The thought of giving people money for free seems like a rotten, socialist idea, doesn’t it? Perhaps… but a Universal Basic Income (UBI) is also an idea that has the potential to save capitalism from falling apart.
This article reflects the opinion of the writer and not necessarily that of The Essential Millennial.
Capitalism is the economic system that has led to more human productivity and prosperity than any other time in history. Over the last 50 years, it has lifted one billion out of poverty in the last 20 years, according to the American Enterprise Institute. The general consensus, at least among those that hold all the power in this world, is that capitalism is a resounding success. As part of a thought experiment, I want us all to consider the premise I’ve made here to be true. Modern Neoliberal Economics, “Trickle-down Economics”, free enterprise and market competition all hold the formula for human prosperity and the continued success of humankind. We can get into an argument over whether this is true or not on another day.
Late stage capitalism
One proponent of the system of capitalism, Nick Hanauer, a “0.1%er” who sold his company, aQuantive, to Microsoft for $6.4 billion dollars. He was an early investor in Amazon and founded or funded over 30 companies over the course of his career to accumulate a vast amount of wealth. He says the he is a plutocrat by any reasonable definition of the word. So he issued a warning to his fellow plutocrats at a TED Talk.
Hanauer goes on to describe the ridiculous amount of wealth inequality that derives from the system of capitalism and is inevitable. “What do I see in the future?” he says, “I see pitchforks.”
The angry mob is inevitable and every civilisation with unsustainably high levels of inequality has either collapsed or transformed into a police state. The future of global capitalism is just not very bright, which is why Hanauer is urging his fellow plutocrats to stop this from happening.
“If we do not do something to fix the glaring economic inequities in our society, the pitchforks will come for us. No free and open society can long sustain this kind of rising economic inequality. It has never happened. There are no examples. You show me a highly unequal state and I’ll show you a police state or an uprising. The pitchforks will come for us if we do not address this. It’s not a matter of if, it’s when.
Reverse Engineering a Universal Basic Income
I want you to consider my earlier arguments about why a Universal Basic Income is the ideal rermedy in a Covid-19 afflicted economy and how one would pay for the program.
In his TED Talk, Hanauer also refers to how Henry Ford famously figured out that raising his workers’ wages to $5/day (double the prevailing wage at the time) not only led to a huge increase in productivity in his factories, but converted poor and exploited autoworkers into a thriving middle class that would buy the products that Ford produced… his cars. Ford figured out that his business operated in an ecosystem with a feedback loop where wealthier workers meant more buyers for him. With higher wages, comes higher demand, more business and more jobs. It’s a stroke of genius that Hanauer refers to as Middle-out Economics… an alternative to the Neoclassical, “Trickle-down Economics” policies that are practiced in most parts of the world.
“Capitalism does not work by effectively allocating existing resources. It works by effectively creating new solutions to human problems. The genius of capitalism is that it’s an evolutionary, solution-finding system. It rewards people for solving other people’s problems.
South Africa’s solution.
South Africa has the highest level of inequality on earth. 20 years ago, we were the second worst, behind Brazil, who lifted 20 million people out of extreme poverty with their Bolsa Familia and Fome Zero social welfare programs. A UBI would be similar… but on steroids. And what we need to also bear in mind is that the UBI program is for everyone. Taxes suck, but even if you see an increase in income, the value of the UBI would offset it. And, consider what even a median income earner in South Africa can do with the unconditional R6,460 added to their monthly budget. A 23-year-old who’s just entering the job market, or even an 18-year-old would be able to buy an entry level car and drive to work every day. And, beyond this, people will be able to buy more goods and services. They will become more productive and demand will increase, which requires businesses to expand, or new businesses to enter the market.
This will create an endless feedback loop that gives South Africans a plethora of opportunities that they can leverage and achieve social mobility. We know our poorest and most vulnerable citizens will have the means to survive. And the beauty of economic freedom is that it comes with all kinds of social benefits. A reduction in crime, unemployment, drug addiction, gender-based violence and countless other phenomena that are a consequence of poverty will have a range of benefits for our society and our economy in general.
A UBI Will Save Capitalism
The point that I’d like to get across here is not to promote the idea of socialism. As a self-described socialist, that would be the logical direction for me to take. But I want to practice some intellectual honesty and take a look at this from the polar opposite perspective. The same economic theory that was taught to me at university, that which is based on homo economicus, the consistently rational, narrowly self-interested actor which Neoclassical theory considers us to be. In the ceteris paribus paradigm, where economic mechanisms play out in isolated bubbles and everything else stays the same, it’s all there… the answer is simple. Dutch historian, Rutger Bregman put’s it best.
It’s that simple.