Posted by: seanmichaelbutler | March 4, 2010

LIFE, LIBERTY, AND A LITTLE BIT OF CASH

Three years ago, Jay Hammond figured his time was nearly up. At least he’d led a full life: Marine Corps fighter pilot in World War Two; bush pilot in Alaska; master hunter and fisher with the U.S. Fish and Wildlife Service; and over two decades of political service, culminating as the Governor of Alaska. Shortly after retiring from office, he dreamt that he’d be granted 20 more years of life at his beloved Lake Clark homestead, to do penance for whatever “sins of omission or commission” he may have inflicted. When those 20 years expired in 2002, Hammond waited stoically for the end.

But his premonition proved false. Hammond may be slowing down, but he’s not stopping yet. Just last year, after crashing a meeting of the Conference of Alaskans,  the octogenarian flew to Washington, D.C, for the third annual gathering of the U.S. Basic Income Guarantee (USBIG) Network – a group advocating a guaranteed annual income to be paid by the government to every citizen. Hammond, far from barging in uninvited this time, was its keynote speaker.

He came to talk about the Alaska Permanent Fund – the world’s only basic income – which he wrestled into existence in 1976. The idea first came to him back when he was a Republican representative for the fishing village of Bristol Bay. He noticed a lot of wealth flowing out of the village – in the form of salmon – while the local people remained poor. His idea to collect a three percent tax on all fish caught by non-residents wasn’t that unique, but what he proposed to do with the revenue was: redistribute it equally to each resident of the village. Ten years later, Hammond was Governor, and had the chance to test his ideas at the state level.

Whereas fish had been the source of wealth for Bristol Bay, oil was the cash cow for Alaska in general. Hammond wanted to return a portion of the state’s massive oil royalties directly to its citizens. A referendum, a constitutional amendment, and several years of political wrangling later, he had his wish.

The Alaska Permanent Fund invests at least a quarter of the state’s mineral revenues annually. Depending on the success of those investments, a dividend is paid to each Alaskan – one citizen, one share. The dividend peaked recently at nearly US$2000 – that’s US$8000 extra a year in the pockets of a family of four. Thanks in part to these payouts, Alaska has the smallest gap between the rich and poor in the United States. (Although everyone gets a dividend, the rich lose more of it to taxes than do the poor.)

Understandably, the people of Alaska have come to love their Permanent Fund, which has now grown to almost US$30 billion. Hammond has received accolades from groups as diverse as environmentalists, developers, and sportsmen. After being honoured by his old nemesis, the Teamsters Union, he marveled, “what can I expect next…an award for my contributions to public morality, co-sponsored by Jerry Falwell and Larry Flynt?”

Praise has also come from Nobel laureate economist Vernon Smith, who called the Fund, “a model governments all over the world would be well-advised to copy.” In particular, both he and Hammond single out Iraq as an ideal starting point. “This is the time and Iraq is the place,” said Smith, “to create an economic system embodying the revolutionary principle that people’s assets belong directly to the people and can be managed to further individual benefits and free choice without intermediate government ownership.” 

Shortly after taking over his new post in Iraq as Chief Administrator, Paul Bremer spoke in favour of an Alaskan-style dividend program for post-war Iraq. And according to Alaskan Senator Ted Stevens, even President Bush was “very much interested” in the idea when he spoke to him in 2003.

The success of the Fund has attracted attention from other oil-rich regions. Alberta Premier Ralph Klein, in a December 2000 Calgary Herald story, was reported to be considering following Alaska’s lead. The idea was backed by academics, consumer advocacy groups, the Canadian Taxpayers Federation and the Alberta Liberals, and is still being discussed as a responsible way to deal with Alberta’s budget surpluses. 

“There’s been a revival in [basic income] the last six years, particularly out of Europe,” says Mike McCracken, a founder of the Ottawa-based economic research firm, Informetrica. Ireland, according to Scottish Parliamentarian Robin Harper, “is now seriously discussing the introduction of a citizen’s income…”

While these initiatives simmer, there is a country that is about to unseat the Alaska Fund’s claim to uniqueness. That country is Brazil, which, starting this year, plans to begin to phase in the world’s first national basic income.

