Welfare capitalism

From Wikipedia, the free encyclopedia

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, social market economy and Rhine 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 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 reformer Robert 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, however, 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 architect William 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.

An example of the workers' housing at Port Sunlight, built by the Lever Brothers in 1888

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."

The Seaside Institute, designed by Warren R. Briggs in 1887 for the benefit of the female employees of the Warner Brothers Corset Company

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, Scandinavia, Canada and Australasia 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.

A sample Medicare card

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.

In Europe

The Volkswagen factory in Wolfsburg

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, and IBM, 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 dubbed 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.

State Socialism (Germany)

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https://en.wikipedia.org/wiki/State_Socialism_(Germany)

State Socialism (German: Staatssozialismus) was a set of social programmes implemented in the German Empire that were initiated by Otto von Bismarck in 1883 as remedial measures to appease the working class and detract support for socialism and the Social Democratic Party of Germany following earlier attempts to achieve the same objective through Bismarck's Anti-Socialist Laws. As a term, it was coined by Bismarck's liberal opposition to these social welfare policies, but it was later accepted by Bismarck. This did not prevent the Social Democrats from becoming the biggest party in the Reichstag by 1912. According to historian Jonathan Steinberg, "[a]ll told, Bismarck's system was a massive success—except in one respect. His goal to keep the Social Democratic Party out of power utterly failed. The vote for the Social Democratic Party went up and by 1912 they were the biggest party in the Reichstag".

In spite of its name, State Socialism was a conservative ideology which supported the aristocracy, the church and the monarchy while maintaining harmony with capitalists and workers, in opposition to both liberalism and socialism. Hence, its supporters called themselves the Conservative Party while its opponents called themselves the National Liberal Party and the Socialist Workers' Party. Historian Alexander Nove argued that social ownership through government can only occur if the government is socially controlled which was not the case where an emperor rules by the will of God as in Germany since the Emperor was not the public. Nove's definition of social ownership, a common characteristic that accomunates types of socialism, refers to "the major part of means of production", but this remained in private hands under State Socialism. In "Why I Am Not a Conservative", Friedrich Hayek explained that "[t]here are, however, two economic and philosophical estimates of society with which State Socialism may be brought into broad contrast", namely liberalism and socialism. According to journalist William Harbutt Dawson, an acknowledged expert on German politics and society, "[t]he great disagreement between Socialism and State Socialism is that the former would entirely subvert the State, while the latter accepts its political form as it is. Socialism would abolish the existing order altogether, while State Socialism would use the State for the accomplishment of great economic and social purposes, especially restoring to it the function, which Frederick the Great held to be the principal business of the State, of 'holding the balance [...] between classes and parties".

Bismarck's biographer A. J. P. Taylor wrote that "[i]t would be unfair to say that Bismarck took up social welfare solely to weaken the Social Democrats; he had had it in mind for a long time, and believed in it deeply. But as usual he acted on his beliefs at the exact moment when they served a practical need". When a reference was made to his friendship with Ferdinand Lassalle, a democratic and state-oriented reformist socialist, Bismarck stated that he was a more practical socialist than the Social Democrats. Bismarck justified his social welfare programs by stating that "[w]hoever has pensions for his old age is far more easier to handle than one who has no such prospect. Look at the difference between a private servant in the chancellery or at court; the latter will put up with much more, because he has a pension to look forward to".

Overview

According to William Harbutt Dawson, despite being labeled socialist by his opponents, Bismarck's social legislation sought to preserve the existing economic order and state in Germany. This was in stark contrast to socialists, who sought to subvert the power of the existing state and eventually replace the capitalist order with a socialist economy.

The Prussian welfare state was developed by the German academic Sozialpolitiker (Social Policy Supporter) group, intellectually associated with the historical school of economics. At the time, the historical school of economics influenced social democracy in the United Kingdom and progressivism in the United States as well as the current post-World War II German economy (the social market economy) which is a continuation of similar policies.

Social legislation

The 1880s were a period when Germany started on its long road towards the welfare state as it is today. The Centre, National Liberal and Social Democratic political parties were all involved in the beginnings of social legislation, but it was Bismarck who established the first practical aspects of this program. The program of the Social Democrats included all of the programs that Bismarck eventually implemented, but it also included programs designed to preempt the programs championed by radicals. Bismarck's idea was to implement the minimum aspects of these programs that were acceptable to the German government without any of the overtly socialistic aspects.

Bismarck opened debate on the subject on 17 November 1881 in the Imperial Message to the Reichstag, using the term practical Christianity to describe his program. In 1881, Bismarck had also referred to this program as Staatssozialismus ("State Socialism") when he made the following accurate prediction to a colleague:

It is possible that all our politics will come to nothing when I am dead but state socialism will drub itself in (Der Staatssozialismus paukt sich durch).

