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Robert van der Veen - Loek Groot (eds)

Basic
Income
on the
Agenda Policy Objectives and Political Chances

Amsterdam University Press


Basic Income on the Agenda
Basic Income on the Agenda
Policy Objectives and Political Chances

Edited by Robert van der Veen and Loek Groot

Amsterdam University Press


Cover design: Crasborn Grafisch Ontwerpers BNO,Valkenburg aan de Geul
Lay-out: Brassica / Wouter Kool, Leiden

NUGI: 641/661
ISBN 90 5356 461 6

Amsterdam University Press,Amsterdam, 2000


All rights reserved. Without limiting the rights under copyright reserved above, no part of this
book may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any
form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without
the written permission of both the copyright owner and the author of this book.
Table of Contents

Preface 7
Osmo Soininvaara

Acknowledgements 11

How Attractive is a Basic Income for European Welfare States? 13


Loek Groot and Robert van der Veen

Part One Policy Objectives


In Search of the Double-Edged Sword 41
Paul de Beer

Basic Income and its Cognates: Partial Basic Income versus Earned Income
Tax Credit and Reductions of Social Security Contributions as Alternative
Ways of Addressing the New Social Question 53
Philippe Van Parijs, Laurence Jacquet and Claudio Caesar Salinas

Activation and the Burden of Working: On Instrument Choice by a


Responsibility-Sensitive Egalitarian Government 85
Frank Vandenbroucke and Tom Van Puyenbroeck

Arguing for a Negative Income Tax in Germany 107


Joachim Mitschke

Hush Money or Emancipation Fee? A Gender Analysis of Basic Income 121


Ingrid Robeyns

Prospects for Basic Income in an Age of Inactivity? 137


Anton Hemerijck

Basic Income and Social Europe 155


Fritz W. Scharpf

Basic Income at the Heart of Social Europe? Reply to Fritz Scharpf 161
Philippe Van Parijs

European Basic Income or the Race to the Bottom:Why Politicians


Might Come to Think the Unthinkable 170
Steve Quilley

Bibliography 186

5
Part Two Political Chances
Clues and Leads in the Debate on Basic Income in the Netherlands 197
Loek Groot and Robert van der Veen

The History of an Idea:Why Did Basic Income Thrill the Finns,


but not the Swedes? 224
Jan-Otto Andersson

From Concept to Green Paper: Putting Basic Income on the Agenda


in Ireland 238
Sean Healy and Brigid Reynolds

Short Cuts and Wrong Tracks on the Long March to Basic Income:
Debating Social Policy Reform in Germany 247
Stephan Lessenich

Ups and Downs of Basic Income in Denmark 257


Erik Christensen and Jrn Loftager

What Reforms are Needed for the Minimum Insertion Income


(RMI) in France? 268
Chantal Euzby

The VIVANT Experiment in Belgium 276


Yannick Vanderborght

Notes on the Contributors 285

Index 287

6
Preface
Osmo Soininvaara, Minister of Health and Social Services, Finland

Throughout Europe, the idea of an unconditional basic income has been long dis-
cussed by academics, policymakers, and interest groups such as the unemployed, relig-
ious organizations, environmentalists and trade unions. Contemporary issues to which
these debates relate today include unemployment, poverty, marginalization, changing
patterns of family life, labour market flexibility, and institutional questions concerning
the future of social policy under European integration. In Arguing for Basic Income
(1992), edited by Philippe Van Parijs, the ethical foundations for granting everyone a
fully unconditional subsistence income were explored in depth. The present volume
follows this up by examining basic income in relation to concrete objectives of social
and labour market policy (Part I), and looking at its political chances across European
countries (Part II).This may be taken to reflect the fact that the international debate on
basic income has become politically mature in the intervening years.
What, then, can reasonably be thought of the title of the book: Basic income on the
agenda? An ambitious reading might suggest that basic income, or the closely related
negative income tax, is now firmly on the legislative agenda, ready to replace the means-
tested and work-related forms of guaranteed income in European welfare states.As the
contributions of Part II will show, basic income is not on the agenda in that sense, at
least not in any European country, at the beginning of this century. But while the for-
tunes of the proposal depend on contingent circumstances and fluctuations in political
mood, the general outline of the debate is more or less similar everywhere. It is a
debate which is not likely to subside. Consequently, basic income is indeed on the
agenda of welfare state politics.
The challenge posed by basic income rests in its claim that unconditional guarantees
have now become indispensable elements of social policy.They are said to cope more
efficiently with the uncertainties of increasingly flexible labour markets, and avoid the
administrative and incentive pitfalls of means-testing.They are held to provide means
of job transition and retooling of labour capacity, as well as supporting unpaid activities
in the domestic sphere and the associations of civil society, thereby also contributing to
a more equitable redescription of gender roles. However, as proposals to institute
unconditional income of one kind or another become more realistic, they also tend to
mobilize opposition. This is because the unconditional nature of basic income poses a
threat to the primacy of paid work, as the central source of legitimate security. Thus,
basic income forces us to rethink the notion of social obligation, in a way that may
seem, at times, far removed from the reality of mainstream politics.Yet, the problems
which it addresses are undeniably part of that same reality.
The contributions collected in Part I can be read as critical examinations of the
above claims, following the discussions at the Seventh BIEN Amsterdam Congress on
the theme of full employment without poverty. The main problem here is whether
one can envisage alternatives to the social policies and labour market arrangements of
existing welfare states that would serve the same goals as basic income does, yet in ways