It’s not surprising that Brazil should be the first nation to do so; while reasonably developed, it has one of the most unequal distributions of wealth in the world. (Another industrialized country in the wealth inequality basement is South Africa, where, not coincidentally, a coalition representing over 12 million people is propelling basic income onto the government’s agenda.)

The plan in Brazil is to extend the basic income first to the nation’s most needy and then, over a period of several years, to the entire population. It hasn’t been decided yet how much will be paid, but it’s been suggested that R$480 a year (US$180) would be a good starting point. It doesn’t sound like much, but for the 22 percent of Brazilians who survive off less than US$2 a day it would make a huge difference, boosting their incomes by at least a quarter. A basic income for Brazil could be, in the words of its former President Fernando Henrique Cardoso, a “realistic utopia”.

 It just so happened that the father of the Brazilian basic income, Senator Eduardo Suplicy, also presented at the USBIG conference last year. During his speech, he noticed Jay Hammond sitting in the front row, and, to warm applause from the assembled crowd, descended from the stage to shake his hand. The two basic income pioneers had at last met.

Yet Hammond and Suplicy make an odd couple. The Republican Hammond, with his Hemmingway-like white beard and grizzly build, wears his far north ethos of self-reliance with pride. Suplicy, on the other hand, a founding member of the left-wing Worker’s Party and a U.S. trained economist, has the dignified appearance of an intellectual and professional politician. It’s tropical socialism meets arctic capitalism, yet somehow, when the two come together over basic income, they actually get along.

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Perhaps the first basic income – albeit limited to free adult males – was in ancient Greece. In a 2,500-year presage to Hammond’s creation, dividends from the lease of the silver mines outside Athens were distributed to the republic’s citizens. A mere 200 years ago, Thomas Paine, the pamphletist and political philosopher whose words are credited with inspiring popular support for the American Revolution, argued that a portion of the proceeds from agriculture belong to everyone as the “natural inheritance” of land. He detailed a plan, involving inheritance taxes, by which a fund could be established to compensate every adult on a yearly basis for the privatization of land. And it was around this time that England, in an attempt to deal with the dire poverty of the early Industrial Revolution, started paying benefits to the working poor in a system called Speenhamland. But, because the benefits were so low, and were only paid to those with a job, they ended up becoming a subsidy to employers and were abandoned in 1834.    

The apogee of the basic income concept began in post-Second World War America. In 1946 Nobel laureate economist George Stigler originated the idea for a Negative Income Tax (NIT), and in 1962 neo-liberal economist Milton Friedman – also a Nobel winner – along his wife, Rose Friedman, refined and popularized the idea in their book, Capitalism and Freedom. The NIT concept is elegantly simple: if your income falls below a certain threshold, you receive a refundable tax credit that is a percentage of the shortfall. For example, say the threshold is set for $5,000, and the negative tax at 50 percent. If you only earned $3,000, your credit would be 50 percent of the difference between $5,000 and $3,000, which equals $1,000, bringing you total income up to $4,000. If you earned nothing, your credit would be $2,500, effectively establishing that as the minimum income. 

In 1967, President Lyndon Johnson established a National Commission on Guaranteed Incomes, and after two years of hearings and studies the body’s business leaders, organized labour representatives, and other prominent Americans were unanimous in their support for a basic income. In 1969, shortly after over 1,200 economists had signed a petition in favour of the NIT, and with rioting growing every summer in the poor, black neighbourhoods, President Richard Nixon proposed a version of the NIT to replace the existing welfare program. Limited to families with children and contingent on the acceptance of work or training, it established a minimum income of US$1,600 a year for a family of four (about US$8,000 in today’s dollars). For the next three years, the bill was fought over by politicians, with liberals demanding that none of the poor receive less benefits under the NIT than they currently got, and conservatives insisting on more onerous work requirements. Several different versions of the bill passed votes in Congress, but none successfully ran the gauntlet of the Senate. In the end, the Nixon administration abandoned the plan after it became clear that the urban rioting of the mid to late 60’s had miraculously ceased.       

