Payment Guaranteed: How Would Universal Basic Income Affect Business?
What if once a month for the rest of your life you received a check to cover your basic needs, including food, clothing, healthcare and housing expenses, just by virtue of being human? That’s precisely what proponents of a universal basic income (UBI) propose.
What is a universal basic income?
There are many different proposals on how to institute a UBI, many of which boil down to one simple idea: distribute a cash payment to every individual citizen on a regular, recurring basis to cover their basic needs, regardless of employment status or net worth. Oftentimes, a UBI is suggested as a sweeping replacement benefit for the existing social safety net.
“[A] UBI is an investment in society through an amount of income that is unconditional, universal, individual and regularly provided,” said Scott Santens, a UBI researcher and advocate. “In other words, it’s an income floor below which no one is allowed to fall, and all other income adds to. Traditionally, it is considered to be an amount sufficient to raise everyone above the poverty line, but that is not required to meet the definition of UBI.”
The universal basic income has appeared under several different monikers since its conception, going by the titles “social dividend,” “guaranteed income” and “basic income.” Each name has its subtle differences, but the implications of any such policy would undoubtedly be immense, raising several questions: How would a basic income policy change the economy and affect small businesses? Would it lead to more entrepreneurship? How would it influence consumer spending? How would it impact the labor market? Would it influence inequality?
COVID-19 and universal basic income
A sweeping policy change toward UBI is not very likely in the U.S. anytime soon. However, the COVID-19 pandemic led the federal government to disburse payments of $1,200 to most low-income to moderate-income taxpayers as the novel coronavirus shuttered businesses and ground the economy to a halt. While not a true UBI, direct payments to citizens on a nationwide scale during the coronavirus crisis is about as close as the U.S. has ever come.
House Democrats went a step further, introducing a bill called the Emergency Money for the People Act, which would provide cash payments of up to $2,000 per month for six months to every American adult making less than $130,000 annually.
Other countries have responded similarly. For example, Spain is reportedly working on implementing a permanent basic income for low-income citizens. In France, self-employed workers (about 600,000 citizens) are eligible for $1,600 direct payments if coronavirus-related quarantines prevented them from working or resulted in a 70% reduction in business.
In most of these cases, direct payments were coupled with additional stimulus measures, such as extending forgivable loans to businesses or governmental salary continuance programs to keep people employed.
Are COVID-19 stimulus payments analogous to a universal basic income?
A true universal basic income would be distributed on a regular, permanent basis to all citizens regardless of employment status or income. The coronavirus stimulus payments fall short of that definition. Their focus on low-income and moderate-income taxpayers put them more in line with traditional social welfare programs.
“Being only a one-time check, the economic impact payment can really only help show that it helps to get some money and that it’s nice to not have to jump through hoops to get it,” said Santens. “It can’t really tell us how affordable UBI is, because the stimulus payment added to the debt … and it also can’t really inform inflation concerns, because the stimulus payment for most people is replacing lost income, not adding to it.”
However, there is useful information that can be gleaned from the coronavirus crisis cash payment stimulus, Santens added, especially if additional cash payment is authorized to mitigate the economic impacts of the COVID-19 pandemic.
“If we succeed in getting recurring stimulus checks in place, we can observe how it accelerates us out of recession, prevents needless suffering and sets up more people for success in the endeavors they feel most important,” Santens said.
Where did the idea for a universal basic income originate? An early source of inspiration for UBI is found in Thomas Paine’s 1797 essay “Agrarian Justice,” in which Paine proposed a national fund that would pay each person “the sum of 15 pounds sterling” when the individual reached age 21, as well as another 10 pounds per year from the time the person reached age 50 through the rest of the recipient’s life.
Paine pictured this national fund as compensation for what he called “the loss of natural inheritance.” His idea was that in the world’s natural state, the land was common property to all. Private property arose when humans improved the land as part of civilization, Paine wrote, so the fund would act as compensation for each person’s loss of that common property. He called this “ground rent,” recompense paid to society for a private individual taking up land, sea or air in pursuit of building his or her own wealth.
The idea has evolved over time across ideological lines. Some people regard UBI as a way to streamline social welfare, and eliminate bureaucratic waste and corruption. Others view UBI through the lens of poverty alleviation, or as a way to allow people to pursue fulfilling activities outside of work. Still others, like SpaceX and Tesla CEO Elon Musk, have called UBI an “inevitable” byproduct of an increasingly automated society.
“There is a pretty good chance we end up with a universal basic income, or something like that, due to automation,” Musk said previously in an interview with CNBC. [Read related article: AI Comes to Work: How Artificial Intelligence Will Transform Business]
However, not everyone agrees. Opponents of UBI have dismissed the proposals as unrealistic. It’s more prudent to stick with solutions that are more affordable or adaptable to the current social welfare environment, critics have argued.
For example, Max B. Sawicky, a former economist at the Economic Policy Institute, said at a 2013 forum on UBI proposals that “like good fiction, the way to read the UBI is not as a real proposal, but as a message about … our existing system. But the implicit critique of the existing system underlying the UBI is not well founded.”
