By PHILIP KOTLER – Why is it that in a rich country like the U.S., poverty continues to affect 50 million citizens, about 15 percent of our citizens? At the other end, the top 0.1% of our citizens receive 40% of all income and own 40% of all our wealth. Numerous studies show that our income distribution, instead of getting more equitable, is growing more inequitable over time.
Is this an inevitable feature of capitalism? Those with capital continue to grow richer. Those without capital can only sell their labor and in a market where capital is replacing labor, the number of jobs and the median pay are both likely to get smaller.
The jobs that built the middle class, largely factory jobs in the steel and auto industry, where pay often amounted to $30 an hour, those jobs are gone. They have moved out of the country because they can be done at much less costs in countries where workers accept much lower pay.
There will be fewer available jobs over time as globalization and digitization move rapidly forward. More and more goods will be produced in worker-less factories by robotic machines run by digital software.
The good news is that goods will get cheaper. The bad news will be that jobs will disappear.
So our country will need a way to support our people who lose their permanent jobs. Some will find short term, low paying work by mowing neighbor’s lawns or packaging groceries in a supermarket. But their earnings will be totally inadequate to meet their living expenses.
Our present answer to this is our patchwork of anti-poverty programs which include food stamps, aid to hungry children and the disabled, and countless other measures. We give unemployment benefits over a limited time period to those who lost a job and can’t find another one. We pay Social Security benefits to those who retire in their 60s. All of these programs have created a huge bureaucracy to do means-testing and make payments to those in real need.
A means-test is at the heart of one of our programs to help low income earners. The program goes under the name of “earned income credit.” The economist Milton Friedman proposed it in the 1960s as a poverty-fighting measure and called it a “negative income tax.” If a family earns less than a certain amount varying by family size, the government sends them a check to supplement their income. This program has been accepted by both politicians on both the left and the right.
Yet there is a group that believe in what they consider to be a better program called the Universal Basic Income (UBI). Thomas More proposed it in his work Utopia in the 16th Century. President Nixon even considered it for a short time. In 1967, Martin Luther King, Jr. wrote, “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.” The celebrated economist, John Kenneth Galbraith, agreed, ‘Everybody should be guaranteed a decent basic income. A rich country…can well afford to keep everybody out of poverty.’ This payment given equally to all citizens would prevent any citizen from ending up with less money.
For the sake of definition, we define Universal Basic Income (UBI) as a fixed, monthly cash grant, given directly to all adult citizens individually, to cover basic living expenses, with no strings attached.
What are the Arguments Favoring a Universal Basic Income?
The first argument is that by making direct cash payments to our citizens that will at least give them a bare living, we can eliminate the costly patchwork of 300 different public aid programs and welfare payments and probably save money. This in turn will reduce the size of the federal government, something that the right desires.
The second argument is that it would free people to decide whether they want to work in a permanent job or work part-time or not at all. Today Americans work closer to 50 hours rather than 40 hours a week for 50 of the 52 weeks. Many of them are bored with their jobs and would leave them if they had a choice. Many will want to do something else with their lives and earn money along the ways doing short gigs. Americans work too hard and too long without time to enjoy other aspects of their lives.
The third argument is that UBI frees the worker from possible exploitation by employers who pay insufficient wages and provide poor working conditions. Unions used to prevent this exploitation but would be less necessary given the ability of unhappy workers to terminate his own job without facing abject poverty.
The fourth argument is that permanent jobs may increasingly be in short supply through no fault of the workers. As globalization and digitalization continues unabated, many jobs will be destroyed. Some system, either the earned credit system or the universal basic income system will be needed.
Where has UBI been tried?
Various locations and countries have considered the idea:
- On Sunday, June 5, 2016, Swiss citizens voted in a referendum on whether to hand out a guaranteed $33,000 to every citizen, regardless of wealth. It was defeated. One of the problem is that Switzerland is part of the European Union which permits members to move to any Euro country. Voting for this would bring too many new people into Switzerland.
