“Broad growth is only going to come when you put money in the hands of people, and that’s why we talk about a Universal Basic Income”. [Ritu Dewan, Indian Society of Labour Economics]. (From How long before India’s economy recovers, ‘Context India’, Al Jazeera, 31 Oct 2021.)

India may be to the ‘Revolution of the twenty-first century’ that Russia was to the ‘Revolution of the twentieth century’. India may prove to be ‘ground zero’ for the coming struggle for economic rights.

Universal Basic-Income (UBI) versus Basic Universal-Income (BUI)

I sense that the increased groundswell in the west, in favour of adoption of a Universal Basic Income (UBI) has gone cold. Perhaps less so in India, where there are a billion or so people with minimal (if any) economic rights.

In New Zealand, and perhaps other western countries, UBI seems to be much more ‘on the table of options’ when there is a centre-right government than when there is a centre-left government. UBI was widely discussed in the 1990s and the 2010s, even by the New Zealand Labour Party when in opposition.

One problem is that there are at least two distinct schools of thought. One might be called the European ‘basic income’ school; the other might be called the anglo-hispanic ‘universal income’ school. The former is focussed on people’s needs; the latter focusses on people’s rights. I firmly belong in the latter camp. While the name ‘Universal Basic Income’ is the one that has stuck for the wider (if stalled) groundswell, ‘Basic Universal Income’ is the name that better fits the radical centrist emphasis on universal income as a basic economic and democratic right.

In a recent allegory, Who’s the Thief?, I alluded to four different perspectives on economic rights:

• primitive capitalism
• primitive communism
• property-owning democracy
• democratic capitalism

Primitive capitalism represents the abstraction under which humankind lives at present, and has done so in broadly its present form for 500 years.

I have little to say about the Marxist socialist abstractions, through which economic rights – indeed near-universal economic rights – are granted through an all-powerful state. This, however, has, in the last 150 years, been presented as the one alternative abstraction to primitive capitalism.

Primitive communism represents the largely prehistoric world, before the neolithic agricultural revolution, of hunter-gatherer tribal societies. Today it serves as a useful reference point, especially for anthropology and human evolution, but not a viable option as a modern abstraction for economic rights.

Property-owning democracy is the ‘economic liberalism’ of ‘liberal democracy’, and represents in particular the imagined world economic order following the 1940s’ post-war ‘reboot’. Conditions around the 1950s and 1960s were favourable to a broadening acquisition of private property, following unfavourable periods in the eighteenth century and in the interwar years of the 1920s and 1930s.

However, under conditions of ‘private economic freedom’ where only private (or private-like) property confers economic rights, changes in fate and fortune, trade and debt, mean that private property eventually concentrates into fewer hands, and with the majority of property concentrating into very few hands; property-owning democracy morphs – indeed has morphed – into naked primitive capitalism.

Democratic Capitalism

My allegory Who’s the Thief? exposes primitive capitalism as a ‘false’ ruling abstraction, and also points to ‘democratic capitalism’ as an alternative and viable abstraction which can help humankind emerge from its present intransigent ‘existential’ problems. Democratic capitalism represents a sustainable organising abstraction, and is the natural (albeit radical) territory of the political ‘centre’ in the twenty-first century.

There are echoes of this in the Queen’s Question (and see Can you Explain the Crisis to the Queen?, Guardian, 27 July 2009); and, very recently, a former New Zealand Prime Minister’s recent speech (refer Former prime minister Jim Bolger denounces capitalism, says National Party ‘disappointing’, NZ Herald, 28 November 2021; and noting that Jim Bolger did not denounce capitalism, rather he said the National Party needs to “reimagine capitalism”).

(We may also note that the writings in the 1930s of JM Keynes ‘saved capitalism’ in an era of economic and political crisis in which capitalism itself was subject to existential threat.)

The realisation of a Basic Universal Income is a direct and necessary consequence of the adoption of democratic capitalism as humankind’s ruling abstraction. Democratic capitalism – by definition – confers economic rights which belong alongside political rights.

Democratic capitalism can be understood as a nuanced form of commonism(definitely not ‘communism’!) whereby it is understood that market production depends on a mix of private and inherently public inputs, and that the rightful distribution of economic outputs should reflect this mix of inputs. Democratic capitalism accepts the global system of nation states as reality, so therefore rights-based access of people to economic outputs would need to be organised within nation states. Democratic capitalism also accepts the distinction between minors (essentially children) and adults, and that full democratic rights only apply to adults.

