parijs, “Arguing about justice”, edited by Axel Grosseries and Yannick Vanderborght (2011, UCL, Universitaires de Louvain), because of his 20th year as the responsible for the Hoover Chair in economic and social ethics at the Catholic University of Louvain as well of his 60th birthday.
How Basic Income inspired Brazil’s social policy
In 1966-68, and again in 1970-73, as I was studying for my Master’s and my PhD in Economics at Michigan State University, in the USA, I came across the concept of income guarantee through a negative income tax (NIT). Back in Brazil, I interacted with Professor Antônio Maria da Silveira, who had proposed the institution of such a NIT in our country (Silveira 1975). When I was elected Senator by PT-SP for the first time in 1990, we then worked together on a proposal called the Guaranteed Minimum Income Scheme, PGRM. Every adult person 25 years or older who did not earn at least 45 thousand Cruzeiros per month (at that time, about US$150) should have the right to a complement of 30% to 50% of the difference between that level and his/her disposable income. The project was approved by the Federal Senate, by consensus of all parties, on December 16th, 1991. It went to the Chamber of Deputies where, at the Committee of Finance and Taxation, received an enthusiastic written opinion from Representative Germano Rigotto (PMDB-RS). The proposal, however, was not voted in that form because of several developments that followed.
The debate on the subject then started to flourish in Brazil. In 1991, during a discussion with approximately 50 economists who were close to the Workers’ Party (PT), Antônio Maria da Silveira and I presented the PGRM proposal. Professor José Márcio Camargo observed that the guarantee of a minimum income was a good step, but that it should be granted to needy families only, with children attending school on a regular basis. These children would then not be induced to work in order to help the survival of their families.
In 1995, taking these thoughts into consideration, Mayor José Roberto Magalhães Teixeira (PSDB), in the municipality of Campinas, and Governor Cristóvam Buarque (PT), in the Federal District, started minimum income schemes linked to educational opportunities. The programs were called Bolsa-Escola. All families with income per capita below half the minimum wage would have the right to receive: a) in Campinas: whatever would be necessary to complete half the minimum wage per capita for the family; b) in the Federal District: a full minimum wage, no matter the size of the family, or how many people in the family were working or not. Those experiments inspired several other municipalities. In the National Congress, bills were presented defining the support level that the Federal Government would provide to municipalities introducing minimum income programs related to educational opportunities.
In 1996, I took Philippe Van Parijs for an audience with President Fernando Henrique Cardoso and the Minister of Education, Paulo Renato Souza. Van Parijs argued that an unconditional basic income was a first-best, but also recognized that starting with a minimum income guarantee associated with education opportunities was a good step, because it was related to investment in human capital. President Fernando Henrique Cardoso then gave permission to the National Congress to approve a law which authorized the federal government to grant a financial support of 50% on the amount spent by the municipalities that provide a minimum income linked to social and educational opportunities.
In March 2001, again under Fernando Henrique Cardoso’s impulse, the National Congress approved another law authorizing the federal government to conclude agreements with all Brazilian municipalities in order to implement the Bolsa Escola. Later on, the government also instituted the Bolsa-Alimentação and the Auxílio-Gás programs. In 2003, Luiz Inácio Lula da Silva’s government instituted the Vale-Alimentação program.
In October 2003, President Lula’s government decided to unify and rationalize these different programs into a single Bolsa Família Program, which had 3.5 million families registered in December 2003. The number increased to 6.5 million families in December 2004, 11 million families in December 2006, and 13.352 million families, or almost 50 million Brazilians, in December 2011.
The Bolsa Familia: A Success Story
Along with other economic policy instruments, the Bolsa Família Program greatly contributed for the reduction of absolute poverty and the level of inequality in Brazil. The Gini coefficient had reached 0.599 in 1995, but gradually decreased every single year, reaching 0.581 in 2003, 0.544 in 2008, 0.530 in 2009, and 0.526 in 2010 [1]. The proportion of families under the extreme poverty line, with income per capita below R$ 93.75 which was 17.5% in 2003, decreased to 8.8% in 2008. The proportion of poor families, with income per capita below R$ 187.50, decreased from 39.4% in 2003 to 25.3%, in 2008. These favorable results can also be shown in the following way. The 20% poorest families had an income per capita increase 47% faster than the income of the richest 20%. While in 2001, the average income of the 20% richest families was 27 times more than that of the 20% poorest families, in 2008 it was 19 times higher, a reduction of 30% in inequality in seven years.
