The Fallacy of Universal Basic Income
So the cat is out the bag. Mark Drakeford has announced the radical project of a “universal basic income” is to be trialled in Wales. It was an initiative that was laughed at just ten years ago when the Green Party were trying to normalise the idea, but yet is now a guiding policy of the Wales’ most senior politician. Such an idea has been considered so farfetched that even the likes of Messrs Corbyn and McDonnell did not put it forward in the last Labour manifesto. Yet following the pandemic, every man, woman and dog seems to be jumping on the bandwagon, whether that be politicians from Plaid Cymru, the Greens, the Liberal Democrats, the SNP and the Labour First Minister himself. It is as if the generous and necessary financial support packages that have been in place to ride out the pandemic have given progressives a platform to extend the Overton Window yet further. What seems to have been spectacularly forgotten, is that what we have been through in the last year, isn’t normal. Measures have been taken to protect the vulnerable in society from contracting the devastating virus. But as we look forward, the temporary and necessary expansion of the state in protecting our paypackets, seems to be transitioning to something of permanence in Wales. This is despite the fact that the public expansion of the money supply could be beginning to have an inflationary effect, with lots of anxieties beginning to emerge in the USA and our housing market defying expectations of a price crash, continuing to rise at pace.
One of the reasons cited for this rollout is because of automation. Whilst the challenge of automation will need solving, it certainly is not a widespread problem now. And this debate has been raging on for 500 years. Why suddenly this is the moment where AI and robotics is going to displace physical human labour is unknown. Indeed technology has advanced now more than any other time in our history but the joys of the market economy is that it constantly evolves. One form of human labour may be replaced but new markets and industries emerge. There is a great synergy in the market economy and whilst that makes things difficult to predict, with the next year being difficult to forecast let alone the next hundred years, politicians would be wise to allow that invisible hand to move, and to allow the winds of technological change to advance. Government should be there to protect people in those times where protection is needed. Paradoxically of course, is that proponents of UBI predict that automation will lead to economic growth but at the same time wage insecurity and unemployment will increase. If automation does lead to economic growth yet volatile employment and wages, then where is that economic growth going? Or rather would it further the divide between the haves and the have-nots, with an increasing proportion of people dependent on monthly paychecks from the government. This is a moral and ethical conundrum that needs answering.
The second reason to oppose UBI is because it will hamper economic growth. Job vacancies are out there. The hospitality sector is facing a recruitment crisis. Whilst the UK Conservative Government through the furlough scheme has saved millions of jobs, its generosity is beginning to cause negative externalities, with the propensity to save so much higher and giving individuals the ability to turn down good, well-paid jobs. It is right furlough continues whilst sectors remain closed, but it is a glimpse into what a world with basic income may look like- businesses unable to recruit and grow their business; business owners unable to make ends meet, which then sees their businesses file for bankruptcy, and then enlarges the reach of the state yet further.
And finally, it is not fair. Since the inception of the modern welfare state, fairness has been at the heart of it. Means-testing is of fundamental importance to the integrity of the system, where government resources are redistributed to those in greatest need. To one person, basic payments are not enough. To the other person, it is not needed. “But it will stimulate the economy regardless of whether it is needed” its proponents rebut on that point. But what they are arguing for is a double transaction- a government that taxes you silly but then gives it back to you through a universal basic income. They could instead of indulging in this financial fudge, just cut your taxes, allowing families to keep more of their earnings.
In Finland, UBI did nothing to improve employment prospects. Its Finnish government wanted instead to trial universal credit. And it is the system of universal credit in the UK, that pre-pandemic had suffered a great deal of negative publicity, which has quietly gone about its business over the past twelve months. Universal credit, a system that brings social security payments into one place yet is also means-tested, is a success story. The First Minister instead of discussing this academic issue of UBI in the Bay could focus on the real problems that hamper Wales’ economic recovery, by cutting taxes and levelling-up the whole of Wales.