7
Basic Income on the Agenda

that retain the primacy of paid work. In this debate on policy instruments, the editors
have resisted the inclination to select contributors according to their degree of bias in
favour of the basic income solution.This gives the reader the opportunity to judge how
relevant basic income is to the future of social security and labour participation, in the
emerging space of Social Europe.
Basic income has become topical again for very practical reasons, which, however,
are slightly different from the reasons for which basic income was pursued in the
1980s. Economic development has forced the present European welfare systems to face
two difficult challenges.The unskilled labour force does not find its place in the labour
market, which leads to a trend of growing structural unemployment. Simultaneously,
the obligation to accept a job offer as a condition of receiving unemployment benefits
does not function any more. Employers do not hire people just to get their time; they
want to have their sincere effort as well. Thus, refusing a job offer does not really lead
to losing the benefit. Unemployment benefits have become a twisted picture of basic
income that gives bad incentives.
It is clearly a handicap to the European countries that the unskilled part of the
labour force does not find employment. In the USA, the Earned Income Tax Credit
(EITC) has proved to have positive effects. The expansion of the EITC has improved
the rather bad position of the working poor and had a major positive impact on the
employment situation. In the EITC system the benefit the state pays to those whose
wages are low grows as the earned income rises. In the European systems, however,
social income transfers diminish and it is likely that the benefit of earning a part of
your income is cut out completely. EITC is not suitable for European circumstances
since the European basic rights legislation guarantees everyone the necessary income
regardless of participation in the working life. It should, nevertheless, be easy to find the
perfect compromise between the European way (the support diminishes as earned
income rises) and the American way (the support rises as earned income rises): why
not make the amount of support independent of earned income?
Each country has its own history of social politics. Acting and thinking have been
adjusted to the existing system which makes radical and fundamental reforms unlikely.
But the need to rationalize incentives in flexible labour markets, the impossibility of
controlling the readiness of the unemployed to accept work, the difficulties in finding
employment for the unskilled and the requirement of guaranteed minimum income
based on basic rights, lead social politics, step by step, toward a situation much resem-
bling a basic income system that allows, with cause, many means-tested personal bene-
fits. These new systems will vary in names and details but they all converge towards
basic income. The biggest and mentally most difficult step to be taken is to combine
the income transfer systems with taxation, even though taking this step would make it
possible to create rational systems. Basic income thinking was originally inspired by the
ideal of freedom. It is contradictory that basic income is now favoured for almost
opposite reasons: creating rational incentives at the lower end of the income scale and
improving the employment of the unskilled labour force basic income can be
thought of as a marriage of justice and efficiency. Basic income does, however, still
include a dream of a freer society. Making this dream come true is worth aspiring to as
systems of social politics inevitably converge towards basic income.When it comes to
the ideal of freedom, the smallest details can make a difference.
Although it may seem most unlikely that any European country would abandon its

8
Preface

old traditions and reform its social politics so radically as to adopt a basic income sys-
tem, this option is not completely impossible either.The fact that social policies vary
much from country to country creates substantial difficulties for the EU. If, sometime
in the future, the EU or some of the Member States were to unify their architecture of
social security, basic income would indeed be something to build on.

9
Acknowledgements

We wish to thank the sponsors of the Seventh International Congress of the Basis
Income European Network (Amsterdam, September 1998) for financial support in
producing this volume. Earlier versions of all chapters (save three) have been presented
in plenary sessions or workshops of the Congress. The chapter by Frank Vanden-
broucke and Tom Van Puyenbroeck (in Part One) as well as the chapters by Chantal
Euzby and Yannick Vanderborght (in Part Two) were included in order to fit the gen-
eral design and purposes of the book. We warmly thank our co-authors for their
co-operation and patience in the different stages of often extensive revision.We are
also endebted to Osmo Soininvaara for writing the Preface to this collective effort. In
addition, we are grateful for the advice and assistance of Philippe Van Parijs in
editorial matters. Finally, special thanks are due to the Board of the Vereniging
Basisinkomen, in particular Saar Boerlage and Emiel Schaefer, for their help and
encouragement.

