Soon, Switzerland will have a referendum on a proposal to give a universal basic income (UBI) of 2,500 Swiss francs ($2,800 dollars per month) to every working-age adult, regardless of income. That works out to $33,600 a year in a country with a median national income of $100,900 (Purchasing Power Parity of $61,000). This income would be funded partially through cuts in welfare and government benefits and partially through some form of progressive taxation. The details of the proposal to be on the referendum have yet to be hammered out, but there are a great many reasons to support a universal income in principle.
Firstly and most obviously, direct cash payments are a much better form of welfare than a mishmash of social programs. Impoverished families no longer need to worry about having enough money earmarked for food, but not being able to pay for diapers. Without a gauntlet of paperwork to deal with, families below the poverty line get much more peace of mind. People generally know their specific needs much better than the government, some months they need to spend more on food, some months they need to spend more on other necessities, having the ability to control their own finances is empowering.
Obviously there are benefits to those currently impoverished. There are also reasons to believe having a universal income is better than welfare for economic mobility. One of the greatest issues with means-tested government programs, is that they provide a disincentive to be more successful. This may sound trite, but when given the potential for a salary that only nets a little bit more than the value of their current government assistance and requires a much greater commitment of time and energy, an individual’s calculus changes, particularly if they have children or other dependents. It may not always be worth it to earn marginally more for a much greater amount of work. The benefit to a universal income is that it allows people to accrue all the gains from their work and give them a ladder out of poverty.
One of the central causes of unemployment is that people aren’t legally allowed or willing to work for low wages. The reasons for this are obvious: if labor costs decrease, firms are able to pay for more labour. Supply and demand reach equilibrium, fewer people seeking employment have to remain unemployed. When wages are no longer necessary for basic survival and individuals get a reasonable standard of living regardless they can accept much lower wages. Although Switzerland doesn’t have a statutory minimum wage, collective bargaining agreements can be set to lower wages without harm to employees. Employment is empowering, it gives people self-esteem and a means of advancement. More people who seek work receiving work leads to a more productive society.
Now obviously divorcing work from survival means that it is possible that fewer people seek work in the first place. This is the problem with any sort of social safety net. There are still benefits to having society subsidize people who opt not to work for periods of time. Take the example of raising children: It may be a good thing if single parents aren’t obligated to work and instead can devote more resources to child-rearing. It may be a good thing if in households with two parents, one parent can spend time raising children. Career retraining and education becomes more likely. People can survive taking time off from working in order to change careers. If someone isn’t very good at or very happy in their current career they can more easily switch to one where they will be more not only be happier, but also more successful and thus more productive members of society. People further all sorts of societal objectives outside of their careers. UBI enables that.
Even libertarians can learn to love UBI. It requires a great deal less bureaucracy than any other form of social safety net. No bureaucracy required to detect fraud if everyone is entitled to claim UBI. Separate institutions for different welfare programs aren’t needed if they can all be rolled into one direct cash transfer system.
Switzerland should vote YES on a universal basic income.
A universal basic income may seem like a good idea on a cursory examination but economics has always been about finding the unseen consequences of actions. Most economic policies seem to be good when their explicit consequences are examined, but every policy has extraneous effects, larger ramifications throughout the economy. A universal basic income is no different; redistributing money to the poor obviously has benefits to the poor, but is problematic for the broader economy.
Firstly, being guaranteed a living income no matter what strongly disincentives work. Now, obviously not every individual will be satisfied with just a basic income. People have motivations to work beyond survival. Clearly no one wants to be poor and most people will always desire some sort of work. The operative question is, how much they want to work. Being guaranteed a living wage and only having to work for supplemental income will surely mean that most people will opt to work fewer hours. Full time work can be incredibly stressful, people put up with working as much as they do because they don’t want to diminish their quality of life. Even if the majority of people cut back from the Swiss average of 41.6 hours to 35 hours a week, the productivity losses in the economy will be huge. That means less wealth for the country overall, lower net quality of life for everyone. This is the classic example of shrinking the pie for everyone. Traditional welfare systems aren’t as bad in this respect because people greatly prefer money over funds earmarked for specific causes. They also only apply to the poorest, rather than everyone in society.
The universality of this proposal is one of its biggest problems. The purpose of government insurance and welfare programs is to provide a basic safety net for the most vulnerable in society. Society has limited resources with which to provide a safety net. Wasting a large portion of that by sending cheques to everyone without any form of means-testing is hugely wasteful. Even if the extra funding for a UBI comes mostly from taxation on the rich, inefficiencies and waste are added to the system. Money is required to pay for more tax collectors and enforcers. The wealthy spend more resources hiring lawyers and accountants for more tax evasion. Why waste these societal resources simply to transfer resources back from the rich to the rich?
Much of Switzerland’s economy is in its financial sector. Investors flock there for its low tax rates and freewheeling banking sector. UBI is problematic for the economy at large because it necessarily leads to much more taxation. Raising taxes on firms and individuals who operate in Switzerland will cause investors to flee. Even if the wealthy in society don’t need the income they lose to taxation, their money is still being put to work. Wealth is never truly idle for long in society. The wealthy invest in other sectors of the economy leading to growth and further economic development. The wealthy buy things which other people work to create, luxury goods still create jobs somewhere down the line. Even when the wealthy simply hoard cash in bank accounts and live of the interest, the wealth is still being used. Banks use the extra capital to lower interest rates for loans. People and businesses can borrow and build and develop at lower cost. Obviously there are times where this isn’t always the case (such as when interest rates are up against the zero lower bound), but these are temporary exceptions to the rule that wealth doesn’t truly sit idle in an economy for long. It acts as stimulus somewhere down the line and leads to growth in the economy as a whole, making conditions better for everyone.
A Universal Basic Income is a well-meaning solution for legitimate problems, but in the long term exacerbates issues of poverty by shrinking the wealth of a country overall.
(Both sides written by Shakil Nagji; the opinions expressed do not necessarily reflect those of the author)