Throwing away learning from past
Universal Basic Income (UBI) may not be the solution to the financial mess
Normally, after an old idea has lived its productive life (or has become an irreparable mess), a new concept takes birth promising to change the world and end all ills of the past. UBI is a new term that seems to have captured innocent imaginations of people — a concept that promises to offer freedom from shackles holding us back. No wonder its already popular.
Ideally, a new concept eliminates limitations of the past by using fresh relevant strategies. However, historically, in the case of finance, the world seems piling new mistakes over old, aggravating an already humongous problem that’s there. The band-aid fix to the financial crisis of 2008 is the latest entry to that list. Instead of resolving the cause, the crisis was further aggravated, the ramification of which is yet to be realized according to experts. We need to approach UBI with care as it too may end up with same fate if allowed to be used as quick-fix to the issues of the past.
UBI is a vast topic to be covered in a single piece. Part-I will cover some of the challenges it is likely to face, if it is ever implemented. Part-2 will discuss some of the ideas to make UBI robust.
As of this writing, the support for UBI seems to be growing across the world — we hear louder sound from developed countries. Some of the ideas are certainly attractive. Let’s look at some of them.
Offer of choice: The idea seem to resonate with people who are stuck in uninspiring jobs. It argues that taking up job is a personal choice and one should be able to walk away if it becomes boring. However, saying no is not as easy as it seems. The food to be put on table and bills required to be paid comes from job. Walking away from a boring job in search for an inspiring one affects one’s ability to have even the most basic lifestyle. The idea intends to break the shackles and offer a choice of freedom of living a dignified life.
The idea seem to suggest that UBI scheme will pay a basic income sufficient to cover the cost required to lead a basic life. With basic necessities taken care of, a person can walk away from uninspiring job to explore purposeful opportunities. When everyone has work of their choice, the world would become a better and happier place.
Establish claim over resources: According to this argument, crony capitalism has dug so deep in our system that it now controls almost every resources in the world. They have purchased the ownership of our resources from the profit earned by selling products made by exploiting the same resource and offered to us at exorbitant prices. The time is not far when everything will be owned by corporate and our life will be at their mercy. The idea aims to claim back what belonged to us in the first place.
It is suggested that any corporate willing to use ‘our’ resources shall have to pay a fee to their rightful owners — us. It is proposed that such arrangement will not only establish economic balance between corporate and people, but would also stop unrestricted excavation of resources that has led to catastrophic phenomenon such as global warming.
Transfer of money from rich to poor: This idea argues that the world is sitting at a highly unbalanced economic seesaw where rich are getting richer and poor poorer. This potential dangerous situation can lead to social unrest if not amended quickly. The idea aims at eliminating a situation where people die of hunger even when resources are plentiful, but are in control of rich.
Through UBI, the idea intends to indirectly channelize money from rich to poor by deploying a profit-sharing arrangement where a portion of profit earned by rich will be compulsorily channelized to poor.
I must admit that objectives of UBI are noble. The issues it intends to handle are real and solutions needs to be place before it too late. However, let’s also appraise ourselves that such issues are not new. They existed even before UBI took birth. Numerous programs have been experimented in the past aimed at solving such issues, leaving behind immense data to study from. Throwing away learning from the past would mean we would lost the opportunity to make UBI smarter alternative than its predecessors. Let’s understand why.
Illusion of choice: We all love choices. Its probably inherent to human nature. Exploring choices before making decision makes us feel better, not because it offers an opportunity to pick the right product, but because it offers the freedom of choice. The moot point, therefore, is not the degree of available choices, it is about the freedom to make choice — like the freedom to opt for the right job.
The argument that guaranteeing a basic income will offer freedom to choose the right job is interesting because it holds a few hidden assumptions that are worth exploring. At the outset, it seems to be saying that given a choice, people are likely to change their current job to a more satisfying one. This assumptions seems to be in line with the findings of recent studies which claims 60%-70% of US employees are not happy in their current job. Drilling the figure a bit further, a whooping 51% is discontented because they do not feel connected to their job. Note that the disconnected feeling is an emotive issue, not a real issue. People need to feel important; its one of our basic needs. They would feel important if they feel they are contributing within the job they already have. They are not indicating that they hate their jobs because if they did, they would be among the 16% of the people who claim to resent their job, according to the same survey.
