Universal basic dividend as a form of welfare

Universal basic dividend as a form of welfare
Universal basic dividend as a form of welfare

By Craig Berry

See original post here.

Universal basic dividend (UBD) is a mechanism by which each member of a given society receives a regular payment, with no or very limited conditionality, typically based on recognising the value of common resources, or of public investment in the capitalist economy. This post explores the potential benefits and limitations of this idea, summarising the policy brief recently published by the UCL Institute for Innovation and Public Purpose.

A brief history of welfare capitalism

The idea of UBD is usually attributed to English-born American revolutionary, Thomas Paine. But this over-simplifies Paine’s legacy, to some extent. In his pamphlet Agrarian Justice, Paine envisaged a system whereby landowners were taxed at a higher rate (mainly through tax on inherited land), to compensate those without land rights — on the basis that land was a shared resource that ultimately belonged to everyone.

This revenue would enable a dividend payment to all citizens. But it would also fund financial support for older people and disabled people who were unable to work.

Paine was of course writing in the late eighteenth century, before the establishment of welfare states. Not only did he envisage a UBD-style system as an integral component of welfare provision, he also saw taxes on unearned privileges and rent-seeking, rather than on income from work, as its main source of financing.

When welfare states began to emerge, however, after the industrial revolution, both of these possibilities had faded away. Instead, influenced by John Maynard Keynes’s views on the role of transfer payments in macroeconomic stability, capitalist economies chose to ask workers to fund their own welfare, reimagined as ‘social insurance’ (albeit with a greater or lesser degree of redistribution across different systems).

There were many gaps in provision, mainly affecting those not contributing directly to the labour market. These gaps have gradually been filled in, partly in recognition of the inequalities and injustices they helped to create, yet welfare states have become even less universal as a result, with spending increasingly focused on means-tested benefits to lift the poorest just above poverty thresholds.

UBD versus UBI

The notion of UBD, in theory, is based on the notion that certain resources cannot be legitimately owned by private individuals or enterprises. And so any financial benefit arising from them must be shared, reflecting that these resources are being used (or exploited) by private entities under license from humanity (or a given population) as a whole.

Renewed interest in UBD comes from two related but distinct sources. The first is the growing clamour for a Universal Basic Income (UBI), that is, a guaranteed and (ideally) unconditional transfer payment which would (in a fully-fledged version) allow individuals to meet their basic needs without being compelled to work.

Some of Keynes’ contemporaries in Britain — most notably, the economist Barbara Wootton — had wanted the post-war welfare settlement to develop further, advocating the introduction of a system we would now think of as UBI to mitigate capitalism’s endemically inegalitarian outcomes. Wootton lamented the vulnerability of the Keynesian paradigm to questions of affordability, since welfare is about ‘distributing what we have amongst ourselves in a particular way, not for subtracting from (or adding to) what there is to distribute’ (Wootton cited in an excellent paper on her scholarship and activism by Carolina Alves and Danielle Guizzo).

UBD is of course a form of UBI. The case for UBI generally rests upon the impact it would have: eliminating poverty, and more autonomy for individuals in the labour market. It would be funded, presumably, by general taxation (or, depending on where you stand on the debate around modern monetary theory, by money printing).

Some have argued UBI can help to bolster political support for the welfare state, insofar as all citizens would benefit, irrespective of their economic circumstances. On the other hand, it seems likely that any move towards UBI would be opposed by some voters, in fear that it would create a class of ‘undeserving’ poor (or not quite poor) by softening the compulsion to work.

By encompassing a link to specific funding sources (as discussed further below) it is possible that UBD would neutralise some of the political objections to UBI. And although UBI is intended to provide a no-strings-attached transfer, it is not difficult to imagine right-wing governments restricting eligibility for payments, or making them conditional upon certain behaviours. UBD would be less vulnerable to this, because receipt of the dividend would be grounded in the moral legitimacy of its funding source.

UBD’s strength in this regard is also, however, its weakness. With a more limited funding source, UBD payments are likely to be much lower than the level at which UBI payments are typically envisaged, undermining the impact that UBD might have on alleviating poverty.

It is essential that, if a UBD system is implemented, it is seen as a step towards a wider programme of poverty alleviation — whether or not this programme includes UBI — rather than itself a final destination.

UBD as a form of climate action

UBD has gained popularity recently through, secondly, its co-evolution with green or ecological thought. In contrast to the reasoning behind conventional UBI, the value of UBD arguably lies not simply in the impact that dividend payments may have, but also the sources of these payments.

