Why Are Corporate Leaders Pushing Hard for Some Form of Basic Income?

By Joseph Blasi

Why did Mark Zuckerberg call for a serious exploration of Universal Basic Income in his Harvard University Commencement Address this past summer, while Elon Musk has pushed for the idea at the World Government Summit in Dubai? Universal Basic Income (UBI) would mean a monthly check to every adult in the country that would serve as a “floor” to their income. It is easy to forget that conservative economist Milton Friedman proposed a similar idea and many observers consider basic income to be a more responsible way of addressing the social safety met. There are a lot of questions about this issue that have to be studied. However, on the face of it, universal basic income sounds like an idea that no serious capitalist country would ever consider? Yet, the idea is now bubbling up in both conservative and progressive circles as corporate titans inch in its direction. A form of the idea, Guaranteed Annual Income, was actually the subject of a test in a number of American cities by President Richard Nixon’s Administration.

At Harvard’s graduation, Zuckerberg of Facebook said “We should explore ideas like universal basic income to give everyone a cushion to try new things.” His unique argument is that “technology and automation are eliminating many jobs” and that young people in juvenile detention believe that they do not have “something to do” while factory workers believe that their “jobs aren’t coming back.” Zuckerberg touted UBI from his entrepreneur’s perch, hoping that UBI would give each person the freedom to take an entrepreneurial idea and run with it. He also articulated a much broader social vision asking for a definition of “a new social contract” and identifying basic income as a way to seriously address income inequality. That problem is severe. In a 2016 study of Internal Revenue Service data on the population, University of California at Berkeley economists Emmanuel Saez and Gabriel Zucman estimate that the top ten percent controlled 77.2% of all capital wealth and about 97% of all capital income such as dividends, interest, and capital gains by 2012. There is not much more room for inequality to grow at these levels. Moreover, the middle class is shrinking as pension savings are nonexistent, they tighten for those who have them, and the opportunity to even have pensions disappears. Despite some recent gains in real wages for the middle class, real wages have been generally flat or declining for most modest income individuals for some decades.

With only about 21,000 employees, Facebook is a perfect case in point of how technology is contributing to society but unfortunately not creating the mass of jobs that the old General Motors-type firms could bring to the middle class. Facebook’s leader is right to worry about economic inequality. Google, now a subsidiary of Alphabet, is another case in point. Think of the parent company’s global reach and its impact on society through Internet search, YouTube, self-driving cars, and its many other pioneering technological efforts. All with just 75,000 employees! Imagine such a small number of people having such a world impact. What does it do for the future of jobs? For example, that employee count is just a quarter of the population of little Mercer County, New Jersey which is quietly emerging as a tech hub in the northeast. How many jobs will those tech firms create? Google is an illustration of both the great promise of technology and the possibility of unintended technology-driven unemployment.

Elon Musk of Tesla and SpaceX fame has said in his speeches and interviews that he was worried about just such mass unemployment and the social challenge that it could possibly bring. In his Dubai address, his assertion was pretty clear-cut: “There is a pretty good chance we end up with a universal basic income or something like that due to automation.” He concluded: “I don’t think we’re going to have a choice.” Musk did not articulate many alternatives saying: “I am not sure what else we could do. I think that is what would happen.” Musk’s focus on mass unemployment is based on a different set of equally persuasive facts than the concentration of wealth and the entrepreneurship focus of Zuckerberg. It has to do with employment. Indeed, about 102 million members of the population are not employed or not participating in the active workforce for various reasons. Some are seniors who are living longer with fewer savings. Many of us know an elderly aunt or uncle who may also be sick or disabled. They worked all of their lives, played by the rules and are dependent on meager Social Security payments, a few hundred dollars of pension payments a month, and dwindling savings. This segment of the population will grow and many of them are not candidates for full-time jobs.