Since June, 2011, when the newly elected President Dilma Rousseff announced the Brazil Without Misery Plan and an adjustment of the program, the Bolsa Familia stated to function as follows: If the family per capita income is below R$ 70 per month, it has the right to receive a basic benefit of R$ 70 per month [2]. All families with monthly per capita income below R$ 140 are entitled to R$ 32, R$ 64, R$ 96, R$ 128 or R$ 160 if they have one, two, three, four, five or more children under 16 years of age respectively, plus R$ 38 for each adolescent between 16 to 18 years of age (up to a maximum of two). Therefore, the average benefit per family has increased to R$ 120 per month, with a minimum of R$ 32 and a maximum of R$ 306 per month.
The average size of the Brazilian family is 3.3 persons. The average is somehow higher, for families that benefit from the program. These families need to meet important requirements. If the mother is pregnant, she has to go to the public health network for prenatal examinations and monitoring. Parents have to take their children up to six years of age to be vaccinated according to the calendar of the Ministry of Health. Children from seven to 16 years of age have to go to school, with an attendance average of at least 85%. Children from 16 to 18 years of age must attend school with at least 75% attendance.
Despite the achieved progress, Brazil is still one of the most unequal countries in the world. While the poorest 40% live with 10% of the national income, the richest 10% live with more than 40%. The income appropriated by the 1% richest is the same as of the 45% poorest. Undoubtedly, the creation and expansion of the Bolsa Família Program had positive effects. However, in order to move towards a more efficient and direct eradication of the absolute poverty, as well as to achieve greater equality and guarantee greater real freedom for all, Brazil should implement a true Citizen´s Basic Income (CBI).
Towards A CBI
During the 1990s, I increasingly interacted with the founders of the Basic Income European Network (BIEN) [3], and took part in its bi-annual congresses. I was then convinced that an unconditional Basic Income for all was much better than conditional schemes or even a NIT. For this reason, in December 2001, I presented a new bill of law to the Brazilian Senate, which called for the institution of the Citizen´s Basic Income (CBI). After having studied the proposition, Senator Francelino Pereira (PFL-MG) argued that it had to be made compatible with the Fiscal Responsibility Law under which it is necessary to secure correspondent revenue for expenditures. He suggested the inclusion of a paragraph saying that the CBI had to be instituted step by step, starting with those most in need, until one day it will be unconditional for everyone regardless of income. It reminded me of James Edward Meade’s recommendation, in the last chapter of Agathotopia. What is important is to have our objectives crystal clear in mind, and to move firmly, gradually, in that direction.
Due to this aspect, the bill of law was approved by consensus of all parties in the Senate (December 2002) and the Chamber of Deputies (December 2003). When it came to the President for his examination, Minister of Finance Antonio Palocci told him: “since it is to be introduced step by step, it is feasible and you may sanction it”. On January 8th, 2004, President Luiz Inácio Lula da Silva sanctioned the Law 10.835/2004 that institutes a CBI, step by step, under the Executive criteria, starting with those most in need, such as in the Bolsa Família program. Later, then, we will have an equal CBI for everyone as an individual right to participate in the wealth of the nation. On this day, the President received the following message from economist Celso Furtado:
At this moment when Your Excellency sanctioned the Citizen’s Basic Income Law I want to express my conviction that, with this measure, our country puts itself in the vanguard of those that fight for the building of a more harmonious society. Brazil was frequently referred as one of the last countries to abolish slave labor. Now with this act which is a result of the principles of good citizenship and the wide social vision of Senator Eduardo Matarazzo Suplicy, Brazil will be referred as the first that institutes an extensive system of solidarity and furthermore, it was approved by the representatives of its people.
As I see it, a true CBI should be as high as possible in order to meet each person’s vital needs, and should be paid to all inhabitants of a community, municipality, state, country, or even, someday, to the whole population of a continent or the world. Regardless of his/her origin, race, sex, age, civil, social or economic condition, everyone will have the right to receive the CBI as a right to participate in the wealth of that community, municipality, state, country, continent or the planet. Such a scheme has many advantages. Let me mention a few of them.
First, all the bureaucracy involved in knowing each person’s income in formal or informal market would be eliminated. This would also allow for the elimination of any stigma or shame, since individuals would not need to tell civil servants: “I earn only this much, so I need a supplement of income for my survival”.
Second, perhaps the most important advantage of the Citizen’s Basic Income is that it raises everyone’s level of dignity and freedom. From the point of view of what Amartya Sen says in “Development as Freedom” (1999, New York: Knopf): “Development, to be meaningful, must mean a greater degree of freedom for everyone in society.” Take the case, for example, of a girl who does not have another alternative for her survival than selling her body. Or a young man who, to support himself and his family is forced to work for the drug traffic gangs. If there is a Citizen’s Basic Income, they can refuse those alternatives, and wait for opportunities that match their propensity or vocation.
Third, a basic income allows for the elimination of the dependency phenomena. Conditional programs function as follows: if a person’s income is below a given amount, she is entitled to an income supplement. When she gets a job, she loses (part of) the benefit. Hence, she might decide not to take that job and gets into the unemployment or the poverty trap. With a universal basic income she will have more employment options.
