This article appeared originally in Gulf News: link to original article
What’s the big deal about basic income? The idea is not new. It has, I believe, evolved from the handing of/transferring of cash stipends to poor families.
This was preferred to the conventional approach of subsidising food staples such as sugar or by subsidising gasoline prices as part of the government’s indirect support to who cannot afford market prices. Then came the argument of whether monthly cash stipends would do, or if a certain family should receive a one-time big cash payment, which the family can use to, for instance, pay off debt and start a small business.
The monthly payment qualifies as basic income, but for countries with high poverty rates. Today, the introduction of basic income is being debated everywhere. So what has happened?
Everyone is talking about automation, where AI (Artificial Intelligence) and machines are going to replace the majority of jobs, especially the ones that are at the bottom of the pay scale. There are plenty of details on that in Klaus Schwab’s “The Fourth Industrial Revolution”, where he quotes different reports produced by the World Economic Forum. It also provides example of professions that are most or least prone to automation, as well as skills that will be on high demand by 2020.
And so the assumption here is that such a shift would leave many unemployed, and without the necessary skills to qualify for a higher paying job. The cost-benefit analysis would be one of whether to spend money training the unemployed, or to just provide them with a basic monthly income. No clear answer as yet.
The concept of basic income is also similar to that of unemployment benefits, except that the former has no clear time limit while the latter is capped at an x number of months, (depending on whether it could be extended or not).
Is basic income good? Or put differently, are unemployment benefits good? Without getting into numerical evidence that supports either argument, one must acknowledge that one main setback to cash stipends — unemployment benefits and basic income — is one of dependency.
This is why the argument against cash stipends is very supportive of handing out huge cash amounts rather than monthly ones that would only cover main expenses. But what if the unemployed was asked to submit a business proposal to avail the monthly unemployment benefit, or future basic income? And then be advised on how to start a business before being given an amount, with checks and balances, to establish it?
If you think about it, the future is not in big corporations creating jobs, neither is it in inflated government sector recruitment, but rather in numerous small and medium businesses with each employing tens to hundreds of employees. Skills will be tailor-made for each of those businesses, with automation being integrated at a much earlier stage.
Back to basic income — it’s a noble call to action. It will guarantee that no one gets an income less than x amount in x country, which will definitely make the minimum wage cause completely obsolete.
However, there are a few issues with basic income: 1. Dependency on basic income for as long as it is paid; 2. The need to increase the basic income amount as cost of living goes up, or with inflation; 3. A possible rise in the number of people who would opt out of the job market to avail the basic income if the gap between that and their income is negligible; and 4. Basic income will make companies less innovative in creating jobs, which could eventually magnify unemployment.
Instead, a cost-benefit analysis should be carried out weighing the cost of training an individual versus a soft business loan, or an angel investment, to start their own business(es). And any business venture failure would be part of a crucial learning curve.
The last question that I want to leave you with: what’s your comparative advantage?