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Thursday, March 27, 2014

Universal Basic Income from a libertarian perspective - A labour market analysis



In this article I'm going to consider Universal Basic Income (UBI) from a libertarian perspective, focusing mainly on analysis of the labour market, rather than the much more common libertarian "small state" argument in favour of UBI.

The crux of the article

The current labour market is terribly unfree as it is because it relies on coercion, workfare, sanctions, draconian anti-labour legislation etc.

The introduction of Universal Basic Income would would create a much freer labour market (no more threat of destitution, sanctions or forced labour schemes, and much freer labour contracts between employers and employees), but this increased freedom for the majority would come at the expense of necessary measures in order to control inflation (which would rapidly destroy the project if left unchecked). 


The reduction in aggression against the majority of workers would outweigh the infringements on the current rights that rentiers have to exploit access to basic commodities in order to extract profit for themselves (which it can be argued is another form of aggression against the majority anyway).

What is libertarianism?

Libertarianism covers a wide range of political stances, from
left-libertarianism through to anarcho-capitalism. The thing they
have in common is that they promote freedom (although in
completely different ways).
Many people are under the mistaken impression that the word "libertarian" refers exclusively to an extreme form of US free market fundamentalism associated with Ayn Rand, the Tea Party and the like. However the right-wing fringe in the US appropriated the word for their own use with little regard to the other inherent meanings it had before.

The origins of libertarianism can be traced to the 18th and 19th Century anarchist and and socialist movements in Europe, however it was quickly embraced and integrated into
laissez-faire capitalist theory too.

One of the most famous left-libertarians was the American Henry George (1839-1897), who opposed rentierism, and argued in favour of Land Value Tax. Many Georgists have argued that the proceeds from Land Value Tax should be used to fund a citizens income, or Universal Basic Income.

Left-Libertarianism is not as famous as its rabid Ayn Rand inspired American cousin, but it is an increasingly popular political stance, and one which I personally embrace.

What is Universal Basic Income
[Main article]

If you're not fully versed on what Universal Basic Income (UBI) is, I suggest that you read my introductory article before coming back to finish this one. If you haven't got time for that, or you are reasonably clued up about what UBI is, I'll just provide a short summary.

UBI is an unconditional payment that is made to every qualifying individual within an economy. There is no means testing at all, other than determination that the individual is eligible (a citizen in the economy for example). Ideally the UBI is set at a rate which is sufficient to ensure that all recipients have access to basic human necessities (a home, sufficient food and water, basic energy needs ...).

This concept is generally appealing to libertarians on a basic level because it dispenses with almost all forms of state means testing, meaning a smaller, and less obtrusive state. In this article I'm not going to focus on this compelling "smaller state" argument for UBI, in favour of considering the libertarian case for UBI from a labour market perspective.

What makes the current labour market so unfree?

[Main article]

Labour is a fundamentally important factor in any economy. Orthodox economic theories tends to treat labour as if it is just some other kind of basic commodity, however, if it is to be referred to as a commodity at all, it must be recognised as a very special and distinct form of commodity, one that can be created at will, and which takes myriad potential forms.

The neoclassical orthodoxy fails to treat the labour market as utterly different to other commodities markets and it also fails to recognise the unequal nature of the market in labour, where the employer at a huge advantage over the employee. There are innumerable factors that put the buyer at an advantage of the seller in the labour market, but perhaps the most significant is the creation of false abundance via political policies aimed at retaining a constant pool of unemployment, the "reserve army of unemployment" as Marx defined it in the 19th century, or the "price worth paying" as it was described by former Tory Chancellor Norman Lamont in 1991.

In 1918 Bertrand Russell argued against this inequality in the labour market, proposing a kind of basic income so "
the dread of unemployment and loss of livelihood will no longer haunt men like a nightmare".

The constant threat of destitution is a powerful means by which employers can drive down wages and working conditions, putting them at an unfair price advantage over the worker. If the scale of unemployment has been brought about via deliberate economic policies based on the equilibrium rate of unemployment, this is a clear case of the state trampling all over the libertarian non-aggression principle.
If government policies result in your labour being coerced from you at a lower rate than you would be willing to sell it, solely because you fear destitution if you don't work for low wages, you're suffering aggression at the hands of the state.
 
