The idea of a Universal Basic Income (UBI) has ignited great interest amongst economists. It has also pushed both Left- and Right-leaning political parties into a competitive rush to prove who can provide more cash to people faster. Before they all fall over the economic edge like proverbial lemmings, policy-makers should pause to consider why the need for a UBI has arisen.
The shapes of all countries’ economies have been changed by global economic and technological forces whereby people in the lower halves of the economy are not earning adequate incomes. In advanced economies, they are earning much less than those above and so inequalities are increasing. In less developed countries, along with increasing inequalities, poverty persists because large numbers do not have secure sources of incomes to make both ends meet.
The fear is that, unless fundamental economic structures are changed, further advances of technologies into the realms of ‘Industry 4.0’, will deprive even larger numbers of people of opportunities for work from which they can earn adequate and steady incomes. This will lead to an economic crisis: how will markets grow unless consumers have more incomes, and how will capitalists obtain returns on their investments? It is also leading to a humanitarian crisis: how will people be able to provide the basic needs of their families for adequate food, shelter, and healthcare? In India, the precarious condition of small farmers and workers in the informal sector, who constitute over 90% of India’s overall workforce, has made all political parties jump onto the UBI bandwagon of “let us give them cash if we cannot give them jobs”.
UBI and its many variants—quasi-UBI and income supplements for targeted groups–treat only the symptoms of the disease. The root cause of the disease is that many people do not have work that provides adequate incomes. Therefore, policy-makers must focus on the reforms required in the economy to produce good jobs to provide good incomes by doing good work.
Jobs cannot be sprinkled into an economy by the government, except the jobs created within government for people paid by tax-payers’ money. Jobs—i.e. opportunities to work and earn incomes—spring out of the growth of economies. The shape of economic growth determines the numbers and types of jobs that emerge. The ‘gig’ economy is creating many opportunities for earning incomes. However, the incomes are insecure, and often insufficient. Moreover, the conditions in which people have to work to earn their incomes are not always satisfactory.
Delivery boys on motor-cycles, rushing around to deliver pizzas to customers who want them in a few minutes, must work long to earn little. They do not have an employer who cares about their health, and customers do not treat them with dignity. Moreover, their jobs do not provide them any opportunities to learn and develop themselves further. When Indian government officials tout the numbers of these precarious ‘jobs’ to claim that the Indian economy is generating adequate employment for Indian youth, they display their lack of understanding of what constitutes a good job.
A good job implies a contract between the worker and society. The worker provides the economy with services it needs. In return, society and the government must create conditions whereby workers are treated with dignity and can earn adequate incomes. Good jobs require good contracts between workers and their ‘employers’. Employers are those who benefit from the services workers provide the enterprise, even if they are not legally classified as ‘employers’. Therefore, the government, to discharge its responsibility to create a good society for all citizens, not only for investors, must regulate contracts between those who engage people to do work for the enterprise and those who do the work, even in the gig economy.
An appeal for government and employers to care for citizens and workers sounds like a call for ‘socialism’. It is a call for a ‘good society’, in which people have opportunities to stand on their own feet, by earning adequate incomes by doing good work. A good society does not require mindlessly more regulation. However, it needs firm regulation of good contracts between workers and employers.
Edmund S. Phelps, a Nobel Laureate in economics, has been a consistent critic of UBI. He says, “What matters to people is not just their total receipts; it is the self-support from earning their own way. The solution is not to endow workers with a UBI—that way lies to dependency, unfulfillment, depression and marginalization”. Prof. Phelps proposes a solution which sounds ‘socialist’, which is to institute a low wage employment subsidy. He wants employers to employ more numbers of less skilled workers and pay them well. If they are provided good working conditions and opportunities to learn and grow, they will lead more satisfying lives.
Dani Rodrik, another eminent economist, also advocates reforms that will induce firms to employ more numbers of less skilled workers. He says, “To increase productivity of firms, too often governments subsidize labor-replacing, capital-intensive technologies, rather than pushing innovation in socially more beneficial directions to augment rather than replace less skilled workers.”
India’s political leaders are challenged to provide more good jobs for the country’s huge numbers of young job-seekers. Panic solutions are: quotas for everyone in the limited numbers of government jobs, and raining down cash to farmers and workers in informal sectors in the garb of ‘universal basic income’. Neither is a solution for the Indian economy’s failure to create more good jobs at the bottom of the pyramid.
Economists and policy-makers must go back to the drawing board, to fundamental principles:
- ‘Fairness’ for workers must be a stronger principle than ‘flexibility’ for employers. Reduce the numbers of labor regulations but be very firm about the essential regulations to ensure good incomes and good working conditions.
- Tax incentives should be directed towards the hiring of less skilled workers, rather than attracting more capital investments that displace workers, so that people at the bottom of the pyramid can step on to the formal escalator for upward mobility in society.