Month: April 2017

Categories
Economics Technology

Universal Basic Income – all pay and no work

How do you feel when you get paid freely for doing no work? In my previous post, we had discussed the possibility of Universal Basic Income (UBI) proposed by Thomas Paine – the price tag that we have given for the new era of the unemployed because of the emergence of automation and technology. It may surprise you to know that a partial UBI already existed in Alaska since 1982 and that a version of basic income was experimentally tested in the United States in the 1970s.

So let us understand the dynamics of universal basic income. A study, released by Oxfam, showed that just 57 billionaires in India have the same wealth as that of the bottom 70 percent population of the country. To give a global perspective, just 8 billionaires have the same amount of wealth as the poorest 50 percent of the world population. This statistics gives the extent of global income inequality. Now wonder we have just 32 million of 3210 million population of the world owns over 40 percent of the world wealth.

Anyway, what is the need of this universal income? It is predicted that automation will create nearly 15 million new jobs by 2025, but at the same time, wipe out nearly 25 million. The 10 million who is going to lose the jobs in the process would be the people who would find it difficult to upgrade their skills or those who are too old to switch the jobs. But how would they survive? Will the world of technology be morally responsible for supporting them?

Even some of the biggest technology tycoons including Elon Musk who are talking about changing the world for the better seem deeply concerned on what the very same technology could do to jobs in the long haul making universal basic income “necessary.” It is not just the individuals who are concerned about this. The entire political spectrum is concerned about this huge income disparity. The idea of unconditional or universal basic income is like social security for all. The cause of this thought is not just from the rising income inequality arising from technology dominance. It has the origins from the decades of stagnant wages, the transformation of lifelong careers into sub-hourly tasks, and world-changing events like Brexit and the vision of Trump. All of these concerns are pointing to the need to start a permanent income guarantee for everyone that could take care of the basic needs of an individual.

How will this make sense in the new economy? If we look at the operational aspect of this concept, it is a negative tax. An interesting process in which those earning below a certain point are given an additional income, and those earning above a certain point are taxed on additional income. To cut it short, even Ambani would receive the same amount as a person below the poverty line. Only difference it that Ambani will pay far more than that amount in new taxes for the government to pay for it.

But what about people then choosing not to work? Isn’t that a huge burden too? It is an interesting topic to debate. Let us look at implementing this in a developed market like the US where the data is handy. According to Gallup in the US, 70% of workers are not engaged in what they resulting in a productivity loss of around $500 billion per year. With UBI coming in, this disengaged workforce will say “no thanks” to the labour market enabling an opportunity for the rest of the people who want to do the jobs they want. The result is a transformed labour market of more engaged, more employed, better paid and more productive workers. Fewer people are excluded, and there’s perhaps more scope for all workers to become self-employed entrepreneurs. In addition, there are proven positive effects on social cohesion and physical and mental health.

Based on the evidence we already have and continue to build with the trial run of such a scheme in Mongolia, Finland and India, I firmly believe unconditional basic income as a new equal starting point for all. For resource-rich countries like Kuwait and Saudi Arabia, it will be an efficient method of utilisation and transfer of resource incomes. For populated countries like India and China, it will help the reduce the leakage of subsidies provided by public welfare distribution.Lastly, in developed economies, it will compensate for the advances in artificial intelligence, robotics, and other technologies that have questioned the future of work.

In addition, there are proven positive effects on social cohesion and physical and mental health. Based on these evidence we already have and with the trial run of such a scheme in Mongolia, Finland and India, I firmly believe unconditional basic income as a new equal starting point for all. For resource-rich countries such as Kuwait and Saudi Arabia, it will be an efficient method of utilisation and transfer of resource incomes. For populated countries like India and China, it will help to reduce the leakage of subsidies provided by public welfare systems. Lastly, in developed economies, it will compensate for the advances in artificial intelligence, robotics, and other technologies that have questioned the future of work.

If things work out as planned by the governments, we might have a better place to live with more equitable distribution of wealth.

Categories
Economics Fintech

In search of efficiency – financial exclusion and technological unemployment

Every day we hear about the firms that try to make the world a better place. The new age technology firms want to erase the sources of inconvenience and delay that irritate their consumers. Every time I take the ride-hailing services of Uber to avoid the waiting time for taxis, the Book my show to avoid the queues in the cinema halls, and pay through PayTM to avoid the inconvenience of cash, I always hear about operational efficiency. Such applications claim to bring convenience for the users and run campaigns on their ethos of innovations.
But are they sincerely doing what they are supposed to solve? Do the end users need such innovations? Do these product innovations eliminate too much of hassle? In short, are they aiding society rather than harm?
Let us take a recent economic hype created by the politicians and central bankers – the demonetization. When I went through the pain of demonetization, I realised that it is not just Indians who are suffering through the pain of cashless economy. This time when my quarterly debit card statement came, I scrolled through it. To my surprise hardly there was any cash debit from my account. Enormous emphasis is placed on improving online infrastructure and online activity, particularly in the Banking and Finance sector. When we are moving so aggressively to the presence-less, paper-less and cash-less economy, we tend to forget a few fundamentals.
Many of us are happy to tap cards or phones to get to a taxi, buy a coffee or pay for groceries. But it raises the prospect of a time when we no longer carry any cash at all.
This results in no spare change for the busker on the streets, the person sleeping rough in need of a hot drink, and the donation box. This might be the rise of a cashless nation that would be mean with street vendors, small merchants and the poorest inhabitants who cannot afford the instruments of so-called convenience. It may so happen then we may further divide the mainstream society based on such media of convenience – The traditional and the modern. The societies that are in dearth need for the financial inclusion may put pressure on the same traditional who are to be banked and signed up to the financial system through financial inclusion. Many of such poorest traditional are likely to remain outside of that system creating a bigger danger of financial exclusion.
In a keynote delivered at Mobile World Congress by Ajay Banga, Mastercard’s CEO spoke about the growing global risk of creating islands, where the unbanked traditionals transact only with each other. According to Fung Global Retail & Technology, even in Sweden and Netherlands that could become the world’s first completely cashless society, significant enthusiasm gap has emerged between the traditionals and the moderns.
Now let us look at the second aspect of automation and convenience. To give a perspective, a report put out in February 2016 by Citibank, in partnership with the University of Oxford, predicted that 47 percent of US jobs and 35 per cent of UK jobs are at risk of automation. In China, it’s a whopping 77 per cent, while across the OECD it’s an average of 57 percent. And three of the world’s ten largest employers, Foxconn, Walmart, and the US Department of Defence, are now replacing their workers with robots.
Predictions that automation will make humans redundant have been made before. During the Industrial Revolution textile workers, protested that machines and steam engines would destroy their livelihoods. The difference between the previous waves of automation and the current one is that workers had the option of moving from routine jobs in one industry to routine jobs in another in the earlier. But now the same data techniques that allow companies to improve their marketing and customer-service operations also give them the raw material to train machine-learning systems to perform the jobs of more and more people.
Are these developments leading to the concept of Universal Basic Income proposed by Thomas Paine, the 18th-century radical? Is this the price tag that we have given for the new era of the unemployed? Need to wait and see how the technologists, governments and central bankers would tame this problem.