Bismarck's program centered squarely on insurance programs designed to increase productivity and focus the political attentions of German workers on supporting the Junker's government. The program included health insurance, accident insurance (workman's compensation), disability insurance and an old-age retirement pension, none of which then in existence to any great degree. After Bismarck left office in 1890, further social legislation regulated working time and conditions and sought to protect more vulnerable workers (women and children) and establish a system to allow redress for employer abuse.

Based on Bismarck's message, the Reichstag filed three bills designed to deal with the concept of accident insurance and one for health insurance, although other bills were passed after Bismarck left office. Retirement pensions and disability insurance were placed on the back burner for the time being.

In a speech on 20 March 1884, Otto von Bismarck stated:

The real grievance of the worker is the insecurity of his existence; he is not sure that he will always have work, he is not sure that if he will always be healthy, and he foresees that he will one day be old and unfit to work. If he falls into poverty, even if only through a prolonged illness, he is then completely helpless, left to his own devices, and society does not currently recognize any real obligation toward him beyond the usual help for the poor, even if he has been working all the time ever so faithfully and diligently. The usual help for the poor, however, leaves a lot to be desired, especially in large cities, where it is very much worse than in the country.

Health Insurance Bill of 1883

The first bill that had success was the Health Insurance bill which was passed in 1883. The program was considered the least important from Bismarck's point of view and the least politically troublesome. The program was established to provide health insurance for the largest segment of the German workers. The health service was established on a local basis, with the cost divided between employers and the employed. The employers contributed one-third, the workers the rest. The contributions were made to "sickness funds" which employees could draw from when they needed medical care. The minimum payments for medical treatment and sick pay for up to 13 weeks were legally fixed. The individual local health bureaus were administered by a committee elected by the members of each bureau and this move had the unintended effect of establishing a majority representation for the workers on account of their large financial contribution. This worked to the advantage of the Social Democrats, who through heavy worker membership achieved their first small foothold in public administration.

Accident Insurance Bill of 1884

Bismarck's government had to submit three draft bills before it could get one passed by the Reichstag in 1884. Bismarck had originally proposed that the federal government should pay a portion of the accident insurance contribution to show the willingness of the German government to lessen the hardship experienced by the German workers as a means of weaning them away from the various left-wing parties, most importantly the Social Democrats. The National Liberals took this program to be an expression of state socialism which they were strongly against. The Centre Party was afraid of the expansion of federal power at the expense of states' rights. The only way the program could be passed at all was for the entire expense to be underwritten by the employers. To facilitate this, Bismarck arranged for the administration of this program to be placed in the hands of "the organization of employers in occupational corporations". This organization established central and bureaucratic insurance offices on the federal and in some cases the state level to perform the actual administration. The program kicked in to replace the health insurance program as of the 14th week. It paid for medical treatment and a pension of up to two-thirds of earned wages if the worker was fully disabled. This program was expanded in 1886 to include agricultural workers.

Old Age and Disability Insurance Bill of 1889

The old age pension program, financed by a tax on workers, was designed to provide a pension annuity for workers who reached the age of 70. At the time, the life expectancy for the average Prussian was 45, although this reflects the high infant mortality of the era and retired workers could expect to live until 70 years. Unlike accident insurance and health insurance, this program covered industrial, agrarian, artisans and servants from the start. Unlike the other two programs, the principle that the federal government should also contribute a portion of the underwriting cost, with the other two portions prorated accordingly, was accepted without question. The disability insurance program was intended to be used by those permanently disabled. This time, the state supervised the programs directly.

Workers Protection Act of 1891

The law set up stricter regulations to ensure greater workplace safety, banned work on Sundays, introduced a maximum working day of eleven hours for women and ten hours for workers under 16 years of age and prohibited night work by them, banned those under the age of 13 from working in industry and encouraged the establishment of worker's committees in factories to address disputes. Industrial tribunals were set up to settle disputes between employees and employers.

Children's Protection Act of 1903

The law further tightened regulations on child labor to prevent exploitation of children.

Criticism of welfare

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https://en.wikipedia.org/wiki/Criticism_of_welfare 

 

The modern welfare state has been criticized on economic and moral grounds from all ends of the political spectrum. Many have argued that the provision of tax-funded services or transfer payments reduces the incentive for workers to seek employment, thereby reducing the need to work, reducing the rewards of work and exacerbating poverty. On the other hand, socialists typically criticize the welfare state as championed by social democrats as an attempt to legitimize and strengthen the capitalist economy system which conflicts with the socialist goal of replacing capitalism with a socialist economic system.

Conservative criticism

People waiting in line for relief checks in the United States during the Great Depression

In his 1912 book The Servile State, Anglo-French poet and social critic Hilaire Belloc, a devout Roman Catholic, argued that capitalism was inherently unstable, but that attempts to amend its defects through ever-more burdensome regulation could only lead to the rise of what he calls the "Servile State". According to Belloc, this servile state resembles ancient slavery in its reliance on positive law as opposed to custom or economic necessity by themselves. Austrian-born economist Friedrich Hayek mentions Belloc's Servile State favorably in his book The Road to Serfdom. Along with others such as G. K. Chesterton and Eric Gill, Belloc advocated abolishing profit-making banking in favor of credit unions and replacing capitalism with a system they called distributism which they believed would preserve private property and revive the dignity of work exemplified by the small craftsmen and property holder of the Middle Ages.

