Reference: Rankin, Keith (1998) "Revisiting the UBI", New Zealand Political Review 7(2):12-15.

keithrankin.co.nz/ nzpr1998_2rivalUBI.html


Editor's Introduction:


Revisiting the UBI
Rival Views of Universal Basic Income

July 1998

 

The idea of a Universal Basic Income (UBI) as a basis for tax-benefit reform has come to represent a nebulous and sometimes incompatible set of concepts and wish-lists. It is an idea that means different things to different people. What does it mean to me?

I brought the term "Universal Basic Income" into the New Zealand welfare debate in 1991, through a paper presented at a Waikato University seminar, later revised and reprinted in the April 1992 issue of the New Zealand Political Review.

My UBI proposal was a two-tier structure. The first tier was a simple benefit payable to every adult in accordance with the "basic income / flat tax" principle (ref. A.B. Atkinson Public Economics in Action). Under this schema, every tax-resident New Zealander would have the same "marginal" tax rate on their last dollar of privately sourced income. With the economy in a deep trough in 1991, I opted for a conservative option of an unconditional income of $115 per week and a flat tax rate of 48 percent. For 1999, I suggest that more appropriate parameters might be $150 per week, and a tax rate of 42 percent.

I called the second-tier UBI a "pension", and it was the means to ensure that single parent and low income families, superannuitants, and invalid's beneficiaries could be no worse off under a UBI regime. A "pensioner" would receive a higher publicly-sourced income than an ordinary tax-resident and pay income tax at a higher rate. The second tier was in fact the equivalent of a means-tested supplementary benefit paid in addition to the first-tier benefit.

As a complete package, the UBI system involves an unconditional social income, a supplementary benefit, and a moderate-high flat rate of income tax. While clearly designed to replace the welfare mess that we have today, the system does not preclude additional elements, such as a universal child benefit or new forms of taxation.

The UBI represents an alternative approach to the distribution of a nation's income, and has no direct links with macroeconomic issues such as inflation, recession, growth or the balance of payments. It does however have implications that bear on some macroeconomic issues, in particular those of employment and economic growth. James Meade, in his last book, Full Employment Regained, sees a "citizens income" as a necessary part of a non-inflationary full-employment growth strategy. The UBI concept does not depend on any particular stance relating to fiscal policy (government expenditure relative to revenue) or monetary policy (what Dr Brash does).

The UBI as presented in 1991 represented a conflation of two traditions of socio-economic thought: a "negative income tax" (NIT) tradition of seamless integration of income tax and benefits, and a "basic economic security" (BES) or "guaranteed minimum income" (GMI) tradition.

The NIT tradition is mainly American, and can be linked to the names of two very different Nobel Prize winning economists, James Tobin (US liberal) and Milton Friedman (US conservative). The BES concept is also North American, linked to the radical economist Robert Theobald. The GMI tradition of universal welfare provision has deep roots in New Zealand history, and can be linked to names such as Michael Joseph Savage, Thaddeus McCarthy, and Robert Muldoon.

In both traditions, it is clear that the UBI idea is not a simple left-wing or right-wing policy. (Roger Douglas' "guaranteed minimum family income" proposals do not fall into the GMI tradition, as they are targeted only at fulltime working parents, and carry 100% marginal tax rates.) Muldoon's national superannuation has been a form of GMI through its various incarnations.


In more recent development of the UBI concept a very powerful third tradition has been added; that of public property rights, of economic sovereignty. The notion of social dividends as income deriving from naturally public property goes back to well before Thomas Paine's Agrarian Justice (1796); indeed to the days of "primitive communism" when everyone in a community owned (ie took responsibility for, and drew a sustainable income from) all of the community's resources. An oft-cited article in this public inheritance tradition, from the American left, is "Distributing our Technological Inheritance" by Gar Alperovitz (Technology Review, October 1994, pp.32-36).

