Money for nothing: has the time come for universal basic income?

Mark Smith, Grenoble École de Management (GEM)

“Money for nothing” is not just a song from 1985 by Dire Straits but also, it seems, a new wave of policies supporting the government providing an income for citizens, regardless of their economic activity.

Benoît Hamon, the surprise winner of the first round of the socialist primaries in France, is the latest high-profile supporter of the idea. But across the world, experiments in universal basic income are already exploring the option of paying individuals a flat rate of income, unaffected by their participation in the labour market. It sounds counter-intuitive.

The first expectation may be that recipients would just stay at home and watch daytime television. But a closer look at how economies have changed over recent decades shows how the case for such policies emerged.

An answer to help the fringe economy

Across many advanced economies, expectations of rising wages, security and prosperity enjoyed by earlier generations have been eroded. Many people now live on the fringes of the economy, only intermittently paid, thanks to zero-hour contracts, unemployment or simply low pay. Small incomes have negative consequences not just for individuals and their families, but for society as a whole.

Proponents of universal basic income, such as Guy Standing, have long talked of the rise of a class known as the precariat, who are most affected by rising levels of insecurity. According to Standing, this calls into question the structure of society, inter-generational solidarity and societal cohesion.

Indeed, societies are increasingly disillusioned with conventional economic thinking. The votes for Brexit and Donald Trump demonstrated the threat of destabilisation of old political and economic orders if too many are left behind.

A partial remedy against such disillusionment could be redistribution that takes modern modes of working into account. This includes the “gig” or sharing economy.

Basic income could offer some protection against the insecurities of an economy increasingly made up of precarious jobs, where the employer is remote and takes on few of the social responsibilities of a more traditional workplace.

The Finnish experiment

To answer the question of whether basic income would encourage unemployment, Finland’s social security body, Kela, has recently launched an experiment to test the feasibility of the policy.

For this two-year scheme, 2,000 unemployed Finns between the ages of 25 and 58 have been offered a monthly basic income of €560. This replaces existing unemployment allowances and will continue to be paid for two years regardless of whether the recipient looks for or finds work.

While such experiments may never quite be able to replicate the impacts of nationwide implementation – such as consequences for communities and industrial sectors, or effects on individuals and families’ long-term planning – the test marks another step towards what seems to be the coming of age of universal basic income.

Similar experiments have taken place in India and Canada, and are proposed in France.

In the French case, the Aquitaine area is proposing an existing income transfer (Revenu de Solidarité Active or “earned income supplement” ) on an unconditional basis, removing work requirements.

The development of this project is not yet as advanced as the Finnish case, but a feasibility study is currently underway with a plan to implement in 2018 if funding can be found. The French senate recently published a report on the issue, and committed to more widespread testing.

Ensuring more solidarity

The idea behind the projects is to address the challenges of economic change while ensuring solidarity amongst their populations. Whether it is pioneering flexible leave or promoting caring roles for fathers, Sweden, Finland, Norway and, to a lesser extent, Denmark have often been at the forefront of policy innovations which at first appear too expensive or wacky, but soon become widely accepted.

There are a number of potential practical benefits to a basic income scheme. Although it may seem counter-intuitive to pay everyone a flat rate rather than to identify those in need, there are considerable costs in assessment, form-filling and verification for means-tested benefits.

And the stigma around welfare can reduce take-up by those most in need. Only half of those entitled to the French RSA take advantage of the scheme in what some call the “non-take up” of social benefits.

Studies of previous experiments also demonstrate the positive spillover effects of basic income in terms of health and mitigating social problems. This is perhaps not surprising since there is a long history of research demonstrating the negative consequences of precariousness and unemployment on individuals’ well-being and that of their families.

While some criticise basic income on the grounds that work offers non-monetary benefits, we know that current unemployment support schemes often create disincentives to accept jobs.

Providing the means to take up low-paid, intermittent work in today’s economy could perhaps allow people to gain the social and well-being benefits of work without the risk of losing vital income.

Changing the nature of work

A policy for the 21st century economic landscape must respond to the changing nature of work, especially for the most disadvantaged.

As countries like France consider basic income trials, it will be important to learn from experiments around the world, while also thinking through effects that might be more difficult to test.

It remains to be seen whether basic income, when paid to all rather than merely a trial group, could increase the bargaining power of precarious workers in order to increase their pay and conditions. Or, basic income could effectively subsidise the gig economy and zero-hour contract employers by making up their pay shortfall.

While the former result would be a clear benefit of basic income, the latter might call for more careful consideration of how a basic income is funded, and whether there are ways by which those corporations that benefit most from flexible labour could be required to pay for that advantage.

While the Finnish experiment will go some way towards working out whether basic income is more effective in encouraging job-seeking and employment than conditional unemployment benefits, there are more questions to be answered. But there are equally many more valuable potential outcomes to consider.

This text has been co-authored with Genevieve Shanahan.

Mark Smith, Dean of Faculty & Professor of Human Resource Management, Grenoble École de Management (GEM)

This article was originally published on The Conversation. Read the original article.