Some conservatives in the United Kingdom such as James Batholomew and Theodore Dalrymple claim that the welfare state has produced a generation of dependents who prefer to remain on assistance and make no real effort to find employment, even though assistance is officially only available to those unable to work or who are temporarily unable to find work. The welfare state in the United Kingdom was created to provide certain people with a basic level of benefits in order to alleviate poverty, but these conservatives believe that it has fostered irresponsible and immature attitudes in many of its recipients.

Some British conservatives such as Conservative Party co-chairman Sayeeda Warsi also criticize the "'something for nothing' culture" of the welfare state, claiming that the high extent of the welfare state "discourages the unemployed from finding jobs". 55% of people in England and 43% of people in Scotland believe that "benefits for unemployed people are too high and discourage them from finding jobs".

According to political scientist Alan Ryan, "[m]odern conservatives argue that liberalism promises a degree of personal fulfillment that the welfare state cannot deliver and that attempts to deliver it will inevitably lead to disillusionment". Additionally, citizens' resentment of paying taxes to create benefits for others creates "hostility between more and less favored groups that is wholly at odds with what modern liberals desire". Ryan also argued:

Moreover, the welfare state must employ an extensive bureaucracy whose members are granted discretionary powers and charged by law to use those powers for the welfare of their clients. This means that classical liberals' concern for the rule of law and the curtailing of arbitrary discretion is ignored: bureaucrats are given resources to disburse to their clients. [...] The liberation the welfare state promises – liberation from anxiety, poverty, and the cramped circumstances of working-class existence – is easily obtained by the educated middle class and is impossible to achieve for most others. There is thus a grave risk of disillusionment with liberalism in general as a result of its failure when it overextends itself. Some writers suppose that the worldwide popularity of conservative governments during the 1980s is explained by this consideration.

Liberal criticism

Advocates of classical liberalism, economic liberalism and neoliberalism such as adherents of the Chicago school of economics like Milton Friedman faulted the New Deal version of social insurance for creating "notches" that perverted economic incentives, with J. Bradford DeLong arguing:

The government, Milton Friedman and others argued, told the poor: make more money and we will take away your free housing, food stamps, and income support. People are rational, Friedman said, so they will not work for long if they get nothing or next to nothing for it. The big difference between the Malthusian conservative critics of social insurance in the early nineteenth century and the Chicago critics of the 1970s is that the Chicago critics had a point: Providing public support to the "worthy" poor, and then removing it when they began to stand on their own feet, poisoned incentives and was unlikely to lead to good outcomes. And so, from 1970 to 2000, a broad coalition of conservatives (who wanted to see the government stop encouraging immorality), centrists (who wanted government money spent effectively), and leftists (who wanted poverty alleviated) removed the "notches" from the social-insurance system. Presidents Jimmy Carter, Ronald Reagan, George H. W. Bush, Bill Clinton, and even George W. Bush and their supporters created the current system, in which tax rates and eligibility thresholds are not punitive disincentives to enterprise.

Certain American libertarians criticize the welfare state because they believe welfare programs do not work to reduce poverty, improve education, or improve health or retirement. According to them, welfare programs also increase out-of-wedlock births and decrease the incentive to work. Moreover, they believe welfare programs reduce freedom by reducing the opportunity of individuals to manage their own lives.

Socialist criticism

A Swedish Sami boy getting oats and beans from the government's food relief program

Critiques of the welfare state and of social welfare programs have come from various socialists perspectives, ranging from Marxists to anarchists. In these perspectives, criticism of the welfare state often goes alongside criticism of the structural issues of capitalism and the inability for social welfare measures to solve fundamental economic issues which Marxists consider inherent to the capitalist mode of production. Initially, social insurance schemes were promoted by liberals and conservatives to appeal to working class voters to undercut the appeal of socialism. While some socialist parties tolerated social insurance, socialists often viewed advocacy of such programs as antithetical to their goal of replacing capitalism with socialism.

Marxian socialists argue that modern social democratic welfare policies are unable to solve the fundamental and structural issues of capitalism such as cyclical fluctuations, exploitation and alienation. Accordingly, social democratic programs intended to ameliorate the issues of capitalism—such as unemployment benefits and taxation on profits—create further contradictions in capitalism by limiting the efficiency of the capitalist system by reducing incentives for capitalists to invest in further production. As a result, the welfare state only serves to legitimize and prolong the exploitative and contradiction-laden system of capitalism to society's detriment.

Democratic socialists such as the American philosopher and mathematician David Schweickart contrast social democracy with democratic socialism by defining the former as an attempt to strengthen the welfare state and the latter as a political movement seeking to create an alternative to capitalism. According to Schweickart, the democratic socialist critique of social democracy is that capitalism can never be sufficiently "humanized" and any attempt to suppress the economic contradictions of capitalism would only cause them to emerge elsewhere. For example, attempts to reduce unemployment too much would result in inflation while too much job security would erode labor discipline. As socialists, democratic socialists aim to create an alternative to capitalism. In contrast to social democracy, democratic socialists advocate a post-capitalist economic system based either on market socialism combined with worker self-management, or on some form of participatory-economic planning.

