Future work: universal basic income is redundant

Simon Cowan

15 November 2017 | AUSTRALIAN FINANCIAL REVIEW

RR32 cover UBI money coins 4 WEBDespite its recent troubles with the eligibility of Senate candidates at the federal level, One Nation looks like it will secure significant political influence in the upcoming Queensland election. It’s clear Queensland in particular has a significant number of voters looking for an alternative voice. Not only did One Nation secure two Queensland senate seats at the 2016 federal election; in 2013 the Palmer United Party secured a lower house seat as well as a senate position.

More than any similarities in their respective policies, One Nation and PUP were very similar in the way they sought to harness a populist backlash as a key element of their electoral appeal. Nor can any better proponent of populism be found than Nick Xenophon, who is likely to secure even greater influence in South Australia’s upcoming state election.

However it’s worth noting that the core of being a populist politician isn’t leading: it’s figuring out where the mob is headed and trying to get there first. And one of the most popular populist sentiments — both in Australia and overseas — is local jobs for local people.

Many Trump voters in particular were motivated by the idea that Trump would bring back the jobs and prosperity lost to globalisation and automation. This powerful message tapped in deep-seated fears about the future of work, and a country where your children are likely to be worse off than you are.

At a more immediate level, it also corresponds with concerns over flatlining incomes, and an economy that appears to be increasingly two-paced. No doubt many who will vote for One Nation in Queensland will be concerned green shoots in the economy offer little for them.

It is not just protectionist populists like Trump, Xenophon and Hanson who are proposing retrograde policies in response to these issues. Some on the right and left believe we’d be better off to scrap the welfare system, with its intrusive compliance requirements and high effective marginal tax rates, and replace it with a Universal Basic Income.

In particular, some in Silicon Valley believe a UBI — an unconditional payment made to all citizens — is a good way to compensate workers for the loss of their employment prospects.

Though these messages clearly have a great deal of allure to disgruntled voters, there are serious problems with them.

First, it’s unlikely that anything could bring back the jobs lost in Michigan’s Detroit, South Australia’s Elizabeth or Queensland’s Ipswich. New economic activities will eventually rise in these areas — as they did in the Hunter in NSW after the shutdown of BHP’s steelmaking facilities — but rewinding to a glowing vision of how things once were is not possible.

More fundamentally, the concerns that technology has created a growing cadre of long-term unemployed people are simply not correct. Unemployment remains at comparable levels to the 1970s, with fluctuations over time largely in response to economic conditions rather than technological change.

Data on workers who have been made redundant shows that, of those who remain in the workforce, almost all of them find new jobs within three years. Around half those workers transition to new industries — so fears that workers in the automotive industry will be unemployable after the closure of Holden seem misplaced.

While some have made dire predictions of jobs losses due to advances in robotics and machine learning, other estimates are not nearly as pessimistic and suggest technological change will not translate to mass unemployment: as the automation of routine manual and cognitive tasks increases, jobs won’t disappear but change focus towards non-routine tasks.

Nor is a Universal Basic Income a policy worth pursuing. A UBI that gave everyone over the age of 18 a payment equivalent to the Age Pension, where welfare recipients weren’t worse off, would have a net cost of $2.31 trillion over the next decade. This is more than 10 times the amount raised by both Labor and the Coalition’s tax proposals combined. Whatever supposed benefits it provides can never exceed this enormous cost.

Nor is it clear that it would help displaced workers more than a policy targeted at transitioning them towards new opportunities. In the long run, workers with the flexibility to work in multiple industries and multiple jobs will be better off than those dependent on government handouts (even if those handouts are universal).

Rather than giving in to the siren call of protectionism and universal welfarism, politicians should argue that technological advances have always delivered significant benefit to workers and society. The Productivity Commission recently proposed a forward-thinking deregulation and market-based productivity agenda that has been proven to deliver results for Australia. The future of work should not be a retreat to the past.

Simon Cowan is Research Manager at the Centre for Independent Studies and author of the report UBI – Universal Basic Income is an Unbelievably Bad Idea.

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