Basic Income A Questionable Weapon for Tackling Inequality

Unconditional basic income is a controversial concept. Proponents argue that it could help overcome inequality and cope with technological change, but critics say that it's not clear how it could be financed.
An office of Social Insurance Institution KELA, in Helsinki, Finland. The country has launched a pilot scheme to pay a universal basic income.

Rarely has a debate over economic policy produced such unusual dividing lines.

Katja Kipping, the leader of Germany's Left Party, supports an unconditional basic income, or UBI. So do some top executives, like Deutsche Telekom chief Tim Höttges and Siemens Chief Executive Officer Joe Kaeser. Götz Werner, co-owner of the dm-drogerie markt drugstore chain, has long supported the idea.

On the other hand, Left Party politician Gregor Gysi thinks the concept is too expensive, while the managing director of the pro-free market Friedrich-August-von-Hayek Society, Gerd Habermann, fears that citizens will become "extremely dependent on the government."

The fact that UBI has created such strange alliances is a result of its proponents envisioning the measure as solving very different social problems. Further, their ideas regarding the implementation of basic income are just as diverse.

The proposal to introduce a €2,500 ($2,682) monthly UBI in Switzerland, which failed in a referendum, is a very different animal from the €560 that unemployed Finns receive as part of an experiment by the Finnish government.

Left Party leader Ms. Kipping is annoyed by the rigid approach taken when means testing recipients of Germany's Hartz IV welfare benefits. She is calling for a "transfer of the community to all people, which is guaranteed to each individual without means testing." She is also a strict proponent of open borders, which means that every citizen of the world would be entitled to a basic income.

In contrast, the Swiss initiative's response to the question "Will foreigners then simply come to Switzerland?" is to cite the country’s strict immigration laws. Initiative proponents also admit that special rules would have to be created for "cross-border commuters, asylum seekers, seasonal workers and Swiss citizens who live and work abroad."

The main objective of dm-drogerie CEO Götz Werner is to dismantle the welfare bureaucracy and both empower and force people to take more personal responsibility. Top executives Mr.  Höttges and Mr. Kaeser believe that a basic income could cushion the shock of the expected massive restructuring of the economy. Digitization and increased automation will make many qualifications obsolete. And although it is possible to use Hartz IV to achieve social equality, "the basic income promises more dignity" because recipients would not have to ask for it, said Mr. Höttges.

Thomas Straubhaar, a pro-free market economist based in Hamburg, has a different perspective. He wants to remove the negative incentives to work for welfare recipients, which he sees as tied to the fact that welfare payments are fully or partially eliminated if recipients earn any additional income.

His concept of a "citizen's income" is also advocated by Dieter Althaus, an auto industry lobbyist and the former Christian Democratic governor of the eastern German state of Thuringia. This resembles the negative income tax concept of Milton Friedman, winner of the Nobel Prize in Economics. Instead of a standard income tax exemption, every citizen would receive a basic income of €800. Those who have an income could use the basic income as a deduction. This gradually ensures that as income rises and poverty declines, the net influx approaches zero. Other social benefits would then be eliminated.

When it comes to paying for such programs, there are a myriad of schemes representing the various economic and social policy preferences.

Proponents have very different social problems in mind that they hope to solve with a basic income.

The Swiss initiative did not address the question of financing, while the relatively meager Finnish pilot scheme or Straubhaar-Althaus concept don't have to. Corporate executives like Mr. Kaeser and Mr. Höttges, on the other hand, want to impose higher taxes on corporate profits.

Billionaire Mr. Werner wants consumers to foot the bill through a large increase in the value-added tax, while eliminating income tax. This would reduce the burden on high income earners but would make life more expensive for those who spend their small incomes entirely on taxable goods. Left Party leader Ms.  Kipping wants higher taxes on large incomes and a wealth tax. In that respect, she agrees with UBI critic Gregor Gysi.

The variety of configurations and financing ideas that fall under the label "unconditional basic income" make it difficult to have a production discussion on the issue. In an article in the French newspaper Le Monde, economist Thomas Piketty, renowned for his studies on inequality, criticized the debate for distracting from issues of distribution of power and income opportunities.

"Justice is not simply a question of €530 or €800 a month. If we want to live a fair society, we must set ourselves higher goals that also include the distribution of income and wealth as a whole," said Mr. Pikkety. He added that he would also like to see a strengthening of unions and worker participation in management.

Quelle: Getty Images
Clockwise from top left: Left Party leader Katja Kipping, Telekom boss Timotheus Höttges, Billionaire Götz Werner, Nobel Prize winner Milton Friedmann.

For many economists, the idea that jobs could run out is extremely unlikely, despite an increase in automation. "With or without UBI, hard or unpleasant work will have to be done," said corporate consultant and blogger Christoph Meyer. These include the sanitation and nursing industries. It is already the case today, he noted, that the dignified treatment of patients in hospitals or nursing care can hardly be guaranteed due to personnel shortages.

If there is money for a basic income, he argued, why not ensure decent pay for nurses and caregivers, so as to eliminate the shortages? For Mr. Meyer, this would be more productive than to hope that people who are no longer forced to work because they receive a basic income would willfully take on difficult jobs.

Upon closer inspection, the discussion of the basic income can be broken down into its basic components. Are caregivers and garbage collectors paid fairly? And is enough money set aside for these services? Are Hartz IV welfare recipients excessively bullied and penalized for their supposed unwillingness to work? Is the bar too high or too low? Do we truly need the welfare bureaucracy to perform means testing, or can this be handled more efficiently through tax returns? Is the tax burden fairly distributed across income levels?

For economist Mr. Straubhaar, today's solutions to problems of fairness won't necessarily work in the future. "When there is a sea change, the compartmentalized fixing of a social imbalance will not deliver long-term stability."

Norbert Häring writes about economic policy for Handelsblatt. To contact him: [email protected]