UBI
UBI could support young people before and after higher education. (Credit: kasto/Bigstockphoto.com) (via: bit.ly)

In this article I will offer some ideas regarding the introduction of a universal basic income (UBI). As it appears in Western (welfare-state) societies, the UBI is a regular, non-conditional, universal cash transfer available to any citizen in the country. Typically, claimants of the UBI would receive a sum €1,000 per month and this is generally considered an adequate measure.

This short text should not be treated as sophisticated research; rather, it will outline my current reflections on the subject in light of such groundwork. For this purpose, the text will not consider secondary questions regarding the UBI. Questions like whether the UBI really improves happiness, how high the UBI should be, and how society should fund it will be considered peripheral.

To sum up my line of argumentation, I posit that the empirical evidence in favour of UBI’s necessity is currently rather weak, whether one supports theory-rooted arguments for a UBI or not. I suggest that we think outside the box by asking where a universal, regular payment that is time-limited could yield the highest social benefit? We must earnestly consider the idea of funding typical transition times in the lives of younger generations, particularly between high school and university and then between university and initial full-time jobs. This may give young people the economic freedom to prepare for their future properly.

What reasons are there in support of the UBI?

Milton Friedman was a rather famous advocate of the UBI, although his reasons were entirely different from those that are predominantly brought up today.

The empirical evidence in favour of UBI’s necessity is currently rather weak

Besides two notable reasons, to end the so-called welfare trap and enable free choice in a political system, Friedman understood the UBI as a convenient all-in-one payment by the welfare state to reduce bureaucracy. In comparison, the majority of today’s advocates do not aim to substitute welfare benefits but rather intend to supplement the welfare benefit portfolio with a UBI.

The main theory-rooted argument is that society owes its citizens a UBI that frees them from the burden of work. This would free them from the exploitation by capitalists and it would allow them to invest their time in other beneficial activities.

It is hard to argue with this argumentation as it is clear and logical; as long as one stays within the boundaries of Marxist logic. Alternatively, there are other paradigms such as liberalism that interpret UBI quite differently.

Besides the theoretical arguments, there are some new empirical lines of argumentation in support of the UBI. The main one is as follows: through digitalisation and automatisation, human workers become obsolete and the subsequent rise in unemployment causes a social gap between the poor and the rich. The fact that there is just not enough labour impoverishes the majority of humans and eventually results in riots against the rich. To prevent these situations and to enable a life worth living for the majority of the population, society may need to provide a UBI. Admittedly, I find this line of argumentation rather compelling.

Technologies might cause fundamental changes, but economic and social systems find ways to adapt properly

The pressing problem with this is that at the moment – and in the foreseeable future – it does not seem as though we will run out of human work. Firstly, in Germany, working hours are constantly on the rise (see figure 1). Secondly, even if machines crowd out the human workforce, there are other instruments that society can use to secure a social standard and to redistribute work; e.g., a shortened working week – wouldn’t we all love to work a little less? – or a machine tax that makes the application of machines comparably more costly.

Figure 1: Working hours in million from 2008-2017 in the German service segment (Source: Statista, ID 2609, German Bureau of Statistics).

 

The argument that large changes in the distribution of work are right around the corner due to new technologies like AI (artificial intelligence) overlooks the fact that scientists have a rather bad track record of anticipating the impact of disruptive innovation (see Schultz, 2016). For example, in 1930, Keynes (Keynes, 1930) predicted that humans would work about 15 hours per week. The main reason for similar miscalculations by scientists is that they oftentimes do not take into account the dynamic relationships in an economy, where a new technology might decrease working hours in one area but might offer new work opportunities in another. Technologies might cause fundamental changes, but economic and social systems find ways to adapt properly.

Clayton Christensen has analysed the impact of disruption on industries and companies extensively and developed the theory of disruption. Market disruption is not as rare as many think (see figure 1) and its causes are not limited to changes in technology. Companies find new ways to compete all the time; either they find a new market to compete with innovative products and services or they explore ways to offer existing products or services in a better way. It is not uncommon for disrupted companies to regroup and find new ways to compete successfully again. In the end, disruptions always improved the benefits of average customers, for example by giving them access to efficient online banking services or cheaper flights.

