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Payment Guaranteed: How Would Universal Basic Income Affect Business?

Payment Guaranteed: How Would Universal Basic Income Affect Business?
Credit: Efetova Ana/Shutterstock

What if once a month for the rest of your life you received a check to cover your food, clothing, health care and housing expenses, just by virtue of being human?

One school of thought now gaining traction around the world proposes exactly that. The concept is called the "universal basic income" (UBI), and it encompasses a variety of different proposals that all boil down to one, simple idea: replace the existing social-welfare system with direct payments to every individual citizen.

UBI has appeared under several different monikers since its conception, going by the titles social dividend, guaranteed income and basic income. Each name has its subtle differences, but the implications of any such policy would undoubtedly be immense, raising several questions: How would a basic income policy change the economy and affect small businesses? Would it lead to more entrepreneurship? How would it influence consumer spending?

A sweeping policy change toward UBI is not very likely in the U.S. anytime soon. Still, groups in several countries, including the U.S., are undertaking small-scale experiments investigating the impacts of UBI on local and regional economies.

Business News Daily spoke with experts and entrepreneurs and consulted historical evidence (what little of it there is) to find out more.


An early source of inspiration for UBI is found in Thomas Paine's 1797 essay "Agrarian Justice," in which Paine proposed a national fund that would pay each person "the sum of 15 pounds sterling" when the individual reached age 21, as well as another 10 pounds per year from the time the person reached age 50 through the rest of the recipient's life.

Paine pictured this national fund as compensation for what he called "the loss of natural inheritance." His idea was that in the world's natural state, all land was common property to all. Private property arose when humans improved the land as part of civilization, Paine wrote, so the fund would act as compensation for each person's loss of that common property. He called this "ground rent," recompense paid to society for a private individual taking up land, sea or air in pursuit of building his or her own wealth.

The idea has evolved over time across ideological lines. Some people regard UBI as a way to streamline social welfare and eliminate bureaucratic waste and corruption. Others view UBI through the lens of poverty alleviation, or as a way to allow people to pursue fulfilling activities outside of work. Still others, like SpaceX CEO Elon Musk, have called UBI an "inevitable" byproduct of an increasingly automated society.

"There is a pretty good chance we end up with a universal basic income, or something like that, due to automation," Musk said in a November interview with CNBC. [See Related Story: AI Comes to Work: How Artificial Intelligence Will Transform Business]

However, not everyone agrees. Opponents of UBI have dismissed the proposals as unrealistic or half-baked. It's more prudent to stick with solutions that are more affordable or adaptable to the current social welfare environment, critics have argued.

For example, Max B. Sawicky, assistant director of the U.S. Government Accountability Office and former economist at the Economic Policy Institute, said at a 2013 forum on UBI proposals that "like good fiction, the way to read the UBI is not as a real proposal, but as a message about … our existing system. But the implicit critique of the existing system underlying the UBI is not well-founded."

He argued that proponents tend to exaggerate overhead costs of existing federal programs and that costs would be higher than suggested for implementing a basic income program.

However, James Wallace, a serial entrepreneur and founding member of Exponential University, said that a basic income is not only desirable, but also "imminent and beyond probable." Like Musk, he predicted that about five to 10 years from now, by nonhuman AI workers will have taken over many jobs.

He based his expectations on Moore's Law, which describes the exponential growth of computer processing power and subsequent decreases in costs. That principle, Wallace said, will dramatically reduce the need for human labor in a very short window of time.

"These experiments [into UBI are] … starting with people in need," Wallace said. "Well, the number of people in need will grow as the number of jobs shrinks."

Early experiments with UBI have proved incomplete or inconclusive, and so there is very little real-world data to use in making predictions.

Beginning in the late 1960s, the U.S. launched one of four "negative income tax" experiments, in which people earning below a certain income threshold received supplemental pay from the government rather than having to pay taxes. These programs were somewhat similar to UBI, except they focused on the poor instead of applying to every citizen. In 1974, Manitoba, Canada, launched its own experiment in negative income tax. However, neither country ever implemented the idea as policy.

