Universal Basic Income: A panacea or impossible dream?

The recent Covid-19 pandemic has plunged the European economy into what looks to be a strong recession, with countries like Spain facing the daunting prospect of a 12% fall in their GDP. A contraction of such magnitude coupled with the rising number of unemployed and people considered at risk of poverty and social exclusion has reignited the debate about the necessity of a universal basic income (UBI). An appealing idea due to its simplicity – an unconditional periodic state subsidy – the movement has the intriguing capacity to garner support from both the left and the right. Despite fervent supporters hailing UBI as a miraculous panacea capable of addressing inequality, unemployment and market inefficiencies whilst improving people’s quality of life, there are detractors who question the feasibility or desirability of such a scheme. Recent proposals and studies carried out in Spain and Finland can help to shed some light on this debate.

In times of crisis, seemingly impossible ideas suddenly become possible, although the viability of UBI in the German-dominated, neoliberal EU seems highly unlikely. For example, the Spanish measure ‘Ingreso Minimo Vital’ which draws from the concept of UBI, will almost certainly be short lived if it happens at all. In a country where the furloughing scheme was delayed due to lack of money and infrastructure; which runs a huge deficit due to extremely elevated public sector spending and which is in need of EU support (which will certainly come with strings attached); the measure seems not only inviable but a blatantly desperate move to gain some support after a continuous fall both in popularity and credibility. Despite potential ulterior motives behind the push for such a measure, there are still valid economic reasons for UBI.

One of the main concerns entering into the post Covid-19 world is that people will consume less, but a cash transfer to citizens could encourage people to spend and reactivate the economy, benefiting both individuals and businesses. A negative income tax could also be employed to prevent inflation rates from rising drastically as a result of this measure. Another concern that UBI aims to address is the increasing automation of the workplace. It is estimated that around 54% of the jobs within the EU have the potential to be automated in the coming years, a daunting prospect that would leave many people unemployed and growth sustained only through technological improvements that benefit companies. In such a scenario UBI would become essential in helping maintain consumption and demand whilst also being instrumental in allowing people to retrain for new jobs. Ultimately, the hope is that UBI would play a key role in the creation of a ‘post work’ society.

Whilst the logic is solid there are some problems that must be considered. First of all, UBI will have to face the hostility of the current work culture and attitudes that place a high importance on paid work. Tensions could arise with the recipients of the basic income who could be seen as social parasites who fail to meet the ingrained cultural notions of deserving. Most Europeans are happy to help those in need and even increase the welfare state to provide assistance but are more reticent when it comes to those they perceive as lazy or unwilling. Indeed, a 2016 study found that it is mostly the young and structurally unemployed that supported UBI. This is unsurprising given that they are currently the most marginalised within the labour market and would benefit the most whilst the brunt of the new economic burden would be bore by others. Until we see social attitudes about work change, the implementation of UBI could actually increase economic divisions between the employed, those on low wages and the routinely unemployed.

Secondly, despite the positive effects that UBI would have on the happiness and wellbeing of citizens, as indicated by the recent experiment in Finland, the labour activation, which should in principle have occurred, never really happened. The study suggests that factors such as health and outdated or an absence of skills within groups such as the structurally unemployed outweighed financial incentives. In theory the extra liquidity and economic safety should have smoothed the frictions in the labour market and given citizens more control over their futures. Moreover, UBI as envisioned by neoliberal proponents would lead to a removal of economic mechanisms such as the welfare state and policies such as minimum wage which have traditionally led to market inefficiencies. This could be dangerous as it may disproportionately and negatively affect youth, the structurally unemployed, and potentially also women. Theoretically UBI should provide both an incentive for women to work and a greater independence to pursue their goals. Conversely, women who traditionally have a weaker bond with the working world could see their roles as home carers cemented, thus reverting years of progress. Much like in the unemployed case, because UBI fails to address the roots of the problems, it may lead to unintended consequences. Aside from these groups, UBI would also fail to help people who struggle to manage their own money. In its universality, it fails to recognise the unique situations and problems faced by certain collectives. In these aspects it must be recognised that the current welfare systems, albeit with some necessary reforms, are better suited to address these problems.  

Finally, UBI has to contend with the criticisms of cost and the restructuring required for it to be enacted. One of the most common criticisms of UBI is that it is simply far too expensive. Lansley and Reed estimate that in the UK the scheme could cost around £300 billion. Proponents of UBI argue that whilst the cost seems high it can mostly be achieved by stripping the welfare system and drastically reducing the state bureaucracy involved with welfare. However, even with such measures, there would be a need to increase taxes universally, in addition to forcing many existing civil servants into unemployment. This kind of radical move would be sure to generate backlash. Moreover, the only efficient way the state could target the roots of social and labour inequality would be by maintaining some aspects of the welfare state. Whilst this mixed approach would be better in terms of welfare, it would certainly increase costs and therefore be unachievable by virtually all countries. Furthermore, the cost would not only be monetary as other necessary policies would have reduced budgets.

In conclusion, whilst there are certainly merits to the idea of UBI, it remains unclear based on the Spanish government’s proposal and Finnish trial whether it is feasible or desirable. Whilst the benefits to welfare and wellbeing are apparent, it is possible that the measure would have some unforeseen effects when it interacts with the realities of imperfect markets. Moreover, UBI will have to overcome the social stigma surrounding universal state subsidies if it is to be welcomed and accepted by the general working public. All things considered, the EU members should focus on reforming their existing welfare systems, possibly emulating the Scandinavian welfare models, rather than pursuing a policy of UBI.