But, to make myself clear, if human labour diminishes in the future, UBI might become a viable instrument.

How can we invest in social benefit?

It is worth asking whether the generalised concept of UBI, spending money unconditionally and universally, might be the best investment in a society?

If human labour diminishes in the future, UBI might become a viable instrument

An investment is a capital expenditure that results in future pay-offs which might exceed the initial capital investment. On the individual level, simply funding consumption with a UBI doesn´t result in future surplus capital. Critics may argue that by spending on UBI, society benefits as a whole through more community services and an expansion of ‘social capital’. The term might be misleading; by social capital, I imply bonds, linkages, and a shared sense of identity in a society (OECD, 2018). While these are important aspects for a society, social capital doesn’t qualify as an investment from an economic perspective.

To refine the question, we should ask ourselves, where payment provided by society acts as an investment that is for more than mere consumption?

My answer is a time-limited funding of the younger generation in transitional periods of their lives, where they could use a little help to gain the time to make the right decisions.

Education is truly an investment at both the social and the individual levels

In the typical lifecycle of 18-to-20-year-olds (more than 50% of a cohort start academic studies, see figure 2) in Germany (and many other places in the Western world) there are two typical short transitional phases, where young people can profit from more economic freedom. In those phases, they either decide on their future educational path (‘ante college’) or they choose what first job to take after their education (‘post college’). In both of those rather short phases, the young generation needs to make game-changing decisions where economic freedom provides them with the necessary time to avoid a bad choice.

In general, a high education level is a key component to prepare society for future changes in work demands. On the individual level, education opens doors to higher paying jobs and expands the mind. So education is truly an investment at both the social and the individual levels.

Figure 2: First-year students as a percentage of the overall cohort in Germany, (Source: Statista ID 72005, German Bureau of Statistics).

 

It is important to note that the average age of graduates has decreased considerably in the last 10 years in Germany (see figure 3). So to add a year or two to the average graduate’s age might not hurt the economy fundamentally.

Figure 3: Average age of college graduates in Germany, (Source: Statista ID 189237, German Bureau of Statistics).

 

In the ‘ante-college’ or ‘post-college’ phases, money is a scarce resource. Out of school, after completing the high-school diploma (in Germany the ‘Abitur’), nearly everybody depends on their parents for money. Parents might not be willing to fund an orientation phase for their offspring. Many might rather push their child to continue the educational path right away. But with a time-limited income of about twelve months, a young adult has enough time to widen their horizon and ensure a wiser choice. The results are adequate decisions and consequently less individual losses of time and money through quitting college.

Time-limited government funding can also be offered in the ‘post-college’ phase. A first job is an important individual decision as it determines the personal career path at least for a couple of years. Graduates need time to reflect without economic pressure to choose the career path that suits them best.

I am positive that this gap approach yields high benefits for society as it reduces the misallocation of time and money through suboptimal college and study-related choices by the younger generation.

 

References

Christensen, C. and Raynor, M. (2003). The innovator’s solution: Creating and sustaining successful growth. Harvard Business Review Press.

Keynes, M. J. (1930). Economic possibilities for our grandchildren. In Essays in Persuasion, pp. 358-373. New York: Norton & Co.

OECD (Eds.) (2018): What is social capital? Retrieved from: https://www.oecd.org/insights/37966934.pdf.

Schultz, C. (2016). What is the theory of disruption? Retrieved from:  https://www.slideshare.net/perseus4646/what-is-the-theory-of-disruption.

Statista (Eds). (2018) (in German). Entwicklung der geleisteten Arbeitsstunden der Erwerbstätigen im Dienstleistungsbereich von 2008 bis 2017 (in Millionen), Statista ID 2609.

Statista (Eds.) (2018) (in German). Durchschnittsalter von Hochschulabsolventen in Deutschland in den Prüfungsjahren von 2003 bis 2017 (in Jahren), Statista ID 189237.

Statista (Eds.) (2019) (in German): Entwicklung der Studienanfängerquote in Deutschland von 2001 bis 2018, Statista ID 72005.

 

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The views and opinions expressed in this publication are those of the original author(s) and do not necessarily represent or reflect the views and opinions of the Dialogue of Civilizations Research Institute, its co-founders, or its staff members.