Many advocates follow Paine in identifying income and wealth derived from land as the key source of UBD financing. Natural resources could however be conceived more broadly, meaning a UBD system would be based upon the exploitation by private firms of any natural resource for the purpose of capitalist accumulation.

The firms may be taxed at a higher rate, and/or be compelled to relinquish partial ownership of the enterprise to the public. The system would be justifiable on the basis that the resources in question are commonly owned by humanity (although some green thinkers would regard this as an anthropocentic perspective), but also, crucially, as a behavioural intervention designed to disincentivise resource exploitation which harms the natural environment.

There are, however, two main problems with the behavioural change approach. First, if exploitation of natural resources is successfully disincentivised, it may undermine the financial basis of UBD — with environmental objectives achieved at the expense of social objectives.

On the other hand, and secondly, even if addressing poverty or inequality is prioritised within UBD design, there is a danger that such efforts become reliant on harmful exploitation of nature — social objectives achieved at the expense of environmental objectives.

The most significant UBD currently in operation, in Alaska in the United States, is instructive in this regard. The Alaska Permanent Fund is capitalised by royalties paid by oil extracting companies to the state government. The fund (which is invested on citizens’ behalf) is used to provide an annual payment to citizens of around $1500–2000.

The system essentially co-opts Alaskan citizens into the perpetuation of environmentally destructive, extractivist practices — there is no evidence that it has disincentivised such practices to any extent. (Of course, the companies would be paying royalties irrespective of the dividend: the system merely determines what the state government does with royalty revenues.)

The social foundations of capital

There may be a wider economic logic behind UBD, beyond efforts to address climate change and resource depletion

If the mechanisms for financing UBD are focused on unearned profits or rent-seeking practices — which help to sustain inequality, and do not genuinely contribute to the economy’s productive capacity — or on enabling the public to take an ownership stake in leading firms, then a UBD system may challenge prevailing accumulation practices

There are two main ways in which to finance a UBD: taxation, and capital ownership. Taxation to finance a UBD could encompass a higher rate of tax on all or some large corporations, or new wealth or windfall taxes. It could be focused on land value, as Paine envisaged, or on access to natural resources such as oil and other minerals, as envisaged by green advocates of UBD.

The other main set of proposals for financing a UBD are more specifically linked to dividends, that is, returns on capital. As Yanis Varoufakis argues:

“A common myth, promoted by the rich, is that wealth is produced individually before it is collectivized by the state, through taxation. In fact, wealth was always produced collectively and privatized by those with the power to do it: the propertied class… There is thus a strong case that the commons have a right to a share of the capital stock, and associated dividends, reflecting society’s investment in corporations’ capital.”

Varoufakis’s argument is reminiscent of Mariana Mazzucato’s in The Entrepreneurial State. Whereas Mazzucato recommended a public stake in firms which benefited directly from public investment, Varoufakis advocates a system whereby a percentage of the shares (i.e. capital stock) from every public offering is channelled into a Commons Capital Directory. The dividends that arise from share ownership would be transferred to citizens equally as a UBD. One of the main rationales for this system, according to Varoufakis, is that it would allow ordinary citizens to benefit even as large firms increase their profitability through the automation of labour processes.

In my view, this is closer to Paine’s ideal than the purely environmental version of UBD. For Paine, land was the common resource that warranted recognition in the distribution of profits. For Varoufakis, two centuries on, the common resource is the public realm as a whole.

Regular payments enabled by a UBD system could help to alleviate poverty, and strengthen labour’s autonomy. However, UBD payments would generally be lower and less frequent than UBI payments (because they would not be funded by general taxation), it is possible that payments would be one-off rather than regular, when a certain life-stage is reached.

Interestingly, Paine’s system would not have provided for regular payments to most people, but rather seed capital for young adults. Nick O’Donovan and I explored this approach in our paper on ‘entrepreneurial egalitarianism’, as well as the possibility that capital would be available to all in certain circumstances — starting a business, taking on care responsibilities, etc. — but not necessarily distributed universally, at least until the system became more established. This could be managed via citizens’ wealth funds, so that all citizens have control over the revenues generated by a UBD system.

UBD promises to deliver on some of the moral and material objectives of welfare, while enabling innovation in economic governance. Perhaps this breadth of ambition means it will struggle to be truly transformative. But large-scale transformation in economic governance rarely happens in one heave: UBD could be an important step forward.

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