Coronavirus has made basic income not just desirable but vital

A basic income could provide the demand for basic goods and services the economy will need, and give people and their communities the resilience we need.

  • COVID-19 could tip our fragile economic system into a depression.
  • Means testing benefits creates a poverty trap discouraging people from taking work.
  • A basic income would increase the incentive to take whatever jobs become available.

Having advocated and tested it for over three decades, I have always regarded basic income as mainly justifiable for ethical reasons, for a good society, although the economy could survive without it. Now, in this pandemic, the economy will not survive without it.

To understand why, we must appreciate that the oncoming slump was waiting to happen, because the global economic system had become uniquely fragile. It had become rentier capitalism, not free market capitalism, disproportionately benefiting those living on income from property or investments.

Reforms that began in the 1980s under the influence of the Mont Pelerin Society and the Chicago School of Law and Economics created opportunities for powerful interests to erect an institutional system whereby more and more of the income flowed to the owners of assets – physical, financial and so-called intellectual.

A well-known result was that the labour share in national income fell, globally, while a new class structure emerged, with a plutocracy holding obscene wealth and enormous economic and political power, and with a rapidly growing ‘precariat’ enduring bits-and-pieces lives, surviving insecurely on the edge of unsustainable debt.

Labour’s share of income has continued its decline in recent years

Image: ILO

In 1942, William Beveridge produced a report that shaped the postwar era, in which he said the challenge was to slay five Giants – Disease, Idleness, Ignorance, Squalor and Want. I believe that today the combination of rentier capitalism, a technological revolution and rampant globalisation has created eight modern Giants – Inequality, Insecurity, Debt, Stress, Precarity, Automation, Extinction and Neo-Fascist Populism. One could call coronavirus the ninth Giant or the trigger that tips a fragile global system into potential depression.

An analogy is the Spanish flu of 100 years ago. It resulted in over 40 million deaths globally. But, while there was a recession, it was nothing compared with what is coming now. In 1920, the rising economic superpower, the US, was able to bounce back because it had inbuilt resilience. Private debt was less than 50% of GDP, corporate debt was insignificant, finance was not domineering.

By contrast, before the coronavirus pandemic hit, US private debt was over 150% of GDP, corporate debt 73%, and finance accounted for 350% of GDP. Moreover, most of the big corporations were locked in global supply chains, in which disruptions at any point could be expected to disrupt the whole. This was an incredibly fragile economic system.

Even a small recession in such circumstances would have spiralling negative effects. This is not a small one. Many millions of people will be unable to service their debts, resulting in mass homelessness, social illnesses, violence and worse, while numerous corporations and small businesses will become insolvent.

Support for Universal Basic Income in the US, UK and Canada
Support for universal basic income was high even before coronavirus.

We have seen the bail-out take off, with new fancy monetary instruments coming to the fore. A danger is that we will see an attempted repeat of the post-2008 strategy of Quantitative Easing coupled with fiscal austerity, with cuts to public social spending that has left all OECD countries disgracefully ill-prepared for the rescue phase of the pandemic. Inequalities will be intensified and other Giants will be strengthened.

Ultimately, this is the biggest demand shock in modern history. That is where basic income comes into the equation, moving from desirable to essential. After years of intellectual loneliness, basic income is today finding converts and open advocates from across the political spectrum. We must hope that will result in more politicians showing some backbone in this debate.

It will be important to take account of the lessons learned through pilots and other experiments. The design does matter a lot. A basic income is the payment of a modest amount in cash or the equivalent, paid to individuals, not households, which are structured so that vulnerable members could easily be disadvantaged. Individualized gender equality matters at all times.

They are not lump-sum capital payments. That is a mistake being made in several countries. These have several disadvantages, including a “weakness-of-will” effect, inducing a gambling mentality of spending it all in one go, leaving the person vulnerable in the next phase. Regular modest payments induce gradual improving behaviour and capabilities. In our pilots, we have seen how.

The basic income should be quasi-universal. It should not be called a universal basic income, because for pragmatic reasons it would have to apply only to usual legal residents, not to citizens living abroad or to recent migrants, for otherwise it could lead to a flood of migration and to xenophobic opposition. This is not a call to omit help for migrants and refugees. They should be helped by other schemes, and by more than they have been.

A basic income system should be designed in such a way that everybody has equal basic security, or equal command over subsistence resources. This means that all those with extra costs of living and diminished earnings capacity, such as those with disabilities or frailties, should be provided with supplements that in effect give them a basic income equal to everybody else.

The basic income must not be means-tested. Targeted schemes directed at the poor are superficially attractive for those who know little about social policy. But there is an adage attributed to Richard Titmuss that benefits that are only for the poor are invariably poor benefits. Targeting requires means-testing, which in turn implies that an impoverished person who tries to raise their earned income faces a poverty trap, losing benefits, in many cases leaving them worse off it they take a low-wage job. This is economic illiteracy. And research all over the world shows that every means-tested benefit involves high exclusion errors, in which large numbers of those who should receive the benefits do not do so. Advocates of means-testing should face up to that once and for all.

Crucially, a basic income system should be a source of abiding basic security, that is, be guaranteed and non-withdrawable. In that regard, governments would be well-advised to make it clear that it would be paid monthly for at least the duration of the pandemic and recession. That security is psychologically important. It is one reason for not using the language of “helicopter money”. Another is that this conveys an image of fluttering banknotes dropping to where the fittest would grab them first.

Finally, a basic income system could be an automatic macro-economic stabiliser, as old-style welfare schemes were supposed to be. That is, the amount could be adjusted by an independent commission according to the depth of the recession or strength of economic recovery.

Responding to the COVID-19 pandemic requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.

Since its launch on 11 March, the Forum’s COVID Action Platform has brought together 1,667 stakeholders from 1,106 businesses and organizations to mitigate the risk and impact of the unprecedented global health emergency that is COVID-19.

The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.

As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.

A basic income, while it must be only one of a bundle of remedial policies, is much more sensible economically and socially than the alternative being implemented by some countries, namely providing substantial wage subsidies. These will be chaotic to administer, inefficient, disgracefully regressive, and involve perverse economic incentives. If an employee is given 75% or 80% of his wages on condition that he does no work, that is obviously a disincentive to do any work. It too is economic illiteracy. And what moral principle is served in having the state gifting a high-income earner five or more times as much as a low-paid member of the precariat? That is what they are doing.

By contrast with subsidies that trap people in what may be dead jobs, and means-tested benefits that put people in poverty traps, a basic income would actually increase the incentive to take whatever jobs become available, because the person would merely pay the standard rate of tax on any earned income and not face a poverty trap of what in most countries is 80% or more for low-income people going from benefits to the sort of low-wage jobs they could obtain.

In sum, a basic income could provide the demand for basic goods and services the economy will need and give people and their communities the resilience we will all need. And the beauty is in the tail. It will make it easier and more rewarding to use our time more in caring for others, for those we love and for the communities we should wish to rebuild.

We may even find that by reducing inequality and insecurity, it will also help us confront the existential threat of global warming and ecological decay. That is the promise, if we have the courage.