The spectre of unemployment and impoverishment created by economic policies aimed at maintaining "extra capacity" in the labour market is not the only current example of aggressive coercion in the labour market.

Workfare blatantly violates the libertarian non-aggression principle
[Main article]

One of the starkest examples of a labour policy which violate the libertarian non-aggression principle is the kind of mandatory unpaid labour schemes for the unemployed collectively termed "Workfare".

These schemes coerce the unemployed, under threat of absolute destitution, into giving up their labour for free, often to highly profitable corporations.

It's bad enough that the state uses the threat of destitution
(via welfare sanctions) to undermine the aggregate value of labour, but that ministers of the government openly declare that they believe that the state has "a right" to extract the labour of the individual for no wage at all, demonstrates an extremely illiberal attitude towards the labour rights of the individual.

These mandatory unpaid "Workfare" labour schemes demonstrate beyond doubt that the ministers involved in administering these schemes believe that the labour of the individual actually belongs to the state.

If your government acts as if it believes that your labour is a commodity which belongs to the state, and which can be extracted and distributed for free to favoured corporations, the labour market isn't just unfree, it is grotesquely authoritarian.
 

How would UBI make the labour market freer?

If every individual received an unconditional basic income sufficient to meet their fundamental human needs (housing, food and water, energy, health care ...) the threat of destitution would cease to necessitate people into accepting wages and working conditions they deem unfair.

An unconditional basic income would also render totally unworkable the draconian regime of "Workfare" labour extraction schemes enforced via draconian welfare sanctions regimes. If the individual has a right to an unconditional subsistence income, the state loses the power to coerce and intimidate the individual into giving up their labour for free with threats of destitution, starvation and homelessness.

Even if we accept the wrong-headed idea that labour is a basic commodity with a defined value (the national minimum wage for example), we have to accept that coerced unpaid labour represents theft, and a clear violation of the libertarian non-aggression principle. Universal Basic Income would render this form of theft by the state totally unworkable, because the state would have no right to revoke the unconditional incomes of those that won't comply with their unpaid labour extraction schemes.

How a freer labour market could benefit society and the economy

I've explained a how UBI could benefit society and the economy in the primer article on the subject, so I'll try to be concise here.

The free labour market that UBI would create if administered correctly, would benefit society by alleviating extreme poverty, which would lead to a fall in poverty related social problems such as crime and poverty related ill-health.

Another benefit to society would be that the existence of UBI would push up the cost of employing people to do undesirable jobs (disgusting, dangerous or debilitating work), meaning that in turn there would be much greater financial incentives for companies to invest in technology to automate such work. The development of technology to eliminate undesirable jobs would benefit society and the economy (fewer people working in undesirable jobs, greater demand for high-tech solutions).

UBI trials have shown that people generally don't stop working and laze about once their basic necessities are provided, in fact UBI works as an economic stimulus, because people have more time to invest in starting their own businesses, and the public has more money to spend on consumption. The only demographics to substantially reduce the hours they work are mothers with young children and young people in education, it is arguable that these reductions are actually beneficial in socio-economic terms.

Why is controlling inflation so important?

Controlling price inflation would be absolutely crucial to the success of any Universal Basic Income project because without measures to stop the inflation of basic necessities (rent, utilities, food ...) the gains that UBI would provide would soon be eroded away as price rises diminish the value of the basic income payment so that it is no longer sufficient to cover the basic costs of subsistence.

If inflation is allowed to run rampant, the benefits of Universal Basic Income would soon be transferred from the ordinary citizen that receives it, to the rentiers that take advantage by hiking the prices they charge for the provision of basic commodities and services.

Controlling Rentierism


If the rentiers are allowed free rein to profiteer from basic income provision, they will simply inflate their prices in order to soak up the entire value of basic income to cover the cost of some necessity of life (rent, transport, childcare, energy consumption). If the parasitic behaviour of rentiers is not controlled, all of the socio-economic benefits would soon be siphoned off as into the bank accounts of the most ruthlessly self-interested rent seekers. Essentially Universal Basic Income would turn into a government subsidisation scheme for the most ruthlessly self-interested, which is precisely the kind of system we have now, which is one of the main reasons people have been proposing the introduction of UBI in the first place.

