Universal basic income and entrepreneurship

Universal basic income has picked up steam recently as a credible idea to handle technological change, globalization, and general economic uncertainty. Y Combinator is funding studies on its efficacy. In an election year, populism on both the right and left indicates a growing concern for the people that universal basic income would most affect.

I am, unsurprisingly, a deep believer in the potential of entrepreneurship as a paradigm for progress: I’m drawn to the magic of creating something from nothing and I think all humans have the capacity to shape a better future for themselves and those around them.

An argument against universal basic income may suggest that ensuring a steady stream of cash would dampen this entrepreneurial instinct in people. I’m not so sure.

The crux of the debate is the question of what happens when people’s most basic needs are taken care of. Important questions like: Do people work just for money? Is wage labor simply a means to food and shelter or is it a critical piece of identity?

Is there more to a job than a paycheck?

We have some data to suggest that there may, in fact, be more to a job than a paycheck. Major caveat: There’s nothing empirical. In other words, we can’t be totally sure that this works. Nevertheless, there’s a lot to like from the results that we do have.

Experiments with a negative income tax (where people earning below a certain amount are provided with supplementary income from the government) in the US and Canada over the past several decades, while incomplete, appear to suggest that universal basic income might not make us into a bunch of lazy bums.

Some [basic income] recipients cut back their hours, but the declines were modest: no more than 5 to 7 percent among primary earners, and a bit more for secondary earners.
“Some of the experimenters said that they were unable to find even a single instance of labor-market withdrawal,” wrote Widerquist in his 2005 paper summarizing the studies.

Additionally, there are certainly systems that the American lens often views as “socialist” that actually function quite well and support extremely successful instances of entrepreneurship. Finland is a great example.

Perhaps the most powerful secular trend at play here, and one of a few reasons we’re talking so much about any of this, is automation of jobs.

In a much-written-about 2013 paper, two Oxford economists estimated that 47 percent of all U.S. jobs were at risk of computerization. Increasingly, technologists envision basic income as a “hack,” or fix, to the system — it offers a way of coping with an economic future dominated by automation, a fallback plan for when most human labor isn’t valued or needed.

I don’t know what will happen with universal basic income, but the implications are vast. I think we’re going to hear a lot more about this idea before it goes away.

I tweeted the following last month.

A friend saw the tweet and subsequently asked me a very good question:

“But is that a good thing?”

… which is a great question on several levels.

It’s true that with universal basic income, I would probably still be running my startup, or at least would have been able to throttle things back to look for other options. We would have had a full-time team that I wouldn’t have to worry about paying. One way or another, we would have been able to persist.

But that doesn’t mean we should have.

On the one hand, universal basic income means that more businesses could be bootstrapped because paychecks would be taken care of. These businesses could take the time they need to mature, develop, and eventually win.

On the other hand, not all of these businesses should persist. I don’t know if mine is one of them. We’ve seen that as the cost of launching a company goes down, more and more startups crop up. But the evidence is mixed on whether there are more good ones.

Wenger wants less time spent on tasks that could be automated and more time spent on issues he thinks are insufficiently addressed: fighting climate change, exploring space, preventing the next global pandemic. Like the backers of basic income in Switzerland, he thinks providing for basic needs will allow innovation to flourish. With a basic income, he said, “you’re put in charge of your time. You’ll have 100 percent of your time available to you.”

Universal basic income could encourage entrepreneurs to take on bigger, bolder challenges. Further, it provides an opportunity to actually make smart decisions with investors instead of taking money because they need to. It could also flood the market with products and services that lack viability — a slew of zombie startups that should have never been created. Either way, the landscape would shift, which is something that LPs, VCs, startup employees, and everyone else should watch closely.