In Canada, we seem to toy with the basic income idea every 15 years or so. In 1971, the Special Senate Committee on Poverty produced a report, known as the Croll Report, which recommended Canada replace its existing welfare programs with a single basic income, set at 70 percent of poverty levels (about $16,000 in today’s dollars for a family of four) and limited to families or those over 40 years old. In 1985, the Royal Commission on the Economic Union and Development Prospects for Canada – the MacDonald Commission – proposed a below-subsistence basic income (about $10,000 in today’s dollars for a family of four) with work conditions, and limited to families or those over 35 years. While the Croll Report had been focused on fighting poverty, the MacDonald Commission was more interested in scrapping social programs that interfered with the free market, and replacing them with an efficient social safety net that would catch those who might suffer from the liberalization agenda. The Commission’s other major recommendation, free trade with the United States, was, of course, adopted by the Mulroney government, but basic income was ignored.

Shortly after being elected to his third straight majority in 2000, Jean Chretien started casting around for a legacy. The idea that he was considering a guaranteed annual income was leaked to the media, and a flurry of editorials followed. In the National Post, McGill economics professor William Watson complained that “not even the wacko lefty party dared propose such an ambitious spending plan,” while an Ottawa Citizen headline predicted a “Guaranteed Annual Deficit.” The Prime Minister quickly pleaded ignorance, saying, “I don’t know where this idea came from. I never said a word on this.” While that may be questionable, it is true that he never said a word about it again.       

Many public figures, however, have been less shy about voicing their support for basic income. They include nine Nobel laureates in economics, from James Buchanan and F.A. Hayek to James Tobin and James Meade (who was a lifelong member of the Basic Income European Network), as well as other well-known economists like Samuel Britton, who wrote a book on the subject, and J.K. Galbraith, who in 1999 called it one of two pieces of “unfinished business” for the millennium. Other influential spokespersons include Bertrand Russell, John Ralston Saul, Desmond Tutu, and Martin Luther King. Political parties that back it are often of the Green or left-liberal persuasion, but not always – in 1993 the Reform Party of Canada, taking a page from their Social Credit predecessors, put basic income on their election platform.      

Is BIG better? 
So far, all of these proposals, from Nixon’s to the MacDonald Commission’s, have not been true basic incomes, because strings have been attached. You must be a parent, or over a certain age, or under a certain income, or accept work requirements. Retired Canadian Senator Lois M. Wilson, in her forward to Laval University professor François Blais’ 2002 book, Ending Poverty: A Basic Income for All Canadians, gives a definition that gets to the heart of the basic income vision: “an unconditional income that the government awards to every citizen.” The ideal basic income is unconditional, and therefore universal. While it may seem odd at first to give money to rich and poor alike, no questions asked, in Canada and much of the developed world we have generally accepted the universality of health care, roads, libraries, schools and many other services offered free of charge to anyone who wants them – all in the interest of promoting equality.

But there are other reasons why basic income’s advocates tend to favour universality. Support programs targeted at only the poor often result in a “poverty trap” – the work disincentive created when the government “claws back” 75 cents or more in benefits for every dollar of earned income. Targeted programs also stigmatize recipients, create an “us versus them” mentality, are intrusive into people’s personal lives, and require large and expensive bureaucracies to administer. The money saved from the elimination of the middlemen could help fund a basic income.

But perhaps the strongest argument for a universal basic income comes not from a claim of utility, but one of rights. This concept is legally enshrined in Article 25 of the UN’s Universal Declaration of Human Rights, which Canada signed in 1948: “Everyone has a right to a standard of living adequate for the health and well-being of himself and of his family…” If this right cannot be met with a job, the thinking goes, it must be met with some form of basic income.

This right is based on what one needs to survive, but there is another approach to rights, based on Thomas Paine’s notion of “natural inheritance”. In his essay, “Agrarian Justice”, he argues that the value of agricultural produce comes partly from the labour of the farmer, but also partly from the land itself. While the farmer is entitled to the value he added to the land by growing crops, he should share the base value of the land, which is the natural birthright of every person.

Paine, writing at a time when farming was the main source of wealth, was only concerned with land. But today, we can apply his principle to many forms of natural and social capital provided by the Earth and past generations. This “unearned wealth” includes the air, water, land, sunlight, the ecosystem, the ozone layer, mineral resources, and the body of knowledge, infrastructure and institutions built up by civilizations over the centuries. According to many economists, this commonwealth is worth more than the total of private wealth. Whenever it is taken over by private interests – justified by the greater productivity this usually produces – its previous owners, the people, should be compensated. It’s at this point that the argument for a right to a share of the commonwealth presents a solution to the problem of how to fund a basic income. 

