Universal Basic Income: A solution to automation?

Friday, 27 April 2018 00:00 -     - {{hitsCtrl.values.hits}}

By Talal Rafi

Robots, though a tiny fraction of the workforce, are seeing rapid growth around the world. Though the global average of robots in the factory workforce is one robot for 150 humans, in South Korea, there is a robot for every 20 humans in the manufacturing workforce. The robot to human work ratio in manufacturing around the world is definitely on a rise. 

As the number of robots working grows, the cost of maintaining robots will also decrease along with the cost of making robots, creating a snowball effect, meaning the number of robots will be rising. In the coming decades, it is predicted over half of the jobs being done by humans will be automated. With the developing world most affected because a lot of jobs in the manufacturing and agriculture sectors are most likely to be automated. Robots can completely replace farm labourers, construction workers and even truck drivers. So many countries around the world are waking up to the reality that many people will lose their jobs in the future and there is going to be a huge amount of unemployed people. More people out of jobs means, less purchasing power and more businesses will close down causing more unemployment. So what is the solution?

One of the ideas brought forward is Universal Basic Income. What is Universal Basic Income (UBI)? It is a fixed amount enough for subsistence given by the government to all citizens, regardless whether they are rich or poor, employed or unemployed. How much should a citizen get a month? It varies with each country. Switzerland wanted to try UBI with an amount of $2,600 per month to each citizen but the referendum was lost in 2016. Kenya started their UBI experiment with $22.5 per person per month. A question asked by many is, how can governments afford to give free money to millions of citizens? Where will they get the money from?

A good question considering many governments around the world cannot afford it. But the argument is that as many manufacturing companies use robots to work, it will increase their profits as a huge percentage of a company’s budget goes for paying its employees. Robots do not require salaries. Also, robots in the manufacturing and farming sectors will work 24 hours a day unlike humans who on average work eight hours a day with the weekend off and robots are much more efficient. 

This means manufacturing companies can produce a much higher volume of goods efficiently and without a big human workforce, its expenditure is also reduced. This can make the businesses very profitable leading to much higher taxes paid to the government. A robot licence, like the vehicle licences we have means an additional revenue for the government. Tesla CEO, Elon Musk says increased automation will also make products cheaper as factories using robots can produce goods at a lower cost.

Many argue against UBI, saying if the entire population is given unconditional free money, there won’t be productivity and people will become lazy though many mini experiments show otherwise. Especially people of very low income will simply not work as they will get around the same money from the government. But at the same time, one would say many would continue to work as UBI is unconditional income. The government will pay you whether you work or not. So they will get the UBI and the salary from their jobs. The other argument as discussed previously is that governments cannot afford it with debt levels of governments already very high around the world. Some argue that UBI worldwide would cause inflation with a lot of money circulating around the world. 

But the arguments for UBI are many with many big names like Elon Musk, Richard Branson and Mark Zuckerberg backing it. Firstly it will bring an end to households living below the poverty line as its household members will be given a fixed income every month. They can also do work if they want, bringing in more money. This can create a middle class with a decent purchasing power in countries giving more purchasing power to the consumers and global economic growth. 

Secondly, there will be a rise in entrepreneurship and creativity as many creative people who have to do jobs in fields they do not like due to financial reasons can have the freedom to try their ideas out as they have a guaranteed fixed income regardless of whether they work or not. People usually cite the story of the writer Harper Lee. Currently, only people of the high income sections of society have the financial freedom to try their business ideas in the world. UBI will give anyone in the world, rich or poor, a level playing field. 

Switzerland was a country that came the closest to having UBI. After 126,000 signatures were collected by activists, a referendum was held in 2016. The activists and supporters of the UBI plan for Switzerland argued that high earning jobs were harder to find. They said that it could easily be financed with sales tax increases and additional fees charged by the government on electronic transactions. Supporters argued it would provide flexibility and allow people to pursue their dreams as many people take jobs they do not enjoy because of the financial need. 

The plan was to give all Swiss adults $2,500 each and $640 per child. This it was argued would create equality for all Swiss citizens. However, the Swiss government and all major political parties opposed the referendum. Critics slammed it as a marxist dream with huge costs. They also argued that it would cause a huge problem with thousands of people quitting their jobs. 

The referendum for Universal Basic Income was lost in Switzerland overwhelmingly with 77% voting against it. But still that did not end the idea of UBI. Finland has an ongoing experiment. 2000 randomly picked people from Finland were given a basic income. It was argued that UBI would make people in Finland work more as many people getting unemployment benefits were reluctant to get a job as they did not want to lose their benefits. Also any short term jobs meant, after they left that job, it’s difficult to get welfare benefits again. The experiment will be carried out from 2017 to 2018 and the results will be evaluated in 2019.

However, an experiment was conducted in a village called Otjivero-Omitara in Namibia by NGOs and labour unions. This was a village that was affected by poverty and had a high crime rate. All residents of the village were given an unconditional basic income. The results were very positive. Poverty decreased to 68% from 86% at the beginning of the UBI experiment. The number of malnourished children fell from 42% to 10% and crime dropped by 36%. But the most interesting fact was that non-UBI income of the average person increased by 29%. This defeats the argument of those who say UBI will make people quit their jobs and become lazy. The experiment in Namibia proves that non UBI income increases meaning more tax revenues for the government with UBI. 

Is Universal basic income a good thing to the world? With rising unemployment that is irreversible due to automation. A lot of people employed in factories are likely to lose their jobs in the coming decade with robots replacing them. With self driving cars, many taxi drivers and truck drivers will lose their jobs. Softwares are already replacing people in offices doing repetitive works such as creating spreadsheets and bookkeeping. This can affect people in the accounting firms. 

This can even affect lawyers and doctors with IBM developing its software IBM Watson which is replacing many lawyers and doctors currently and is set to put a huge percentage of them out of work in the coming decade. With unemployment set to rise, UBI may be inevitable. With increasing automation, the work efficiency and output will increase as robots work more than 40 hours a week and also with less humans working, it means less money required by companies to pay salaries. 

This will result in very high corporate tax revenues and increased license fees for automation which could well provide the financial resources to implement UBI. As Sri Lanka is behind the developed world in automation, we have some more time to reach the stage where UBI may have to be implemented but Sri Lanka can learn from what is going on in the developed world as this trend is set to come here.