The sense of urgency that Musk is articulating also has to do with existing jobs that are at deep risk for being replaced by computerization, automation, mechanization, and even robots. A fine-grained Oxford University study identified 47% of U.S. jobs that are at risk in a decade or two through a detailed analysis of over 700 job categories and technological advancements taking place in each kind of job. The computerization of production in manufacturing firms, the replacement of workers in services and sales, the market for personal and household robots, the risk that drivers will be replaced by self-driving cars, these are all identified in the study as very real and quite imaginable developments. Each of us can compare today to just ten years ago as we glide through the toll booths with one of ten spots manned by robots or pay for soup at a convenience store with three of four registers that are automated. While several other studies exist with different and varying estimates, social science data on the threat to jobs is growing. Economists who were once doubtful about technological unemployment, such as former Treasury Secretary Lawrence Summers, are now increasingly open to considering it as a real possibility.

To the extent that the evidence for considering Universal Basic Income is growing, implementing the idea has one fundamental problem, namely, how to fund it? A closely related societal performance problem is the risk that it would undermine individual personal responsibility in a market economy and create dependency. At a time when both political parties are either at loggerheads about basic funding of the government itself or seem to be jointly treading lightly on the size and role of the Federal Government, it is hard to imagine that Universal Basic Income would develop into a massive expansion of the social safety net of the U.S. Government funded only by high taxes, based on an enormous expansion of the size of the government, and taking from the rich to give to the middle and modest income classes. This is not to say that the country does not need a substantive moral debate on taxes. However, it is hard to imagine funding meaningful basic income, even if the political support existed, solely with taxation. One of the debates about Universal Basic Income is whether it should supplement or restructure the current social safety net. Is there a way to think about funding Universal Basic Income that gets out of this blind alley of how to fund the idea that would not unrealistically expand the size of the Federal Government and focus instead on private ownership?

It is time to use research in order to explore ways of funding Universal Basic Income that rely on a combination of lighter-touch government encouragement and private capital markets. One useful idea was initially presented in a book called The Capitalist Manifesto published in 1950 by former law professor and political economist Louis O. Kelso and then later expanded in a book called Democracy and Economic Power with co-author Patricia Hetter Kelso. Their proposed solution was not the expansion of the Federal Government, high taxation, or socialism. Rather they proposed that, within a private market economy, large investment trusts be started that would be mostly privately-managed. They would invest in the companies that build the technology (now the robots!) and computerize the jobs, and pay a “second income” in terms of direct “dividend” checks to citizens. The main source of capital for the fund would be credit that would be invested to yield a profit above the rate of borrowing. Think of it as a large private equity fund that is privately managed and yet benefits citizens widely.

I am not endorsing Universal Basic Income but I would like to suggest some further details to consider and study in order to push the analysis of this Kelso idea and other ideas further. One policy option is that these private “citizen’s trusts” could invest in stocks, bonds, real estate, and a variety of diversified assets. In order to make this idea work, it might be necessary for Federal and State governments to make an initial capital allotment to each fund, perhaps on a state-by-state basis while providing tax incentives for the funds to borrow credit to expand. There might be tax incentives for billionaires to contribute to the citizens’ trusts. Just as is the case with public and private pension funds, one might expect that there would be some regulations on portfolio diversification and the credentials of the financial service providers who would manage the funds. These could be guidelines issued by the Department of the Treasury of the U.S. Indeed, Wall Street might be potentially interested in the idea because “second income dividend accounts” would drastically expand the stock and bond markets and every citizen would need a computerized dividend account that would also perhaps display their “share” in the investment funds. Wall Street’s financial firms might desire to manage these accounts. Main Street might also like the idea of having patient investors in its enterprises. This scenario does not envision citizens being able to sell or trade the assets that pay their dividends. The focus would be on the dividend, the “second income” itself. The time has come to begin discussions, research, objective evaluation, and policy planning about possible designs that might be realistic.