The concept of a true basic income, on the other hand, has now gained some traction, with several experiments planned or underway throughout the world, despite objections. In 2008, an organization called Instituto ReCivitas launched a privately funded study of basic income in Quatinga Velho, a small rural community in Brazil. Under this experiment, each resident receives about $12 U.S. per month. Organizers of that study reported improvements in nutrition, clothing, conditions of living, health and local construction.

 

It's one thing to offer a guaranteed sum to residents of an impoverished village, but what about the populations of cities or entire nations? Around the globe, there are small-scale studies cropping up left and right. The province of Ontario, Canada is preparing to start a pilot program that would offer roughly $1,000 U.S. per month in nontaxable income to eligible citizens. After the city of Utrecht, Netherlands, delved into basic income, the country as a whole followed suit and set up a pilot program to begin in 2017.

In Finland, an experiment into basic income slated for 2017 will be limited to citizens already receiving unemployment benefits, and will amount to a monthly income of about $600 U.S. In the United States, the Economic Security Project (ESP), a UBI research fund is investing in a number of studies. One nonprofit organization GiveDirectly, also a recipient of an ESP grant, allows private individuals to create a basic income fund for one person, a family or an entire village living in extreme poverty in Kenya or Uganda.

The results of these projects, both upcoming and ongoing, will add a layer of evidence to the debate over UBI that the world has not yet seen. And if people like Musk and Wallace are right that automation will inevitably result in a net reduction of jobs, then these pilot programs come at a crucial moment.

"What we're already seeing [from these experiments] is that some myths are being dispelled," Wallace said. "This is not about 'funding lazy people.' The policy now is to define what the money is for. It's earmarked for food, household items and so on. And … that is what people are buying."

Hypothetically, what would UBI mean for business? Supporters have predicted elevated consumer spending, new business startups and increased investment in existing businesses. Chris Yoko, CEO of Yoko Co., has spent significant time studying UBI in trying to create a higher purpose for his company, he said. A basic income would democratize the small business landscape, Yoko said.

"I think you'd see a lot of companies focusing on what they can do that's really innovative and that can make a big impact," Yoko told Business News Daily. "We'd probably see more startups and see a lot more people investing in companies."

Ultimately, Yoko said, he'd expect UBI to generate more competition in the market by giving more people the means to pursue disruptive ideas. However, that might also be a death sentence for companies that fail to offer particularly innovative products or progressive ideas, he said.

Wallace concurred, harkening back to the days when most people worked for themselves as entrepreneurs of one kind or another, such as small farmers and urban merchants.

"The biggest thing we need to look at here is the idea that we are workers and [that] jobs are required," Wallace said. "We need to really challenge this idea that we are born to this planet to work. At the turn of the 19th century, it was kind of work as needed, and it was normal for people to be entrepreneurs. It wasn't normal to work for someone else, and we're kind of getting back to that with the ‘gig economy.’" 

On the other hand, Yoko said he is concerned that if consumer spending doesn't increase right off the bat in these experiments, governments and pilot organizations might lose interest in the UBI too quickly. This could happen before accurate results are logged, he said.

"I hope [pilot organizations] consider economic realities surrounding these experiments," he said. "If you've been down on your luck and now you get $1,000 a month, you'll probably save it at first, because you're used to that and you're cautious. You don't know how long this is going to last. That's not the same as a true UBI, when you know that for the foreseeable future, the money is coming, so people become more comfortable spending."

Speaking about that current tension felt by the average citizen on a fixed budget, Wallace offered an optimistic vision for the globalized, automated world.

"Today, we are paying the price so the future generation can be born into this world … and consider a life that doesn't require 50 to 80 hours of work each week from age 20 to 70," he said. "Instead, they can think, 'How can I provide value to my planet in my niche with my skills and talents?' — and isn't that a great thing?"

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.