No more than 100 years ago, old-age pension was incomprehensible for a great many people, while it came to ensure societies peace and prosperity for a long time. Basic income could help contain bureaucracy associated with other benefits and leave people healthier, happier and wiser, entrepreneur Lauri Tõnspoeg writes.
First of all, let us agree that I have never been a communist. I did not even join the pioneers in third grade as part of a select few, which led to quite a lot of trouble. I had to wear a tie and every time I did not, I got a teacher's note. I have spent most of my life as an entrepreneur, a capitalist, therefore. Now that's out of the way, we can take a look at what basic income experiments in USA, Canada and Finland have found.
Guaranteed annual income (GAI) experiments were launched in New Jersey and Pennsylvania back in 1968 and later elsewhere in the U.S. The researchers wanted to know what effect it would have on human capital, on families, population increase and public health. The general conclusion was that families did 13 percent less work, mainly because people went on childcare leave for longer periods of time. Young people waited longer before going to work, while they probably also went to school longer, even though that aspect was not covered by the study. Children in North Carolina started getting better grades, while the aspect was not studied in New Jersey. It was found in Indiana that newborns in risk groups were underweight less often. Of course, the study results provided ample material for political battles, with the whole experiment swept under the rug in the end.
In Canada, an experiment was carried out in the city of Dauphin of roughly 10,000 people in 1974-79. The city lies 100 miles in the middle of nowhere, with no other major settlements nearby. The experiment was terminated because of the economic crisis, with 8,100 boxes full of documents shelved for 30 years, until Evelyn Forget got access to and digitized the materials. The Canadian method saw the government pay for the difference between people's actual income and a certain minimum. The most interesting find was that people spent 8.3 percent less time in hospitals, a notable public health improvement. Another observation was better study results and longer study periods of students that contributed to overall human resource quality. When the experiment ended, the indicators fell back to where they had been before it started.
Finnish experience: stress reduced
The Finns wanted to know whether basic income could replace unemployment benefits. The experiment was carried out in 2017-2018 among 2,000 people who had been on unemployment benefits before. Those paid a basic income (of €560 after taxes) were compared with 5,000 people receiving the benefits, the difference being that basic income was retained if people found a job, while benefits were not. By now, only the first year's results have been analyzed, with results for 2018 expected later in the year. Nevertheless, interesting nuances can be found.
People receiving basic income were about as likely to go to work as those receiving benefits. Compared to the test group, they were more trusting of other people, the state and even politicians. They were far more confident of their prospects for finding work and considered their finances better, and 66.7 percent of people receiving basic income considered their health good or very good, compared to just 55.7 percent in the other group. No fewer than 56.1 percent believed they would find work inside the next year. There were also considerable differences in stress levels: 22.2 percent of people receiving basic income said to have no stress, with 32.6 percent reporting only a little stress. These figures were 19.7 percent and 25.9 percent respectively for people receiving unemployment benefits. Stress is one of the greatest risk factors in both mental and physical health, while Estonia is at the very top in the world in terms of suicides per 100,000 residents.
When the test group was asked whether it was easier to get a job while receiving basic income because of reduced bureaucracy, 81.9 percent agreed. 89 percent found that it makes sense to accept a job offer when receiving basic income. 72.2 percent thought it was easier to start their own business while on basic income and 84.8 percent believed it should be made part of the Finnish social system.
House of cards comes down fast
It makes sense to take a look at these experiments in the wake of the coronavirus crisis, especially because the USA, as the cradle of capitalism, employed the instrument to help alleviate the effects of the said crisis, paying every adulty $1,200 and $600 per every child.
This is where one needs to understand the principle that very tightly intertwined economic structures and systems work based on the consumer spending money and not on factories remaining operational. In other words, in a crisis where the consumer runs out of money or has no confidence for tomorrow that causes them to set aside money [instead of spending it], the house of cars quickly comes crashing down. It is impossible to construct of resuscitate self-reliant systems in small enterprise in a top-down fashion in any other way besides giving money to consumers. All other solutions are incomplete and result in some benefiting while others don't, with the economy still taking a hit in the end. In addition, state support for companies in crises favors capital ending up in the hands of the ultrarich as they, firstly, stand closer to the rulers (we can take the example of the state loan to Tallink, why a particular major company is preferred). Secondly, those who still have cash start buying up those who are struggling, becoming monopolies in the process.
