Welfare capitalism is capitalism that includes social welfare policies and/or the practice of businesses providing welfare services to their employees. Welfare capitalism in this second sense, or industrial paternalism, was centered on industries that employed skilled labor and peaked in the mid-20th century.
Today, welfare capitalism is most often associated with the
models of capitalism found in Central Mainland and Northern Europe, such
as the Nordic model and social market economy (also known as Rhine capitalism and social capitalism). In some cases welfare capitalism exists within a mixed economy, but welfare states can and do exist independently of policies common to mixed economies such as state interventionism and extensive regulation.
Language
"Welfare
capitalism" or "welfare corporatism" is somewhat neutral language for
what, in other contexts, might be framed as "industrial paternalism",
"industrial village", "company town", "representative plan", "industrial betterment", or "company union".
History
In
the 19th century, some companies—mostly manufacturers—began offering
new benefits for their employees. This began in Britain in the early
19th century and also occurred in other European countries, including
France and Germany. These companies sponsored sports teams, established social clubs,
and provided educational and cultural activities for workers. Some
offered housing as well. Welfare corporatism in the United States
developed during the intense Industrial Revolution development of 1880 to 1900 which was marked by labor disputes and strikes, many violent.
Cooperatives and model villages
Robert Owen
was a utopian socialist of the early 19th century, who introduced one
of the first private systems of philanthropic welfare for his workers at
the cotton mills of New Lanark. He embarked on a scheme in New Harmony, Indiana to create a model cooperative, called the New Moral World, (pictured). Owenites fired bricks to build it, but construction never took place.
One of the first attempts at offering philanthropic welfare to workers was made at the New Lanark mills in Scotland by the social reformerRobert Owen. He became manager and part owner of the mills in 1810, and encouraged by his success in the management of cotton mills in Manchester (see also Quarry Bank Mill),
he hoped to conduct New Lanark on higher principles and focus less on
commercial profit. The general condition of the people was very
unsatisfactory. Many of the workers were steeped in theft and
drunkenness, and other vices were common; education and sanitation were
neglected and most families lived in one room. The respectable country
people refused to submit to the long hours and demoralising drudgery of
the mills. Many employers also operated the truck system,
whereby payment to the workers was made in part or totally by tokens.
These tokens had no value outside the mill owner's "truck shop". The
owners were able to supply shoddy goods to the truck shop and charge top
prices. A series of "Truck Acts" (1831–1887) eventually stopped this abuse, by making it an offence not to pay employees in common currency.
Owen opened a store where the people could buy goods of sound
quality at little more than wholesale cost, and he placed the sale of
alcohol under strict supervision. He sold quality goods and passed on
the savings from the bulk purchase of goods to the workers. These
principles became the basis for the cooperative stores
in Britain that continue to operate today. Owen's schemes involved
considerable expense, which displeased his partners. Tired of the
restrictions on his actions, Owen bought them out in 1813. New Lanark
soon became celebrated throughout Europe, with many leading royals,
statesmen and reformers visiting the mills. They were astonished to find
a clean, healthy industrial environment with a content, vibrant
workforce and a prosperous, viable business venture all rolled into one.
Owen's philosophy was contrary to contemporary thinking, but he was
able to demonstrate that it was not necessary for an industrial
enterprise to treat its workers badly to be profitable. Owen was able to
show visitors the village's excellent housing and amenities, and the
accounts showing the profitability of the mills.
Owen and the French socialist Henri de Saint-Simon were the fathers of the utopian socialist
movement; they believed that the ills of industrial work relations
could be removed by the establishment of small cooperative communities.
Boarding houses were built near the factories for the workers'
accommodation. These so-called model villages
were envisioned as a self-contained community for the factory workers.
Although the villages were located close to industrial sites, they were
generally physically separated from them and generally consisted of
relatively high quality housing, with integrated community amenities and
attractive physical environments.
The first such villages were built in the late 18th century, and
they proliferated in England in the early 19th century with the
establishment of Trowse, Norfolk in 1805 and Blaise Hamlet, Bristol in 1811. In America, boarding houses were built for textile workers in Lowell, Massachusetts in the 1820s. The motive behind these offerings was paternalistic—owners were
providing for workers in ways they felt was good for them. These
programs did not address the problems of long work hours, unsafe
conditions, and employment insecurity that plagued industrial workers
during that period, however. Indeed, employers who provided housing in
company towns (communities established by employers where stores and
housing were run by companies) often faced resentment from workers who
chafed at the control owners had over their housing and commercial
opportunities. A noted example was Pullman, Illinois—a
site of a strike that destroyed the town in 1894. During these years,
disputes between employers and workers often turned violent and led to
government intervention.
Welfare as a business model
The Cadbury factory at Bournville, c. 1903, where workers worked in conditions that were very good for the time
In the early years of the 20th century, business leaders began embracing a different approach. The Cadbury family of philanthropists and business entrepreneurs set up the model village at Bournville,
England in 1879 for their chocolate making factory. Loyal and
hard-working workers were treated with great respect and relatively high
wages and good working conditions; Cadbury pioneered pension schemes, joint works committees and a full staff medical service. By 1900, the estate included 313 'Arts and Crafts' cottages and houses; traditional in design but with large gardens and modern interiors, they were designed by the resident architectWilliam Alexander Harvey.
The Cadburys were also concerned with the health and fitness of
their workforce, incorporating park and recreation areas into the
Bournville village plans and encouraging swimming, walking and indeed all forms of outdoor sports. In the early 1920s, extensive football and hockey
pitches were opened together with a grassed running track. Rowheath
Pavilion served as the clubhouse and changing rooms for the acres of
sports playing fields, several bowling greens, a fishing lake and an
outdoor swimming lido, a natural mineral spring forming the source for
the lido's
healthy waters. The whole area was specifically for the benefit of the
Cadbury workers and their families with no charges for the use of any of
the sporting facilities by Cadbury employees or their families.