In an Atlantic Monthly cover story, “A Politics for Generation X”, New America Foundation CEO Ted Halstead writes that “…America could raise trillions of dollars in new public revenues by charging fair market value for the use of common assets – the oil and coal in the ground, the trees in our national forests, the airwaves and the electro-magnetic spectrum – and the rights to pollute our air…and [return] the proceeds directly to each American citizen…” What he, and others, advocate is not common ownership, but common benefit from our natural and social inheritance. It’s like the Alaska Permanent Fund, only writ large.

This idea of switching taxes from “goods” like income or trade to “bads” like resource exploitation or pollution has been favoured by many environmentalists for years, as a way of incorporating the true cost of the ecosystem into the price of business. So, while raising money for a basic income by taxing limited resources, we would also be moving toward a more sustainable economy without over-regulating. But natural resources aren’t the only scarce resource. Britain, for example, recently auctioned off licenses for use of the radio spectrum for the third generation of mobile phones over the next 20 years, raising £22.5 billion for the public purse.

This approach to funding circumvents a typical criticism of basic income (and redistribution in general) – that it gives people “something for nothing”. The conservative conviction that TNSTAAFL (There’s No Such Thing As A Free Lunch) ignores the fact that we all get something for nothing – in the form of gifts from nature and society – every day. Senator Suplicy points out that we recognize the right of property owners to receive an income from the rent, interest, or profits of their property, without necessarily doing any work. If the gifts of nature and society are rightfully the property of all, then why shouldn’t everyone be entitled to an income from them without working? Sharing these gifts equally wouldn’t be redistribution so much as what some have called “predistribution”.   

While these ideas are the intellectual progeny of Alaska’s precedent-setting Fund, there is a more traditional approach to financing a basic income: income taxes. It’s at this point that Hammond and some of his admirers part company from people like Waterloo professor Sally Lerner, co-author (with C.M.A. Clark and W.R. Needham) of the 1999 book, Basic Income: Economic Security for All Canadians. The book gives a rough sketch of how a yearly basic income of $7,000 for seniors, $5,000 for adults, $3,000 for children, and an additional $5,000 per household could be funded by a 40 percent flat tax on all earned income. Under this scheme, people in all categories who earned less than $30,000 a year would see their net incomes rise compared to the current tax and benefits system. While some who earned over $30,000 would see their net incomes decline, even at the $100,000 income level seniors and families of four with one wage earner would still benefit.

Lerner and her co-authors admit this funding formula has its drawbacks. For instance, a basic income would likely cause some people to reduce their paid employment, thus undermining the very income tax revenues that fund it.

Yet Karl Widerquist, the economist who has organized the USBIG conferences since their inception in 2002, isn’t too concerned about which way to fund it – resource rents or income taxes – “because it ends up coming out of the same pockets either way. The people who own most of the natural resources are also the people who have the highest income.”

Whichever way it’s funded, most BIGists would agree with Canadian-born Harvard economics professor J.K. Galbraith when he opined, “Everybody should be guaranteed a decent basic income. A rich country…can well afford to keep everyone out of poverty.”

The Ends Game
We may have the rights and the means to a basic income, but would we want the ends? A common complaint is that the security of a basic income would create a work disincentive – people would choose to work less and, as a result, the economy would suffer. Back in basic income’s heyday, the U.S. and Canadian governments set up ambitious social science experiments (surreally, the U.S. tests were run by Donald Rumsfeld and Dick Cheney) to measure the extent of this effect, giving thousands of families a NIT for several years. Unsurprisingly, they had no difficulty finding experimental subjects. They found that American husbands worked an average of 6 percent less hours per year, and their wives 19 percent less; Canadian wives reduced their paid work by 3 percent, while their husbands worked only 1 percent less. These results, however, are likely understated because recipients knew the benefits were only temporary.