Market socialism is also critical of and contrasted with social democratic welfare states. While one common goal of both systems is to achieve greater social and economic equality, market socialism does so by changes in enterprise ownership and management whereas social democracy attempts to do so by government-imposed taxes and subsidies on privately owned enterprises to finance welfare programs. Franklin Delano Roosevelt III and David Belkin criticize social democracy for maintaining a property-owning capitalist class which has an active interest in reversing social democratic welfare policies and a disproportionate amount of power as a class to influence governmental policy.

Karl Marx famously critiqued the basic institutions of the welfare state in his Address of the Central Committee to the Communist League by warning against the programs advanced by liberal democrats. While Marx proclaimed that the communists had to support the bourgeoisie wherever it acted as a revolutionary, progressive class because "bourgeois liberties had first to be conquered and then criticised", he specifically argued that measures designed to increase wages, improve working conditions and provide welfare payments would be used to dissuade the working class away from socialism and the revolutionary consciousness he believed was necessary to achieve a socialist economy and would therefore be a threat to genuine structural changes to society by making the conditions of workers in capitalism more tolerable through welfare schemes.

Eduard Bernstein, a reformist social democrat, was skeptical of the welfare state and social welfare legislation. While Bernstein viewed it as something helpful for the working class, he feared that state aid to the poor might sanction a new form of pauperism. Ultimately, Bernstein believed that any such policies should be of secondary concern to the main social democratic concern of tackling capitalism as the source of poverty and inequality.

The most extreme criticism of states and governments is made by anarchists, who advocate for the abolition of all social hierarchies, including the state. Despite the anti-state and anti-market views of social anarchism, most anarchists ultimately advocate for the strengthening of the welfare state, arguing that social safety nets are short-term goals for the working class. According to Noam Chomsky, "social democrats and anarchists always agreed, fairly generally, on so-called 'welfare state measures'" and "[a]narchists propose other measures to deal with these problems, without recourse to state authority". Some anarchists believe in stopping welfare programs only if it means abolishing both government and capitalism.

Negative income tax

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https://en.wikipedia.org/wiki/Negative_income_tax 

  Negative income tax

   Progressive income tax

  Base pay

In economics, a negative income tax (NIT) is a system which reverses the direction in which tax is paid for incomes below a certain level; in other words, earners above that level pay money to the state while earners below it receive money, as shown by the blue arrows in the diagram. NIT was proposed by Juliet Rhys-Williams while working on the Beveridge Report in the early 1940s and popularized by Milton Friedman in the 1960s as a system in which the state makes payments to the poor when their income falls below a threshold, while taxing them on income above that threshold. Together with Friedman, supporters of NIT also included James Tobin, Joseph A. Pechman, and Peter M. Mieszkowski, and even then-President Richard Nixon, who suggested implementation of modified NIT in his Family Assistance Plan. After the increase in popularity of NIT, an experiment sponsored by the US government was conducted between 1968 and 1982 on effects of NIT on labour supply, income, and substitution effects.

Generic negative income tax

The view that the state should supplement the income of the poor has a long history (see UBI§History). Such payments are seen as benefits if they are limited to those who lack other income, or are conditional on specific needs (such as number of children), but are seen as negative taxes if they continue to be received as a supplement by workers who have income from other sources. The withdrawal of benefits when the recipient ceases to satisfy a firm eligibility criterion is often seen as giving rise to the welfare trap.

The level of support provided to the poor by a negative tax is thought of as parametrically adjustable according to the opposing claims of economic efficiency and distributional justice. Friedman's NIT lacks this adjustability owing to the constraint that other benefits would be largely discontinued; hence a wage subsidy is more representative of generic negative income tax than is Friedman's specific Negative Income Tax.

In 1975 the United States implemented a negative income tax for the working poor through the earned income tax credit. A 1995 survey found that 78% of American economists supported (with or without provisos) the incorporation of a negative income tax into the welfare system.

Theoretical development

Main article: Fundamental theorems of welfare economics

Income redistribution expressed equivalently as a negative income tax or as a basic income

Theoretical discussion of negative taxation began with Vilfredo Pareto, who first made a formal distinction between allocative efficiency (i.e. the market's ability to give people what they want subject to their incomes) and distributive justice (i.e. the question of whether these incomes are fair in the first place). He sought to show that market economies allocated resources optimally within the income distributions they give rise to, but accepted that there was nothing optimal about these distributions themselves. He concluded that if society wished to maximise wellbeing, it should let market forces govern production and exchange and then correct the result by 'a second distribution... performed in conformity with the workings of free competition'. His argument was that a direct transfer obtained a given redistributive effect with the least possible reduction of economic efficiency, and was preferable to government interference is the market (as happens in modern economies through the minimum wage) which damages efficiency by introducing distortions.

