Basic Income vs Job Guarantee: A Few Thoughts

Since I began following the discussion about basic income a couple of years ago, I’ve seen a number of people arguing that a job guarantee is a better solution to alleviate poverty. Briefly, a job guarantee is where the government acts as “employer of last resort”, providing jobs when the private sector is unable to. I’ve read several articles about the concept, but have always had a few reservations about it and felt that some of the criticisms of basic income made by its supporters have been somewhat unfair.

For example, in August Pavlina Tcherneva, a prominent supporter of the job guarantee, made an appearance on RT’s Boom Bust programme (see video below). One of her main criticisms of basic income is that it doesn’t do enough to stabilise the business cycle. “The basic income doesn’t have this counter-cyclical stabilisation function” she says. “It is supposed to be provided at all times irrespective of the macro-economic conditions. Every fiscal policy has a counter-cyclical feature except the basic income guarantee”.

So far, this doesn’t seem to have been an issue with the Alaskan dividend – the nearest example to a basic income that we have – which has been providing every Alaskan with an annual, unconditional cash payment since 1982. Funding a basic income like this by means of a sovereign wealth fund is the method preferred by Guy Standing, co-founder of the Basic Income Earth Network. He has refuted the “business cycle” argument, saying that basic income payments made in this way can be increased and decreased depending on the state of the economy with an independent body making judgements on the amount being paid out.

However, if –unlike the Alaskan dividend – a basic income is used to replace existing elements of the welfare state, in particular unemployment benefits and tax credits, then Tcherneva’s criticism may be a legitimate concern.

Many basic income models already have a counter-cyclical feature built into them though. This usually involves an integration of the benefits and tax systems. For instance, several proposals for a basic income in the UK include the abolishment of the personal tax allowance. This means that, unlike now, all income would be liable for taxation. As soon as someone’s income rises they would begin to pay back more of their basic income through income tax. Additional marginal tax rates can be implemented to ensure that more of the basic income is clawed back from higher earners.

In this way, a counter cyclical feature is ensured: when the economy is doing well more people will be paying back their basic income, and when it’s not doing so well people will rely more on the basic income, just as they do with welfare now. Alternatively, a land value tax could be introduced to recoup some of the money from wealthy individuals. It is often argued that a land value tax would stabilise the economic cycle of boom and bust.

Clawing back the basic income in one of these ways also tackles another common criticism of basic income, namely that it isn’t targeted enough to people on low incomes. If the basic income is recouped from the rich, more money would be available to raise the level of the basic income and ensure that people on low incomes are better off.

I’m not against the idea of a job guarantee in combination with a basic income though. “Providing a financial incentive to seek work may not be enough, if job-hunting is difficult and expensive” writes basic income advocate Frances Coppola in Forbes. “People may need help looking for jobs, and in some areas may need the government to guarantee a job… The combination of job guarantee scheme with basic income should ensure that anyone who wants to work can do so.”

If there is work to be done that won’t be taken care of by the market then why not have the government employ people in certain areas of the economy? If we look at the United States for example, there is clearly a need to deal with the country’s crumbling infrastructure. A jobs programme to fix this, like the one proposed by Bernie Sanders in his presidential campaign, would be a good idea.

L. Randall Wray, a professor of Economics at the University of Missouri–Kansas City and colleague of Pavlina Tcherneva, provides a list of other possible jobs that could be guaranteed by the government, such as companion for senior citizens, the bed-ridden, mentally or physically disabled, public school classroom assistant, neighbourhood clean-up worker, library assistant, environmental safety monitor, etc. These would be useful jobs that wouldn’t necessarily be filled by the private sector so I see no problem with a job guarantee providing this work.

A worthy goal that advocates of both the job guarantee and basic income have in common is the aim of redefining what is meant by “work”, allowing people to choose to do useful work that is not usually considered “productive”. However, if a government were to implement a job guarantee with the objective of simply achieving full employment, no matter what sort of jobs are being done, then I probably wouldn’t be in favour of it. This would continue the fetishizing of jobs and lead to more people being employed in what David Graeber describes as “bullshit jobs”. The main issue is see really is whether there is enough useful work to do for the government to guarantee everyone a job.