That is what happened nearly 100 years ago when the Great Depression began in America and rolled over the entire world, causing great change. This chaos saw the rise of Hitler and you know the rest. The United States have traditionally been run not by presidents and their administrations but rather the tycoons that support them and their money. In 1929, 60 percent of America's national wealth belonged to 2 percent of its residents. Salaried workers had 33 percent of the national wealth, with capitalists benefiting from 41 percent through rental income, profit and dividends. An estimated 50 million people of the total population of 121.8 million barely made ends meet. Manufacturing was impressive, while people with purchasing power suddenly disappeared. The stock market mainly saw very speculative transactions (full of air) and came crushing down on October 23. Over the next four years, the U.S. GDP fell from $105 billion to $57 billion. Unemployment grew six times to 25 percent. Five thousand banks and 32,000 companies went bankrupt.
USA was not a welfare country
State pension was only available to veterans and high-ranking public servants, unemployment benefits were virtually nonexistent. In 1933, Franklin Delano Roosevelt became president and assembled an entourage of intelligent people, in addition to having the courage to make changes. Minimum prices for agricultural produce were introduced, as well as a minimum wage for laborers. The prohibition was ended and alcohol taxed with an excise duty. 1935 brought old-age pension and child benefits. Stagnant capital was taxed to distribute wealth. (In Estonia, capital that remains on a company's bank account is exempt from tax.) The economy started growing again and (excluding an interim period in 1937-1938) the pre-crisis level was restored by 1940, while in the conditions of a much stronger economy.
The share of the 0.1 percent of wealthiest people in total wealth had fallen from 25 percent to 12 percent. It has been growing again since the 1980s and has now reached the same level as before the Great Depression. The same tendency can be seen in many other countries and even though the previous crisis delivered a slight disruption, money still follows capital and if it is not redistributed through taxes and benefits, 1929 will come again. The wealth of the richest 1 percent in the world is greater than the combined wealth of 80 percent of the poorest people today. In 2019, the wealthiest 1 percent held 31.9 percent of total wealth in USA, with the next wealthiest 10 percent holding 37.3 percent, the next 40 percent holding 28.3 percent of wealth and the poorest 50 percent owning just 1.5 percent of the national wealth.
Wealth also concentrating in the hands of a few in Estonia
The trend of wealth concentrating in the hands of a very small group is also present in Estonia. The Global Wealth Databook 2018 provides the Gini coefficient that allows countries to be compared to each other and the situation to the previous decade. A Gini score of 0 means wealth is distributed equally, while a score of 1 would see everything belong to a single czar. Over the last decade, Estonia's Gini score has gone from 0.675 to 0.715. Things are even worse in the Nordics – Sweden's score is at 0.865 – with Kazakhstan (0.952) and war-torn Ukraine (0.955) taking the cake. It is noteworthy how in the Nordics, with their generous social benefits and high taxes, wealth is still accumulating in the hands of very few people, suggesting that the ultrarich should not be concerned about social benefits.
Political stability is built on a strong middle class that has the potential to keep radicals in check. Poverty and dissatisfaction have always carried radical movements. We were all lucky in that it was Roosevelt who was elected president in 1933, that he managed to carry out all the necessary reforms to make USA strong enough to eventually overthrow Hitler who came to power in Germany just a few days after Roosevelt did in the States. It is quite terrifying to try and imagine what could have happened had someone like Hitler won in the U.S.
That is why we should think ahead and ponder what and how could be done better to minimize poverty and wretchedness and for our people to be strong. We could start with refraining from labeling someone a communist for merely mentioning basic income, instead making it a topic that could be discussed calmly. Even though old-age pension was utterly incomprehensible for many people 100 years ago, it came to ensure peace and prosperity for quite a long time. If having basic income could help reduce bureaucracy associated with other social benefits, if it could make people healthier, happier and smarter, it sounds to me like something I would like to discuss. Potential sums and where the money would come from are technical matters that can be addressed once we have a well-reasoned and calm debate.
Editor: Marcus Turovski