Could a Universal Basic Income Ignite Social Entrepreneurship?

Automation. A single innovation that has left technologists and economists worried about an increased level of displacement in labor markets. Could another systems-changing innovation ease fears, mitigate job loss, and spark further innovation in the economy? Universal Basic Income (UBI) might be the answer.

UBI, the idea of an unconditional transfer payment given equally to all citizens on a regular basis, has gained traction as a means of streamlining existing social spending programs and reducing administrative costs. As it pertains to entrepreneurship, the argument for UBI goes something like this: with an added safety net offered independently of income or work status, potential entrepreneurs would face less risk in starting new initiatives, and would be more inclined to do so. Mark Zuckerberg, founder of Facebook, voiced his support for the concept as commencement speaker at Harvard University this May, which places him alongside a number of high profile entrepreneurs, including Elon Musk of Tesla and Pierre Omidyar, founder of eBay, who have supported the idea either notionally or financially.

Mark Zuckerberg calls for universal basic income at the 2017 Harvard Commencement speech

The idea that a UBI could spur entrepreneurship is certainly an attractive one, especially as policymakers worldwide consider ways to strengthen national growth figures. I’ve argued elsewhere that entrepreneurship is a crucial component of economic growth and job creation in the United States, particularly in times of economic instability. Not only that, the most successful startups can produce the kinds of life-improving technologies that we associate with Google, Apple, Microsoft, Amazon, and many others.

But the ostensible link between UBI and entrepreneurship is not so straightforward when subject to greater scrutiny. Robert Seamans of the NYU Stern School of Business recently argued that lower downside risk, or the dangers for entrepreneurs associated with the failure of their enterprises, would factor into the calculus of venture capitalists and angel investors, making capital for entrepreneurs less easy to come by. In other words, investors often have an interest in the entrepreneur not having the kind of safety net afforded by a UBI, the assumption being that a higher level of personal risk, can increase the chances of the enterprise’s success. This line of thought is a legitimate concern when it comes to the potential link between UBI and for-profit enterprise.

However, less attention has been given to the potential effects of UBI on kinds of enterprise that aren’t tied so singularly to profit motives. Many of the most impactful social enterprises are based on hybrid business models that prioritize social impact alongside revenue streams.

A good example is COMACO, recognized by the World Economic Forum as a top social enterprise of 2017. The Zambia-based organization invests in agricultural technologies and helps farmers gain access to premium food markets so that they don’t have to resort to poaching or habitat destruction to make ends meet. In so doing, the organization has built a market-based model for ecosystem management, generating millions in annual revenues and increasing profits for farmers. A UBI could provide the kind of safety net and basic capital necessary for more projects like COMACO, supplying the seed capital that is crucial to young social enterprises.

COMACO supports over 140,000 small-scale farmers across Zambia, improving food security and income generation.

Ashoka: Innovators for the Public was the first organization to commit itself to this need, offering financial support to fledgling social enterprises since 1980. As a result, innovators have gone on to win the Nobel Peace Prize, MacArthur Genius Award, and improve the lives of millions of people. A UBI could enable many more individuals who want to create social enterprises by providing an unconditional guarantee of basic economic security as they embark on paths of public engagement.

At the same time, the value criteria of social enterprises, which balance profit-seeking with social impact, could mitigate the quandary of adverse investor response to decreased downside risk, as described above. In fact, impact investors might be more attracted to projects run by social entrepreneurs with a greater safety net provided by UBI, because such a safety net could increase the chances of enterprise success.

There is still considerable debate surrounding the viability of UBI, with questions concerning the logistics and affordability of even a partial basic income. Economist John Kay’s article, ‘The basics of basic income,’ is a worthwhile read in that regard. Kay makes the case that implementation of the idea on national scales is probably years away.

Activists for a universal basic income install a giant poster in a public square in Geneva, Switzerland, in May 2016.

But pilot programs designed to test the efficacy of UBI for poverty alleviation, entrepreneurship, and economic growth are already underway in the United States (California), Kenya, and Finland. As advocates and policymakers await the findings from such initial experiments, they should not neglect UBI’s potential to ignite social entrepreneurship, and much needed social impact in both the developing and developed worlds.