There is also plenty of work, such as care work, already being done that isn’t always remunerated and wouldn’t necessarily make sense being part of a job guarantee programme. According to Emily Holzhausen, Director of Policy at Carers UK, 1.4 million people in the UK each provide over 50 hours of unpaid care per week. A basic income seems like the simpler way to recognise this unpaid contribution and make it easier for people to take on and possibly share the responsibility of care work without involving state bureaucracy. If there are important jobs that need to be done within a community, does the government really need to get involved to provide formal jobs? We could instead just provide a basic income and let people decide what work needs to be done on their own.

An issue that I have with implementing a job guarantee without a basic income is that it would do nothing for people who are already employed but whose incomes fluctuate; the self-employed, freelancers working in the gig economy or workers on part-time/zero-hour contracts, for example.

In particular with the potential for giant leaps forward in terms of automation and artificial intelligence, it seems clear that we’re moving further towards an economy that creates fewer and fewer steady full-time jobs, and increasingly promotes flexible labour markets. Without a basic income we will forever be resisting this. It would surely be better to embrace new, more flexible ways of working, while also ensuring improved financial stability for workers in the form of a basic income.

Furthermore, a job guarantee doesn’t eliminate the disincentives to work caused by high marginal tax rates at the lower end of the income scale. As Scott Santens explains in a recent article, welfare effectively punishes people for working because it is withdrawn, whereas a basic income would help to remove the “benefits trap” and make sure that work always pays.

Related to this is the final criticism of basic income that I want address: the idea that basic income simply pays people to stay at home. Mariana Mazzucato (who I thought was a supporter of basic income) recently tweeted an article by L. Randall Wray to present this argument.

Excellent piece by Wray on why Job Guarantee scheme as Employer of Last Resort makes more sense than Basic Income. https://t.co/YUywFJBqQg

— Mariana Mazzucato (@MazzucatoM) August 4, 2016

In the article, Wray talks about a job guarantee programme called Plan Jefes y Jefas, – or Jefes – that was introduced in Argentina following an economic crisis there in 2001-02. The scheme created around 2 million new jobs for poor heads of households.  

According to Wray, at one point three quarters of the participants were female. However, when the economy recovered and the men in the families began to find work again in the private sector, the government decided to draw down the Jefes programme and place the women back on regular welfare. When the women were asked “would you prefer to receive the benefit of the Jefes program but stay at home,” they all said that they would prefer to go out to work.

It seems odd to me that Mazzucato would see this as an argument against basic income. Surely it is rather an argument against welfare in its current form? I think this idea of basic income paying people – in particular women – to stay at home is a really unfair representation of basic income. Pilots have shown that a basic income can help people to work. For example, following a basic income trial in India, Guy Standing notes that people actually worked more, not less. One example he gives is of a disabled woman who was able to buy a sewing machine and become a seamstress. If – as job guarantee advocates seem to agree – people instinctively want to work, why would a basic income stop women from going out and participating in the community or finding a job? Unlike conventional welfare, a basic income would give them every incentive to do so.

I think this discussion about these ideas is really interesting and I intend to keep an open mind about a job guarantee. Like France Coppola, I think a job guarantee could be done alongside a basic income and I see no reason why we can’t try both.

See also Scott Santens discussing basic income and job guarantee with Iain Dooley of the Australian Employment Party:

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Labour Should Commit to a Basic Income Pilot

This week it was revealed that the troubled families scheme, launched by David Cameron in 2012, has had “no discernible impact” on employment, truancy and adult and child offending. The scheme was initiated following the 2011 riots with the aim of “turning around” troubled families. However, an unpublished Whitehall report suggests that it has badly failed in its mission. The scheme has so far targeted 120,000 families around the country at a cost of £400 million, with a further £900 million due to be spent on another 400,000 families by 2020, meaning around £2500 will have been spent per family.

This money could instead have been spent on trialling basic income, and likely with better outcomes. The total cost of £1.3 billion would have easily funded a reasonably large-scale basic income pilot. For the same amount, 156,250 individuals could be given an unconditional weekly payment of £80 for two whole years. And if the pilot was designed to temporarily scrap job seekers allowance and perhaps reduce in-work benefits in the trial area, the pilot could even cost less than this or be widened in scale.

