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Putting The Chicken Before The Egg

Universal Basic Skills, Universal Basic Income Or Both

“ […] if you give a man a fish he is hungry again in an hour. If you teach him to catch a fish you do him a good turn. — Anne Isabella Thackeray Ritchie’s in Mrs. Dymond (1885)

The purpose of this article is to educate the readers on the basic principles of Universal Basic Income, on various experiments conducted globally and to suggest creation of a Universal Basic Skills program (as part of a broader package) to create and increase employability of a certain section of the workforce. To date, Finland is the only nationwide experiment in Universal Basic Income.

Background

The concept of Universal Basic Income is very old. In fact, a form of basic income — citizen’s dividend was discussed in ancient Athens in 483 BC. In a debate on how to distribute silver found in a mine, Aristrides proposed dividing the proceeds to the general public while Themistocles proposed using the proceeds to build weaponry. Themistocles won that argument.

Although the concept is old but the debate has been renewed.

However, the very first time I learnt about Universal Basic Income (‘UBI’ for short) was when I read a blog post detailing Y Combinator having selected Oakland, California as a site for a test pilot on UBI. This was June 2016. The pilot was intended to dole out $1000 a month as UBI. To me, it sounded like a great forward thinking approach to what many foresee as massive unemployment or job displacement due to the advances in Artificial Intelligence (AI).

There are good reasons for testing out the effects of UBI on people’s motivation to do more, take more risks and ultimately be more productive. Technology will possibly reduce cost and UBI can provide a great platform for a Entrepreneurship.

Again, there are many people on both sides of the argument. Everything ranging from crypto currencies to hedge funds are increasingly employing mathematics as the underlying foundation. In addition, data has become the new gold and data science has emerged as an invaluable education. There are many statistics such as a report by Forrester research predicts the loss of 10 million jobs by 2025 i.e. 8 years from now.

How Can Basic Income be Financed

In two words, income redistribution

A simple one line explanation is that the financing for UBI will come from either the same taxes or changing the tax code of taxes levied today. However, the spending on programs other than basic programs (e.g. tax allowances in the US/food, water, fertilizer subsidies in India). Many countries have myriad of welfare and subsidized programs over and above social security and health care which will need to be curtailed or closed down to finance UBI.

Starting UBI from scratch would take up as much as 5% of GDP in India or half of the central governments budget (The Economist).

1. Negative Income Tax

Milton Friedman suggested a ‘Negative Income Tax’ where a section of the wealthy population pay taxes, people at a certain income level do not and people below that income level actually get money from the government. In one version, a specified proportion of unused deductions or allowances would be refunded to the taxpayer. If, for a family of four the amount of allowances came out to $10,000, and the subsidy rate was 50%, and the family earned $6,000, the family would receive $2,000, because it left $4,000 of allowances unused, and therefore qualifies for $2,000, half that amount (Source: Wiki)

2. Negative Income Tax with Flat Tax

Combining negative income tax with a flat tax rate essentially makes the effective taxation progressive

For Example, Assume

  • The income tax rate is 40%.
  • The tax exemption is $20,000.
  • The subsidy rate is 50% and equal to the income tax rate.

Under this scheme:

  • A person earning $0 would receive $8,000 from the government.
  • A person earning $20,000 would neither pay tax or receive anything
  • A person earning $30,000 would pay a tax of $ 4,000
  • A person earning $50,000 would pay a tax of $12,000.

3. Citizens Dividend

In the UK and US, the idea of a citizens dividend can be traced back to Thomas Paine’s essay ‘Agrarian Justice’. Paine thought of financing the citizen’s dividend through a tax on inheritance (wealth) transfers. In Alaska, every eligible Alaskan resident (including children) received a check for $845.76 in 2005 from a Permanent Fund. This payout was very much akin to a Citizens dividend. The country of Mongolia also thought of implementing a res

Pros

The pros are quite intuitive — economic security, better relations, more productive and motivated labor force and a boost to the people contemplating entrepreneurship

Of course, the biggest benefit could be the reduction of stress and stress related health costs and chronic diseases.

Cons

Funding, immigration, changing the tax code are key challenges to practical implementation of UBI.

One of the biggest questions that anybody can ask today is “Why give money to somebody doing nothing?”