It may not be easy but we need to be very diligent in isolating an emotive issue to a trivial one. Some important lessons can be learnt from experiences of basic rights our constitution offers. One of them is Right to Expression, which states that ‘Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.’ People can draw vague ideas about this right, which may include expressing a (false) opinion to detrimental effect of someone else. Obviously, abuse of such nontrivial rights mustn’t be allowed. Building a peaceful and prosperous society requires discipline and that applies to jobs as well.
It needs to be understood whether ensuring basic income would not become a tool to abuse the system and become yet another system that has noble ideas but impractical implementation.
Political Tool: An idea can potentially become popular runs a danger of becoming a political tool. On conceptual level, UBI is dangerously populous because of its luring offers. Who, in his right mind, is likely to oppose an idea that promises to pay regular basic income without moving a hand? The notion of claiming resources from rich is as satisfying as the idea of snatching money from rich, irrespective of whether or not the idea is pragmatic. A very large population would move without thinking. This is where it gets disturbing.
Ideas similar to UBI are already in force across the world, both in developed and developing countries. One dangerous pattern that emerges out of such experiments is that people tend to get attracted to high-promise schemes without offering any logical thoughts about its viability and end up becoming a breeding ground of political aspirations. We need to concerned that UBI will be abused by political system.
Robinhoodism is an old popular tool. Almost every political party in the world has, at one point or another, promised to snatch money from rich and distribute among poor. Higher tax for rich, luxury tax, wealth tax and numerous other tools were popularized to this effect. Yet, there is little proof about rich-poor divide shrinking even a fraction. Without understanding the reasons behind failure of such strategies, UBI would end up being yet another tool to fool the people and repeat the past.
Legislating freebies are easier but once in force, they become almost impossible to withdraw later. UBI probably would be better off analyzing one such implementations — The Indian reservation system. It was introduced in 1950 with a noble intention of elevating marginalized segments of society. Some 27% of all government jobs, education institutions and other programs were reserved for the weaker section of the society with an intention to give them a head start to catch up with the rest. The program was proposed to be withdrawn after ten years, a time period assumed enough to bring weaker section at par with others. However, the highly popular program became too lucrative a political tool to let off the hook so easily. Not only was the program pushed ahead, political parties went over each others’ head to propose increase in reservation pool size to accommodate more sections — no prizes to guess it was passed unopposed. The monster had set itself free as no political party had the gumption to oppose an apparently dangerous program which could harm the country’s social and economic fabric in long run, though the program definitely served the purpose.
For whatever worth it is, UBI certainly belongs to the family of popular programs likely to become politically sensitive. Somewhere in future, when the world would have become a much better place where programs such as UBI would no longer be relevant, it would have become too strong a political leverage to get rid off. It would be a baggage we will need to carry even after its expiry date.
Will it really close rich-poor gap?: The whole argument about closing rich-poor gap seems to hang on the assumption that someone will snatch money from rich and give to poor. However popular it may seem, it is not going to happen for a simple reason that people become rich not because they snatch money from poor but because they have a productive money-making engine — idea, business or even winning a lottery. The argument about rich and poor is framed to pit one against the other, but we know one cannot live without the other. Its the two sides of the same coin.
A more plausible argument should be done around making the system open and less restrictive where anyone, rich or poor, can take shots. The question is whether UBI can help.
We know UBI requires fund to ensure basic income for everyone and that will ultimately come from people who are making profit. The only other channel that can generate money without making profit is by printing currency, but we know its suicidal. Only a self-sustaining system can provide robust long term performance — to consume a system must create. Basic income can be guaranteed only in two ways: ensuring everyone has a paying job or provisioning such amount for marginalized by taxing businesses and rich — a system that’s already in place. UBI will hook on to the same pool to extract resources. If the practice to snatch money from rich to give to poor is implemented in the same way as it sounds, it will die much sooner than later. Rich would be drained and there won’t be any money left to distribute. If UBI intends to encourage distribution, it must promote creation too.