One of the most often-heard objections to Basic Income consists in saying that it would stimulate idleness. The Brazilian Constitution and laws, as well as the laws of so many countries, assure the right to private property. That means that the owners of factories, farms, hotels, restaurants, banks, real estate and financial bonds have the right to receive capital revenues, that is, profit, rent and interest.
Do the Brazilian laws, or of most other countries, mention that to receive those revenues, the capital owners must demonstrate that they are working? No, and they usually work, and many of them also dedicate a good part of their time to voluntary work. Do they need to demonstrate that their children are attending school? No. Nevertheless, their children usually attend the best schools.
So, if we assure those who have more resources the right to receive their revenues without conditions, why not extend to everyone, rich and poor, the right to participate in the nation’s wealth as our right for being Brazilians? If we want to eliminate absolute poverty, becoming a more equal and fair society and assuring dignity and real freedom to everyone in the society, instituting the Citizen’s Basic Income is a solution as simple as leaving home through the door.
Turning Basic Income into reality in Brazil
In Brazil, we could consider the institution of the Citizen’s Basic Income (CBI) as consistent with the values defended by the indigenous, by the fighting “quilombolas” and those for the slavery abolition, and by all those researchers and scientists who fight for the creation of a fair nation.
In the same way as the first minimum income linked to educational opportunities started locally, in Campinas and in the Federal District, it is possible to start the CBI in communities or municipalities.
Take the example of Recivitas – Instituto pela Revitalização da Cidadania, an organization which has created a free library and a free toy center in Vila de Paranapiacaba (Serra do Mar, 1,200 inhabitants). It has recently proposed the creation of a CBI. Recivitas President Bruna Augusto Pereira and coordinator Marcus Brancaglione dos Santos are waiting for the steps of Santo André’s Mayor to carry out the project. While waiting, they started a pioneering experience in another village, Quatinga Velha where, since the beginning of 2009, they pay R$ 30, or US$ 18, per month to 83 persons. This is possible thanks to the voluntary contributions of several citizens.
Another promising experiment is taking place in Santo Antonio do Pinhal, in Serra da Mantiqueira, 177 km from São Paulo, 6.500 inhabitants. There, on October 29th, 2009, the Municipal Chamber, by consensus of its nine councilmen, approved the Municipal Bill of Law for a Basic Income, proposed by Mayor José Augusto de Guarnieri Pereira (PT). Among the 5.565 Brazilian municipalities, it is the first that approved a law instituting the CBI. Its first article declares:
“With the purpose to turn Santo Antonio do Pinhal into a Municipality that harmonizes sustainable social and economic development with the application of justice principles, meaning the solidarity practice among all its inhabitants, and, above all, to grant a higher level of dignity to all its inhabitants, the Citizen´s Basic Income of Santo Antonio do Pinhal – CBI is instituted, consisting in the rights of all registered residents or residents in the Municipality for at least 05 (five) years, regardless of their social and economic status, to receive a monetary benefit.”
Exactly as in the federal law, it also states that the CBI will be achieved gradually, giving priority to the most needed segments of the population. To finance the payment of the CBI, a Municipal Fund will be created.
To turn the CBI feasible for the whole country however, it would be necessary to collect a great amount of resources. If it wants to provide an even modest improvement in relation to the Bolsa Família, Brazil should begin with at least an amount higher than the average paid by this scheme, i.e. R$ 120 per family, which means something like R$ 40 per person for a family of three members. So, if we think about a CBI of R$ 40, it would be R$ 240 per month for a family of six members. In 12 months, the yearly amount would be R$ 480 per person. With Brazil’s population reaching 191 million in 2011, we would need R$ 91,680 billion, something around 2.71% % of the Gross National Product of R$ 3,388 trillion or US$ 2,287 trillion in 2010, about 6.7 times the Bolsa Familia budget of R$ 13.6 billion for 2010, a considerable leap.
R$ 40, or US$ 22, per month is a modest amount, but in time, with the progress of the country and the growing approval from the population, the CBI could turn into R$ 100, then R$ 1.000, and so on. A way to make it feasible is the creation of the Citizen’s Brazil Fund, according to the Bill of Law 82/1999, which I presented to the Senate. It has already been approved by consensus by the Senate, and is in legal procedures in the Chamber of Representatives, where it has been approved by the Committee of Family and Social Security. This Fund is constituted by 50% of the resources generated by authorization or concession of natural resources exploitation; 50% of the revenues from rentals of federal government real estate, which belong to all the population; 50% of the revenues generated by concession and services and public works and other resources. The output generated by the investments of the Fund resources, like the Alaska Permanent Fund, will be used to pay CBI to all the Brazilian residents.