Abram Bergson and Paul Samuelson (drawing on earlier work by Oscar Lange) gave a more formal statement to Pareto's claims. They showed that the optimum of efficiency associated with market competition fell short of maximum wellbeing as reflected by a social welfare function only through distributional effects, and that a true optimum could be obtained if the state were to transfer income through 'lump sum taxes or bounties', where 'bounties' are negative taxes and 'lump sum' is Samuelson's term for a hypothetical redistribution with no distortionary consequences.

Optimal taxation theory

Main article: Optimal labor income taxation

It follows from the Bergson/Samuelson analysis that any proposed measure (including the proposal to leave things as they are) can be assessed according to the balance it achieves between three factors: (i) the improvement in overall well being from a more equitable distribution; (ii) the loss in economic efficiency due to the distortions introduced; and (iii) the administrative costs. The first of these cannot easily be equated to a sum of money; the last is unlikely to be a dominant factor. Hence redistribution should be pursued up to the point at which any further (non-monetary) benefits from a more equal distribution would be offset by the resulting monetary loss of economic efficiency.

The Bergson/Samuelson theory was developed in a broadly utilitarian framework. A fourth factor could be added in the form of a moral claim derived from present ownership or legitimate earning. Considerable weight was placed on this during the Enlightenment but Hume and the Utilitarians rejected it. It is seldom mentioned nowadays but cannot be dismissed a priori as a relevant consideration.

The theoretical study of the trade-off between equity and efficiency was initiated by James Mirrlees in 1971. Eytan Sheshinski summarised:

In various examples calculated by Mirrlees, the optimal income-tax schedule appears to be approximately linear with a negative tax at low incomes.

Friedman's NIT

Rose and Milton Friedman

"Negative Income Tax" became prominent in the United States as a result of advocacy by Milton and Rose Friedman, who first put forward a concrete proposal in 1962 in a brief section of their book Capitalism and Freedom. Their system is equivalent in its operation to most forms of Universal basic income (UBI) (qv., particularly the section Fundamental Principles for the equivalence).

In the aforementioned work, Friedman provides five benefits of the negative income tax. Firstly, Friedman argues that it provides cash which the individual sees as the best possible way of support. Secondly, it targets poverty directly through income rather than through general old-age benefits or farm programs. Thirdly, negative income tax could in his opinion replace all supporting programs present at that time and provide one universal program. Fourthly, in theory the cost of negative income tax can be lower than the cost of existing programs mainly due to lower administrative costs. Lastly, the program should not distort the market in the way minimum wage laws or tariffs do.

Friedman envisioned the NIT followingly in an interview in 1968. Considering family A of four with income $4000 and Family B of four with income $2000. If the break-even income would be $3000, after filing the tax report, family A would pay the tax on $1000 while family B would be entitled to receive, assuming the 50% NIT rate, $500. Meaning half of the difference between what they earn and the break-even income. Therefore, a family with $0 income would be entitled to receive $1500 in subsidy. Friedman argued NIT would not destroy the incentive to work, as compared to guaranteed income programmes (GIP) with 100% tax rate. As with the GIP workers lose $1 of subsidy for each $1 increase in wage.

In his 1966 "View from the Right" paper Milton Friedman remarked that his proposal...

has been greeted with considerable (though far from unanimous) enthusiasm on the left and with considerable (though again far from unanimous) hostility on the right. Yet, in my opinion, the negative income tax is more compatible with the philosophy and aims of the proponents of limited government and maximum individual freedom than with the philosophy and aims of the proponents of the welfare state and greater government control of the economy.

Friedman also elaborated and provided two reasons for the hostility from the right. Firstly, he mentions that the right is frightened due to the introduction of a guaranteed minimum income the poor would have a disincentive to improve their well-being. Secondly, the right is not certain about the political outcomes of the NIT, as there exist threats that there will be an upward pressure on the break-even incomes among politicians.

The Friedmans together promoted the idea to a wider audience in 1980 in their book and television series Free to Choose. It has often been discussed (and endorsed) by economists but never fully implemented. Advantages claimed for it include:

• Alleviating poverty;
• Eliminating the "welfare trap";
• Streamlining the benefits system.

The alleviation of poverty was mentioned in Capitalism and Freedom where Friedman argued that in 1961 the US government spent around 33 billion on welfare payments e.g. old age assistance, social security benefit payments, public housing, etc. excluding mainly veterans´ benefits and other allowances. Friedman recalculated the spending between 57 million consumers in 1961 and came to the conclusion that it would have financed 6000 dollars per consumer to the poorest 10% or 3000 dollars to the poorest 20%. Friedman also found out that a program raising incomes of the poorest 20% to the lowest income of the rest would cost the US government less that half of the amount spent in 1961.

