Will Universal Income Ever Work?

The idea of a guaranteed basic income has been around for centuries and in contemporary times has drawn support from as wide-ranging figures as The Rev. Martin Luther King, Jr. and President Richard Nixon. The idea has become more popular in recent years thanks to Tesla’s Elon Musk and Facebook’s Mark Zuckerberg, both who say automation is changing the traditional employment model.

“There will be fewer and fewer jobs that a robot could not do better,” said Musk at the 2017 World Government Summit in justifying the need for a basic income.

The idea has drawn interest around the world, with various countries such as Canada and India, among others, conducting experiments on how a free fixed amount of money granted to people will affect economies.

Enter Finland. The Nordic country already known for its government’s heavy investments in education and quality of life for its citizens, announced recently it will not extend its two-year-long basic income test program when it expires this December. Through the program, 2,000 unemployed residents between 25 and 58 years of age received around $670 a month; the announcement signals how the measure was never a favorite of the conservative government.

“The plan was to have an experiment for 2017-2018,” says Olli Kangas, director of government and community relations at Kela, the Finnish government agency that led the basic-income experiment. “However, in our report to the government we recommended that there would be an extension either with a different model or with the same model but extended to other population groups.”

Finland’s minister of finance says he’s more interested in measures that will lead to a higher employment rate among an aging population and, according to the Financial Times, is not a big fan of the basic income experiment. In addition, the government is pushing the jobless to take on a paid activity or risk losing some benefits.

“We have to reform our society in order to activate people to reach a higher employment rate and to save the welfare state,” the minister, Petteri Orpo, told the FT. “This is what I call Nordic welfare model 2.0.”

The original purpose of the basic income program was to test if granting people such funds would simplify the social security system and serve as a stronger work incentive. Experts say it’s too early to say it failed or succeeded to produce good results as results will be analyzed at a later date, but point out that the initiative was not a classic universal basic income (UBI) model.

“It was a pilot very specifically aimed at people without jobs, so one could even argue it’s not actually a basic income pilot,” says Natalie Foster, co-chairperson of the Economic Security Project, a network advancing the debate on basic income in the United States and supported by Facebook co-founder Chris Hughes.

New Methods for an Older Purpose

The concept of a government unconditionally transferring money to citizens is popular in European countries that often pay benefits to support children or families. Yet, according to the Organization for Economic Co-operation and Development, no country has yet implemented this as a “principal pillar of income support for the working age population.” The measure, which is meant to respond to increased concerns related to changes in the work force and growing inequality , may actually increase poverty and inequality, studies show.

Guaranteed income experiments are still being carried in Canada and the U.S., where more than 70 percent of Americans say artificial intelligence will eventually affect the labor market and 48 percent support a universal basic income, a Gallup report shows.

“There’s this idea that some people might lose out because of circumstances and luck and this will sort of make up for that,” says Kimberly Burham, managing director for legislative affairs at the Wharton School at the University of Pennsylvania, who has researched the topic.

The Alaska Permanent Fund is one of the closest examples of functional universal basic income in place today. It ensures every resident of that state gets a fixed income from state oil revenues, and reached a record payout of more than $2,000 per person in 2015 (in 2017, every Alaskan received $1,100 ). Payments began in 1982 and the effects so far have been positive, economists say, and contrary to fears that Alaskans would quit work altogether, some have only opted for working fewer hours, and it may actually have sparked job growth in certain sectors.

“Giving all this cash means people are spending the cash , and so we’ve seen evidence that local businesses and restaurants and the like were hiring more people in response to this cash injection,” says Ioana Marinescu, assistant professor of economics at the University of Pennsylvania School of Social Policy & Practice. “That actually made the employment effect less negative.”

Similar experiments are being considered in Stockton, California, where city officials have a program in its design phase that will give 100 selected residents an extra $500 a month. The Y Combinator, one of the most prestigious tech accelerators in the U.S., is also looking into such a project in Oakland, California.

Outside of the U.S., the Canadian province of Ontario is testing out a pilot experiment with up to 4,000 low-income participants. In Kenya, the GiveDirectly charity began giving people $22 a month as part of a 12-year-long experiment. Similar measures are being carried out in Uganda and in Livorno, Italy, where a selected group among the poor receive around $500 a month. In Switzerland, such an initiative was rejected in 2016, while it’s been talked about but not implemented in places such as Spain, Scotland, and India, an OECD report shows.

“We don’t think there is a clear prerequisite for (countries to test) the universal basic income model,” Marinescu says. “There have been such programs in developing countries and they show similar general effects to what we’ve seen in developed countries.”

UBI research has focused on various approaches, including combining all financial support programs into one category to reduce bureaucratic costs and improve efficiency. However, there are drawbacks, say experts: government corruption might affect results. Additionally, some countries and jurisdictions may benefit more from a universal income program than others.

“It feels to me like countries where the safety net is a patchwork of supports for people (such as in the United States) are places where a guaranteed income could have even more impact in people’s lives,” Foster says of the Economic Security Project.

Finding sustainable sources to fund such a program also is a challenge. A study from the liberal New York-based think tank Roosevelt Institute showed that granting every American $1,000 a month would bring around $2.5 trillion to the U.S. economy if conducted through a deficit-financed plan. At the same time, for $500 per month, the gross domestic product would gain as much as 6.8 percent within eight years. A model by the Wharton School at the University of Pennsylvania that looked at the Roosevelt study showed that giving $500 to a person would also increase federal debt by more than 63.5 percent by 2027 and by 81.1 percent by 2032, while GDP would fall by more than 9 percent by 2032.

While there is no consensus as to where the money should come from, economists say several types of taxes might be the answer, such as corporate taxes or carbon taxes.

“While support for increased personal taxes to fund a UBI program is mixed, the vast majority of supporters favor taxing the companies that benefit most from AI (artificial intelligence) to fund the program,” said the Gallup report’s authors.

Overall, economists say counting on a livable, government-provided universal income is unrealistic, as governments need to figure out the sources of income to support more than just isolated experiments.

“If you really want to give this to people you have to see where your budget is going to come from,” Marinescu says. “It’s unrealistic on the short run to have anything but a modest amount [that is given to people] because a larger amount is not feasible without major changes in either the existing benefit system or the tax code.”