Sawicky argued that proponents tend to exaggerate overhead costs of existing federal programs and that costs would be higher than suggested for implementing a basic income program.
However, James Wallace, a serial entrepreneur and founding member of Exponential University, said that a basic income is not only desirable but also “imminent and beyond probable.” Like Musk, he predicted that in about five to 10 years from now, nonhuman AI workers will have taken over many jobs and drastically altered the labor market.
He based his expectations on Moore’s Law, which describes the exponential growth of computer processing power and subsequent decreases in costs. That principle, Wallace said, will dramatically reduce demand in the labor market in a very short window of time.
“These experiments [into UBI are] … starting with people in need,” Wallace said. “Well, the number of people in need will grow as the number of jobs shrinks.”
“This is not about ‘funding lazy people.’ It’s earmarked for food, household items and so on,” he added.
What do researchers know about UBI?
Early experiments with UBI have proved incomplete or inconclusive, and so there is very little real-world data to use in making predictions.
Beginning in the late 1960s, the U.S. launched one of four “negative income tax” experiments, in which people earning below a certain income threshold received supplemental pay from the government rather than having to pay taxes.
These programs were somewhat similar to UBI, except they focused on low-income people instead of applying to every citizen. In 1974, Manitoba, Canada, launched its own experiment in negative income tax. However, neither country ever implemented the idea as a policy.
The concept of a true basic income, on the other hand, has gained some traction, with several experiments planned or underway throughout the world, despite objections. In 2008, an organization called Instituto ReCivitas launched a privately funded study of basic income in Quatinga Velho, a small rural community in Brazil. Under this experiment, each resident receives about $12 U.S. per month. Organizers of that study reported improvements in nutrition, clothing, living conditions, health and local construction.
Current and upcoming UBI experiments
It’s one thing to offer a guaranteed sum to residents of a single village, but what about the populations of cities or entire nations? Around the globe, there are small-scale studies cropping up left and right, with limited success.
The province of Ontario, Canada, ran a pilot program for one year that offered $13,000 per year to individuals and $19,000 to couples. Recipients paid a 50% tax on additional income beyond those amounts. However, Ontario canceled that pilot program two years ahead of schedule.
In Finland, an experiment into basic income that began in 2017 ended in January 2019. Under that program, 2,000 unemployed Finnish citizens received $685 per month from the government without any work-related or job-seeking requirements. Results from that pilot program suggested that recipients experienced reduced levels of stress and improved health, but there was little impact on unemployment rates.
In the United States, the Economic Security Project (ESP), a UBI research fund, is investing in a number of studies. One nonprofit called GiveDirectly, a recipient of an ESP grant, allows private individuals to create a basic income fund for one person, a family or an entire village living in extreme poverty in Kenya or Uganda.
The results of these projects will add a layer of evidence to the debate over UBI that the world has not yet seen. And if people like Musk and Wallace are right that automation will inevitably result in a net reduction of jobs, then these pilot programs come at a crucial moment.
UBI’s potential business impact
Hypothetically, what would UBI mean for business? Supporters have predicted elevated consumer spending, new business startups and increased investment in existing businesses. Chris Yoko, CEO of Yoko Co., has spent significant time studying UBI in trying to create a higher purpose for his company, he said. A basic income would democratize the small business landscape, Yoko said.
“I think you’d see a lot of companies focusing on what they can do that’s really innovative, and that can make a big impact,” Yoko told Business News Daily. “We’d probably see more startups and see a lot more people investing in companies.”
Ultimately, Yoko said, he’d expect UBI to generate more competition in the market by giving more people the means to pursue disruptive ideas. However, that might also be a death sentence for companies that fail to offer particularly innovative products or progressive ideas, he said.
Wallace concurred, harkening back to the days when most people worked for themselves as entrepreneurs of one kind or another, such as small farmers and urban merchants.
“The biggest thing we need to look at here is the idea that we are workers and [that] jobs are required,” Wallace said. “We need to really challenge this idea that we are born to this planet to work. At the turn of the 19th century, it was kind of work as needed, and it was normal for people to be entrepreneurs. It wasn’t normal to work for someone else, and we’re kind of getting back to that with the ‘gig economy.’”
On the other hand, Yoko said he is concerned that if consumer spending doesn’t increase right off the bat in these experiments, governments and pilot organizations might lose interest in the UBI too quickly. This could happen before accurate results are logged, he said.
“I hope [pilot organizations] consider economic realities surrounding these experiments,” he said. “If you’ve been down on your luck and now you get $1,000 a month, you’ll probably save it at first, because you’re used to that and you’re cautious. You don’t know how long this is going to last. That’s not the same as a true UBI, when you know that for the foreseeable future, the money is coming, so people become more comfortable spending.”
Speaking about the current tension felt by the average citizen on a fixed budget, Wallace offered an optimistic vision for the globalized, automated world.
“Today, we are paying the price so the future generation can be born into this world … and consider a life that doesn’t require 50 to 80 hours of work each week from age 20 to 70,” he said. “Instead, they can think, ‘How can I provide value to my planet in my niche with my skills and talents?’ Isn’t that a great thing?”