The Friedmans' writings were influential for a period with the American political right, and in 1969 President Richard Nixon proposed a Family Assistance Program which had points in common with UBI. Milton Friedman originally supported Nixon's proposal but eventually testified against it on account of its perverse labor incentive effects. Friedman was mainly opposed to the idea that Nixon's program would be combined with existing programs at that time, rather than replacing the existing programs as Friedman originally proposed.

Meanwhile, support for negative income tax was increasing among the political left. Paul Samuelson argued in Newsweek that it was an idea whose time had come, and more than 1,200 academic economists signed a petition in support of it. Friedman withheld his signature, possibly on the grounds that the petition didn't explicitly describe the new measure as a replacement rather than a supplement to existing programs.

As civic disorder diminished in the US, support for negative income tax waned among the American right. Instead the doctrine came to be particularly associated with the political left, generally under the name "basic income" or derivatives. It received further impetus in Europe with the founding of the Basic Income Earth Network (BIEN) in 1986. Asked in 2000 how he viewed a basic income "compared to the alternative of a negative income tax", Friedman replied that the measures were not alternatives and that basic income was "simply another way to introduce a negative income tax", giving a numerical example of their equivalence.

Experiments on the effect of NIT on the labour supply

The experiments on NIT have been conducted in the US between years 1968 and 1982 and the expenditures were 225 million recalculated for the 1984 value. The first results have been that the husbands reduced labour supply by about the equivalent of two weeks of full-time employment. On the other hand, Wives and single female heads reduced it by three weeks and the youth reduced the labour supply by four weeks.

The experiments were conducted in the following states:

New Jersey (1968-1972), which was the first of the four experiments, observing 1357 families for the period of 3 years testing the guarantee levels from 0.5 to 1.25 of the poverty line and tax rates from 0.3 to 0.7. Followed by rural Iowa and Carolina experiment (1969-1973) involving 809 families for the period of 3 years testing guarantee levels from 0.5 to 1.00 and tax rates from 0.3 to 0.7. Next was Gary urban experiment lasting 3 years (1971-1974) observing 1780 families testing guarantee levels from 0.75 to 1.00 and tax rates from 0.4 to 0.6. The last experiment was the biggest one conducted in Seattle-Denver (1971-1982) and containing three lengths of treatments i.e.,3,5,10 years and testing guarantee levels from 0.95 to 1.40 and a nonconstant tax rate. It has been concluded that the most relevant sample size is from the Seattle-Denver experiment, and the experiment should yield the most precise estimates. Importantly, the results may vary not only due to sample sizes but also due to different design, methods of analysis or operations.

Results of the individual experiments

The individual results were districted into four categories: husbands, wives, single female heads, the youth. Firstly, it was noted that there is an unambiguous decrease in labour supply as a result of NIT and that there exists a pattern among each of the groups. The results show that husbands are the least responsive to NIT in terms of withdrawal from labour force while the youth is the most responsive. Moreover, the percentage responses are from 5-25% equalling 1–5 weeks of full-time work. The employment rate ranges from 1 to 10% . It is however important to note that while on one hand the youth was the most responsive to NIT, on the other hand the decrease in labour supply was equalled by increase in school attendance. Moreover, the chances of completing school education also rose notably in New Jersey by 5% and in Seattle-Denver by 11%.

Considering results from the Seattle-Denver experiment, it can be shown that the two-parent families that received $2,700 decreased their earnings by almost $1,800. Therefore, spending $2,700 on transfers to two-parent families in Seattle-Denver increased their income by only $900. This raised the question whether taxpayers would be willing to pay $3 in order to increase the income of aforementioned families by $1.

Implications to the real world

An attempt was made to synthesise the results and provide a nation-wide estimate of the effects of NIT in the US using two plans, one with 75% and the other with 100% guarantee and 50% and 70% tax rates. The corresponding programmes would cost between 6.7 and 16.3 billions of dollars, (-5.3) to 4.5 billions of dollars, 55.5 to 61.1 billions of dollars and 15.4 to 25.7 billions of dollars (value expressed in 1985 dollars) respectively. These are net costs, meaning how much more would the NIT cost relative to the welfare programmes in effect at the time. For the latter two options, i.e. 100% guarantee with either 50% or 70% tax rate, it would represent an increase in spending equal to 1.5 percent of the gross national product (GNP) and 0.4-0.6 percent of GNP. The net increase could be financed by increase in federal taxes from 2 to 4 percent. While the cost of eliminating poverty seemed attainable, the issue of decreased earnings and self-support among families remained prevalent. Hence, the issues likely caused the decrease in interest in implementation of NIT, as the work of donor is a bit higher than the work of the recipient and can potentially lead to free riding which would destroy the entire framework.

 

Universal basic income

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Universal_basic_income 

In 2013, eight million 5-cent coins (one per inhabitant) were dumped on the Bundesplatz, Bern to support the 2016 Swiss referendum for a basic income (which was rejected, 77%–23%).