But in light of the current climate of jobless growth, automation, outsourcing, and offshoring, one has to wonder if a disincentive to work might not be such a bad thing. “The absolute number of hours that people need to work is probably coming down in order to meet society’s needs,” says Informetrica’s Mike McCracken, “and there’s every reason to think that that will continue in spades.” The percentage of the U.S. population working on farms has declined from 40 percent a century ago to less than 2 percent today. While the increased wealth resulting from this huge leap in productivity has created many new jobs in the manufacturing and service sectors, increasingly, the work we do is not geared towards survival. A study by the International Metalworkers in Geneva predicts that within the next 30 years, 2 to 3 percent of the world’s population will be able to produce everything we need. “Canadians,” write Lerner and her co-authors, “should now begin to find ways to decouple basic economic security from the traditional jobs that may not be there for a growing number of people.”

“With a guaranteed income,” writes professor Michael L. Murray in “…And Economic Justice for All”: Welfare Reform in the 21st Century, we could “greet the prospect of higher levels of unemployment not with fear and loathing but with pleasure.” Perhaps the idea of full employment is now as anachronistic as the idea of everyone having their own little farm. Perhaps we are beginning to enter the state of post-scarcity John Maynard Keynes foretold for his grandchildren, whose major problem, he thought, would not be the adequacy of resources, but how to best distribute the surfeit of wealth made available by rising productivity. It’s a big jump for a society whose oldest members lived through the Great Depression to now accept that survival needn’t be a struggle anymore. But Murray believes “…we no longer need the drastic negative enforcement of poverty. The United States is sufficiently wealthy…that we can survive quite nicely with the incentive to do better. We no longer need the incentive to survive.”

Such a perceptual leap would represent a profound revolution. That’s why Philippe Van Parijs, currently a visiting professor at Harvard and secretary of the Basic Income Earth Network (BIEN), sees basic income as “…a deep reform, which belongs in the same category as the abolishment of slavery or the adoption of universal suffrage.” Over the past few centuries we have seen the gradual emancipation of the individual from church, state, and fellow human, but one major coercive element remains: the power of the employer over the employee.

“We talk about being a free country, a free people, which is hugely important to us,” says Widerquist, yet people are often forced to take any job they can get. A basic income would give them the power of refusal – if the job conditions or pay weren’t satisfactory – that’s essential in any economic transaction, thus correcting the typical power imbalance between employer and employee. “We do not need to build our society on the unfreedom of poor people,” says Widerquist. “We can have the people at the bottom not be destitute and still have a functioning economy.”

While there would undoubtedly be some who took their cheque but gave nothing back to society, we should, according to Parijs, be “even more comfortable about everyone being entitled to an income, even the lazy, than about everyone being entitled to a vote, even the incompetent.” Besides, “even the lazy” would at least be spending their money, providing jobs for those who wanted them.  

While a basic income would give people freedom from unsatisfying or unrewarding work, it would also give them the freedom to spend their most precious resource – time – how they wished. How many people, one wonders, would go back to school, start a small business, spend more time with their kids, volunteer in their community, or pursue the artistic impulses they never had time to nurture? How much better would democracy be served if people had more time to stay informed and participate in the system between elections? In 1997, the OECD Forum on the Future acknowledged the value of “a universal citizen’s income intended to put greater value on the broad range of human activities that extend well beyond paid work”. At last, the hard work of raising a family or caring for the elderly – long unrewarded by the market economy – would be implicitly valued by a basic income. 

Far from hurting the economy, freedom from the punch clock could actually release a flood of human creativity and ingenuity that would reverberate through it for years. “The work which improves the condition of mankind,” wrote Henry George, the 19th century author of Progress and Poverty (which the Wall Street Journal called the greatest economics treatise ever written by an American), “which extends knowledge and increases power and enriches literature and elevates thought, is not done to secure a living…In a state of society where want is abolished, work of this sort could be enormously increased.”

Paul Kane, author The Play Ethic, gave an example of this in a recent interview with The Herald in Scotland: “J.K. Rowling is a classic example of the play ethic. There she is, a single mother, no partner, surviving on benefit and a six-grand grant from the SAC. And in that moment when she determines her own space and time, she creates the biggest cultural franchise in the world.”