The Editors

11
How Attractive is a Basic Income for European
Welfare States?
Loek Groot and Robert van der Veen

A basic income is an income granted unconditionally to all on an individual basis,


without a means test or work requirement. It is a type of minimum income guarantee
that differs from those that now exist in various European countries. Considered in its
pure form, a basic income is paid (1) to individuals rather than households; (2) irre-
spective of wealth or any income from other sources; and (3) without requiring the
performance of any work or the willingness to accept a job if offered. Its relevance to
the problems of contemporary welfare states has long been recognized. From the
1970s onwards, forms of basic income have been regularly proposed for adapting the
post-war institutions of social transfer to the conditions of a modern economy, in
which lifetime security through earned income is no longer the norm. The guiding
claim was that an unconditional floor of guaranteed income is justified as the fairest and
the most efficient way of reconstructing basic security in the welfare state. Inevitably, the
fairness part of this claim led to a principled debate concerning the unconditional fea-
tures of basic income, in particular the absence of the requirement of willingness to
work.The reason for this is obvious, for any moral justification of unconditional basic
income has to deal with the objection that it is unfair to hand out transfers to able-
bodied persons who are merely unwilling to earn a living. This theme has been
explored in depth in Arguing for Basic Income (1992).
However, basic income is being increasingly discussed in a more pragmatic context.
This discussion is mostly concerned with the efficiency part of the above claim. Here,
basic income is proposed as the most viable way of reconciling two of the welfare states
central objectives the alleviation of poverty and full employment while at the same
time allowing scope for making the labour market function in a more flexible and
dynamic way. One of the reasons why basic income has attracted interest is that it seeks
to reinterpret the compatibility of these two central objectives, reflecting the fact that
social policy and economic policy can no longer be conceived separately. Thus, in
recent years, basic income has appeared on the agenda of institutional reform as a pro-
posal which combines adequate social protection with the demands of flexible labour
markets, and may lead to a more equitable distribution of income, paid work, care work
and free time among men and women.As such, it has to be pitted against the claims of
(partly or fully) competing policy instruments in the welfare state: collective working
time reduction, subsidized employment, paid parental care, early retirement, education-
al and sabbatical leave provisions, the minimum wage, and schemes of workfare.
This book is divided into two distinct but interrelated parts, both of which reflect
the main topics of the 1998 Congress of the Basic Income European Network.1 The first
part, Policy Objectives, analyzes the potential of basic income vis--vis other policy
schemes to achieve the above-mentioned goals of welfare state reform. The second
part, entitled Political Chances, reviews the state of the debate on basic income in var-

13
Basic Income on the Agenda

ious European countries.Although the book can be seen as following up on Arguing for
Basic Income, it has a different point of departure. Arguing for Basic Income concentrated
on the ethical controversies around unconditional grants, which, as noted above, have
been part of the general debate from the start. It attempted ... to spell out a plausible
conception of the just or good society which could provide firm foundations for the
legitimacy of an unconditional income (ibid.: 8) and to derive basic income from
an explicit formulation of the ideal of a free, equal or good society (ibid.: 29). These
controversies, which are concerned with rethinking the regulative principles of solidar-
ity and justice in the welfare state, have not yet come to rest.2 As customary in applied
political philosophy, the arguments are exchanged at a high level of abstraction. Most
recently, the main question has been whether granting people a substantial, or even the
maximally sustainable, basic income is an appropriate instrument of liberal-egalitarian
justice. The answers seem to depend on how the egalitarian aim of compensating for
unequal endowments can be combined with the liberal aim of holding people respon-
sible for their personal choices. At the level of detailed policy implications in societies
with developed welfare state institutions, competing interpretations of liberal-egalitar-
ian justice then generate different positions regarding the desirability of either work-
sensitive or unconditional compensation to the worst-endowed members of society:
the working poor, and those who are more or less chronically excluded from the
labour market, and hence depend on transfer income. In this debate, the proposal of
introducing a basic income in the welfare state typically serves as a testing ground for
exploring the relative attractiveness of abstract normative positions entertained on the
political Left.3
While these theory-driven controversies still remain largely unsettled, the fact that
they are being fought out in the international arena in the area of welfare-state policies
to some extent explains why basic income has become a proposal of some interest in
the problem-driven debate on social security reform. It is this debate which provides the
perspective of the present book. Rather than trying to link the proposal of basic
income to philosophical principles of justice, here, we want to focus on how it fares
relative to other policy instruments which claim to promote politically salient objec-
tives of welfare reform.There is widespread consensus among policymakers and other
professionals that the welfare system has to be adjusted, but also disagreement about the
direction of reform. Is it time to pare down the benefits of the welfare system, by mak-
ing it meaner and leaner, allowing it to survive global market competition and more
intense intra-European competition for advantageous tax regimes? Or do we instead
have to find new ways to maintain the basic protective features of the European welfare
state in the face of these challenges? To what extent is the debate on the form that wel-
fare arrangements should take influenced by the problems of the inactivity traps beset-
ting means-tested welfare arrangements, the persistence of (long-term) unemployment
among the low-skilled, and the difficulty to get rid of poverty despite the affluence of
European countries?4 Last but not least, what requirements of re-design are being
imposed by flexible work arrangements, the decline of breadwinner families along with
increased female participation, and the greater difficulties of combining work and fam-
ily responsibilities?
In addressing such questions, arguments for and against basic income figure at a far
lower level of abstraction.They are more influenced by the concrete social problems in
different welfare states than by general normative positions.Yet, as the contribution of