Shadow chancellor John McDonnell has already shown an interest in a universal basic income, and I believe a pilot is the sort of idea that the Labour Party should be looking at for the next general election, whenever is and whoever their leader may be. The party could use a pilot to test what impact a basic income would have on things like employment, mental and physical health, school performance, crime, entrepreneurship and private debt.

Some ardent supporters of basic income might say “oh but we’ve had successful pilots around the world already, let’s just get on with it and implement basic income for real”. However, it could be political suicide for the Labour Party to commit to a basic income before the public has had a real chance to acquaint themselves with the idea and be convinced. I would worry that the British public would reject basic income – just like the Swiss did in June – if they don’t have the opportunity to see it in action first. As Jeremy Corbyn has said, a basic income would be “a major, major change in social policy”. A pilot could provide us with further evidence that basic income really is the way forward and move us a step closer to its implementation.

So why not find a town or region with a higher than average unemployment rate in, say, the north of England, and try giving all working-age individuals a no-strings-attached £80 a week for a couple of years and see what happens? After all, it can’t go worse than the failed troubled families scheme.

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How to Fund Basic Income in the UK Part 4: Sovereign Wealth Funds and Dividends

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.

See also:

How to Fund Basic Income in the UK

How to Fund Basic Income in the UK Part 2: Land Value Tax

How to Fund Basic Income in the UK Part 3: Carbon Tax and Dividend

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Photo credit: marianne muegenburg cothern via Foter.com / CC BY-SA

Guy Standing Talk in Prague: Transcript, Part 2

This is the second part of Professor Guy Standing’s talk at the “Of Money and Men” conference in Prague on 12th May. In this part he focuses on basic income. You can read the first part of the talk here.

“I’ve been working and lobbying for basic income since 1985. And we set up in 1986, a group of economists, philosophers – many have gone on to fame and glory, if not richness – an organisation we called BIEN. I came up with the name because it’s French and it’s nice; Basic Income European Network. But when hundreds and thousands of people started to join from around the world, we decided to change the name at our Barcelona congress in 2004. And we became BIEN, but the “E” became “Earth”. And since then, for various reasons, basic income has suddenly become mainstream. Basic income is seen by mainstream economists of high reputation now. Those same economists, 10, 15 years ago, would have written, saying it was a stupid idea. Today they understand that if we do not address the major crisis of inequality and insecurity – they go together but they’re different – we are at risk of going to a dystopia of neo-fascist authoritarianism. It’s no light-hearted matter.

And also there are philosophical reasons. I’ve just come from speaking at a big conference in Zurich because, as you may know, on June 5th there’s going to be a national referendum on whether a basic income should be introduced as a constitutional amendment in Switzerland; commit the Swiss government to move towards a basic income. What was interesting about a number of other speakers who were there; they included two plutocrats from Silicon Valley, a former US secretary of labour, a venture capitalist from New York and sundry other prominent economists and philosophers. I don’t think we’ll win the referendum, but it’s now up there in the mainstream.

And, I want to emphasise several points. First, the standard argument against basic income is that it’s unaffordable. Yet, every country spends six or seven percent on subsidies, which distort markets, which go predominantly to the corporations and to affluent groups. A basic income would cost much less than that.

Second, we spend a huge amount – we, governments – on means-tested, behaviour tested, costly welfare systems that act as a deterrent to labour. Because if you have means-testing you have poverty traps. So in those countries, I’ve just come from Denmark, there the calculations are that the poverty trap is, you have a marginal tax rate, if you go from low benefits into the sort of low-wage jobs that that the precariat can get, of 86%! That means you only get an extra 14% by going into a low-wage job of the type that’s available. In Germany it’s 85%. In Britain it’s a wonderful 80%. Can you imagine what would happen if the salariat had marginal tax rates of 80% or more? They would be – PAH! – creating havoc! Creating wonderful speeches. But the precariat has to face them. We need to overcome the poverty trap. The only way to do that is to move to a basic income as a floor.

But I want to advocate the basic income for a philosophical reason. It’s a matter of social justice. All the aspects that are instrumental, they’re important, but Thomas Paine and a very fine thinker in the early 20^th century, G.D.H. Cole, put their finger on it. The way I put it is this; the wealth and income of any of us is far more to do with the efforts and achievements of our ancestors than anything you or I do ourselves. But we don’t know whose ancestors created our wealth; yours? Mine? His? So, in a sense you can see a basic income as a modest amount given to everybody as a right, as being a social dividend paid from the collective wealth.