Primitive Capitalism

My allegory Who’s the Thief? points clearly to the unsustainability of primitive capitalism. People without economic rights have no choice but to depend on, in varying proportions, exploitative labour (including various forms of self-deprecating self-employment, and including forced labour), transfers of economic provisions (charity, including begging), direct theft (as in ‘smuggling’ and ‘trafficking’), and through unsustainable practices that destroy our ‘unowned’ commons (such as fossicking for firewood, and disposing smoke into the air and plastics into the water). Under primitive capitalism, economic growth is required to accommodate these unsustainable means to families’ survival. There is no way out, except to reject primitive capitalism in favour of a sustainable organising abstraction.

Liberal Mercantilism

The ideology that continues to underpin primitive capitalism may be called ‘liberal mercantilism’ (refer to my Liberal Mercantilism and Economic Capitalism, Scoop Independent News, 28 September 2018).

For those educated in the history of capitalism, this phrase will be self-explanatory, though also – in a sense – an oxymoron. After all, the only serious critique of early ‘merchant capitalism’ and its political and economic assumptions came from the direction of ‘economic liberalism’ that was forming in Europe in the latter part of the seventeenth century.

The subsequent conflation of mercantilism (essentially the rule of money, and ascribing magic qualities to money; a ruling ideology most associated with early-modern capitalism) with economic liberalism cemented itself very quickly. In the 1970s and 1980s, it became the capitalist world’s predominant ideology. In the 1990s’, its predominance as a ruling abstraction came to be seen as ‘the end of history’. Liberal mercantilism is an ideology that is well-seeded in both the centre-right and centre-left elites of the present ‘millennial’ era. What began as the ‘win-lose’ ideology of international trade in the sixteenth century – the age of sovereign piracy – has become the core ideology of late-modern public finance.

The liberal-mercantilist metaphor for economic activity is that of goldminers extracting wealth (ie of ‘making money’), whereas the democratic capitalist metaphor is that of a human beings seeking food (and ‘song’, another metaphor) as sustenance.

There are two main differences between liberal mercantilism and democratic capitalism: one puts money (treasure) first and the other puts people (demos) first. The second is that, with the liberal mercantilist approach to economics, the ‘supply-side’ comes first (people are first and foremost ‘wealth creators’ making money; miners of money); whereas under the democratic capitalist approach, people are first and foremost creatures with wants and needs, placing the ‘demand-side’ first. Under liberal mercantilism, ‘supply creates demand’; under democratic capitalism, ‘demand’ (reflecting all people’s needs and wants) ‘incentivises supply’. Under liberal mercantilism, the economy is a remorseless growth machine, creating consumerism as a means to dispose of the by-products of money-making. Under democratic capitalism, supply waxes and wanes in response to people’s changing needs and wants. Life under democratic capitalism can be sustainable; under liberal mercantilism, it cannot.

In our culture, ‘economics’ (a social science) is firmly in the camp of democratic capitalism, but most economists are firmly in the camp of liberal mercantilism. As in other fields of enquiry, there is a distinction between ‘what the science says’ and ‘what the scientists say’.

Basic Universal Income and the coming Democratic Capitalist Revolution

I am an optimist. Nevertheless, all revolutions are hard won, and many are misconceived. India, soon to be the world’s most populous nation, may well be foundation ground for this important development of both democracy and capitalism. ‘Broad growth’ can be understood as the growth of human potential, including tribes of humans’ potential to live in sympathy with other tribes, and to live in harmony with their planetary environment. For all practical purposes, as the placards say, there is no Planet B.

——-

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

I keep hearing rather unfortunate ‘expert’ comments in response to questions asked about Universal Basic Income (UBI) as a way of responding to the Covid‑19 economic contraction. These comments all relate to a ‘straw man’ concept of UBI that is obviously unaffordable and impractical. It is not possible to offer any kind of Universal Basic Income (as an unconditional payment to all adult tax‑residents) at the level of New Zealand Superannuation.

What is both possible and necessary is to offer a basic universal income – initially set at $175 per week – in conjunction with a flat rate of income tax of 33 percent.

By doing what is possible and necessary, we provide bridging income guarantees to all New Zealanders who risk income losses, in in a way that requires no new bureaucratic input.

