The Citizen’s Income

Guest post by Jeremy Williams of the blog Make Wealth History -which thinks about sustainability, transition towns, post-growth economics, and what it means to live well in a consumer society.

One of the recurring ideas that crops up in alternative economics circles is the citizen’s income. In a nutshell, it’s a universal and unconditional payment made to every adult in the country, every month. This provides everyone with a ‘guaranteed minimum income’, which is an alternative name for it.

We have it in a form in the UK already, through child benefit payments. A full scale citizens income would include adults too, with different rates for different stages of life. Everyone would receive it, and it would replace child benefit, state pensions, unemployment benefits and a host of other tax credits.

Reactions to this idea generally divide in two. The first group is ‘brilliant – free money from the government’. The second comes from those who think about it a moment longer and realise that it would be funded through taxes. Then they ask why you’d want to give benefits to rich people as well as poor people.

A fair question, but there is some sensible thinking behind the idea of the citizens income that makes it more than the national pocket-money scheme it appears at first glance. It’s also one of those ideas that has been advocated by politicians and economists from right across the spectrum. It’s been a recurring policy in the Green Party, but free-marketer Milton Friedman was a fan too. Martin Luther King called for it. So did Napoleon. It was discussed by the Labour Party in Britain in the 50s, and by the Republican Party in the US in the 60s. Bertrand Russell wrote that it allowed society to enjoy the best of anarchism and socialism at the same time, as part of a largely forgotten libertarian socialism movement. There aren’t many ideas that can cross these sorts of ideological boundaries so freely, and when you find one it’s well worth investigating it a little further.

A fair benefits system
The first reason to take a citizens income seriously is that in a society that runs social security programmes of any kind, you will have net contributors and net takers. Some people work hard all their lives, save for their retirement and maybe even have private healthcare insurance. Where social programmes are fairly generous, there’s a risk that such people end up as net losers in financial terms, paying for the sections of society that can’t or won’t work.

The usual political response is to this problem is to cut benefits to ‘make work pay’, so that ‘spongers’ can’t live off the hard work of others. That’s legitimate, and a system that pays people not to work is obviously self-defeating, but it only deals with half the problem. If you cut benefits right down, you punish those who are legitimately out of work, and still end up with a large section of society that are net contributors. You can never create a fair system. All you can do is shift the burden back and forth between sectors of society, usually on the basis of who is most likely to vote for you.

The citizens’ income fixes that by securing a share for everyone. There would be no unemployment benefits, because everyone would get an equal cut of our shared wealth. The sum wouldn’t be enough to live on in any great comfort, so it wouldn’t encourage idleness, but it would be enough to provide a safety net for hard times. Everyone would get it regardless, so there would be no winners and losers in the benefits system. The endless arguing over benefits scroungers and the ‘hard-working’ middle would be solved at a stroke – everyone gets treated equally.

Rewarding unpaid work
Another good reason for paying a citizen’s income is the vast amount of unpaid work that goes on in the economy. As things currently stand, you only get paid if you have a formal job. But just because you aren’t in a job doesn’t mean you aren’t working. Some of the most important work in the country is currently going unpaid.

Consider someone who chooses to drop out of work to care for an elderly parent. There is a cost to that care, and if the son or daughter wasn’t doing that care for free, it would have to be picked up by the state. Instead, that person has opted to take those costs in the form of lost wages.

The same is true of parenting. If you put your children into childcare and go to work, this creates two jobs – one of you and one for the carer. This is good for GDP, which counts all economic activity as positive, but it’s not good for the child or for the parent. This is rather perverse. Raising children is valued if it is done by a stranger, but is technically ‘worthless’ if parents do it themselves. All of society benefits when children are brought up well, and society suffers when children are brought up badly, so it is in our interests to value parenting.

Carers, parents and volunteers provide services to society that would be worth billions, but that work goes unrewarded. A citizen’s income would not be ‘paying’ people to do these things, since everybody else would get it too, but it would mean that those who choose to do important but unpaid work aren’t penalised financially for making that decision. Since a disproportionate amount of unpaid work is done by women, this would also be good for social equality.

A dividend in the national wealth
The forms of wealth that are most familiar to us are personal, accumulated through  personal effort for the benefit of individuals. There are other kinds of wealth too though, things that are shared in common. That includes the atmosphere, the oceans, airwaves and airspace, and plenty of other things that belong to nobody and therefore to everybody.

