by Tyler Prochazka | Feb 18, 2017 | Opinion
China’s spectacular growth in the past thirty years has begun to slow down in recent years. Emerging signs suggest that China is woefully unprepared for the fallout from exponentially rising automation of manufacturing jobs. While businesses are still going to sites like https://gembah.com/guides/manufacturing-in-china-like-a-pro/ to find the best way they can manufacture their products, the factories in China need to make sure they are prepared for the increased automation that will be coming to the manufacturing industry in the coming years.
The former Supreme Leader Deng Xiaoping of the People’s Republic of China (PRC) orchestrated the country’s economic miracle through a dramatic increase in exports to the rest of the world. For the next several decades, China reoriented the world economy, and many companies stationed their factories within China to take advantage of the cheap labor. Many of these factories might be making use of system integration software soon to increase the efficiency of their factories. I hear it reduces a lot of admin work and increases productivity. As wages rise and the population ages, the value of the original bargain is starting to erode.
In absolute terms, China is leading the world in the number of robots used for production. Over the next decade, China will start to catch up to other advanced economies in terms of per capita robots. By 2019, China may even nearly double its number of robots. At the same time, robots will complete increasingly complex tasks, threatening an even wider range of jobs for humans. Inevitably, this will cause many low-skilled workers in China (and around the world) to lose their jobs. And absent incredibly disruptive government intervention that would likely do more harm than good, these low-skilled jobs will never come back.
Young people in China are more educated than ever, and are increasingly less likely to want to pursue factory jobs anyway. Automation can help propel China toward a more innovative and service-based economy by freeing up labor for these higher value pursuits. In the meantime, though, college-educated Chinese are having difficulty finding jobs as China’s economy readjusts. Without a proper safety net in place, China risks facing social unrest as automation begins to accelerate.
As it stands, China’s main welfare program dibao is too bureaucratic and ineffective to handle the influx of unemployed individuals because of all of the conditions attached to the program. When addressing automation, China’s best solution may be to universalize the dibao to create a universal basic income. This would allow for a smooth transition away from China’s reliance on human-led manufacturing. The need for product inspection in China is highly important for manufacturers, as they must make sure everything is made to the highest specifications. Using a China inspection service can help prevent issues and malfunctioning products, hopefully, this form of checking is not looked over when the change to more automated manufacturing is completed. China acts as a pillar for world economic growth. The basic income would not only stave off the most destabilizing aspects of the coming automation revolution in China, but it is also crucial for the stability of the international economy.
by Hilde Latour | Feb 17, 2017 | News
Business Insider published an article based on an interview with co-founder of BIEN, Guy Standing, focusing on his analysis of the working class in the Western world.
Standing sees a growing class of “precariat” workers, caused by a political agenda promoting market-led competition since the 1970s. A significant group of this “precariat” is prone to listen to ugly voices playing on their fears and supporting neo-fascist populism as a result. This helps explain the election of Donald Trump in the US, but also Brexit and the popularity of Marine Le Pen and Geert Wilders in Europe.
He refers to his book “The Corruption of Capitalism”, where he describes a growing group of wealthy citizens (the “rentier class”) who live on income from investments and property (including copyright and patents that often last for 20 years). This increases the gap between the rich and the poor.
According to Standing, at least part of the solution could be the introduction of a universal basic income (UBI), and he has seen growing support for this idea from both left and right wing politicians, economists and many others in the last few years.
“I see no reason why we will not have it within the next ten years — and maybe sooner.”
Standing states that a UBI can be seen as a matter of social justice, as a compensation for a system of property that results in a loss of natural inheritance, a point argued extensively by Thomas Paine, who introduced the idea of a citizen’s dividend back in 1795. It would also enhance individual liberty and give people a sense of security.
The affordability of a UBI is not a problem, Standing argues. It would replace other forms of public spending, and could be funded by the establishment of capital funds, like those derived from oil in Alaska and Norway, and the rental flows from patents.
