A floating UBI rate can be linked to nominal GDP per capita and introduced in any economic conditions. UBI is likely to have positive impact on freedom, happiness and GDP. However, authoritative power holders may dislike the loss of economic grip.
Possible Effects of UBI
1. More freedom
With UBI, people would fear less, their mental wellbeing would be better, as demonstrated by the Finnish two-year experiment (KELA 2020). People depend less on conditional economic benefits from employers or government officials. They are freer to pursue whatever they believe is important to pursue, not what the richer actors want them to. People can try new ways of earning their living, not only by being ‘labour force’. Some may want to spend more time on bringing up their kids, take better care of their health, develop new talents or change their lives more courageously.
2. More happiness
The World Happiness Index is based on six factors: economic, health, social support, personal freedom, generosity, and perception of corruption (Sustainable Development Solutions Network 2020). UBI is likely to improve at least five first factors because people will have more income to take care of those. The last one, perception of corruption, may also improve because a citizen receives UBI unconditionally, regardless of the government officer’s will. In other words, there will be less soil for corruption and, consequently, its perception may also improve.
3. Higher GDP?
It can be the case, if UBI rate is floating and linked to GDP per capita. Current social welfare systems seem to be poorly aligned with their purposes: they ‘motivate’ people to stay sick, unemployed or in other difficult situation, or else a person cannot receive financial aid. If UBI would be a fixed amount, it would have another downside: it ‘motivates’ the taxpayers to work in the ‘grey economy’ and avoid paying taxes: they will get their UBI even if they do not contribute anything. If UBI is linked to the GDP per capita, i.e. UBI fluctuates based on what people have contributed to the economy, it motivates them to contribute more: to earn more and to generate more taxes – then they also get paid higher UBI.
Some criticism of UBI
A popular concern about UBI is that some people may prefer to work less or not to work at all and rely on UBI as their sole income, instead of wages. This hypothetical assumption leads me to two questions. Pensioners are almost like people living on UBI – do I know healthy yet passive pensioners? And even if some people do not work for salaries, is it always undesirable for the society?
There are about one billion retired people in the world, most of them receive pensions, which are similar in nature to unconditional UBI. The seniors often stay active as long as their health allows them. Some continue working in their jobs, some help their children and grandchildren, take care of animals, plant gardens, share their life stories and opinions, and contribute to the universe in other non-paid forms.
If people do not receive salary, it does not automatically mean they are not helpful for the world. Many free activities are valuable for the society. For example, unpaid work done at home, informal education, creating art works, providing psychological help, taking care of nature, creating conditions for recreation etc.
Finally, we know well what happens when people are forced to work against their will e.g. as a condition for unemployment benefits. Such work is seldom productive or of high quality. We probably need to accept that everyone has free will: if people do not want to work for others, it’s fine. In the past, they had to beg money or commit crimes so as to survive. Isn’t it better for all if the society provides them with some help unconditionally? Why can’t we explore a noncoercive path? Or do we doubt ourselves?
Possible Amounts of UBI
Let us calculate what UBI some countries can pay if the ratio of their public spending on social welfare to GDP remains unchanged. In other words, the states won’t need to levy more from their citizens.
I will begin with an example of a so-called welfare state – Finland. Welfare states usually collect more of their GDP in taxes and spend more on social welfare. Figure 1 below illustrates this: the Finnish society redistributes 43% of their GDP, about 31% is used on social welfare.
Figure 1. Social welfare costs to GDP in Finland, 2018.
Sources: Ministry of Social Affairs and Health of Finland (2020), OECD (2020a), Statistics Finland (2019), TheGlobalEconomy.com (2020), World Bank Group (2020a).
The bigger part of the Finnish social welfare spending (about 25% of the GDP), so-called income security, is used to ensure that people receive some income in harder circumstances, e.g. if they get old, pregnant, during studies etc. The other part of the social welfare costs can be seen as aid to those citizens who have unusually high needs, for example, people who need expensive medications, orphans, homeless etc. (Wikipedia 2020a, Statistics Finland 2019)
If Finland uses the income security part (25% of the GDP) to provide every citizen with UBI, including little kids and retired people, the payments will equal 782 euros per person per month. This estimation is based on the GDP per capita of 37559 euros in 2018 (Ministry for Foreign Affairs, Department for Communications of Finland 2020).
Almost 800 euros per person per month looks like a pretty good amount that allows more or less decent living. It is not far from the Finnish minimum ‘wage’ – an amount that is considered sufficient for living in Finland. In 2018 the minimum wage for an individual was 1160 euros, while the same for a family (two spouses or partners) was 1700 euros. (Trading Economics 2020)
Before going further, let us contemplate the logical beauty of the Finnish approach. They spend about half of every euro on long-term goals: 25 cents on investment and (at least) 25 cents on helping those who are facing difficulties now but can probably contribute to the society in the long term, also in non-material ways (like elderly do, for example). The other half is used on consumption, i.e. on short-term aims. Thus, the Finnish society benefits from both: long-term thinking and short-term thinking, and they are approximately in balance.
As mentioned above, Finland is one of the so-called welfare states. Many nations have lower tax to GDP ratio. For example, OECD members on average collect 34.3% of GDP in taxes (OECD 2020a). Some countries of the world collect as little as single-digit shares of their GDP through taxes (Wikipedia 2020b). For example, United Arab Emirates levy only about 0.1% of GDP in taxes; the main source of income for their state budget is fees for government services, e.g. a business registration fee (WorldBank 2020b, Oxford Business Group 2020).
To give some more examples of possible UBI amounts, I have calculated: (i) what UBI several other economies could pay from the share of their GDP currently used on public social welfare spending, except for healthcare, and (ii) what UBI they could pay if they would use 25% of their GDP on that. Table 1 below contains estimations in US dollars for some national economies, the OECD and the world.
Table 1. Possible UBI in some economies.
Sources: BBC (2018), Committee for a Responsible Federal Budget (2018), ECLAC – United Nations (2020), European Commission (2019), NRU-HSE (2015), OECD (2020b, 2020c, 2020d), Reuters (2019), Statista (2020), The World Bank (2017), World Bank Group (2020c), Xinhuanet.com (2018).
Formulas in Table 1 and their explanation:
Possible UBI from current public social welfare spending, Column 2 = Column 6 * (Column 3 – Column 4) / 100% / 12.
To obtain the public social welfare spending that an economy could use for UBI currently, I subtracted public health spending from the total value of the public social welfare spending because the former is more likely to be associated with Extra Aid category (money paid to a person who needs significant additional money to survive even with income security).
Possible UBI from 25% of GDP, Column 5 = Column 6 * 25% / 100% / 12.
Although values in Table 1 are approximate and not always comparable because different countries have different social protection systems, these numbers show what is possible. At least one thing is obvious: even if taxation remains unchanged, UBI can become a significant support for people, especially in poorer countries. States can clearly do more to improve social welfare. Using 20%-30% of GDP on UBI could bring radical improvements to those who need them most, and maybe less radical, but also desirable changes to the society as a whole.
Why not?
If UBI is a good thing, why none of the governments have introduced it yet? I guess the answer depends partially on public awareness, partially on the will of the power holders who are more often wealthy than not. Without UBI, more money can be left in the hands of the richest and spent, for example, on wars. Additionally, poorer citizens are easier to control.
Instead, a floating UBI based on GDP per capita could unite the citizens around economy: everyone gets more if they contribute more. It replaces the logic of dominance and force with the logic of partnership and free will.
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