Universal basic income (UBI) is a sociopolitical financial transfer concept in which all citizens of a given population regularly receive a legally stipulated and equal financial grant paid by the government without a means test. A basic income can be implemented nationally, regionally, or locally. If the level is sufficient to meet a person's basic needs (i.e., at or above the poverty line), it is sometimes called a full basic income; if it is less than that amount, it may be called a partial basic income. Some have labelled UBI as utopian due to its historical origin.

There are several welfare arrangements that can be viewed as related to basic income. Many countries have something like a basic income for children. Pension may be partly similar to basic income. There are also quasi-basic income systems, like Bolsa Familia in Brazil, which is conditional and 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. The Alaska Permanent Fund is essentially a partial basic income, which averages $1,600 annually per resident (in 2019 currency). The negative income tax (NIT) can be viewed as a basic income in which citizens receive less and less money until this effect is reversed the more a person earns.

Several political discussions are related to the basic income debate, including those regarding automation, artificial intelligence (AI), and 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. The economic impact of the COVID-19 pandemic prompted some countries to send direct payments to citizens.

History

See also: Basic income around the world

Antiquity

See also: Cura Annonae

In an early example, Trajan, emperor of Rome from 98–117 AD, personally gave 650 denarii (equivalent to perhaps US$260 in 2002) to all common Roman citizens who applied.

16th to 18th century

In his Utopia (1516), English statesman and philosopher Sir Thomas More depicts a society in which every person receives a guaranteed income. In this book, the UBI 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." as follow:

"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." In the late 18th century, English Radical Thomas Spence and English-born American philosopher Thomas Paine both had ideas in the same direction.

Paine authored Common Sense (1776) and The American Crisis (1776–1783), the two most influential pamphlets at the start of the American Revolution. He is also the author of Agrarian Justice, 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.

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.

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 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

In his 1964 State of the Union address, U.S. President Lyndon B. Johnson introduced legislation to fight the "war on poverty". Johnson believed in expanding the federal government's roles in education and health care as poverty reduction strategies. In this political climate the idea of a guaranteed income for every American also took root. Notably, a document, signed by 1200 economists, called for a guaranteed income for every American. Six ambitious basic income experiments started up on the related concept of negative income tax. Succeeding President Richard Nixon explained its 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), or 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 to Basic Income Earth Network (BIEN), was founded, with academic conferences every second year. Other advocates included the green political movement, as well as activists and some groups of unemployed people.

In the latter part of the 20th century, discussions were held around automatization and jobless growth, the possibility of combining economic growth with ecological 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 there were papers about basic income from a wide variety of perspectives, including economics, sociology, and human right approaches.

21st century

In recent years the idea has come to the forefront more than before. The Swiss referendum about basic income in Switzerland 2016 was covered in media worldwide, despite its rejection. Famous business people like Elon Musk and Andrew Yang have lent their support, as have high-profile politicians like Jeremy Corbyn. (For a list of popular supporters and proponents of UBI, see List of advocates of basic income.)

In the US Democratic Party primaries, a newcomer, Andrew Yang, touted basic income as his core policy. His policy, referred to as a "Freedom Dividend", would have provided American citizens US$1000 a month.

Response to COVID-19

As a response to the COVID-19 pandemic and related economic impact, basic income and similar proposals such as helicopter money and cash transfers were increasingly discussed across the world. Most countries have implemented forms of partial unemployment schemes, which effectively subsidized workers' incomes without work requirement. Some countries like the United States, Spain, Hong Kong and Japan introduced direct cash transfers to 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.

Basic income vs negative income tax

See also: Negative income tax

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 diagram shows a basic income/negative tax system combined with flat income tax (the same percentage in tax for every income level).

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 don't 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. There everyone typically pays income taxes. But on the other hand everyone also gets the same amount in 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 one gets in one's pocket is the same, regardless of which of these two systems is 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 that 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

Play media

Short film explaining different arguments for UBI

Basic income and 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 lead to a world with fewer paid jobs. 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 heavily influenced by Martin Ford. Ford, in his turn, believes that the emerging technologies will fail to deliver a lot of employment; on the contrary, because the new industries will "rarely, if ever, be highly labor-intensive". Similar ideas have been debated many times before in history—that "the machines will take the jobs"—so the argument is not new. But what is quite new is the existence of several academic studies that do indeed forecast a future with substantially less employment, in the decades to come. Additionally, President Barack Obama has stated that he believes that the growth of artificial intelligence will lead to increased discussion around the idea of "unconditional free money for everyone".

Basic income and economics

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.

The cost of basic income is one of the biggest questions in the public debate as well as in the research. But the cost 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. According to Karl Widerquist it also depends heavily on what one means with the concept of "cost".

Basic income and 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. Although it is difficult to know for sure what will happen if a whole country introduces basic income, there are nevertheless some studies who have attempted to look at this question.

• In negative income tax experiments in the United States in the 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 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.

Philosophy and morality

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 argue that this lack of discrimination is a way to reduce social stigma.

Basic income, health and poverty

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 which 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.

The Canadian Medical Association passed a motion in 2015 in clear support of basic income and for basic income trials in Canada.