Port Sunlight in Wirral, England was built by the Lever Brothers
to accommodate workers in its soap factory in 1888. By 1914, the model
village could house a population of 3,500. The garden village had
allotments and public buildings including the Lady Lever Art Gallery, a cottage hospital, schools, a concert hall, open air swimming pool, church, and a temperance
hotel. Lever introduced welfare schemes, and provided for the education
and entertainment of his workforce, encouraging recreation and
organisations which promoted art, literature, science or music.
Lever's aims were "to socialise and Christianise business
relations and get back to that close family brotherhood that existed in
the good old days of hand labour." He claimed that Port Sunlight was an
exercise in profit sharing,
but rather than share profits directly, he invested them in the
village. He said, "It would not do you much good if you send it down
your throats in the form of bottles of whisky, bags of sweets, or fat
geese at Christmas. On the other hand, if you leave the money with me, I
shall use it to provide for you everything that makes life
pleasant—nice houses, comfortable homes, and healthy recreation."
In America in the early 20th century, businessmen like George F. Johnson and Henry B. Endicott
began to seek new relations with their labor by offering the workers
wage incentives and other benefits. The point was to increase
productivity by creating good will with employees. When Henry Ford
introduced his $5-a-day pay rate in 1914 (when most workers made $11 a
week), his goal was to reduce turnover and build a long-term loyal labor
force that would have higher productivity. Turnover in manufacturing plants in the U.S. from 1910 to 1919 averaged
100%. Wage incentives and internal promotion opportunities were
intended to encourage good attendance and loyalty. This would reduce turnover and improve productivity. The combination of
high pay, high efficiency and cheap consumer goods was known as Fordism, and was widely discussed throughout the world.
Led by the railroads and the largest industrial corporations such as the Pullman Car Company, Standard Oil, International Harvester, Ford Motor Company and United States Steel,
businesses provided numerous services to its employees, including paid
vacations, medical benefits, pensions, recreational facilities, sex
education and the like. The railroads, in order to provide places for
itinerant trainmen to rest, strongly supported YMCA hotels, and built railroad YMCAs. The Pullman Car Company built an entire model town, Pullman, Illinois. The Seaside Institute is an example of a social club built for the particular benefit of women workers. Most of these programs proliferated after World War I—in the 1920s.
The economic upheaval of the Great Depression in the 1930s
brought many of these programs to a halt. Employers cut cultural
activities and stopped building recreational facilities as they
struggled to stay solvent. It wasn't until after World War II that many
of these programs reappeared—and expanded to include more blue-collar
workers. Since this time, programs like on-site child care and
substance abuse treatment have waxed and waned in use/popularity, but
other welfare capitalism components remain. Indeed, in the U.S., the
health care system is largely built around employer-sponsored plans.
In the late 19th and early 20th centuries, Germany and Britain created "safety nets" for their citizens, including public welfare and unemployment insurance. These government-operated welfare systems is the sense in which the term 'welfare capitalism' is generally understood today.
Modern welfare capitalism
The 19th century German economist, Gustav von Schmoller, defined welfare capitalism as government provision for the welfare of workers and the public via social legislation. Western Europe, Australia, and New Zealand are regions noted for their welfare state provisions, though other countries have publicly financed universal healthcare and other elements of the welfare state as well.
Esping-Andersen categorised three different traditions of welfare provision in his 1990 book The Three Worlds of Welfare Capitalism; social democracy, Christian democracy (conservatism) and liberalism.
Though increasingly criticised, these classifications remain the most
commonly used in distinguishing types of modern welfare states, and
offer a solid starting point in such analysis.
European welfare capitalism is typically endorsed by Christian democrats and social democrats. In contrast to social welfare provisions found in other industrialized countries (especially countries with the Anglo-Saxon model
of capitalism), European welfare states provide universal services that
benefit all citizens (social democratic welfare state) as opposed to a
minimalist model that only caters to the needs of the poor.
In Northern European countries, welfare capitalism is often combined with social corporatism and national-level collective bargaining arrangements aimed at balancing the power between labor and business. The most prominent example of this system is the Nordic model,
which features free and open markets with limited regulation, high
concentrations of private ownership in industry, and tax-funded
universal welfare benefits for all citizens.
An alternative model of welfare exists in Continental European countries, known as the social market economy or German model,
which includes a greater role for government interventionism into the
macro-economy but features a less generous welfare state than is found
in the Nordic countries.
In France, the welfare state exists alongside a dirigiste mixed economy.
In the United States
Welfare capitalism in the United States refers to industrial relations policies of large, usually non-unionised, companies that have developed internal welfare systems for their employees. Welfare capitalism first developed in the United States in the 1880s and gained prominence in the 1920s.
Promoted by business leaders during a period marked by widespread
economic insecurity, social reform activism, and labor unrest, it was
based on the idea that Americans should look not to the government or to
labor unions but to the workplace benefits provided by private-sector
employers for protection against the fluctuations of the market economy. Companies employed these types of welfare policies to encourage worker
loyalty, productivity and dedication. Owners feared government
intrusion in the Progressive Era,
and labor uprisings from 1917 to 1919—including strikes against
"benevolent" employers—showed the limits of paternalistic efforts. For owners, the corporation was the most responsible social
institution and it was better suited, in their minds, to promoting the
welfare of employees than government. Welfare capitalism was their way of heading off unions, communism, and government regulation.