Social impact: In some parts of world where social programs similar to UBI are already in place, peculiar social behaviors are being observed. In India, a program called MNREGA was introduced in 2009 that promised to compulsorily guarantee at least 100 days worth of minimum wages for every family in a year. At the outset, apart from being a potent political tool, the ambitious programs was a sincere effort to distribute wealth to the bottom of pyramid. But it had a few social impacts that need careful study.
India had a huge (and still has) manual labor force that used to relocate in search of better paying opportunities. Their movement ensured adequate availability of labor all over the country serving the purpose of both the laborer and the labor-intensive industries such as real estate and manufacturing. However, after MNREGA came to effect, such migration stopped. Labors preferred staying home than scouting for better opportunities. Not that MNREGA changed their lives any better way, but a feeble guaranteed income ceased their movement and virtually destroyed the labor logistics of the country. As a result, labor prices have skyrocketed forcing prices of virtually everything to go up. Effectively, India is paying to keep inflation high?
Will UBI bring a similar social change? When everyone is guaranteed a minimum basic wage, it may motivate people to scout for a better and dignified job, as much as it may motivate people to stay home and do nothing. The argument therefore comes down to whether people will choose the former or the later. In a vibrant society where everyone tries to do better, UBI may be just the boost required to go to next level. The truth, however, there is not such a society, and even if there is one, the reward to survive on doles may simply destroy it.
UBI could trigger a dangerous social behavior in a multi-ethnic society such as US and India. Not all families have similar behavior. A progressive family may use UBI as stairs to climb up but the same cannot be said to a family that starts creating more children only to attract larger cumulative benefit. Not too far in future, this progressive society will end up spending a large portion of its resources to feed this hungry monster.
UBI must be studied from side effects it can create on a society as they can have pricier (and more dangerous) consequences.
The illusion of the best job: The freedom to pick the best job sounds great on paper and speech, but ultimately the end decision will rest with the individual. Its an emotive issue instead of a real one. Who will distinguish a good job from bad? Some people are happy manufacturing machines, others find satisfaction writing a blog like this. Job satisfaction cannot be classified only in terms of its nature, sometimes viability makes it more attractive — picking rags can, at times, be a better opportunity than writing complex computer programs. Satisfaction is unpredictable and could change for no trivial reason — two people with same job profile, package and benefits can have different satisfaction levels. In other words, the quality of job is an individual’s prerogative and should be left at that. It cannot be controlled by a system (heck! it cannot typically be controlled by an individual either) and anyone claiming such features is mere rhetoric. UBI will not be able to deliver the satisfaction of best job for everyone.
Economic Impact: Put it simply, UBI is a cost and will cause economic consequences. Lets also not forget that resources that UBI will need to pull from is the same system that exists today. It will react to changes brought by UBI.
At the very outset, UBI will put lots of (free) money in people’s hand. Its going to ‘give money a run for product’ — inflation. I agree it will a temporary initial phase and prices would settle eventually. I also agree its a modest price to pay considering the magnitude of lives it will change positively. But it is not likely to stop at that. Inflation sets its benchmark relative to the amount that everyone can afford. With basic income accessible to all through UBI, the benchmark will move up to match this level. From here on, things would normalize to scenario we know of presently. Effectively, it would mean that ‘things that are not affordable today with $100 will not be affordable with $1000 at that time.’
We also do not know how society will react. There is no guarantee people will use the opportunity provided by UBI to improve their lives. The possibility that some will become lethargic cannot be ruled out, and if that happens, another time bomb would activate. Loss of productivity would lead to loss of growth, dangerously destabilizing the fine balance of productivity and consumption required for the success of UBI. If that happens, the odds would be against UBI because while productivity is likely to fluctuate, consumption will only go up. The devil is within the system.
I must admit that I am excited about UBI and some of its features. My excitement is not because these features are brilliant ideas discovered recently. Most of the ideas proposed by UBI have been implemented in some form or other in various parts of world. I encourage you to study some of these experiments done in India, where I come from. We have had success in a few and experience in others. I am cautious against bright colors I see on the colorful picture of UBI. UBI, after all, is a socialist program which, like the programs of the past, it is being hailed as savior of mankind. I am afraid it is not. Some of the assumptions are misleading and may lead to wrong conclusions. Instead of building up popular perception through rhetoric, we need to adopt pragmatic approach because once to genie is out, it will be impossible to put it back in bottle.
Samar
