The Negative Impact on Economic Activity
Disucss about the increasing replacement of human Labour with robots in advanced industrial economies.
Technological enhancements have been celebrated as the hallmark of the 20th Century. Further, the innovation of robots through the use of artificial intelligence has been hailed as one of the major successes of the 21st Century. The impacts of these technological developments are already taking shape in industrial countries where robots are replacing human labor in several areas. Many are likely to be put out of the job market. The concern is how does the state ensure the welfare of its citizens? Is universal minimum income the way to go? Universal minimum income also called universal basic income is an unconditional, livable and guaranteed amount paid to the all residents and citizens of the state in what is comparable to a welfare program. This paper adopts a position against the implementation of the same and explores the merits of this position as follows;
A universal basic/minimum income is a move that makes very little economic sense if any. Scholars and thinkers opposed to the idea have argued as much. If all the poor and unemployed people in a country get the basic income their monthly incomes will significantly rise. In the short term that may be a good thing. But in the long run they may get too comfortable and decide not to seek employment or engage in any income generating activities. Moreover even those of them who are already part of the workforce but consider themselves as underpaid may decide to quit their jobs altogether so they can live on the universal basic income (UBI). For any economy to thrive it must strive to put more if its citizens to work (Cowan 2017, p. 16). An economy where only a few are gainfully employed cannot grow. The economy of a country only expands when more citizens engage in income generating activities. When a significant section of the population does not engage in economic activities, the economy generally stagnates. These people will essentially deny the government income through taxation; all governments earn income through taxation imposed on the economic activities within the state. A government that fails to put its citizens to work in essence works against itself by denying itself income (Cowan 2017, p. 17). In the long run this is what governments will realize; there will have been a significant decline in economic activities followed by a decline in the government income. History can confirm the same.
Reduced Political Power of Labor Organizations
In the 1970s in Seattle and Denver (USA), an experiment similar to the universal minimum income was conducted. 1800 families were selected to benefit from a basic income guaranteed from the state for a year. The result of the study showed that employment went down by 4.6 %. This means that many people went out of employment or some did not simply see the need to seek one. That is what is likely to happen if a minimum universal income is introduced in a country. The same study also found that the average income per person in the state plummeted by about 1800 dollars a year. This indicates that a significant portion of the population did not engage in income generating activities during the period that they were registered for the universal basic income (Wolff 2012, p 281).This further serves to strengthen the argument already presented in the earlier section of this point; a universal minimum income will only serve to discourage people not to engage in income generation and ultimately deny the state revenue. In the state of Alaska, there exists something similar to the universal basic income. It is slightly different however but serves to give insight as to what impacts the implementation of a UBI might have. The policy in Alaska since 1976 has been that a certain percentage of the revenues obtained from mining of natural resources are paid off to the residents in the state where the extraction is done. Although it has not caused significant reduction in employment, it has led to a shift in preference from full time to part time jobs (Berman 2018, p. 166). This in part contributes to reducing the time spent by citizens in contributing to economic activities. Without a doubt this has a negative impact on the level of economic activity in the economy and a reduction in the income of the state ultimately.
It has already been argued in this paper that the paying out of universal minimum income will drive people out of work, especially poor people. In effect, only a very small population in the country may be remaining in active employment. A population that does not engage in economic activity cannot have political power (Stephens, & Van-Steen 2011, p. 1040). In any democracy, workers hold their government to account and demand responsibility in the manner that the public resources are used because they contribute to the national income through income tax which they pay directly to the state. This notwithstanding other taxes paid to the state. But what happens if a significant portion of the population is out of employment? Can they still have a voice in demanding for accountability from the state? The answer to that question is in the negative. If people cannot demand for accountability from the government they have elected to protect and defend them, then where is their dignity? This is the rationale behind this argument. Beneficiaries of the universal basic income who are not gainfully employed and do not participate in income generation are basically reduced to living at the mercy of the state (Cowan 2017 p. 16). These are conditions not very far from begging. What the government will essentially have done is robbing them of their dignity. Certainly, the remaining workforce which will have significantly reduced in numbers will not have as much political power in putting checks and balances on the state. This will also serve to diminish the strengths of the labor unions in the country. Labor unions are significant players in the pursuits of transparency in a democracy (Battistoni 2017, p 54). When the work force is reduced, the political influence of the labor unions also wanes. Labor unionists and scholars that favor the labor organizations have also argued as much. Labor unions opine that the implementation of a minimum universal income will have the impact of cutting the political power of labor organizations with an ultimate effect of compromising the dignity of workers (Battistoni 2017, p 54). In fact they have proposed and continue to show support for an approach that rewards the lower segment of the society for employment. They are in favor of strategies such as government job guarantees, wage subsidies and increasing tax credit on earned income.
Government Deficits and Reduced Tax Collection
Government deficit is a situation that results when the government spending exceeds the government revenue. It is not a desirable situation for any country as it is likely to push the state into borrowing and debt. How can universal basic income results in government deficit? The consequence of implementing the UBI is that the government will have to make unconditional cash transfers to every citizen every month. It must be kept in mind that these are monies paid out to citizens for doing nothing; they will not have earned it. This brings to question the sustainability of such a program. Without a doubt, paying out say, 3000 dollars a year, to every citizen must have a significant impact on the government spending. In the event that the government revenue cannot sustain such a program, the state is forced to borrow in order to fund the UBI. A government can address a budget deficit through seeking loans or increasing the level of economic activities in the economy (Van & Sudhipongpracha 2015 p. 133). In this case the latter will not be a viable option because; a significant portion of the population will have forfeited gainful employment as well as income generating activities. In a country where a section of the population is not willing to participate in income generating activities, government cannot remedy budgetary deficits through increasing economic activities. The only option left will be to borrow.