The benefits offered by welfare capitalist employers were often
inconsistent and varied widely from firm to firm. They included minimal
benefits such as cafeteria plans,
company-sponsored sports teams, lunchrooms and water fountains in
plants, and company newsletters/magazines—as well as more extensive
plans providing retirement benefits, health care, and employee
profit-sharing. Examples of companies that have practiced welfare capitalism include Kodak, Sears, IBM and Facebook
with the main elements of the employment system in these companies
including permanent employment, internal labor markets, extensive
security and fringe benefits, and sophisticated communications and
employee involvement.
In the 1980s, the philosophy of maximizing shareholder value became dominant, and defined contribution plans such as 401(k)s, replaced guaranteed pensions. The average duration of employment at the same firm also decreased significantly.
Anti-unionism
Welfare
capitalism was also used as a way to resist government regulation of
markets, independent labor union organizing, and the emergence of a
welfare state. Welfare capitalists went to great lengths to quash
independent trade union organizing, strikes,
and other expressions of labor collectivism—through a combination of
violent suppression, worker sanctions, and benefits in exchange for
loyalty. Also, employee stock-ownership programs meant to tie workers to the
success of companies (and accordingly to management). Workers would
then be actual partners with owners—and capitalists themselves. Owners
intended these programs to ward off the threat of "Bolshevism" and
undermine the appeal of unions.
The least popular of the welfare capitalism programs were the
company unions created to stave off labor activism. By offering
employees a say in company policies and practices and a means for
appealing disputes internally, employers hoped to reduce the lure of
unions. They called these employee representation plans "industrial democracy."
Efficacy
In the end, welfare capitalism programs benefited white-collar workers far more than those on the factory floor in the early 20th century. The average annual bonus payouts at U.S. Steel Corporation from 1929 to 1931 were approximately $2,500,000; however, in 1929, $1,623,753 of that went to the president of the company. Real wages for unskilled and low-skilled workers grew little in the
1920s, while long hours in unsafe conditions continued to be the norm.
Further, employment instability due to layoffs
remained a reality of work life. Welfare capitalism programs rarely
worked as intended, company unions only reinforced that authority of
management over the terms of employment.
Wage incentives (merit raises and bonuses) often led to a speed-up in production for factory lines. As much as these programs meant to encourage loyalty to the company,
this effort was often undermined by continued layoffs and frustrations
with working conditions. Employees
soured on employee representation plans and cultural activities, but
they were eager for opportunities to improve their pay with good work
and attendance and to gain benefits like medical care. These programs
gave workers new expectations for their employers. They were often
disappointed in the execution of them but supported their aims. The post-World War II
era saw an expansion of these programs for all workers, and today,
these benefits remain part of employment relations in many countries.
Recently, however, there has been a trend away from this form of welfare
capitalism, as corporations have reduced the portion of compensation
paid with health care, and shifted from defined benefit pensions to
employee-funded defined contribution plans.
Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive a minimum income in the form of an unconditional transfer payment, i.e., without a means test or need to perform work. In contrast, a guaranteed minimum income (GMI)
is paid only to those who do not already receive an income that is
enough to live on. A UBI would be received independently of any other
income. If the level is sufficient to meet a person's basic needs (i.e.,
at or above the poverty line), it is considered a full basic income; if it is less than that amount, it is called a partial basic income. As of 2025, no country has implemented a full UBI system, but two countries—Mongolia and Iran—have had a partial UBI in the past. There have been numerous pilot projects, and the idea is discussed in many countries. Some have labelled UBI as utopian due to its historical origin.
There are several welfare arrangements that can be considered
similar to basic income, although they are not unconditional. Many
countries have a system of child benefit, which is essentially a basic income for guardians of children. A pension
may be a basic income for retired persons. There are also quasi-basic
income programs that are limited to certain population groups or time
periods, like Bolsa Familia in Brazil, which is concentrated on the poor, or the Thamarat Program in Sudan, which was introduced by the transitional government to ease the effects of the economic crisis inherited from the Bashir regime. Likewise, the economic impact of the COVID-19 pandemic prompted some countries to send direct payments to its citizens. The Alaska Permanent Fund is a fund for all residents of the U.S. state of Alaska
which averages $1,600 annually (in 2019 currency), and is sometimes
described as the only example of a real basic income in practice. A negative income tax
(NIT) can be viewed as a basic income for certain income groups in
which citizens receive less and less money until this effect is reversed
the more a person earns.
Critics claim that a basic income at an appropriate level for all
citizens is not financially feasible, fear that the introduction of a
basic income would lead to fewer people working, and consider it
socially unjust that everyone should receive the same amount of money
regardless of their individual needs. Proponents say it is indeed
financeable, arguing that such a system, instead of many individual
means-tested social benefits, would eliminate more expensive social
administration and bureaucratic efforts, and expect that unattractive
jobs would have to be better paid and their working conditions improved
because there would have to be an incentive to do them when already
receiving an income, which would increase the willingness to work.
Advocates also argue that a basic income is fair because it ensures that
everyone has a sufficient financial basis to build on and less
financial pressure, thus allowing people to find work that suits their
interests and strengths.
Early examples of unconditional payments to citizens date back to
antiquity, and the first proposals to introduce a regular
unconditionally paid income for all citizens were developed and
disseminated between the 16th and 18th centuries. After the Industrial Revolution,
public awareness and support for the concept increased. At least since
the mid-20th century, basic income has repeatedly been the subject of
political debates. In the 21st century, several discussions are related
to the debate about basic income, including those concerning the automation of large parts of the human workforce through artificial intelligence (AI), and associated questions regarding the future of the necessity of work. A key issue in these debates is whether automation and AI will significantly reduce the number of available jobs
and whether a basic income could help prevent or alleviate such
problems by allowing everyone to benefit from a society's wealth, as
well as whether a UBI could be a stepping stone to a resource-based or post-scarcity economy.