Academics on basic income

See also: List of advocates of basic income

Economists

• Simeon Djankov, professor at the London School of Economics, argues the costs of a generous system are prohibitive.
• Milton Friedman, world famous economist, supported UBI by reasoning that it would help to reduce poverty. He said: "The virtue of [a negative income tax] is precisely that it treats everyone the same way. [...] [T]here's none of this unfortunate discrimination among people."
• Eric Maskin has stated that "a minimum income makes sense, but not at the cost of eliminating Social Security and Medicare".
  
• Ailsa McKay, a Scottish economist, has argued that basic income is a way to promote gender equality. She has specifically argued that "social policy reform should take account of all gender inequalities and not just those relating to the traditional labor market" and that "the citizens' basic income model can be a tool for promoting gender-neutral social citizenship rights".
• James Meade advocated for a social dividend scheme funded by publicly owned productive assets.
• Douglas Rushkoff, a professor of Media Theory and Digital Economics at the City University of New York, has stated that he sees basic income as a sophisticated way for corporations to get richer at the expense of public money.
• Bertrand Russell argued for a basic income alongside public ownership as a means of shortening the average working day and achieving full employment.
• Guy Standing has proposed financing a social dividend from a democratically accountable sovereign wealth fund built up primarily from the proceeds of a tax on rentier income derived from ownership or control of assets—physical, financial, and intellectual. Standing also generally argues that basic income would be a much simpler and more transparent welfare system.

Other academics

• André Gorz, a French sociologist, saw basic income as a necessary adaptation to the increasing automation of work, yet basic income also enables workers to overcome alienation in work and life and to increase their amount of leisure time.
• Stephen Hawking, an English theoretical physicist, cosmologist, and author supported universal basic income during his life.
• Philippe Van Parijs, a Belgian philosopher, has argued that basic income at the highest sustainable level is needed to support real freedom, or the freedom to do whatever one "might want to do".
• Frances Fox Piven argues that an income guarantee would benefit all workers by liberating them from the anxiety that results from the "tyranny of wage slavery" and provide opportunities for people to pursue different occupations and develop untapped potentials for creativity.
• Harry Shutt proposed basic income and other measures to make most or all businesses collective rather than private. These measures would create a post-capitalist economic system.
• Karl Widerquist and others have proposed a theory of freedom in which basic income is needed to protect the power to refuse work.
• Erik Olin Wright argues that basic income will empower labor by giving the workers greater bargaining power.

Alternative proposals

• Anthony Atkinson proposed "minimum inheritance" or capital endowment to all adults to reduce inequality.
• Julian Le Grand proposed a form of "universal basic capital", inspired by Thomas Paine, and recommended a fixed grant for every 18-year-old in the UK.
• Darrick Hamilton and Sandy Darity proposed "baby bonds" where every newborn was endowed with an investment account whose size is inversely proportional to the child's family wealth.
• Prateek Raj proposed "universal basic wealth" such that all citizens had "ownership over some substantial property or wealth" like a basic house or apartment, and were not dependent on recurring government benefits.
• Yanis Varoufakis proposed universal basic income to be funded not from taxation, but from returns on capital where "a percentage of capital stock (shares) from every initial public offering (IPO) be channeled into a Commons Capital Depository, with the associated dividends funding a universal basic dividend (UBD)."

Pilot programs and experiments

Main article: Basic income pilots

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 2010, several pilot programs and experiments on basic income have been conducted. Some examples include:

1960s−1970s

• Experiments with negative income tax in 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 only decreased by 13%, much less than expected.

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 run 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 introduced a national basic income program in autumn 2010. It is paid to all citizens and replaces the gasoline subsidies, electricity and some food products, 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 (~215 USD) 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, 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, that a nonprofit organization launched in January 2017, which provides income for 56 adults and 88 children through mobile money.
• A two-year pilot the Finnish government began in January 2017 which 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 in the 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 Premier Doug 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 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 eToro.
• 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$1.6 million as of June 2020) 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 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 is 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 Euros monthly basic income in a lottery system to citizens who apply online. The crowdsourced project will last three years and be compared against 1,380 people who do not receive basic income.
• 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".

Examples of payments with similarities

Alaska Permanent Fund

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 (it has never exceeded $2,100) and is not a fixed, guaranteed amount. For these reasons, it is not considered a basic income.

Macau

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 Familia

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.

Other similar welfare programs

• Pension: A payment which 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.
• Guaranteed minimum income differs from a basic income in that it is restricted to those in search of work and possibly other restrictions, such as savings being below a certain level. Example programs are unemployment benefits in the UK, the revenu de solidarité active in France and citizens' income in Italy.
• Full and partial basic income: When the level of the basic income is high enough for people to live purely from that income, it is sometimes referred to as a "full basic income". If not, it is often referred to as a "partial basic income". No country has yet introduced either to all its citizens.

Petitions, polls and referenda

• 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."
• 2013–2014: A European Citizens' Initiative collected 280,000 signatures demanding that the European Commission study the concept of an unconditional basic income.
• 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 65% 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 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.
• 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.