The belief that UBI would remove the incentive to work is ridiculous, he further claims. Enough evidence is available to show it is the opposite:
“If you had a basic income, it would mean that everybody would have a base, on top of which their earned income would be taxed at the standard rate of tax. That would increase the incentive to take low-wage jobs.”
The current Western systems of ‘social welfare’ discourage people from taking low-wage jobs. These systems are poverty traps, argues Standing.
“We must have a new income distribution system [as] real wages will continue to decline in OECD countries, insecurity will continue to grow, and rental incomes will continue to go to the top. That is a recipe for economic instability, political extremism, and a lot of other nasty things.”
Info and links
This article is the second in a two-part series based on Thomas Colson’s interview with Standing. The first article contained ambiguities that lead to inaccurate reports about the Indian situation. It was corrected in a Basic Income News article “Jumping the Gun in India“.
Special thanks to Josh Martin and Genevieve Shanahan for reviewing this article.
Photo: yinxu – oracle bones by Xuan Che, CC-BY-SA 2.0
by Guest Contributor | Feb 16, 2017 | Opinion
Written by: Derek Horstmeyer
Aside from the numerous societal benefits that Universal Basic Income (UBI) offers in the future as automation disrupts the nature of employment, we in the basic income movement should not forget the benefits it also offers in the immediate term.
Economists across the board, whether they focus on labor, corporate governance or environmental issues, love to see mechanisms and incentive systems designed so they are free of distortions. Our current national system in the US of assistance for the short-term unemployed and long-term unemployed is designed with incentive misalignment over different income levels. This is particularly evident on the lower end of the income distribution.
An individual who has just lost their job or an individual who continues to suffer long-term unemployment faces a daunting decision when posed with the prospect of taking on a new job. Many of these individuals may have been approached by executive search headhunters (PIXCELL – Chasseurs de Têtes Montreal Headhunters or a similar headhunter, for example) to take up a good position in a renowned company. On one hand, there are the wages associated with the new job and on the other there are is potential loss of federal and state assistance. CATO’s 1995 “The Welfare-Versus-Work Tradeoff,” estimates that a change in employment status from a part-time position (below the poverty line) to a full-time position at 18 dollars an hour might actually cost the individual a net of 5 to 10 thousand dollars a year due to a loss in state benefits.
These benefits that the individual may have to relinquish span numerous forms including cash assistance (Temporary Assistance to Needy Families), food assistance (SNAP), medical insurance (Medicaid) and housing assistance. And, one criticism of the Affordable Care Act is individuals just above the income cutoff for Medicaid are doing far worse when you consider the mandatory penalty they must pay as compared to those who are receiving Medicaid. It also might be worth thinking about those that do get Medicaid aren’t actually receiving the support for free. For instance, read over this article touching on avoiding medicaid estate recovery, a part of Medicaid some people look past or don’t even know about. If someone that was receiving Medicaid passes away, Medicaid could then actually legally possess your house to cover the costs, leaving living family members a lot worse for wear. The idea of these benefits and aids always seems to have some downfalls, but there can also be ways to navigate around them.
While the magnitude of the loss in state benefits that one suffers as their wages increase is debated, one thing that all economists agree on is that poverty traps are real. As an individual moves up the income ladder, there is a class of income where they would better off monetarily if they turn down a job (or a pay increase) because they must forfeit state benefits.
If we desire to have incentive alignment in our economic system, where every marginal amount of time worked by an individual leads to a marginal increase in total income, the poverty trap created by the welfare system is a major problem. Of course, there are a few ways to fix this issue. One is to just reduce the number of benefits that people receive on the lower end of the income distribution. This does not sound appealing seeing as the number of vulnerable people in the US may continue to increase as the nature of employment changes over time. The second way to handle this issue is to extend the ‘phase-out’ ranges, so people don’t lose as many benefits as they earn more income. This is more appealing, but only puts a band-aid on the issue and still allows for income ranges where incentive misalignment persists.