I came to this idea when I was asked to talk in Middlesbrough, an industrial town in the north east of England, and I mention it in my book. Middlesbrough was a village in the 1820s. Then they discovered iron. And within 15 years Middlesbrough became the centre of the industrial revolution, the centre of industrial capitalism. So if you go to San Francisco, the Golden Gate Bridge was built with iron ore from Middlesbrough. If you go to Sydney Harbour, the bridge was built with iron from Middlesbrough. Today if you do to Middlesbrough you see poverty; you the precariat; you see people hanging around in the streets – no future. But you see the toffs down in the south of England who got the wealth produced by Middlesbrough. And they’re back in government; they went to Eton and Oxford, and so on. And you say that is fundamentally unfair. The wealth was created by the ancestors of those people. So for me that is the main justification.

But a basic income would also give security to people. It would also enable people to have a greater sense of control of their time. To be able to make choices about work, reproductive work. I want to spend more time caring for my elderly mother and not just doing a job pouring the tea for a boss. Are you telling me that pouring tea for a boss is more valuable than doing the caring?

It also gives us a sense of encouraging work and encouraging leisure. The only condition, which I think could be justifiable for giving, attaching to a basic income is a moral one. I say that, in fact, to encourage democracy, which is very weak at the moment, we should do what Pericles did in 450 BC, which is, he said, for participating in the life of the polis, as citizens, I – the state – will give you a basic income. He did that. He didn’t make it conditional; he gave it as a reward. And I say that anybody when they start receiving their basic income should sign a statement morally committing to voting in elections and to going to one political meeting a year.

I want to end by just mentioning this is the year of the pilots, the experiments. Some years ago I was involved in the first basic income pilots in Africa, designing it, carrying it out. Saw fantastic results. And then I got an opportunity to do three pilots, experiments, in India. When we were designing it and raising the money to do it, Sonia Gandhi let us know that she thought we were wasting a lot of money and that everybody would be lazy and drink alcohol and smoke cigarettes. I thought we were going to be blocked from doing it. But we did it. We provided over 6000 people in nine communities with a guaranteed basic income. Every man, every woman, every child; the child’s paid through the mother. For 18 months and then four more, they each had that basic income. No conditions; they could do what they liked. And we monitored it through what everybody calls a randomised control trial, comparing it with other communities where nobody got a basic income. And the results, which we published in a book, – I’ve got a few copies if anybody is interested – were remarkable. Sonia Gandhi asked us back to her house. Two cabinet ministers came out in favour once they saw the results.

First, the welfare effects. People who have a basic income improve their nutrition, particularly the children, improve their health, improve their schooling, school performance, sanitation.

Second, contrary to what people say, people worked more. And laboured more; but more work.

Income in those communities, discounting the basic income, went up. And the income inequality went down, and there was greater economic dynamism.

The third aspect was that equity improved, because people, like the disabled, this woman who we pictured and is on the front of the cover, she’s disabled, she has no legs. But people like her, when they had their basic income and her family and friends contributed part of their basic income, she was able to buy the means of production and become a seamstress, making the clothes in her village.

But the thing that really excited me, and we emphasised it, – and if anyone’s interested, I’ve written some articles on this – is the finding that the emancipatory value of the basic income is greater than the money value. Because people who have that basic income have security and they can make choices and decisions. So people managed to save and get out of bonded labour. People managed to find ways of cooperating with their neighbours and building their community.

But I’ll end with a story. I went to one village where we were doing a basic income, and when we started it we had to get everybody with a card, because they had to have their picture card so we knew who to give the basic income to until they had bank accounts. And in one village all the young women wore veils. And they didn’t want their picture taken. We said “alright, then go into a hut” and have their picture taken unseen.

When I went back to that village about six, seven months afterwards when the program had been going, I said to an Indian colleague of mine, working on the project, I said “have you noticed the change in this village?” He said “no”. “Yeah, yeah, yeah, when we came here all the women were wearing veils and now none of them are”. He said “yes”. So we called the young women, some of the young women across, and they wouldn’t, you know, young women, don’t like talking to strangers. But eventually one of them said “I’ll tell you why. Before, we had to do what the elders told us to do. Now we have a little of our own money we can make decisions ourselves.” Thank you very much.”

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