As things currently stand, businesses get to use most of these shared resources without paying for them. Society picks up the cost collectively, so a public resource gets run down for private gain.

Consider a factory that pollutes the air. There are costs (externalities) that the factory owner doesn’t pay, from environmental degradation, to asthma and other health problems, and perhaps even a changing climate. Society pays those costs instead, even though the resource that the factory has used – the atmosphere its chimneys discharge into – belongs to all of us.

Environmental taxes already catch some of these costs, but the revenue usually just goes into the central pot of government spending, so we’re not really compensated as individuals. The same goes for our natural resource wealth. Revenue from Britain’s North Sea oil just goes into government spending, but other oil-rich parts of the world see it as a natural wealth that should be shared more equally – see Alaska or Norway.

A citizen’s income recognises that we’re all shareholders in our natural capital. We all suffer when it is abused, so why shouldn’t we all benefit when it is used well? One of the key ways to fund the citizen’s income is to levy a price on the commons. Businesses that use shared resources pay for the privilege, and those of us that are stakeholders in those resources are compensated. In that sense, the citizen’s income is not a universal benefit, but a dividend in our shared national wealth.

Smaller government and personal freedom
One of the interesting things about the citizens income is that it has been championed by both sides of the political divide. It is good for society and for the poor, but it’s also good for personal freedom and reduces the size of government.

Because it would be unconditional and automatic, you could sweep away whole swathes of bureaucracy that currently assesses, administers and polices the benefits system. You’d still need a few means-tested benefits for certain cases, such as disability, but many more general benefits and tax credits would be rolled up together. Many government services focused on poverty would be rendered obsolete, along with state pensions. Benefits fraud would be dramatically reduced. There are lots of potential efficiency gains from a citizens income, and hence a smaller state apparatus.

The citizens income is also good for personal freedom because it would give everybody an equal platform to build from. It would give people a safety net for those who wanted to retrain or start their own businesses. And of course you are receiving a dividend from the government in cash, for you to spend however you want. It would be entirely up to you whether you saved it, spent it or gave it away.

Funding a citizens income
So a citizens income sounds great in theory, but can we afford it, especially in times of austerity? I’ve already mentioned the savings from simplifying the benefits system, and state pensions, child benefits and unemployment benefits all offset the cost. I’ve also mentioned environmental and resource levies. The other big funding option goes right back to the earliest proponents of the idea.

The roots of the citizens income go back to Thomas More’s Utopia, surface again in the French Revolution, and are perhaps best articulated by the revolutionary Thomas Paine. “The earth in its natural uncultivated state,” he wrote, is “the common property of the human race.” Private ownership and use of land deprives others of their “natural inheritance”, and so they should be compensated. In other words, the citizens income is best paired with our old friend the Land Value Tax.

To me, the citizens income is one of those ideas that we’ll keep circling around and eventually settle on, although perhaps not any time soon. We’ve come quite close in the past. The Nixon administration got so far as to pass a guaranteed minimum income through Congress under the name Family Assistance Programme, but it was rejected by the Senate in 1972. There are several smaller-scale measures in place, including Child Benefit and some of the other universal benefits brought in by Britain’s Labour government.

There’s only one place that runs a “genuine” citizens income, according to the international network BIEN, which campaigns on these issues. That’s the aforementioned Alaska. It won’t be the last, but it is now more likely to emerge in the global south than in the social democracies of Europe. Brazil has passed a law mandating a basic guaranteed income, although implementing it has been slow. There’s been a big debate about it in South Africa, and Namibia has run a pilot project. India is halfway through a trial at the moment in two different regions, to measure its effect on poverty.

The citizens income has been talked to death countless times in Western politics, but it could still have its moment.

Photo from wwarby via Flickr

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Meet Esther Duflo

Does foreign aid make life better for the poorest people in the world, or does it actually harm development ?

Answering this polarising question is the life’s work of Esther Duflo, Professor of Poverty Economics at MIT and co-founder of ALJ Poverty Action Lab, which aims to gather evidence to make anti-poverty efforts more effective.

Esther answers the question “does aid work ?”, by asking another question “what aid works ?”

Esther and her colleagues try to look deeper into the issues and problems affecting the world’s poor, that conventional economics often struggles to answer; such as why would a man living in shanty accomodation and who struggles to feed his own family, buy a television ? The answer should perhaps be obvious: because the poor get bored too, and have precious few other opportunities to enjoy life. Interestingly Esther herself has never owned a TV in her life.