By doing this, all people with salaries or other earnings of more than $1,346 per week would receive exactly the same after tax as they do now. They already receive this benefit.

Further, all beneficiaries and superannuitants would continue to receive exactly the same as they already expect to receive after April 1. This $175 per week benefit is, in effect, the first part of their existing benefit.

Working people on incomes lower than $1,346 per week would receive more than they do now. All working people expecting to suffer a loss of income will be assured that they would continue to receive this $175 benefit as the market component their income falls.

If the $175 per week proves to be too low, then it can subsequently be adjusted upwards.

It’s simple. Really simple. And necessary. It is a way to maintain a high productivity economy that experiences a loss of gross domestic product. It is an easy way of ensuring that everybody gets a slice of a shrinking economic pie.

To avoid confusion, let’s call the $175 per week a Basic Universal Income (BUI).

See also: Keith Rankin Analysis – Economic Emergency 2020

Will there be a resumption of normality? For a few weeks now, awareness has been growing that the global economic consequences of the Covid19 epidemic (that WHO today notes has “characteristics of a pandemic”) may be greater than the medical consequences, even if the European death rates fail to level‑off, even if EU death rates repeat in the USA and UK.

Some economic consequences of Covid19 represent trends that were already underway. So normality, as most of us understand it, is probably not going to resume.

One of the more obvious economic consequences is the impact on the global travel industry. On this, my reading is that the travel industry already reached a turning point in 2019. This turning point was driven in part by concerns (especially but not only by young people) about the contribution of the travel industry to climate change through fossil fuel emissions. It was also driven by more general concerns about enforced consumerism; and the consequences of ongoing exponential accumulation of other waste products (such as plastics) and their impacts on the food chain. We may add other environmental concerns – deforestation, and water insecurity – that contribute to a changing pattern of economic demand in the world. Further, the shear scale of mass tourism was making the ‘product’ less attractive.

Indeed, increased inequality and income insecurity had already limited the growth potential of global tourism.

We also note that the global travel industry includes huge amounts of business travel, much of which is not strictly necessary, and is relatively easily cut from the budgets of stressed organisations. Structural change here was already underway, with, for example, academics increasingly able to collaborate and converse without attending formal conferences.

The global travel industry works today through economies of scale, and huge amounts of capital – eg in large aircraft and ships. Massive amounts of capital have already been sunk in fleets of airliners, cruise ships, container ships and oil tankers – and in the capacity to keep building these behemoths. An accelerated depreciation of all this fixed capital may not be easily reversed.

My argument here is that trend‑changes already underway may be substantially misattributed to an economic shock – an unknown unknown from a 2019 perspective, the Covid19 pandemic. This misattribution may encourage ongoing intellectual laziness. Why investigate further when we already have an explanation for the rapid‑onset decline of a major world industry?

Yes, there will be an economic recovery – indeed a substantial recovery. But the travel industry will probably not fully recover. It was already tainted. The decline will be hastened by Covid19, which I suspect will prove to be the world’s first middle‑class health pandemic.

Stagflation?

Covid19 is a virus. Another virus is the fear virus. This is the one that is self‑fulfilling. There nothing else quite like middle‑class fear. The global financial crisis of 2008 was a crisis of fear.

This crisis may be different, because global supply‑chains have been severed in ways that never happened in 2008. The recovery of these supply chains will be critical to a resumption of anything like normality, and should already be well underway. The crucial ingredient to this recovery is China (as it was to the post‑2008 recovery). We in New Zealand (and Australia) should get over our white middle class racism towards China – China is now a net importer of Covid19 – and urgently re-establish supply chains with that country.

Otherwise, the central macroeconomic consequence of Covid19 will be substantial reduction in supply elasticity. (In New Zealand we have already become familiar with this problem in the construction industry, where shortages of building resources proved more important than shortages of money.)

A supply‑elastic economy is one that can easily respond to both increases in aggregate demand and reorientation of economic demand in favour of some products at the expense of demand for others. A supply‑elastic economy is an economy that is not ‘maxed‑out’.

If policymakers address the present crisis as a conventional macroeconomic crisis – as a crisis of insufficient consumer and investment spending – then a contrived increase in aggregate demand may be met by an unresponsive aggregate supply. Result, ‘stagflation’, the bugbear of the late 1970s. In those years, supply was restricted on account of high interest rates (monetarist anti‑inflation policies), corporate rent‑seeking, high oil prices, and labour‑market rigidities.