The third and final option is UBI. The beauty of universal basic income, paired with a negative income tax, is that these decisions to forgo work or a raise because of a loss in state benefits, are non-existent. In a UBI system, incentives are always aligned for the individual to accept a raise or to work an additional hour because it will always put more money in their pocket.
As work becomes more automated, it is important to highlight the wonders that UBI may serve us in the future. However, one should also not forget what UBI affords us today in terms of a system of welfare and assistance that is free of incentive misalignment.
About the author: Derek Horstmeyer is a professor at George Mason University School of Business, specializing in corporate finance. His research, which has garnered several awards, focuses on boards, governance and hedge fund activism. He has presented at conferences across the country as well as internationally, and is consistently rated a top professor by his undergraduate, MBA and EMBA students who have honored him with teaching awards.
Derek has a BS in Mathematics and Economics from the University of Chicago, an MS in Financial Mathematics from Stanford University and a PhD in Finance from the USC Marshall School of Business.
by Cordelia Holst | Feb 15, 2017 | News
“Open Mind” Photo CC BY 2.0 Anders Sandberg
“Being open-minded about universal basic income”
The Safety Nets Global Solutions Group at the World Bank has recently blogged about basic income, explaining the income level of a country can indicate where its government is on developing a social security / welfare protection system for its citizens. High income countries with a history of welfare policy focused on the poor, are seeing increased job insecurity for all workers due to advances in AI, robotics and automation. Middle income countries are adjusting and measuring relatively new welfare systems. Meanwhile, low income countries are just at the beginning of these efforts, and struggling with low government revenues to finance these programs. With basic income research pilot projects having been launched around the world, from Finland to Namibia, the Safety Nets Global Solutions Group encourages policymakers to keep an open mind around basic income as we together look at the rationale, context, incentives, and outcomes that will shape the possibilities for these policies going forward.
The Safety Nets Global Solutions Group (GSG) is a network of practitioners within the World Bank who share an interest in the analytics and practice of social assistance. It currently includes 150+ professionals actively engaged in different regions across the world.
Read the article here:
Ugo Gentilini and Ruslan Yemtsov, “Being open-minded about universal basic income,” Let’s Talk Development (blog), January 6, 2017.
by Austin Douillard | Feb 15, 2017 | News
On January 23rd, Sean Kline, Director of the San Francisco Office of Financial Empowerment, spoke at a Questions & Answers event where he discussed his ideas for universal basic income (UBI) pilots in San Francisco, as well as other cities across the United States.
https://www.facebook.com/universalincome/videos/1841786812757686/
Kline was hosted by Jim Pugh, the co-director of the Universal Income Project, and they spoke at the Covo center in San Francisco.
“We’re at a galvanizing moment for cities to think more creatively about how they can generate revenue for really progressive policies,” Kline said. His speech focused on implementing basic income projects in cities in part because, “there’s a real appetite to do more at the city level.”
His focus at the city level is in part a response to the criticism of basic income projects: that they represent what Kline called a “Trojan horse that would or could eliminate other crucial social safety nets either in one fell swoop or through a paper cuts.”
Kline responded to this critique that we should not view UBI as a wholesale transformative policy that would immediately replace other social welfare programs. Instead, he spoke about a variety of “incremental paths” for UBI that could start small and grow. In this way, UBI could build on already existing programs that are already functioning and accepted.
To illustrate this point, Kline cited the Alaskan Citizen’s Dividend and the related Pension Fund in Norway, which both give a portion of oil profits back to the people. He said that even social security is a form of an income grant for a portion of the population. Kline claimed that a transition to basic income could build on these already-established programs and grow. “There are a lot of things that don’t have to sound quite so radical that we can build on,” he said.
Kline is currently searching for funding sources to implement city-level basic income experiments. The specifics of his proposals and their funding possibilities are still being considered and negotiated with potential funders. Currently, the Universal Income Project is funded by the Roosevelt Institute and the Citizens Engagement Laboratory.
More information at:
Universal Basic Income Facebook page
