In a Reddit AMA session a couple of years ago, co-founder of the Basic Income Earth Network (BIEN) Professor Guy Standing stated that the “best way to fund a basic income is through establishment of sovereign capital funds”, otherwise known as sovereign wealth funds (SWF).
These funds are typically used by countries with great oil wealth in order to preserve some of this wealth for future generations when the oil eventually runs out. The funds are invested around the world to grow them over time. Norway’s SWF – currently worth around $847 billion (£647.6 bn) – is the largest in the world.
The SWF that people with an interest in basic income are most likely to be familiar with is the Alaskan Permanent Fund. Since 1977, the state of Alaska has been putting at least 25% of its oil revenue into the fund. The money is then invested, and the profits generated are distributed equally to every resident of Alaska in the form of an annual dividend. Last year’s dividend, at $2072, was the largest paid out so far.
The Alaskan dividend system has been a great success, enabling citizens to save and reduce their levels of debt, while helping the state to reduce inequality and poverty. Although it is obviously not a full basic income (i.e. enough to live on), it is the closest we have to an example of a basic income in the sense that it is a regular, unconditional payment made to all citizens.
Unfortunately, the UK squandered a great opportunity to set up a similar SWF in the 1980s using revenue from North Sea oil. Instead, as Stewart Lansley explains in an LSE blog post, “the proceeds were used to cut taxes and boost consumption – now widely recognised as a huge historic policy error”.
Writing in the Guardian, Guy Standing says that the UK must not make this mistake again by allowing a few elites to benefit from fracking rather than the many. Despite his opposition to fracking “for environmental and safety reasons”, he argues that “if fracking is to go ahead… then the people of this country should be the primary beneficiaries and decision-makers, not a plutocracy and a few multinational corporations.” Standing proposes the establishment of a “democratically governed national fracking fund”, created by renting areas of drilling to companies through public tender. The proceeds would then be “invested in ecological and socially desirable investments”, with dividends paid out in a similar way to the Alaskan Permanent Fund.
There are several other possible ways to create an SWF. One would be to reverse the trend of privatising publically-held assets. In the afore-mentioned blog post, Stewart Lansley outlines how and why this should be done:
“In the last year alone, over £30bn of publicly owned assets from Eurostar to RBS have been sold. Next in line are to be the Land Registry and the remaining shares in Lloyds Bank previously bailed out with taxpayers’ money.
The government claims that such sales help pay down the deficit, but it makes little sense to use long term capital assets to finance a temporary revenue gap. Sales offer a one-off windfall – the family silver can’t be sold again. This will mean the permanent loss of collectively owned public assets, many highly profitable, built up over many decades, and the end of a stream of income delivered over time. In recent years, for example, the land registry has achieved annual surpluses of up to £100m, thus delivering regular dividends to the government…
Imagine the shape of the British economy today if, instead of the £200bn worth of successive sell-offs since the mid-1980s, public assets had then been pooled into a protected public ownership fund. With the revenue paid back into the fund – and only an agreed proportion of it spent – it would have grown to represent a significant part of the economy, providing a powerful balance to the entrenchment of private capital.”
In a paper that would later be published as a chapter in his book “Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World (Exploring the Basic Income Guarantee)”, researcher Gary Flomehoft explores numerous revenue streams that could be used to establish SWFs or provide straight-up dividends. He shows that the Alaska model can be applied even in states and countries without vast reserves of oil, explaining that “SWFs can be based on other valuable resources such as copper (Chile), diamonds (Botswana), or even phosphates (Kiribati)”. Furthermore, he argues that even a resource-poor state like Vermont in the U.S. could harness its common assets to provide dividends of at least $1,972 to its citizens:
“One might get the mistaken impression that only oil or resource-rich states can afford such a fund and dividend. Every state or country has substantial untapped revenue available because many natural resources and social common assets have been given away by government to private businesses. Businesses then sell them back to the public capturing not only the value they add with their effort, but also the scarcity value or economic rent of the assets given to them by public authorities.”
In his paper, Flomenhoft looks at various revenue streams such as land value and a carbon tax, licenses for logging, hunting and fishing, as well as fees for companies extracting groundwater and minerals or using publically funded resources such as the broadcast spectrum or the Internet (see also Peter Barnes’ excellent website dividendsforall.net). There’s no reason why these ideas couldn’t be looked into in the UK too.
Other options not explored in Flomenhoft’s paper include using Thomas Piketty’s idea of a wealth tax to establish an SWF, as suggested here by blogger Matt Bruenig, or Robert Reich’s proposal of sharing out profits from patents and trademarks.
In conclusion, we are certainly not short of common assets that can be rented out to the benefit of all citizens rather than a few individuals. By applying the Alaska model to the UK, we too could preserve the value of limited resources for future generations, while also reducing inequality and poverty today.