Ancient Egypt had a strong, unified theocratic state that owned key parts of the Egyptian economy, including granaries that dispensed grain to the public during hard times.
In a 46 BC triumph, Roman general and dictator Julius Caesar gave each common Roman citizen 100 denarii. Following his assassination in 44 BC, Caesar's will left 300 sestertii (or 75 denarii) to each citizen. Trajan, emperor of Rome from 98 to 117 AD, personally gave 650 denarii (equivalent to perhaps US$430 in 2023) to all common Roman citizens who applied.
16th century
In his Utopia (1516), English statesman and philosopher Thomas More depicts a society in which every person receives a guaranteed income. In this book, basic income is proposed as an answer to the statement
"No penalty on earth will stop people from stealing, if it's their only
way of getting food", stating:
instead of inflicting these horrible punishments, it
would be far more to the point to provide everyone with some means of
livelihood, so that nobody's under the frightful necessity of becoming
first a thief, and then a corpse.
Spanish scholar Johannes Ludovicus Vives
(1492–1540) proposed that the municipal government should be
responsible for securing a subsistence minimum to all its residents "not
on the grounds of justice but for the sake of a more effective exercise
of morally required charity." Vives also argued that to qualify for
poor relief, the recipient must "deserve the help he or she gets by
proving his or her willingness to work."
18th century
English-born American philosopher Thomas Paine authored Common Sense (1776) and The American Crisis (1776–1783), the two most influential pamphlets at the start of the American Revolution. His essay, Agrarian Justice, was published in 1797. In it, he proposed concrete reforms to abolish
poverty. In particular, he proposed a universal social insurance system
comprising old-age pensions and disability support, and universal
stakeholder grants for young adults, funded by a 10% inheritance tax
focused on land, it is also considered one of the earliest proposals for
a social security
system. Thomas Paine summarized his view by stating that "Men did not
make the earth. It is the value of the improvements only, and not the
earth itself, that is individual property. Every proprietor owes to the
community a ground rent for the land which he holds." Paine saw
inheritance as being partly a common fund and wanted to supplement the
citizen's dividend in a tax on inheritance transfers.
In 1797, English RadicalThomas Spence published The Rights of Infants as a response to Thomas Paine's Agrarian Justice.
In this essay Spence proposes the introduction of an unconditional
basic income to all members of the community. Such allowance would be
financed through the socialization
of land and the benefits of the rents received by each municipality. A
part of everyone's earnings would be seized by the State, and given to
others.
19th century
Henry George
proposed to create a pension and disability system, and a broad social
support system from a single tax on land and natural resource value.
Social support would be distributed to residents "as a right" instead of
as charity. George mentioned, but did not stress, the possibility of
direct cash distribution of land rent. His ideas gave rise to the
economic philosophy now known as Georgism or the "single tax movement", which is an economic ideology holding that, although people should own the value they produce themselves, the economic rent derived from land—including from all natural resources, the commons, and urban locations—should belong equally to all members of society. Some Georgists refer to unconditional basic income funded by the single tax as a citizen's dividend in reference to Thomas Paine's proposal from the 19th century.
Early 20th century
Around 1920, support for basic income started growing, primarily in England.
Bertrand Russell
(1872–1970) argued for a new social model that combined the advantages
of socialism and anarchism, and that basic income should be a vital
component in that new society. In his 1918 book Roads to Freedom,
Russell wrote "... the plan we are advocating amounts essentially to
this: that a certain small income, sufficient for necessaries, should be
secured to all, whether they work or not, and that a larger income – as
much larger as might be warranted by the total amount of commodities
produced – should be given to those who are willing to engage in some
work which the community recognizes as useful..."
In the United Kingdom at the end of World War I, Dennis and Mabel
Milner, a Quaker married couple of the Labour Party, published a short
pamphlet entitled "Scheme for a State Bonus" (1918) that argued for the
"introduction of an income paid unconditionally on a weekly basis to all
citizens of the United Kingdom." They considered it a moral right for
everyone to have the means to subsistence, and thus it should not be
conditional on work or willingness to work.
C. H. Douglas
was an engineer who became concerned that most British citizens could
not afford to buy the goods that were produced, despite the rising
productivity in British industry. His solution to this paradox was a new
social system he called social credit, a combination of monetary reform and basic income.
In 1944 and 1945, the Beveridge Committee, led by the British economist William Beveridge,
developed a proposal for a comprehensive new welfare system of social
insurance, means-tested benefits, and unconditional allowances for
children. Committee member Lady Rhys-Williams
argued that the incomes for adults should be more like a basic income.
She was also the first to develop the negative income tax model. Her son Sir Brandon Rhys-Williams
proposed a basic income to a parliamentary committee in 1982, and soon
after that in 1984, the Basic Income Research Group, now the Citizen's
Basic Income Trust, began to conduct and disseminate research on basic
income.
Late 20th century
Milton Friedman proposed a negative income tax (NIT), which effectively sanctioned a basic income for all, in his 1962 book Capitalism and Freedom. In his 1964 State of the Union address, U.S. President Lyndon B. Johnson declared an "unconditional war on poverty," implemented in coming years with sweeping legislation. Johnson broadened the agenda to the Great Society, including education, civil rights, health care, and support for the arts. In this political climate, the idea of a guaranteed income for every American also took root. Notably, a 1968 document, signed by 1200 economists, called for a guaranteed income for every American. Four ambitious basic income experiments started on the related concept of negative income tax. President Richard Nixon explained the Family Assistance Plan's purpose as to provide both a safety net for the poor and a financial incentive for welfare recipients to work. Congress eventually approved a guaranteed minimum income for the elderly and the disabled.
