Will Universal Income Be The Cure To Poverty?

12/02/2017 21:33

In a chaotic world of dividing political views and rising inequality, it comes as no surprise that the term universal basic income has been thrown around incessantly in an attempt to see it as the missing 'cure' to the mess in some of the world's leading economies.

The concept of an unconditional cash payment given to all citizens seems strangely bizarre. After all, why do rich people need this 'unconditional cash payment' if they already have millions sitting in the bank? However, this peculiar idea has received support from people at varying degrees on the ideological spectrum from Andy Stern, an American labour leader, to Charles Murray, an American libertarian political scientist, at the American Enterprise Institute.

Ultimately, the concept of a universal basic income (UBI) is to eliminate poverty traps and redistribute income in society by replacing means-tested welfare payments with an unconditional sum of money given to everyone in society, regardless of any income earned elsewhere. It is a rather dated concept, with Thomas Paine (one of the Founding Fathers of the United States) stating in his pamphlet, Agrarian Justice, that governments should pay £15 annually to everyone (the equivalent to £1,200 in today's money). Instead of this, welfare states were constructed using redistributionist taxation in a bid to reduce income inequality. So, what's the problem with these welfare states? Increased fascination with the notion of a universal basic income is widespread due to attention being directed towards the fact that low growth in wages is simply not enough to keep up with the need for increased living standards.

This concept of a guaranteed basic income was originally popular in the 1960s and has resurfaced amongst the resurgence of populism. Indubitably, setting up a 'basic income' would be a difficult task. It would require a country to increase the amount of GDP raised through taxes by a staggering amount of at least ten percentage points to provide each person with a basic income of $10,000 in order to have this re-distributed to those on the lower point of the income scale. Furthermore, the provision of universal income would lead to significant amounts of money being taken out of healthcare and education sectors. Not to mention the disincentives for people to continue working hard. If people received $10,000 as state aid each year, you may have people working less hours and working less hard because they already have a significant amount of money back in the bank. With Trump's intense racist comments causing social tensions across the United States, the UBI would exacerbate these tensions due to the provision of essentially 'free money' for immigrants. Thus, a country with fleeting public finances and unmotivated couch potatoes would incontestably be a failure.

So, if there is a plethora of disadvantages, what's the point? It seems that the money may incentivise a substantial number of people. Those who are unable to work, such as stay at home mothers or adults taking care of their ill parents, will find that this income will be able to cover living costs and various essentials. On the creative side, countries with low innovation rates will see a rise in entrepreneurship as the extra money can be set aside for people to invest in their own businesses. Various people could use the money for education to build up their skills, boosting overall productivity levels.

The concept of basic income has been explored further and tested in Finland by a centre-right government led by a former businessman and millionaire where, since January, a group of unemployed Finns between 25 and 58 have received €560 (£477) per month. This stipend is not means-tested and is paid to the recipient, irrespective of whether the recipient finds a job or returns to school. Despite the fundamental flaws presented with the experiment from its relatively small sample size of 2000 randomly selected jobless people to the fact that all participants were jobless, we have a while until we hear the results of this experiment.

Whilst it is essential that the standard of living for all citizens is up to scratch and rising costs are met with increasing wages, the universal basic income seems to be receiving significant popularity and praise with Unite (the UK's largest trade union) passing a motion endorsing basic income at its 2016 policy conference and the Green Party advocating a 'Citizen's Income' at the 2015 election. With the UK's large government deficit and increasing income inequality, a large increase in the deficit from paying everyone is something we definitely don't need. However, we aren't ready to say goodbye to this peculiar yet popular idea.