The only practical way to stop this kind of rent seeking behaviour from destroying UBI would be to introduce some form of market regulation to prevent landlords, utilities companies, childcare providers and the like from massively inflating their prices in order to soak up the economic benefit of UBI for themselves.

There's no such thing as a perfectly free-market economy

Anyone that believes that there is such a thing as a perfectly free market is living in the same cloud-cuckoo land as those that believe a totally state controlled economy is a possibility.

What is up for debate is how more market freedom can be created. The orthodox neoliberal would argue that greater market freedom is produced through deregulation, but the huge growth in inequality, the ever increasing size of economic crises and the rise of vast "too big to fail" oligopolies since the neoliberal craze of privatisation and deregulation became the economic orthodoxy in 1980s, suggests that they are wrong. Deregulation and privatisation have increased the freedoms of corporations and the super-rich at the expense of the majority, who have seen their share of national incomes eroded away dramatically since the late 1970s despite rising productivity.

Others might argue that the best way to stimulate market freedom is through the creation of a "fair market", through carefully planned market regulation. Rules to prevent (and properly punish) anti-competitive practices such as price rigging, formation of oligopolies, monopolies and cartels, financial doping, insider trading, political patronage, front running, information asymmetry, dividing territories, corruption and outright fraud, would create a freer and safer market for individuals and small businesses, which would increase competition and efficiency, but at the cost of the freedoms of those that currently profit from the use of anti-competitive practices.

The same kind of debate can be had over the introduction of rules
(rent caps, inflation controls on basic commodities and services ... ) to prevent the rentier class form extracting the benefit of Universal Basic Income for themselves. The infringement of their "right" to gouge as much profit as possible out of basic commodities and services, would have to be weighed against the greater economic freedoms afforded to the majority.

Essentially it boils down to the question of which is the most important; freeing up the currently unfree labour market or the continuation of free market in the provision of fundamental commodities and services?

Providing more freedom in which of these markets would create the biggest increase in aggregate freedom, and which would be most compliant with the libertarian non-aggression principle? In my view the answer is obvious. The freedom of the majority outweighs the freedom of the minority.

Other libertarian arguments for UBI aside from the labour market analysis

Before I conclude I'd like to state that this labour market analysis  is far from the only libertarian argument
for the introduction of Universal Basic Income.

Other arguments include the most common "small state" argument because universal welfare would reduce the size of the state by reducing the number of functions of the state. Another argument can be made that since there would be no means testing, UBI would provide greater freedom from intrusion by the state into the private lives of the individual.

Perhaps the most compelling libertarian argument in favour of Universal Basic Income is that perhaps freedom from destitution in itself is the most important liberty, because without freedom from destitution the individual is often left facing either the suffering of destitution, or the suffering of wage slavery.

Conclusion


Labour is a fundamental element of any economy (be it capitalist, state socialist or anywhere in between). and an unfree market in labour is fundamentally incompatible with libertarianism.

If the deliberate economic policies of the political establishment in your country mean that your labour can be coerced from you at a lower rate than you would be willing to sell, simply because of the threat of absolute destitution, this is clearly an act of aggression on the part of the establishment.

If your government acts as if it believes that your labour is a commodity which actually belongs to the state, and can be extracted from you for no recompense at all, this is an even more vile example of state aggression.

The introduction of Universal Basic Income would put an end to both of these forms of labour market aggression, but in order for it to work measures to prevent rentiers from profiteering by inflating the prices they charge for basic human necessities would need to be introduced. Thus the debate is not over whether UBI is compatible with libertarianism (it clearly is) but whether the benefits from the greater freedoms in the labour market would outweigh the necessary losses in freedom of rentiers to profiteer from the provision of basic human needs, which would be necessary in order to prevent the whole project collapsing into inflationary chaos.

In my view the freedoms of the majority should outweigh the freedoms of the minority, and in any case, the current freedom to profiteer from the provision of basic human necessities that the rentier class enjoy can actually be viewed as a form of aggression in its own right. Why should the profits of the minority take precedence over the basic human needs of the majority?


 


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