In the mid-1970s, the main competitor to basic income and negative income tax, the Earned income tax credit (EITC) and its advocates won over enough legislators for the US Congress to pass laws on that policy. In 1986, the Basic Income European Network (later renamed the Basic Income Earth Network (BIEN)) was founded, with academic conferences every second year. Other advocates included the green political movement, other activists, and some groups of unemployed people.
In the late 20th century, discussions were held around automatization and jobless growth, the possibility of combining economic growth with ecologically
sustainable development, and how to reform the welfare state
bureaucracy. Basic income was interwoven in these and many other debates. During the BIEN academic conferences, scholars published papers about basic income from a wide variety of perspectives.
In recent years, the idea has come to the forefront more than before. The Swiss referendum about basic income in 2016 was covered in media worldwide, despite its rejection. Famous business people like Elon Musk, Pierre Omidyar, and Andrew Yang have lent their support, as have high-profile politicians like Jeremy Corbyn and Tulsi Gabbard. The Institute for Public Policy Research predicted that 59% of tasks
currently done by humans could be affected by AI in the next three to
five years. Universal basic Income could help fill the gap left by this
"jobs apocalypse."
In 2019-2021, in Stockton, California, then-Mayor Michael Tubbs
initiated a 24-month pilot program of guaranteed income for 125
residents as part of the privately funded S.E.E.D. project there.
In the 2020 Democratic Party primaries, political newcomer Andrew
Yang touted basic income as his core policy. His policy, referred to as
a "Freedom Dividend", would have provided adult American citizens US$1,000 a month independent of employment status.
On 21 January 2021, in California, the two-year donor-funded Compton Pledge began distributing monthly guaranteed income payments to a "pre-verified" pool of low-income residents, in a program gauged for a maximum of 800 recipients, at which point it
would be one of the larger among 25 U.S. cities exploring this approach
to community economics.
Beginning in December 2021, Tacoma, Washington,
piloted "Growing Resilience in Tacoma" (GRIT), a guaranteed income
initiative that provided $500 a month to 110 families. GRIT is part of
the University of Pennsylvania's Center for Guaranteed Income Research larger study. A report on the results of the GRIT experiment was published in 2024.
Response to COVID-19
As a response to the COVID-19 pandemic and its economic impact, universal basic income and similar proposals such as helicopter money and cash transfers were increasingly discussed across the world. Most countries implemented forms of partial unemployment schemes, which
effectively subsidized workers' incomes without a work requirement.
Around ninety countries and regions including the United States, Spain,
Hong Kong, and Japan introduced temporary direct cash transfer programs
to their citizens.
In Europe, a petition calling for an "emergency basic income" gathered more than 200,000 signatures, and polls suggested widespread support in public opinion for it. Unlike the various stimulus packages of the US administration, the EU's
stimulus plans did not include any form of income-support policies.
Two
ways of looking at basic income when combined with a flat income tax,
both of which result in the same net income (orange line): 1. (red)
stipend with conventional tax for income above the stipend. 2. (blue)
negative tax for low-income people and conventional tax for high-income
people.
The associated diagram shows a basic income/negative tax system combined with flat income tax (the same percentage in tax for every income level). Axis y is here the pre-tax salary given by the employer and y' is the net income.
Negative income tax
For low earnings, there is no income tax in the negative income
tax system. They receive money, in the form of a negative income tax,
but they do not pay any tax. Then, as their labour income increases,
this benefit, this money from the state, gradually decreases. That
decrease is to be seen as a mechanism for the poor, instead of the poor
paying tax.
Basic income
That is, however, not the case in the corresponding basic income
system in the diagram at right. There, everyone typically pays income
taxes. But on the other hand, everyone also gets the same amount of
basic income.
But the net income is the same
But, as the orange line in the diagram shows, the net income is
anyway the same. No matter how much or how little one earns, the amount
of money received is the same, regardless of which of these two systems
are used.
Basic income and negative income tax are generally seen to be similar in economic net effects, but there are some differences:
Psychological. Philip Harvey accepts that "both systems
would have the same redistributive effect and tax earned income at the
same marginal rate" but does not agree that "the two systems would be
perceived by taxpayers as costing the same".
Tax profile. Tony Atkinson made a distinction based on whether the tax profile was flat (for basic income) or variable (for NIT).
Timing. Philippe Van Parijs
states that "the economic equivalence between the two programs should
not hide the fact that they have different effects on recipients because
of the different timing of payments: ex-ante in Basic Income, ex-post in Negative Income Tax".
Perspectives and arguments
Automation
There is a prevailing opinion that we are in an era of technological
unemployment – that technology is increasingly making skilled workers
obsolete.
Prof. Mark MacCarthy (2014)
One central rationale for basic income is the belief that automation and robotisation could result in technological unemployment, leading to a world with fewer paid jobs.
A key question in this context is whether a basic income could help
prevent or alleviate such problems by allowing everyone to benefit from a
society's wealth, as well as whether a UBI could be a stepping stone to
a resource-based or post-scarcity economy.
U.S. presidential candidate and nonprofit founder Andrew Yang has stated that automation caused the loss of 4 million manufacturing jobs and advocated for a UBI (which he calls a Freedom Dividend) of $1,000/month rather than worker retraining programs. Yang has stated that he is influenced by Martin Ford.