The idea of privately-managed “citizen’s trusts” in a private market economy yielding a dividend income to citizens is not really so far-fetched. While President Nixon funded the Guaranteed Annual Income experiment out of the Federal Treasury, when the State of Alaska realized it would have significant oil and mineral revenue in 1976, Alaska’s citizens, with the leadership of its conservative Republican Party, approved the Alaska Permanent Fund as a change to the Alaska State Constitution. It turned into a “dividend-based” second income plan. The Alaska Permanent Fund was and is similar to the “citizen’s trust” that I am describing. Its role was and is to manage the billions from revenue sharing that Alaska receives from the exploration and development of oil and mineral rights in the state. In the end, Alaska created the Alaska Permanent Fund that today has a diversified portfolio with a value of about $60 billion. It paid out a dividend of $2,072 to every citizen of Alaska, including children, in 2015, a lesser but meaningful amount in 2016. That’s similar in some ways to a Kelso “second income” of over $8,000 for a family of four. There is a lot to learn from the Alaska Permanent Fund and the Alaska Dividend experience, despite the fact that there is currently a tough debate between Democrats and Republicans in Alaska about how to restructure the fund in light of declining state revenues and the lack of a state income tax. There is need for a lot more research on the Alaska experience.

For the “citizen’s trusts” idea to be consistent with a private market economy, it might not make sense to see such trusts as controlled by governments so directly as in the Alaska case. Indeed, just before the Alaska Permanent Fund was established the U.S. Congress, under the leadership of Democratic Senator Mike Gravel of Alaska, created a different vehicle in the omnibus tax legislation for “citizen’s trusts” called the General Stock Ownership Plan (GSOP) that would broaden the ownership of capital assets using credit and paying a “second income” to citizens with a more private ownership focus. While Alaska went in another direction, the GSOP is an interesting model to study more. The idea at the time was that many states might adopt the GSOP.

The Citizen’s Trust idea might encourage a “property-owning democracy” in the words of political philosopher John Rawls. There is no question that it is time for citizens to begin to privately own the robots and the technology of the future. This might also require thinking about a new definition of work. I study employee share ownership plans and profit sharing plans of many kinds that can broaden capital ownership and capital income at the workplace and appear to maintain a high level of personal economic responsibility and earning your keep. There is also a need to examine what kinds of capital shares might address economic inequality for those not in workplaces. Many in our society already live on investment income, namely, people of means or people with great pensions plans or people with great accumulated savings. This groups that lives off of capital income often finds ways to “work” without a salaried job. Citizens might need to become used to “socially beneficial work” such as supporting the lives of children and the elderly and the disabled more intently, more political participation in civic life, more focus on the arts in public life, and, yes, as Mark Zuckerberg has hoped, more risk-taking entrepreneurship and technological inventions. Or will “second income” lead to hedonistic behavior, for example, people witting on their couches watching TV and playing video games. Employment relations, future of work scholars and policy-makers, and students of organizations will need to examine this “work without pay world” to understand if it can still have individual responsibility and a lack of dependency and to envision how private organizations with “volunteers” can be efficiently managed. Ironically, some initial research suggests that basic income leads most people to use their extra time for more pro-social activities.

This discussion will now become very real and concrete in Oakland, California as a group of Silicon Valley tech leaders from start-up powerhouse Y Combinator are in the midst of launching a modest experiment with private foundation support to introduce basic income in that city to select groups of people. Their web site says that they plan to explore its effect on individuals, families, work life, and civic life in the city of Oakland through research. Let’s see what can be learned as this experiment is rolled out. Business leaders are often ahead of the curve on new developments. Zuckerberg and Musk have shown that now. It is time for more public discussion of Universal Basic Income and for sociologists and economists and other researchers to begin to learn a lot more about it so that they can inform policy-makers and answer some key questions.

Joseph Blasi, is the J. Robert Beyster Distinguished Professor at the Rutgers University School of Management and Labor Relations. He directs Rutgers program on employee share ownership and profit sharing which examines all forms of capital shares and their impact on performance and economic inequality. These are private opinions of the author and not those of any institution. His book, The Citizen’s Share, with economists Richard Freeman and Douglas Kruse, discusses the idea of broad-based ownership and its relationship to democracy in American history.

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