As already mentioned in earlier sections, a government derives its revenue from income taxes directly charged on citizen’s monthly income alongside other taxes. This paper has also rightfully argued that paying out minimum basic incomes to every citizen will cause an exodus from work. A transition from work means that the number of citizens who will be on salaries and wages and therefore taxable will reduce. In effect, the amount of income tax that is obtainable by the state will significantly reduce. In the said circumstances it is difficult to guarantee that the state will collect enough revenue to fund its budgetary needs. Insufficient tax collection is a major contributor to budgetary deficits (Ahmad, & Rahman 2017, p. 12). As accurately argued by the scholars, insufficient tax collection may result in the government expenditure exceeding it revenue. The resulting situation may force the state to go into borrowing. When a government goes into borrowing in order to finance recurrent spending such as unconditional cash transfers, it is not headed in the right economic ditrection.it is also of importance to note that it will not just be the income taxes that will have reduced. When people are not actively engaged in income generating activities the amount of disposable income per household reduces (Stuart 2016, p. 48). Disposable income is the portion of income available for spending by an individual or household. When a significant number of individuals in an economy are nether gainfully employed nor involved in income generation, the amount of disposable income possessed by such persons and households is limited (Stuart 2016 p. 49). Such people are not able to spend in the economy. Government makes revenue by imposing taxes on economic activities through licenses, trade tariffs and taxes. In an economy with shrinking economic activity, there will not be enough avenues of collecting such income for the state. Consequently, the government will not be able to meet budgetary requirements.
Impact on Business
This section will look into the possible impacts of implementing a universal basic income to citizens on business. From the outset, it must be stated that the impact on business will not be desirable. Businesses rely on the spending by households; households can only make purchases when they have a significant disposable income left (Stephens, & Van-Steen p. 1040). In an economy where there is a sizeable population that is not engaged in economic activity, there will not be enough for them to spend. The businesses will be negatively affected because they will not make enough sales. They are likely to record low turnover rates and small profits. This is ultimately not good for the economy because businesses pay taxes as well. So in effect, if businesses do not make enough profits, they do not pay taxes to the government. Businesses only thrive in an economy that is doing well. So if the economy is damaged by low levels of disposable household incomes coupled with the fact that businesses will be operating in a country that is not meeting its tax collection targets, there can be very limited business success. This will in turn open gaps in the market; entrepreneurs and potential investors will be discouraged from venturing into businesses.
A sustained cash transfer system is likely to create a dependency syndrome in a society. Children raised in families where parents do not take seek employment or engage in income generation and instead solely rely on the cash transfers may grow up believing there is no need to seek an education or work. Businesses that succeed in competitive markets do so by hiring employees with the best skill set and experience (Battistoni 2017, p. 58). After several years of implementing the universal basic income, there may be a big shortage in the supply of workers with such skill set and experience for the business to hire. When businesses are not able to hire employees with the requisite skill set and experience, their performance will be affected. Ultimately the profitability of the business is compromised and their competitiveness in the international markets is also impacted negatively. The impact of the universal minimum income on the businesses is that in the long term, disposable income falls and businesses cannot make sales.
Conclusion
The paper has explored the arguments against paying out universal basic income. The potential effects of the same are well explored. This paper adopts the position that cash transfers have the potential of damaging a country’s economy in the long run although it may appears as a good measure in the short run. The major concern is that it may cause a transition from work to a situation where citizens are dependent on the cash transfers. The anticipation is that it could result in a decline in the amount of disposable income in the hands of individuals. What follows is that the spending in the economy is reduced, the profitability of businesses goes down and the level of economic activity falls too. This leads to an overall stagnation in the economy.
List of References
Ahmad, F, & Rahman, B 2017, ‘The Relationship between Budget Deficit and Economic Growth: A Study on Bangladesh’, ASA University Review, vol. 11, no. 2, pp. 1-13.
Battistoni, A 2017, ‘The False Promise of Universal Basic Income’, Dissent (00123846), vol. 64, no. 2, pp. 52-62.
Berman, M 2018, ‘Resource rents, universal basic income, and poverty among Alaska’s Indigenous peoples’, World Development, vol. 106, pp. 161-172. Available from: 10.1016/j.worlddev.2018.01.014. [28 May 2018]
Cowan, S 2017, ‘Universal Basic Income: Unworkable And Unaffordable’, Policy, vol. 33, no. 4, pp. 14-20.
Stephens, M, & van Steen, G 2011, ‘‘Housing Poverty’ and Income Poverty in England and The Netherlands’, Housing Studies, vol. 26, no. 7/8, pp. 1035-1057. Available from: 10.1080/02673037.2011.615146. [28 May 2018].
Stuart, R 2016, ‘Seventy Years of Personal Disposable Income and Consumption in Ireland’, Journal of the Statistical & Social Inquiry Society of Ireland, vol. 46, pp. 47-70.
‘Total Output, Income, And Spending: Disposition of Personal Income’, 2018, Economic Indicators, p. 6.
Van, VB, & Sudhipongpracha, T 2015, ‘Exploring Government Budget Deficit and Economic Growth: Evidence from Vietnam’s Economic Miracle’, Asian Affairs: An American Review, vol. 42, no. 3, pp. 127-148. Available from: 10.1080/00927678.2015.1048629. [28 May 2018].
Wolff, Rd 2012, ‘From Economic to Social Crisis: Deficits, Debt, and a Little Class History’, Journal of Psychohistory, vol. 39, no. 4, pp. 280-282
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