This time, a simple inability for businesses to acquire necessary materials may underpin inelastic supply. This is likely to be exacerbated by rigidities in transferring human resources from white‑collar service employment (essentially the overpaid ‘bullshit’ sector described by David Graeber in his book ‘Bullshit Jobs’) into employment in sectors that contribute to our supply-chains.) Once again, we have pre‑existing constraints on aggregate supply combining with the new constraints arising from the Covid19 contagion.

This situation requires a more nuanced response than reliance on monetary policy easing, which (along with China) saved financial capitalism from the 2008 financial crisis.

The good news, this time, is that excess global transport capacity – arising from less tourist and business travel – may be converted increasingly into freight capacity. Already cheap airfares were possible to a large extent because passenger aircraft were also carrying freight.

There will be one new ongoing supply constraint to note. Increased absence from work, due to much higher enforcement of virus‑free workplaces, will lead to reduced economic capacity, especially in the winter months.

Nevertheless, my sense is that global supply chains can quickly revive, and that the 2020s will turn out to be a decade in which constrained consumer demand re‑establishes itself as the more intransigent problem.

National policy response? Universal payment.

What should be the New Zealand government’s economic response? It should be a response that facilitates a medium‑term transition to a form of capitalism that can adjust to structural constraints on both aggregate demand (ie a movement away from consumerism) and aggregate supply (ie less‑stressed and less‑vulnerable supply chains), while not necessarily promoting those constraints.

We need simple easily‑implemented economic solutions that do not depend on the restoration of economic growth. New Zealand, with its comparatively simple income tax scale, is able to make changes that fulfil this specification.

The suggested change is this. Every New Zealander over 18 could (say from 1 July 2020) be granted a weekly credit of $175. To offset this, all personal income would be taxed at 33 percent.

This is much less radical than it sounds. Consider six examples:

Persons earning more than $70,000 a year would notice no change in their present circumstances. But, if they lose their job, they will keep their weekly $175 unconditionally. They would only have to apply to Work and Income if they need support over and above this.

Persons earning $48,000 a year would gain $12.70 per week. And, if they lose their job, they will keep their weekly $175 unconditionally. They would only have to apply to Work and Income if they require support over and above this. Persons earning less than $48,000 would gain more than $12.70.

Beneficiaries (including Superannuitants) would notice no immediate change in their present circumstances. $175 of their benefits would be classed as inviolable, so would not be lost if they enter into to some form of employment or new relationship. (A simple variation of the policy could see high‑earning Superannuitants becoming upto $70 per week worse off.)

Working for Families tax credits are payable currently to the lower-earning parent in many families. Parents already receiving weekly Working for Families tax credits in excess of $175 would not gain more immediately. But they would secure their $175; they would still get at least $175 if a change of circumstances reduces their Working for Families entitlement.

Low income self‑employed people would gain as a result of this initiative. They would be assured of $175 every week, regardless of the vicissitudes of the marketplace.

Domestic tertiary students would be assured of $175 per week, regardless of parental income or part‑time jobs. (A public affordability option here would be to discontinue free tertiary fees, thereby using student loans more for fees and less for living costs.)

The universal payment would serve as a very efficient ‘automatic stabiliser’, allowing the domestic economy to keep ticking over during periods of market uncertainty. It also would mean that, in conditions of low discretionary demand (eg due to less‑consumerist spending choices), people will be assured of a basic universal income. They will be more easily able to choose to enjoy the benefits of past productivity gains by opting for less stressful and more sustainable lifestyles. Aggregate incomes necessarily fall when most people choose to work less and spend less. Universal payments make this conservationist option possible, though not necessary.

Universal payments, to work effectively, need to be indexed at least to prices. It would be better to index the universal payment to a measure such as gross domestic product per person, ensuring that the payment would reflect productivity growth. Also, the presence of such universal payments gives an easy stimulus option for future crises; governments may simply raise the universal payment (in addition to regular indexed increases) as an alternative to cutting taxes.

In Closing

Covid19 presents us with a unique set of economic challenges. Are we up for it? The biggest threat to successful policymaking is our own intellectual laziness. Governments will only do the right things if pressured to do so.

See Also: Economics: Keith Rankin on Universal Basic Income and Covid-19