Ford believes that the emerging technologies will fail to deliver much
employment; on the contrary, because the new industries will "rarely, if
ever, be highly labor-intensive". Similar ideas have been debated before in history—that "the machines
will take the jobs". What is new is the existence of several academic
studies that forecast a future with substantially less employment, in
the decades to come. Additionally, US President Barack Obama
stated that he believes that the growth of artificial intelligence will
lead to an increased discussion around the idea of "unconditional free
money for everyone".
Some proponents of UBI have argued that basic income could increase
economic growth because it would sustain people while they invest in
education to get higher-skilled and well-paid jobs. However, there is also a discussion of basic income within the degrowth movement, which argues against economic growth.
Advocates contend that the guaranteed financial security of a UBI will increase the population's willingness to take risks, which would create a culture of inventiveness and strengthen entrepreneurial spirit.
The cost of a basic income is one of the biggest questions in the
public debate as well as in the research and depends on many things. It
first and foremost depends on the level of the basic income as such,
and it also depends on many technical points regarding exactly how it is
constructed.
While opponents claim that a basic income at an adequate level
for all citizens cannot be financed, their supporters propose that it
could indeed be financed, with some advocating a strong redistribution and restructuring of bureaucracy and administration for this purpose.
According to statements of American Enterprise Institute-affiliated Libertarian/conservative scholar Charles Murray, recalled and sanctioned in 2016 by the George Gibbs Chair in Political Economy and Senior Research Fellow at the Mercatus Center at George Mason University and nationally syndicated columnist Veronique de Rugy, as of 2014, the annual cost of a UBI in the US would
have been about $200 billion less expensive than the US social
safety-net system put in place at that date. By 2020, it would have been nearly a trillion dollars less expensive.
American economist Karl Widerquist
argues that simply multiplying the amount of the grant by the
population would be a naive calculation, as this is the gross costs of
UBI and does not take into account that UBI is a system where people pay
taxes on a regular basis and receive the grant at the same time.
According to Swiss economist Thomas Straubhaar,
the concept of UBI is basically financeable without any problems. He
describes it as "at its core, nothing more than a fundamental tax
reform" that "bundles all social policy measures into a single
instrument, the basic income paid out unconditionally." He also considers a universal basic income to be socially just, arguing
that although all citizens would receive the same amount in the form of
the basic income at the beginning of the month, the rich would have
lost significantly more money through taxes at the end of the month than
they would have received through the basic income, while the opposite
is the case for poorer people, similar to the concept of a negative
income tax.
Recent theoretical work has introduced alternative mathematical
approaches to the allocation of basic income. One such example is the Boltzmann fair division model, which applies the Boltzmann distribution from statistical mechanics to resource or income allocation. In this framework, each individual's share is assigned
probabilistically according to an exponential function of a specified
attribute (such as need or contribution), providing a flexible mechanism
to balance fairness and efficiency in basic income distribution.
Inflation of labor and rental costs
One
of the most common arguments against UBI stems from the upward pressure
on prices, in particular for labor and housing rents, which would
likely cause inflation. Public policy choices such as rent controls or land value taxation
would likely affect the inflationary potential of universal basic
income.
Work
Many
critics of basic income argue that people, in general, will work less,
which in turn means less tax revenue and less money for the state and
local governments. Studies include:
In negative income tax experiments in the United States in 1970,
there was a five percent decline in the hours worked. The work
reduction was largest for second earners in two-earner households and
weakest for primary earners. The reduction in hours was higher when the
benefit was higher.
In the Mincome
experiment in rural Dauphin, Manitoba, also in the 1970s, there were
slight reductions in hours worked during the experiment. However, the
only two groups who worked significantly less were new mothers, and
teenagers working to support their families. New mothers spent this time
with their infant children, and working teenagers put significant
additional time into their schooling.
A 2024 study investigated the impact of $1,000/month UBI over a
period of 3 years for 1,000 randomized low-income participants in two
U.S. states, which represented an around 40% increase in household
income. The study found an income effect
with a decrease of non-UBI income by $1,500/year, a decrease in non-UBI
household income by 21% of the UBI transfer, a 2% decrease in labor
market participation, no significant change in time spent on childcare,
no self-reported decrease in barriers to employment, a null result
for changes in job quality, an increase in entrepreneurial orientation
but no significant change in entrepreneurial activity, while enrollment
in tertiary education showed a slight increase for participants below 30 years of age.
Although it is difficult to know for sure what will happen if a whole
country introduces basic income, there are nevertheless some studies
that have attempted to look at this question:
A study from 2017 showed no evidence that people worked less because of the Iranian subsidy reform (a basic income reform).
Regarding the question of basic income vs jobs, there is also the aspect of so-called welfare traps.
Proponents of basic income often argue that with a basic income,
unattractive jobs would necessarily have to be better paid and their
working conditions improved, so that people still do them without need,
reducing these traps.
By definition, universal basic income does not make a distinction
between "deserving" and "undeserving" individuals when making payments.
Opponents argue that this lack of discrimination is unfair: "Those who
genuinely choose idleness or unproductive activities cannot expect those
who have committed to doing productive work to subsidize their
livelihood. Responsibility is central to fairness."
Proponents usually view UBI as a fundamental human right that enables an adequate standard of living which every citizen should have access to in modern society. It would be a kind of foundation guaranteed for everyone, on which one could build and never fall below that subsistence level.
It is also argued that this lack of discrimination between those
who supposedly deserve it and those who do not is a way to reduce social stigma.
In addition, proponents of UBI may argue that the "deserving" and
"undeserving" categories are a superficial classification, as people
who are not in regular gainful employment also contribute to society,
e.g. by raising children, caring for people, or doing other
value-creating activities which are not institutionalized. UBI would
provide a balance here and thus overcomes a concept of work that is
reduced to pure gainful employment and disregards sideline activities
too much.