- The Finnish government is planning a system of giving each of its 5.4 million citizens $876 tax-free every month ($10,512 a year). In return, it will do away with welfare benefits, unemployment lines, and the other bureaucracy of its extensive social safety net.’
- The most generous program is Denmark’s, which gives its poorest citizens roughly $1,800 a month, enough to pull the destitute over the poverty threshold. Note, however, this differs from a universal basic income in that it is only given to its poorest citizens.
- The Dutch city of Utrecht gave a choice to 250 Dutch citizens to either keep their current government benefits (as a control group) or receive the equivalent of $1,100 per month without any work obligations. They want to see how many made the second choice and how this impacts on their behavior or productivity. The findings aren’t in yet.
- In Germany and Kenya, Private organizations in Germany and Kenya are raising money to launch their own basic income initiatives. Luminaries in Silicon Valley are hiring research fellowsto develop similar programs.
- The state of Alaska pays a regular dividend to everyone living there, universally to child and adult, through a wealth fund it has created through royalty fees paid by companies for the rights to profit from its natural resources. This is another model that could be applied anywhere to grant a basic income coming as a social dividend from a sovereign wealth fund of resource-based revenue.
What are the Objections to the Nation Paying a Universal Basic Income?
Those who object look at this as a “handout” that will lead many people to give up a permanent job. They will be paid to be “lazy” if they wish while others are working hard and in effect supporting them. At the same time, it should be noted that business and the rich also gets handouts, although it doesn’t go by that name. When a CEO takes home over $10 million or is given a “golden parachute,” what else should we call it.
Others argue that many people won’t have a strong incentive to study, especially harder subjects. This will reduce their skills and their productivity and the nation will suffer from the competition of better trained citizens in other nations. Of course, we would need studies of how many students decide to study less and learn less and it this is a small number, it might not be important.
Another argument is that work builds character and discipline. There is always work to be done, even if it is repairing infrastructures or fixing potholes. This is likely to suffer if more citizens choose to take it easy. Some would insist that the guaranteed income be contingent on the person agreeing to work where work is needed.
Still another argument is that many who chose to give up working will abuse their free time in just watching TV or gambling or turning to drink or drugs when they are no long career-oriented and associating with other career-driven people. Critics argue that work is a source of status and it organizes people’s lives and friendships. This cannot be replaced by receiving a check.
How Will the Cash be Raised to Pay for UBI?
Once UBI is installed, many welfare programs will be eliminated. The money spent on these programs will then be transferred to the UBI funds.
A second source will be to raise taxes on the wealthy. For over 60 years, the society has been reducing the tax on the wealthy. The maximum income tax rate today is 39.6%. The society can now consider raising the tax on wealthy citizens on the grounds that it will not affect their material living. A progressive tax will help slow down or stop the growing concentration of income and wealth in the hands of fewer citizens. The estate taxes can also be raised from 60% to 80% after exempting $10 million for a married couple.
A third source can be a special tax on companies. Companies destroy jobs by moving abroad and by introducing automation. This company tax will pay for the killing of jobs and support the jobless.
A fourth source can be raising consumption taxes (VAT).
A fifth source can be a tax on financial transactions.
A sixth source might be transferring money from the bloated defense budget to help more people live a better life.
What Makes Sense?
The arguments are strong both favoring the universal basic income and arguing against it. My guess is that most anti-poverty work will focus on furthering the earned credit approach that focuses on making payments to raise the incomes of poor people using a means test so they could come up to a certain living standard. This could be accompanied with dismantling some of the public assistance programs, such as food stamps and aid to hungry children.
However, as the country starts losing more permanent jobs, the same workers will need more than just a supplement to their normal earnings. They will be unemployed and need a larger cash payment more in the spirit of a guaranteed basic income. Whether this will be a universal payment to the rich as well as the poor or just to the poor will ultimately have to be decided.