Five Percent and Universal Basic Income

The idea of universal basic income is rapidly gaining traction among people who are worried about (or looking forward to, depending on your view) an ever-more automated future (where workers are replaced by robots and computers) and rising inequality in our society gets ever more acute. However, the idea of a basic income goes back centuries – from Thomas More, Johannes Ludovicus Vives, Marquis de Condorcet, to Thomas Paine and John Stuart Mill, they have all argued a basic income, in its various forms, as a way to solve some social ills and improve social welfare, resulting in a more civilised and equal society.[i]

The danger that we would be underwriting the failures is trivial compared with the benefits the guaranteed annual income would provide us. It would provide dignity for every citizen and choice for every citizen.

Margaret Mead

Universal basic income in its essence is to give a flat, non-means-tested payment to every citizen , at a level sufficient for subsistence. It is a simple idea that has something in it for everyone —libertarians, socialists, conservatives, liberals. From Milton Friedman to John Kenneth Galbraith, from left to right, intellectuals and political activists have voiced their support for basic income based on their own beliefs and concerns. During the final year of his life, Martin Luther King Jr. strongly advocated for guaranteed income as ‘the solution to abolish poverty’. In the 1970s, the Nixon administration pushed for Guaranteed Annual Income (GAI) and the House of Representatives even approved the proposal (but the Senate killed the bill).[ii]

The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income. … We are likely to find that the problems of housing and education, instead of preceding the elimination of poverty, will themselves be affected if poverty is first abolished.

A host of positive psychological changes inevitably will result from widespread economic security. The dignity of the individual will flourish when the decisions concerning his life are in his hands, when he has the assurance that his income is stable and certain, and when he knows that he has the means to seek self-improvement.

There is nothing except short-sightedness to prevent us from guaranteeing an annual minimum – and liveable – income for every American family. The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.

Martin Luther King Jr., Where Do We Go From Here: Chaos or Community? (1968)

We are at the dawn of the age of robotic automation, whether we like it or not, and the universal basic income is therefore inevitable. It is not just manufacturing jobs that will go. A third of jobs in UK retail are forecast to go by 2025. It will also affect professional jobs like lawyers and doctors – for example, recent research predicted 114,000 jobs in British legal sector would be automated over the next 20 years.[iii] No job no income; when most of the jobs are automated and taken over by robots, how do we earn regular incomes? No income no capitalism; when people don’t have income, whom do the owners of the capital expect to buy their goods? No ‘job’ is not the same as no ‘work’. While there is no longer the need for people to do the traditional salaried jobs, people will still work, paid or unpaid, to pursue their passion, to satisfy their interests and to fulfil their lives. Our thirst for knowledge , curiosity about the world and appreciation of beauty will still make most of us work on, for example, cultural or scientific endeavours.

70 years of the neoliberalism movement[iv] has convinced many of us that everything has its price – things that cannot be priced are of no value and hence no importance. The ‘price’ of climate inaction is trillions of dollars of economic/financial loss[v] when in truth you cannot put a price on the future of humanity. We are leaving a world with a potentially hopeless future to the next generation(s), but it is OK, because we are at least trying to ‘manage’ the potential enormous economic and financial losses.

The same neoliberal logic applies to our daily lives. Our lives exist to ‘work’ – and a very specific type of work for that. Our lives’ worth is judged by how much we earn and in order to earn, we need to get jobs that pay us money . Any other work that does not offer monetary returns is of no value and importance, but this is not how we live our lives. Our lives are full of work – we talk, we read and we play – not related to jobs, and our lives are, and sometimes out society as whole too is, better for it. This is also how humanity progress – a perfect example is the father of the electric age, Nikola Tesla. He came up with the ideas that are now the foundations of our modern world, like alternative current (AC), radio, radar, x-rays, electric motors, etc. without any concern/prospect of financial rewards. With universal basic income, we no longer need to spend most if not all of our time and energy just to earn enough to survive. We will not expect anyone to be the new Tesla, but at least we can improve our quality of life and maybe also make our little contribution to our collective heritage.

Universal Basic Income around the world

In the 70s, the US government did a series of experiments with a basic income at New Jersey, Seattle and Denver, Colorado. It was also tried in the small Canadian town of Dauphin, Manitoba. Among the results were a drop in hospital admissions and a rise in the number of teenagers staying on in school.[vi] Contrary to the neoliberal belief that “welfare” makes people lazy, a basic income might actually increase people’s willingness to work, by giving them sense of stability, and reducing other distractions and worries such as transport and childcare and transport.

“What was really interesting about it was the wider benefits of a basic income, in terms of health, education, kids staying in education for longer, better mental health and fewer hospital visits,” he says. “Whereas now, our entire conversation about welfare has been narrowed down to a single question: is someone in work, or not in work?”

Anthony Painter, author of the RSA’s basic-income proposal, commenting on the experiment in Manitoba[vii]

Brazil in 2004 became the first country in the world to pass a law declaring that everyone has a right to a minimum income. A pilot project on basic income was conducted in India with many positive outcomes.[viii]

Finland is considering giving its citizens an unconditional stipend of €800 a month and the Dutch city of Utrecht is carrying out a similar experiment.[ix] On 5 June 2016, the Swiss will vote in a referendum on a plan that would see all adults receive about £1,700 a month, with an extra £400 for each child.