The
first comprehensive systematic review of the health impact of basic
income (or rather unconditional cash transfers in general) in low- and
middle-income countries, a study that included 21 studies of which 16
were randomized controlled trials, found a clinically meaningful
reduction in the likelihood of being sick by an estimated 27%.
Unconditional cash transfers, according to the study, may also improve
food security and dietary diversity. Children in recipient families are
also more likely to attend school and the cash transfers may increase
money spent on health care. A 2022 update of this review confirmed these findings based on a body of evidence (35 studies, the majority being large randomized controlled trials) and additionally found that unconditional cash transfers also reduce the likelihood of living in extreme poverty.
The Canadian Medical Association passed a motion in 2015 in support of basic income and for basic income trials in Canada.
Omitara, one of the two poor villages in Namibia where a local basic income was tested in 2008–2009
Since the 1960s, but in particular since the late 2000s, several
pilot programs and experiments on basic income have been conducted
around the world. Some examples include:
1960s−1970s
Experiments with negative income tax in the United States and Canada in the 1960s and 1970s.
The province of Manitoba, Canada experimented with Mincome, a basic guaranteed income, in the 1970s. In the town of Dauphin,
Manitoba, labor decreased by 13%, less than expected. This program was
ended after issues with the cost becoming unsustainable started to
arise.
2000−2009
The basic income grant in Namibia launched in 2008 and ended in 2009.
An independent pilot implemented in São Paulo, Brazil launched in 2009.
2010−2019
Basic income trials ran in 2011–2012 in several villages in India, whose government has proposed a guaranteed basic income for all citizens. It was found that basic income in the region raised the education rate of young people by 25%.
Iran became the first country to introduce a system of UBI in December 2010. It was paid to all citizens and replaced the gasoline subsidies, electricity, and some food, that the country applied for years to reduce inequalities and poverty.
The sum corresponded in 2012 to approximately US$40 per person per
month, US$480 per year for a single person, and US$2,300 for a family of
five people.
In Spain, the ingreso mínimo vital, the income guarantee system, is an economic benefit guaranteed by the social security in Spain, but in 2016 was considered in need of reform.
In South Korea the Youth Allowance Program was started in 2016 in the City of Seongnam, which would give every 24-year-old citizen 250,000 won
(~US$215) every quarter in the form of a "local currency" that could
only be used in local businesses. This program was later expanded to the
entire province of Gyeonggi in 2018.
The GiveDirectly experiment in a disadvantaged village of Nairobi, Kenya,
benefitting over 20,000 people living in rural Kenya, was the
longest-running basic income pilot as of November 2017, which is set to
run for 12 years.
A project called Eight in a village in Fort Portal, Uganda, was launched by a nonprofit organization in January 2017, providing income for 56 adults and 88 children through mobile money.
A two-year pilot the Finnish government began in January 2017 involved 2,000 subjects. In April 2018, the Finnish government rejected a request for funds to extend and expand the program from Kela (Finland's social security agency).
An experiment in the city of Utrecht, Netherlands launched in early 2017, that is testing different rates of aid.
A three-year basic income pilot that the Ontario provincial government, Canada, launched in the cities of Hamilton, Thunder Bay and Lindsay in July 2017. Although called basic income, it was only made available to those with a
low income and funding would be removed if they obtained employment, making it more related to the current welfare system than true basic
income. The pilot project was canceled on 31 July 2018 by the newly
elected Progressive Conservative government under Ontario PremierDoug Ford.
In Israel, in 2018 a non-profit initiative GoodDollar started with
an objective to build a global economic framework for providing
universal, sustainable, and scalable basic income through the new
digital asset technology of blockchain.
The non-profit aims to launch a peer-to-peer money transfer network in
which money can be distributed to those most in need, regardless of
their location, based on the principles of UBI. The project raised
US$1 million from a financial company.
The Rythu Bandhu scheme is a welfare scheme started in the state of Telangana, India, in May 2018, aimed at helping farmers. Each farm owner receives 4,000 INR per acre twice a year for rabi and kharif
harvests. To finance the program a budget allocation of 120 billion INR
(US$1.55 Billion as of May 2022) was made in the 2018–2019 state
budget.
2020−present
Swiss non-profit Social Income started paying out basic incomes in the form of mobile money in 2020 to people in need in Sierra Leone. Contributions finance the international initiative from people worldwide, who donate 1% of their monthly paychecks.
In May 2020, Spain introduced a minimum basic income, reaching about
2% of the population, in response to COVID-19 in order to "fight a
spike in poverty due to the coronavirus pandemic". It was expected to
cost state coffers three billion euros ($3.5 billion) a year."
In August 2020, a project in Germany started that gives a €1,200 monthly basic income in a lottery system to citizens who applied online. The crowdsourced project lasted three years and be compared against 1,380 people who do not receive basic income. When the project was finished in August 2023, Mein Grundeinkommen
calculated that a tax-financed universal basic income of €1,200 per
month could be financed for every adult in Germany that would make 80%
of adults better off.
In October 2020, HudsonUP was launched in Hudson, New York, by The Spark of Hudson and Humanity Forward Foundation to give $500 monthly basic income to 25 residents. It will last five
years and be compared against 50 people who are not receiving basic
income.
In May 2021, the government of Wales,
which has devolved powers in matters of Social Welfare within the UK,
announced the trialling of a universal basic income scheme to "see
whether the promises that basic income holds out are genuinely
delivered". From July 2022 over 500 people leaving care in Wales were offered £1600
per month in a 3-year £20 million pilot scheme, to evaluate the effect
on the lives of those involved in the hope of providing independence and
security to people.