Her most recent book: Poor Economics, argues that there is no single magic bullet for alleviating poverty, but if we are to be more effective in tackling poverty, we first need to be more familiar with the lives of the poor we are actually trying to help.

 

Photo from Wikicommons

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Costa Rica’s Green Economy

A lot of economists and environmentalists around the world are looking at what the small Central American country of Costa Rica is managing to achieve, and asking ‘could we do the same thing here?’

Costa Rica has a strong history of progressive policies.

It abolished it’s armed forces permanently in 1949, and reallocated the money to education and health care, and is Latin America’s oldest democracy (since 1953). It is widely seen as performing well on issues of human development and equality, and was the only country to meet all of the UN’s five established criteria for environmental sustainability, now being ranked 5th in the world in terms of Environmental Performance Index and 1st in terms of the Happy Planet Index. It has plans to be the world’s first carbon neutral country by 2021.

How has it done it ?

Costa Rica produces over 90% of its electricity from a variety of renewable sources. 30% of the land area is held ‘in reserve’, as natural wilderness, and while many parts of the world have been subject to deforestation, Costa Rica has increased it’s forested area from 21% in 1987 to an impressive 52% in 2005, though land use pressures continue. Though agriculture remains an important part of the economy, high technology industries are increasingly important – attracted by Costa Rica’s well educated workforce and strong environmental credentials.

Costa Rica just like everywhere else has it’s problems, with development pressures, globalization and persistent poverty in several areas – but they are charting their own course, and so far seem to be doing rather well.

Photo by hotshotjen, via Flickr

Jubilee: A Shout for Joy

If you’re living in the UK it’s a busy summer.

First we had the Queen’s Diamond Jubilee, then (for the English anyway) the dubious pleasure of cheering on the England football team in the Euros, and in a few weeks we’ll be hosting the London Olympics – all with the added fun and excitement of the traditional British rainy season in June and July!

It’s the first of these I want to ask you to briefly consider: the Jubilee.

Not another debate about the pros and cons of a constitutional monarchy, but the word Jubilee itself.

Originally it meant something very different to celebrating the length of a King’s or Queen’s reign. In the Old Testament it means a year in which debts are cancelled and slaves are freed – etymologically it’s often described as literally meaning shout for joy‘.

Releasing slaves and freeing people from debt, obligation and bondage, is a recurring theme in the Old Testament, which very clearly considered ongoing cycles of debt as a bad thing – something to be avoided wherever possible.

It also contained another piece of economic instruction – a prohibition against something called usury.

Usury is the charging of excessive interest on debt, though some interpretations consider the prohibition to be against the charging of any interest at all. The usual literal translation of usury is ‘a bite’ – relating to the painful process of being charged interest.

Usury is still prohibited under Jewish tradition and Islam – though Christianity largely seems to have stopped being concerned by it centuries ago.

Interesting stuff, but the real question is – what, if anything, does this mean for us today ?

The charging of interest is something so deeply embedded in our economies and culture, that we not only take it for granted, but generally fail to see it for what it is: a mechanism by which money flows from the poor, who need to borrow, to the rich, who can afford to lend.

The charging of interest, therefore, is a powerful driver of inequality – both between the rich and poor of our own societies, and also between rich and poor countries.

Another consequence of an interest based economy is that it requires the economy to continually grow in order to service it – a company borrowing it’s start-up costs at a rate of 7%, will have to grow by 7% the following year to repay the interest.

Needless to say infinite continual growth is simply not possible, due to real-world limits and constraints, and this endless need to deliver growth, many argue, exacerbates resource depletion, environmental degradation and aggressive competition for resources.

Unfortunately our entire banking system is based on the concepts of debt and interest.

If you were the first customer of a brand new bank and were to deposit £100 in the bank, you’d be given a debit card with the ability to withdraw £100 at any time. The bank would have your £100 and you would have a promise from the bank that you could withdraw it at some time in the future.

If you were the second customer of the bank and wanted to borrow some money, the bank might lend you £90 (keeping the required 10% fraction in reserve) and give you a debit card which grants you the ability to withdraw £90 at any time, on the basis that you would then pay it back (plus interest) at some point in the future.