Nowadays the public property perspective fits very neatly with the New Growth Theory - particularly the work of Paul Romer (a US liberal economist) - which emphasises the economic importance of "non-rival" public domain inputs, and easily replicable "software". In knowledge-based societies, the main sources of economic well-being, ideas and institutions, are essentially public property.

The economy of the public domain in fact is a form of gift exchange, involving gifts from the past (our natural and social inheritance), in the present (unpaid and underpaid work), and to the future (including our children as a future workforce). The economy of the real world is in fact a synergy between a market economy and a gift economy. Prosperity arises from the interaction of these two sides of the economy, and not from just the market side or just the gift side. In the market economy we work for a private wage or for profit. In the gift economy, we work on a voluntary basis for the benefit of family, community or society, in the general expectation that others make the same sorts of unpaid contributions. Socially responsible businesses (and their employees) pay income taxes for their use of the outputs of the gift economy, while themselves contributing "external" benefits to the gift economy.

Taxes fund the social wage, which encompasses all public spending. Universal basic income is simply the cash component of the social wage. Taxes can be understood as interest and rent due to the public, as owners of the public domain. Under modern conditions, the public domain grows faster than the market economy; that is the central inference of new growth theory. (Just take the Internet with its gift exchange creed as an example.) Thus the social wage should be growing rather than shrinking as it appears to be today. In fact the social wage is growing, but, as surplus value, is being increasingly appropriated by private interests, through the means of wage cuts and tax cuts.

All proponents of an increased social wage, whether or not it is used to fund a UBI, must confront the issue of the need to increase public revenue. Indeed the failure to communicate the message that higher taxes mean higher incomes as well as higher costs, is the central political failure of the left today. This task of tax reform is, I believe, central to the UBI concept. Higher taxes are the prerequisite for a higher social wage from which a universal income should be paid.

The most powerful economic argument for higher taxes is that of the assertion of public property rights. Public property rights are equally well understood by Pam Corkery and Maurice Williamson. (The difference is that Corkery favours the generation of a stream of public income from public property, whereas Williamson wants to sell public assets as a means of creating private income streams.) Economic sovereignty is the assertion of taxation as the basis for the payment of a social wage.


There is a fourth tradition of universal incomes to which the UBI concept, as I have defined it, does not conform; that of Social Credit's "national dividend", deriving from the British inter-war writings of Clifford H. Douglas. The Social Credit movement was concerned about macroeconomic issues, believing that there was a chronic gap in the money supply in any industrial economy. As a result, depressions were commonplace, Douglas believed, and the financial sector profited handsomely by filling the gap with high interest money. However it should be noted that Douglas's early 1920s' writings were in the same "technological dividend" tradition as Alperovitz.

Social Creditors wanted to create public credit, and they needed a vehicle through which to inject this new credit. They proposed a national dividend as a means of circulating socially-created money. The Social Credit tradition is one of pumping public credit into a national economy in order to maximise the rate of economic growth. As a result of their different understanding of the problem that a universal income is required to solve, Social Credit proposals for a universal income play down the need for tax increases, and tend to be regressive in that they give bigger gains to the rich than to the poor who lose their benefits.

The social credit remedy for getting out of a deep depression was probably a good one. Unfortunately Douglas's followers came to advocate the same remedy, as a universal elixir, whatever the actual state of the economy being treated. For Social Credit supporters today, the universal income remains a vehicle for the promotion of their macroeconomic creed. Unfortunately the perceived link between UBI and Social Credit tends to discredit UBI in the minds of the many economists who are deeply suspicious of Social Credit. And credit-funded proposals confuse audiences who had always understood basic incomes to be tax funded.


Following from my 1991/92 paper, an informal group of UBI activists formed in Palmerston North, using the name UBINZ. UBINZ has sponsored two national conferences, the latest in March 1998. Unlike the European group (BIEN, Basic Income European Network) which promotes the "basic income" idea internationally, and supports any proposals that as much as veer in the direction of an unconditional basic income, UBINZ is divided by a number of conflicts: (i) that between a credit funded universal income and tax funded proposals, (ii) that between single-tier and two-tier definitions of UBI, (iii) that between a big bang versus a gradual implementation of UBI, and (iv) whether children should receive a first-tier universal income.