Indeed, basic income has the potential to be a great boon to capitalism in general. The secure foundation of a basic income, acting in a similar way to a corporation’s limited liability, would probably encourage more entrepreneurial risk-taking and innovation, and allow workers to adapt to the more flexible hours requested by businesses. Moreover, while saving society from the costs of poverty and inequality (a B.C. government study estimates that one homeless person costs from $30,000 to $40,000 a year in shelters, courts, and other services), a basic income would accomplish a classic goal of the political right: put money back into people’s pockets. This would give more people greater spending power, spurring consumer demand.

But perhaps the greatest gift to capitalism that basic income has to offer is a solution to the age-old war between government intervention and free markets. Ever since the introduction of the welfare state in the 1930’s, governments have sought to correct the perceived injustices of the market system by imposing an array of regulations and redistributing wealth. While these measures have relieved poverty with varying degrees of success (or, depending who you talk to, exacerbated it), they usually distort the efficient functioning of markets. The battle lines are drawn clear, for example, around minimum wage. Right-wingers complain that it prevents the price of labour from finding its natural level, while left-wingers point out that nothing in economic theory guarantees that the natural level will be enough to live on. So government steps in and fixes the minimum price for labour. If, however, instead of trying to meddle with the outcomes of economic activity, governments were to collect a portion of the value of essential inputs at their source (resource rents, for instance) and “predistribute” them sufficiently to eradicate poverty, the rest of the economic system could be run as a neo-liberal utopia without too much worry about inequality. Why have labour legislation when workers can bargain for better conditions themselves from the improved economic standpoint of a basic income?

It was no coincidence that the original welfare state sprang into existence in response to the economic hardship of the Great Depression. Likewise, writes Carleton University professor Manfred Bienfeld, “…the basic income movement experienced its recent strong revival as a direct reaction to the destruction wrought in people’s lives by the neo-liberal revolution.” The difference is that, this time, the reaction doesn’t have to be in opposition to the forces that compelled it, but instead can actually support them. 

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If basic income has so much to offer both the Hammonds and the Suplicys of this world, it begs the question: why don’t we have one already? While both sides of the political spectrum are attracted to the idea, says Widerquist, both “have some reason to be angry about it.” Canadian Auto Workers economist Jim Stanford cautions against allowing “the BI movement’s slogans about providing basic coverage to every Canadian to be used to bring about a ratcheting-down of hard-won and already-threatened social benefits,” and instead calls for a “living wage” through collective bargaining, minimum wages, and other forms of labour market regulation. While his fears are warranted (the MacDonald Commission proposed exactly this sort of “ratcheting-down” in exchange for a meager basic income), to Lerner his solution “seems to fly in the face of the new world of work created by globalization and technological change.” She believes “we can demand living wages, but, to the extent that employers can find low-wage workers elsewhere, and replace demanding workers with smart machines, there is little leverage to get those wages.”

The left has been fighting a desperate rear-guard action for the past 30 years, so it’s not surprising the many on that side can think of little else but to hold on to the disintegrating remnants of the welfare state. But the right, though ascendant, is also clinging to an outdated morality of work. Martin Luther King was ahead of his time when, in appealing for a basic income he wrote, “We are wasting and degrading human life by clinging to archaic thinking.” It seems that King was ahead of our time, too. The left will need to move beyond its efforts to control the market, and the right abandon its fictional American Dream, before a consensus around basic income can be realized.     

“…it will require a suspension of deeply held beliefs for many Canadians to think calmly about a BI,” write Lerner and her co-authors. To even speak of a basic income in an age of curtailed public expenditures, thinks McGill University professor and BI-supporter Myron J. Frankman, “seems like dreaming in Technicolor.” Yet change often comes faster than we imagine. “No one reading the press or the journals of 1929,” writes Bienfeld, “could have imagined the arrival of the New Deal in 1933 in the United States.” In the end, opposition to basic income seems to stem more from a paucity of imagination than of means. In the referendum that gave birth to the Alaska Permanent Fund, about a third voted against it; if the vote were held again today, almost no one would oppose it. Whether we decide a basic income is the right thing to do, the best thing to do, or the only thing to do, it seems likely that the freewheeling imagination that inspires Jay Hammond and Eduardo Suplicy will eventually work its way into the rest of us.

Copyright Sean Butler 2005

Published in Dissent Magazine, Summer 2005

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