Why The Universal Basic Income Is Not The Best Public Intervention To Reduce Poverty or Income Inequality

There is no uniform interpretation of Universal Basic Income (UBI). The simplest definition may be that UBI is a public program in which the state (at any level—national, regional, or local) transfers to everyone the same amount of money (usually similar to the level of income that defines a country’s poverty line).

Among the earliest supporters of public money transfers to everyone (although they did not use the exact terminology) were thinkers belonging to the liberal tradition. They were on the opposite side to those from political traditions based on labor movements, such as social democratic parties. These thinkers supported the establishment of public income transfers (pensions, unemployment insurance, family transfers, and the like) and public services (medical care, education, child care, home care, social services, and public housing). The former group, the liberals, proposed giving money to individuals and letting them take care of themselves through market forces: on the principle of supporting personal freedom, opposing state interference in that freedom. (Actually, the recent proposal by the Finnish government–an alliance of conservative and liberal persuasion–to provide income to everyone, seems to have gone in that liberal direction).

Is UBI needed because there will not be enough jobs?

More recently, there has been a demand for a universal transfer to everyone because of the fear that technological developments (robots and similar advances) will dramatically reduce the number of jobs available. “The future without work” seems to justify the need to substitute work with basic income because there simply will not be sufficient jobs.

This thesis, however, seems to ignore that historically, there has never been a relationship between technology, productivity, and jobs available. The enormous growth of productivity that has occurred since Keynes’s time has not reduced the number of jobs being produced nor the number of hours that each laborer works. Keynes’s prediction is well-known; he held that, owing to increments in labor productivity, the working week at the beginning of the 21st century would be only two days rather than five. And yet, it is still five. The potential was and continues to be there for reductions of jobs and working time. But it has not happened.

The reason is easy to see: political variables (the power of labor) rather than economic variables (productivity or technological innovation) are the main determinants of working hours and working days. Using the same technologies, their impact on jobs depends on the capital-labor power relations in each country. Moreover, human needs are growing continuously. Unemployment does not occur because the need for work has disappeared. Southern Europe is a clear example of that. The high unemployment in these societies has little to do with either technological innovations or the absence of human needs. Their high levels of unemployment are due to the enormous power conservative forces have historically had in these countries and their influence on the state. Unemployment there is a sign of the enormous weakness of labor.

Is UBI the best instrument to reduce poverty?

That UBI may reduce poverty is not in question. If a person lives in poverty and does not have a job, UBI will provide the money for him or her to not live in poverty. It seems reasonable to assume that UBI would reduce poverty. But the issue is not whether it will reduce poverty, but whether it is a better or worse way to do so. And here the evidence is extremely clear: UBI is not the best way to reduce poverty.

If we look at the countries in Europe that have been more successful in reducing poverty, like Sweden and Norway, the Scandinavian countries governed for the longest period of time since World War II by social democratic parties, none has UBI. All of them have a combination of work-related programs, income transfers related to specific conditions, and guaranteed income (not for everyone, but for those at risk of poverty). Guaranteed income is usually larger than the one provided by UBI, because its primary objective is to maintain income at the standard of living of the working population. The success of those experiences explains why most parties rooted in labor movements have followed this traditional social democratic road. The evidence is strong: the consolidation of these programs is more effective in reducing poverty and less costly than UBI.

Why should we spend so much on providing money for everyone, when we would need much less (about 70 times less in terms of percentage of GNP) to reduce poverty by paying a guaranteed income to those at risk of poverty, enabling them to get out of poverty by other means as well? Rather than giving money to everyone, why not help the poor get out of poverty, not only by giving them money, but also by helping them get out of the situation they are in? Poverty is more than lack of money.

Is UBI the best program to redistribute income?

A similar situation arises when we consider whether UBI is the best intervention to reduce income inequalities. Here again, UBI will indeed produce some form of income inequality reduction. But there are more effective ways to reduce inequalities, as the evidence clearly shows. We can see that the countries with lower inequalities have been those—like the Scandinavian countries belonging to the social democratic tradition—that have achieved the said reduction through fiscal and redistributive policies and through labor market interventions.

The most important variables in the reduction of income inequalities are political and are based, again, on the status of capital-labor relations in each country. In countries where labor is weak, inequalities are large. This is the reason why income inequalities have been growing as dramatically in many countries, on both sides of the northern Atlantic (North America and Europe): labor has been increasingly weak. As a consequence, we have seen income derived from capital growing far more rapidly than income derived from labor. Indeed, a major cause of inequality has been the enormous growth of the concentration of wealth (property generating income). In this context, the correction of inequalities based on UBI (in which each individual gets the same amount) is dramatically insufficient.

Parties that are committed to reducing inequalities should not channel that reduction through UBI, but rather through a combination of fiscal and redistributive policies and labor market interventions aimed at increasing the percentage of total income derived from labor at the cost of the percentage derived from capital – as most progressive parties are already doing.

A final observation: the growing weakness of labor explains the large deterioration of the labor market, with a third of the labor force (almost half in Southern Europe) in precarious work, one of the major reasons for the growth of poverty and of income inequalities. To believe that UBI is the solution (or part of the solution) to what has been called the “precariat” is to ignore the active causes of the deterioration of the labor market, causes that remain untouched with UBI measures. This “remaining untouched” was the primary reason liberal thinkers proposed the initial focus on UBI. It is impossible to resolve the problems of precarious work and of the precariat without touching on the relation of power, both in the state and in the labor market, between capital and labor.