The first customer has £100 available and the second customer has £90 available: £190 is now available to be spent in the real-economy. In effect the bank has created £90 from nothing.

With successive deposits and loans this original £100 of ‘real money’ (what economists call the monetary base or central bank money) can be transformed into several thousand pounds of ‘debt backed money’ (what economists call commercial bank money). Over 95% of the money supply in the UK economy has been created by commercial banks.

This process of money creation through lending and debt creation is referred to as fractional reserve banking,with banks effectively creating money by putting their customers into debt – financing today by endebting the future.

For many, this understanding goes against the grain and can be a little difficult to accept.

The economist John Kenneth Galbraith taught at Harvard for many years and served in the administrations of Franklin D. Roosevelt, Harry S. Truman, John F. Kennedy, and Lyndon B. Johnson, famously said: “The process by which money is created is so simple that the mind is repelled.”

Ninety percent of the world’s population owns just fifteen percent of the wealth.

Or to put it another way ten percent of the world’s population owns eighty five percent.

Perhaps it’s time to reconsider how we organise the world’s money.

 

If you’ve got a couple of hours to spare and want to learn the origins of the words tally and stock – not to mention how the Wizard of Oz was supposedly originally a protest against exploitative banking – watch Bill Still’s fascinating documentary on the left below.

If you’ve only got 7 minutes to spend, the bank run scene from the fantastic It’s a Wonderful Life is there on the right for you :o

 

Photo from digitalworldmoney via Flickr

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Tough Day at the Office ?

We all do it sometimes don’t we.

Moaning about our job, how hard we’re working, how busy we are, how bad our boss is, how hopeless our colleagues, how useless the organisation and especially how bad our pay.

Not many jobs are perfect, it seems, and it can often be tempting to let what’s wrong dominate our thinking. After all, it’s not as if we’re working for the fun of it, we’d much rather be at home relaxing, spending time with family and friends, pursuing hobbies or other activities.

Work is all too often something we begrudgingly do in exchange for the money we need to live our lives.

Of course we don’t moan all the time, and more than ever we do realise that we’re really lucky to have a job at all. But perhaps we could spend a little more time considering exactly just how lucky we are.

It’s natural to compare our lives with those around us – work colleagues, friends, family, and increasingly TV and media celebrities, about whose lives we are increasingly familiar.

Our tendency to compare and measure ourselves against our immediate peer group, is of course normal, but not always healthy. It can easily result in a sort of ‘bubble consciousness’ – being out of touch with the rest of society. It’s partly responsible for vastly inflated board room salaries, as CEOs compare their package against that of their chums at the Institute of Directors, and for dodgy politicians who submit ‘questionable’ expenses claims because ‘everyone else seems to be at it’

Of course it also applies to the lack of aspiration and drive that can infect our worst housing estates and schools, or the societies increasing levels of material greed, as we increasingly measure our lives in terms of ‘stuff owned’.

Perhaps if we were more familiar with the bigger picture, more aware of the lives of the billions less fortunate than ourselves we might feel less hard done by, more privileged, luckier ? Every parent tells their kids ‘be thankful for what you’ve got’ – perhaps we should listen to our own advice more?

And it may well also be that our relationship with paid work may have to fundamentally change in the future.

We read a lot of speculation about peak food, peak water, peak oil or peak energy, and whether there will be enough of these scare resources to go around the seven billion of us and rising. Should we also consider whether we are at, or nearing a time of peak work ?

There are millions unemployed around the world. Not because there isn’t plenty to be done, but because no one is willing or able to pay for it to be done.

The streets might need more cleaning, the elderly more visiting, and the sick more nursing – but, as we know, all these things come at a cost, and our societies all too often seem to know the cost of everything, but the value of nothing.

Most visions of a more sustainable future for us all require the production of far fewer material things, less travel and transport, and ever more efficient use of energy and technology – it’s difficult to see how we will all make a living within our current economic model.

No doubt there will be a transition, of course, and it seems to me we would be well advised to ‘share the work out‘ a little more.

In the meantime. . .

. . . if you’re not too keen on the prospect of going to work today, the remarkable series of films below might just prompt you to reflect a little. Capturing the lives of those undertaking hard physical labour, for very little reward, in places as diverse as Nigeria, Pakistan, Ukraine and Indonesia, these films provide a tiny glimpse into the lives of others across the globe.

Have a nice day.

 

 

Photo from Dickuhne via Flickr

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