Basic Income for Development

The winds are shifting in the world of development policy:

A recent World Bank study concludes that “skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost. In contrast, injections of capital — cash, capital goods, or livestock — seem to stimulate self-employment and raise long term earning potential, often when partnered with low-cost complementary interventions.”

The European Commission recently suggested that policymakers “need to always ask the question, ‘Why not cash?’ ”[x]

U.N. Secretary-General Ban Ki-moon has argued that “Where markets and operational contexts permit, cash-based programming should be the preferred and default method of support.”[xi]

How about the UK?

The UK Green party has supported the notion for decades: a version of universal basic income (£80 per week) was one of its key themes in its manifesto at the last general election in 2015.[xii] The Scottish National party passed recently a motion supporting the idea that “a basic or universal income can potentially provide a foundation to eradicate poverty, make work pay and ensure all our citizens can live in dignity”.

The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) published in 2015 a proposal for universal basic income. (On the basis of 2012-13 prices)[xiii]

Basic Income of £3,692 for all qualifying citizens between 25 and 65
Pension of £7,420 for all qualifying citizens over 65
A Basic Income for children aged 0-4 of £4,290 for the first child, and £3,387 for other children aged 0-4. This is comparable to the benefits available to low-income households before the child begins school
There would be a reduction in the Basic Income for a third child or more, potentially to zero
A Basic Income of £2,925 for those aged 5-24 years-old

The 5% Formula and the Universal Basic Income

The UK

The UK’s defence budget is projected to be £46 billion for 2016. 5% of that is £2.3 billion. If we cut 5% year on year, after a decade, the annual military spending will be 40% less than it is now – in this case, it will be £27.6 billion. That is a saving of £18.4 billion, available for diverting to more productive uses, compared to what we have now in 2016. However, we also know that the current British government is committed to the target of defence budget to be at least 2% of GDP, assuming this is the case so the ratio of defence budget to GDP stays constant at 2% for the next 10 years. Further assuming the GDP will grow by 2% on average annually, the defence budget will then be £56 billion in 2026.

£56 billion is what we expect if we let the business go on as usual whereas £27.6 billion is the counter-factual figure ie., what would happen if we intervene and cut military spending year on year. That’s a difference of £28.4 billion. This £28.4 billion would be available (unless there is a big economic crash that would completely tank the economy for a prolonged period) and it is what we would expect if the economy is simply growing slightly worse than historical average.[xiv] It is an amount of money that, unless we change the government’s priority, will simply be spent on defence.

So, what could we do with £28.4 billion?

The UK population was 63 million based on the 2011 census.[xv] Of which, 3.9 million aged 0-4; 15.4 million aged 5-24; 33.3 million aged 25-65; 10.4 million aged 65+. If we divide £28.4 billion by the number of people in the four different age groups respectively, each person in each age group will receive each year an amount of:

Age 0-4: £7282
Age 5-24: £1844
Age 25-65: £853
Age 65+: £2731

(Note: the figures represent the case such that the money is given to any one group only, not all the groups together.) The budget for housing benefits was £27 billion in the financial year 2014/15 (compared to the total welfare spending £258 billion, of which £108 billion for pensions).[xvi] The average UK rent was around £800 per month in 2015 and rising fast.[xvii] Unless the universal basic income was at least around £1200 per month, it would not be enough for subsistence, especially in London. The alternative is to consider the housing benefits stays outside the remit of the universal basic income, at least until the housing bubble deflate, so that the basic income will cover living costs, excluding housing.

Let us suppose the RSA proposal is affordable and the bare minimum of what a universal basic income should be. The £28.4 billion savings from the military spending will give each British citizen aged 25-65 £853 on top of the proposed £3692 to give a total of £4545. Alternatively, the money can be given to the age group 5-25 so that each person receives £4769 rather than the proposed £2925. The point is that if the housing is taken care of, the savings from the military spending could potential raise the basic income to a reasonable subsistence level. On the other hand, we can simply divert the military spending savings to fund the housing benefits directly to supplement the universal basic income. The RSA proposal might be fully budgeted, while still not at high enough level for basic subsistence, but the 5% Formula from the Five Percent Campaign is one way to address the issue by divert and transform our wasteful military spending.

International Development

896 million people lived on less than $1.90 a day and Over 2.1 billion people in the developing world lived on less than $3.10 a day in 2012.[xviii] The world military spending totalled $1.7 trillion in 2015.[xix] By applying the absolute annual 5% cut to military spending of the 5% Formula, the annual military spending will be 40% less than what we start with. Using today’s figures that means the world military spending would be $1.02 trillion, with a reduction of $680 billion from today’s figure of $1.7 trillion. That is $680 billion that could be diverted for better uses.

We don’t even need to do the counter-factual case like earlier, to compare the 5% case with what would have been, if the military spending just keeps on increasing as usual to calculate the total potential savings because every country’s economy is different and the developing countries’ are likely to be much less stable year on year than developed ones. In this case, we will just consider the $680 billion reduction to simplify the analysis.

$392 billion is enough to give the 896 million people who lived on less than $1.90 a day a boost of $1.20 a day to raise their income level to $3.10 a day. It is not much, especially compared with the middle income threshold of $10 a day commonly associated by economists with economic security and “insulating” people from falling back into poverty.[xx] For most people in extreme poverty, that means doubling or more their income, it might just make their lives meaningfully better. And it still leaves £288 billion to tackle the climate change.

04/2016