In July 2022, Chicago
began a year-long guaranteed income program by sending $500 a month to
5,000 households for one year in a lottery system to citizens who
applied online. A similar program was launched in late 2022 by Cook County, Illinois
(which encompasses the entirety of Chicago as well as several suburbs)
which sent monthly $500 payments to 3,250 residents with a household
income at or below 250% of the federal poverty level for two years.
In June 2023, The Guardian reported that a universal basic income of £1,600 a month is to be trialled in two places in England – Jarrow and East Finchley.
In February 2025, South Korea announced a "farmers' opportunity
income" plan to be integrated into their basic income for farmers, and
deployed in 24 cities and counties of the Gyeonggi Province. An estimated 210,000 selected farmers and fishermen will receive either 1.8 million won annually or 50,000 won monthly.
In March 2025, the Government of Delhi in India approved the "Mahila Samridhi Yojana" plan, under which eligible women would receive a monthly allowance of ₹2,500, based on financial status for women below the poverty line.
The Permanent Fund of Alaska in the United States provides a kind of
yearly basic income based on the oil and gas revenues of the state to
nearly all state residents. More precisely the fund resembles a sovereign wealth fund, investing resource revenues into bonds, stocks,
and other conservative investment options with the intent to generate
renewable revenue for future generations. The fund has had a noticeable
yet diminishing effect on reducing poverty among rural Alaska Indigenous
people, notably in the elderly population. However, the payment is not high enough to cover basic expenses, averaging $1,600 annually per resident in 2019 currency (As of 2019
it has never exceeded $2,100), and is not a fixed, guaranteed amount.
For these reasons, it is not always considered a basic income. However,
some consider it to be the only example of a real basic income.
Macau's
Wealth Partaking Scheme provides some annual basic income to permanent
residents, funded by revenues from the city's casinos. However, the
amount disbursed is not sufficient to cover basic living expenses, so it
is not considered a basic income.
Bolsa Família is a large social welfare program in Brazil that
provides money to many low-income families in the country. The system is
related to basic income, but has more conditions, like asking the
recipients to keep their children in school until graduation. As of
March 2020, the program covers 13.8 million families, and pays an
average of $34 per month, in a country where the minimum wage is $190 per month.
Eastern Band of Cherokee Indians
The Eastern Band of Cherokee Indians (ECBI) opened Harrah's Cherokee
Casino in 1997 and it has generated jobs and revenue for the tribe,
providing money that the EBCI applies to its people's education, welfare
and culture. Each member of the tribe is paid an annual income that
started at $500 and has increased to $10,000 as of 2015.
Other welfare programs
Pension:
A payment that in some countries is guaranteed to all citizens above a
certain age. The difference from true basic income is that it is
restricted to people over a certain age.
Child benefit: A program similar to pensions but restricted to parents of children, usually allocated based on the number of children.
Conditional cash transfer:
A regular payment given to families, but only to the poor. It is
usually dependent on basic conditions such as sending their children to
school or having them vaccinated. Programs include Bolsa Família in Brazil and Programa Prospera in Mexico.
2008: An official petition for basic income was launched in Germany by Susanne Wiest. The petition was accepted, and Susanne Wiest was invited for a hearing
at the German parliament's Commission of Petitions. After the hearing,
the petition was closed as "unrealizable".
2015: A citizen's initiative in Spain received 185,000 signatures,
short of the required number to mandate that the Spanish parliament
discuss the proposal.
2016: The world's first universal basic income referendum in Switzerland on 5 June 2016 was rejected with a 76.9% majority. Also in 2016, a poll showed that 58% of the EU's population is aware of basic income, and 64% would vote in favour of the idea.
2017: Politico/Morning Consult asked 1,994 Americans about
their opinions on several political issues including national basic
income; 43% either "strongly supported" or "somewhat supported" the
idea.
2018: The results of a poll by Gallup conducted last year between September and October were published. 48% of respondents supported universal basic income.
2019: In November, an Austrian initiative received approximately
70,000 signatures but failed to reach the 100,000 signatures needed for a
parliamentary discussion. The initiative was started by Peter Hofer.
His proposal suggested a basic income sourced from a financial
transaction tax, of €1,200, for every Austrian citizen.
2020: A study by Oxford University
found that 71% of Europeans are now in favour of basic income. The
study was conducted in March, with 12,000 respondents and in 27
EU-member states and the UK. A YouGov poll likewise found a majority for universal basic income in United Kingdom and a poll by University of Chicago found that 51% of Americans aged 18–36 support a monthly basic income of $1,000. In the UK there was also a letter, signed by over 170 MPs and Lords from multiple political parties, calling on the government to introduce a universal basic income during the COVID-19 pandemic.
2020: A Pew Research Center
survey, conducted online in August 2020, of 11,000 U.S. adults found
that a majority (54%) oppose the federal government providing a
guaranteed income of $1,000 per month to all adults, while 45% support
it.
2020: In a poll by Hill-HarrisX, 55% of Americans voted in favour of UBI in August, up from 49% in September 2019 and 43% in February 2019.
2020: The results of an online survey of 2,031 participants
conducted in 2018 in Germany were published: 51% were either "very much
in favor" or "in favor" of UBI being introduced.
2020: An October survey of 1,026 Australians by YouGov found a 58% support for universal basic income.
2021: A Change.org petition calling for monthly stimulus checks in the amount of $2,000 per adult and $1,000 per child for the remainder of the COVID-19 pandemic had received almost 3 million signatures.