Citizen’s Brazil Fund legislation is now awaiting approval by the Chamber of Representatives Committee of Finance and Taxation. A new reporter has been nominated, Federal Representative Cláudio Puty (PT-PA) (from the Workers’ Party, State of Pará). He will be able to present a favorable report as long as there is a green light from the Executive. This is not so easy, although I always say that I am ready to accept any suggestion to make the proposal feasible, such as to diminish the proportions that are listed in the proposal. It is important to consider that Congress approved in 2010 President Lula’s initiative regulating the proceeds of the oil found in the Pre-Salt area deep in the Atlantic Ocean. The legislation has the eradication of poverty, the expansion of educational opportunities, scientific and technological progress, and better environmental and cultural activities as its main objectives. There is a strong dispute, however, between the representatives of the Federal Units, 26 States and one Federal District, on how to distribute the resources from the exploitation of the pre-salt oil.
Another promising alternative is being pointed out Professor Philippe Van Parijs while quoting Edward Glaeser’s excellent book “The Triumph of the City”, Penguin, 2011, p.221:
“Smart environmentalism needs to embrace incentives (…) Throughout the world, we can adopt a global emission tax that charges people for the damage done by their carbon emissions (…) Opponents of big government understandably worry that this type of policy will just turn into an added source of revenue for the government, but this worry can be reduced with a public commitment to rebating tax to citizens as an energy dividend, much as the state of Alaska pays each of its citizens an annual dividend from all revenues.”
Especially when more people understand how CBI could contribute for the construction of a fair and more civilized Brazil, more voices will be saying to the President of the Republic, to the Governors and Mayors: “It is a good proposal. Let’s put it into practice right away”.
Conclusion: what are the immediate prospects?
During the IV National Congress of the PT in Brasilia, February 19th to 21st, 2010, by the unanimous vote of the 1.350 delegates, the following point was added to the National Program of Dilma Rousseff, who was acclaimed Presidential candidate by consensus:
“The Great Transformation
The accelerated growth and the fight against racial, social, regional inequalities and the promotion of sustainable development will be the axis of the economic development structure.
19) The expansion and the strengthening of the popular consumption goods, that produces strong positive impact over the productive sector system, will be attained by:
a)…
f) permanent improvement of the income transfer programs such as the Bolsa Família, to eradicate hunger and poverty, to facilitate access of the population to employment, education, health and higher income;
g) transition from the Bolsa Família Program towards the Citizen´s Basic Income, CBI, unconditional, as a right of every person to participate in the wealth of the nation, such as set by the Law 10.835/2004, a PT initiative, approved by all parties in the National Congress and sanctioned by President Luiz Inácio Lula da Silva in January 8, 2004.”
It would be rational that the Bolsa Família and the state social programs become unified since they are quite similar. Both could be increased in value, for more people, in the direction of the CBI.
President Dilma Rousseff was elected in October 31st, 2010 in the second ballot, with almost 55.7 million votes, 56% of the total. On her inauguration day, on 2011, January 1st, she announced that the eradication of misery or extreme poverty in Brazil would be her first and most important priority.
On June 11st, President Dilma Rousseff announced the Brazil Without Misery Plan. The main purpose is to include in the program those 16.27 million people who are not yet being benefitted by the Bolsa Família program, although they are people who, according to the 2010 Census, are living with less than 70 reais per capita. She announced that the government will start making an active search for these people wherever they are. Since many of these people are children up to 14 years of age, the Bolsa Família Program increased the benefit from three to five children up to 15 years of age that may receive the 32 reais per child. This measure is expected to reach 800 thousand families more, up to 2014, and 1.3 million more children.
It will be a tremendous challenge for a 150-year old financial institution like the Caixa Econômica Federal, a Caisse des Dépôts, to administer the unconditional right to all 191 million Brazilians, even more in the future. But for an institution that was able to increase the number of families being benefitted by the Bolsa Família Program from 3.5 million families in December, 2003, to 13 million in December 2011, that corresponds to around 50 million inhabitants, and so efficiently, to manage the Citizen’s Basic Income to all Brazilians is a feasible objective. It is my purpose to help President Dilma Rousseff and her Ministers to take the necessary steps to institute the Citizen’s Basic Income by 2014.
[1] Sources: Study number 30 of IPEA – Instituto de Pesquisa Econômica Aplicada, First Analysis about the results of the 2008 PNAD – Pesquisa Nacional por Amostra de Domicílios, published in September 24th, 2009, plus the 2009 PNAD and 2010 Census results officially published by the IBGE – Instituto Brasileiro de Geografia e Estatística in 2010 and 2011
[2] As of June 1st, 2011, R$ 1,00 was US$0.63, and €0.44.
[3] In 2004, BIEN became the Basic Income Earth Network.
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