However, it is not an argument to be made in isolation. For instance, consider the fact that many people who survive on welfare benefits will not want to work if the part time job pays lesser than what they earn on welfare.

Therefore, if there is a possibility of changing the tax code so that the funds for financing UBI can be made available without additional strain on the tax payer, there could be a good argument for implementing UBI.

Realistically, changing the tax code is an insurmountable task in many countries.

Also, if country A implements it and country B does not, will there be a huge influx of people into A from B?

A Global Perspective

Many countries including Kenya, Finland and Sweden have already engaged in debates over UBI as a solution. The Swedish recently voted it down. Countries such as US and India have tried small pilots.

The Swiss Reject UBI

In June 2016,the BBC reported that final results from a referendum showed that nearly 77% opposed the plan, with only 23% backing it.The supporters camp had suggested a monthly income of 2,500 Swiss francs (£1,755; $2,555) for adults and also SFr625 for each child.

The opposition had several reasons but one of the reasons was a worry that minimum income would attract people from outside to Switzerland.

The Finnish Experience

Under the Finnish experiment, a partial basic income of €560 per month replaces some of the basic social security benefits, including the basic unemployment benefit, the sickness benefit, as well as some parental benefits and rehabilitation benefits. The idea is that the participants will get a basic income instead, even if their circumstances change. If they find a job, the basic income will still be paid on top of the salary (source: OECD)

Look at the video below for a rationale of the Basic Income Trial

Source: OECD

Recent Proposal In India

More recently, a day before the demonetization drive launched in India on Nov 8th, 2016, the governments “economic survey”, released the previous day, hinted at providing a universal basic income (UBI) to every Indian.

Lessons Learnt So Far

The Finnish Experiment seems to be doing well. As per the OECD, the basic income experiment is being carried out by Kela (Finnish Social Insurance Institution, which celebrates its 80th anniversary in 2017), which is responsible for the administration of over 40 basic social security programmes in Finland.

The UBI experiment also did well in Alaska but many countries complain that globalization could remove all the advantages of having such a program i.e. whether this program is scalable on a national and global level is a bigger issue to be tackled with.

Putting The Egg Before the Chicken

Universal Basic Income is just one among an entire set of actions that should comprise a package and it will vary greatly between locations. There are a lot of reasons for a whole swathe of the population to depend on UBI especially if they cannot be re-trained, have other disabilities and genuinely cannot find suitable employment. Unrest is the last thing any society needs.

While I don’t profess to have the level of insight that many tech titans or policy makers and economists do, it is quite intuitive that education can be placed before basic income for a certain section of the population at least.

Also, there seem to be a small set of solutions that I have been constantly debating in my mind:

  1. A Global Program (involves international co-operation) designed:

a) To create a uniform syllabus consisting of basic skills needed to re-employ at least part of the workforce through a public private partnership. This syllabus could also train the work force of the future.

b) To debate the creation of alternate vocations/jobs that can employ displaced workers in a post AI world

c) A safety net, possibly UBI, for the rest

2. Subsidization or free vouchers for gaining universal basic skills such as mathematics, data science and coding. UBI could then become contingent on clearing the bare minimum education required.

3. A completely new way of approaching education by focusing on basic skills needed in the future. MOOC’s or video lectures are a great way of imparting low cost education. However, that would mean investing heavily in infrastructure for developing countries in particular.

4. Running an experiment in parallel with the second set of subjects given UBI and the first set given universal basic skills can be another alternative.

While all of the solutions I suggest ultimately fall under one umbrella i.e. Placing universal basic skills (the egg) before UBI (the chicken) for the people that can be re-trained, it could take longer than 8 years to bear fruition.

However, at this point, a lot of UBI pilots today are experimental.

If that is the case, maybe an experiment centered on giving universal basic skills to the employable workforce could be a good option to try out in addition to giving basic income.

Also, if you-my reader can think of other solutions, I would love to hear more. I leave you with these words from Dr. Martin Luther King

I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.

— from the chapter titled “Where We Are Going”

Thank you for reading. If you liked this article, please recommend it by clicking the heart below.

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You can also follow me on twitter: @akothari_mba.

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Abhishek Kothari

Futurist@The Intersection of Finance, Tech & Humanity. Stories of a Global Language: “Money”. Contributor @ Startup Grind, HackerNoon, HBR. Twitter@akothari_mba