It is my concern to promote an inclusive concept of UBI, based on a few non-negotiable core principles, which has no upper limits for the amount of public support available for people in need. I am also concerned that proposals that use the UBI "brand" are economically and politically credible. (I don't particularly like the "snake-oil salesman" tag. I particularly dislike it when my name is linked to someone else's version of UBI.) A practical UBI must be affordable, should not involve cases of individuals or families receiving massive increases of publicly sourced income, and should not be able to be characterised as "a cure worse than the disease".

I believe that a UBI without a second tier is quite inflexible, in that it serves as a maximum as well as a minimum level of financial assistance. Thus a single-tier UBI is necessarily very expensive if it is high enough to meet everyone's basic needs. Also, any single-tier UBI leads to major equity problems between single-parent and two-parent families unless children receive their own UBI. Hence, those who insist on a single-tier UBI also tend to insist on a children's UBI, making this form of UBI even more expensive.

For those who see the UBI as a way of defining citizenship, a low payment to children makes children appear as inferior citizens, rather than as minors. The alternative of an equal payment to children can only be sustained if the universal income is set at a very low level. An example is the Alaska Permanent Fund, which pays every man, woman and child resident in Alaska about US$1,000 per annum. While this serves as a social dividend - strictly an energy dividend in the Alaska case - $1,000 is hardly enough for an unemployed person to live on.

Problems also exist in that some people support a UBI because it is seen as an opportunity to promote some kind of new tax. New forms of tax, like Reserve Bank credit, may or may not be a good thing. But if they are a good idea, then they are a good idea regardless of whether a UBI is introduced at the same time. New forms of taxation should be promoted on their own merits.


For me, the UBI movement needs to be an inclusive but focussed coalition. It must confine itself to addressing the social problems which gave rise to the concept: inequality, bureaucratic inefficiency, poverty, the poverty trap, unsustainable growth, unequal market power and the unreliability of the labour market as a sufficient ongoing source of private income.

On the political right, there are two enemies of the UBI concept. The first is the capitalist interest which today appropriates much of the social wage as if it were private income. The second is the rationalist ideology which is supported by many economists. The self-regulating market represents to them an attractive mechanistic, formally prescribed, well-disciplined utopia. One difficulty for UBI advocates who try to present an alternative vision, is that some universal income adherents are themselves rationalists, in that they see UBI as a version of that utopia. Utopias, by their nature, set limits; they place mechanism - formal procedures - ahead of people's diverse needs.

I will conclude with a word adopted by James Meade, a Nobel Prize winner in economics, a member of BIEN until his recent death (in his nineties), and a life-long proponent of social dividends as a means to both social justice and economic stability. Meade rejected the notion of Utopia - the perfect society - in favour of a more modest vision; that of Agathotopia - a good society.

In my opinion, the UBI proposal will never be successful so long as it is seen by its proponents as a utopian movement which seeks to turn the present world upside-down overnight. UBI needs to be presented as a practical solution which builds on the good institutions that we've already got. To create an economically just good society, we need a revenue system that generates public income in return for the use of public domain assets, a distribution system based on the equal economic rights of all residents of each nation. And we need to fund additional support from the social wage, based on our recognition that modern societies are made up of different people with diverse special needs.

 

Internet References:

UBI

Basic Income European Network (BIEN)

Alaska Permanent Fund  (also)

A.B. (Tony) Atkinson (1995) Public Economics in Action

Charles Clark and Catherine Kavanagh  "Basic Income, Inequality, and Unemployment", Journal of Economic Issues June 1996,

Thomas Paine (1796)  Agrarian Justice

Brian Burkitt & Frances Hutchinson (1994) "Major Douglas' Proposals for a National Dividend", International Journal of Social Economics 21(1): 19-28.

 

 

© 1998 New Zealand Political Review


NZPR | Rankin File