14
How Attractive is a Basic Income for European Welfare States?

Frank Vandenbroucke and Tom Van Puyenbroeck in this volume will show, it is impor-
tant not to lose sight of the link between these two levels of debate.Though most of
the contributors of basic income in this book are to some extent moved by egalitarian
or solidaristic justice, such normative commitments often appear obliquely, against the
background of what is often called the new social question.This is the real threat of a
permanent divide between on the one hand job holders with a strong labour market
attachment (secure full-time employment with full entitlements to social insurance)
and marginal groups with intermittent labour market careers (insecure access to bene-
fits of social security, and old-age pensions) on the other.5 In Arguing for Basic Income,
the importance of basic income for addressing the new social question was described
by Van Parijs (1992: 6-7) as follows:
it can no longer be assumed that an overwhelming majority of households can cover
their basic needs thanks to the wages they owe to the job one of their members currently
holds or to the benefits they owe to the job one of their members used to hold. Under this
assumption, central to the conception of the modern welfare state, the safety net of social
assistance could be confined to a marginal and ideally, shrinking set of cases. For vari-
ous reasons, this is now very far and even further from being the case. Throughout
Europe, an increasing number of households have had to rely on social assistance and have
become caught in the net it provides.The joint impact of technical change and the inter-
nalization of markets is making it increasingly difficult for the economies of advanced cap-
italist countries to generate a sufficient number of jobs that can be profitable while provid-
ing those who hold them with a living wage.The outcome of this process is, increasingly,
a dual economy, a two-thirds society, in which the most significant divide, as far as mate-
rial welfare is concerned, is no longer the one that separates capitalists from workers, but
the one that separates those who hold proper jobs from the rest of the population.There is
no easy way of fighting this tendency. But the replacement of the safety net, in which the
weakest and the unlucky get trapped, by a firm unconditional floor, on which they can
securely stand in other words, the replacement of a conditional minimum income
scheme by a genuine basic income is increasingly viewed as an indispensable ingredient
in any such strategy.

The new social question thus basically turns around the failure of the existing labour
market and social security institutions to ensure access to employment, while at the
same time securely protecting people who are in or out of work from falling into
poverty. In the same vein, Goodin (2000) made the case that the four pillars the state,
the market, the family and the community on which social security rests are all
crumbling. In the increasingly non-standardized world towards which we are moving,
Goodin prefers some form of a basic-income type scheme above means tested and
fine-tuned conditional social benefits: Any standard categories or conditions fit any
given individuals actual experiences increasingly poorly, both occupationally (with the
flexibilization of the labour market) and personally (with the flexibilization of the
marriage market). So, if we want our social policy to cater to peoples real needs and
actual circumstances, we will have to abandon categorical and conditional modes of
social-policy making (ibid.: 147). In capsule form, the main policy objective to be kept
in view in assessing the indispensability claim Van Parijs made for basic income in the
early 1990s, is full employment without poverty.6 However, compared to the early

15
Basic Income on the Agenda

1990s, the conditions for counteracting the dual economy have become less
favourable. On the political Centre-Left at least, this has considerably influenced the
diagnosis of the new social question. It is now conceded that flexibility in the organi-
zation of labour, footloose factors of production, and processes of tax competition,
shifts in the employment volume between exposed and sheltered sectors in the econo-
my, as well as structural increases in the demand for health care and pension provisions
of rapidly ageing populations, have worsened the chances of attaining full employment
without poverty.These developments have made it harder for national governments to
pursue the goals of employment security and redistributive welfare that were formerly
held to be viable, given sufficient political will.Yet at the same time, the Centre-Left is
committed to showing that neither the blind forces of globalization, nor the adverse
demographic shifts taking place in advanced welfare states, have robbed national gov-
ernments of the policy space for pursuing broadly egalitarian strategies. In new and
suitably adjusted ways, such strategies are still held to be within reach, depending on
the development of the right kind of policies.7
At present there is a great variety of relatively novel policy instruments, amongst
them forms of basic income, which may conceivably be put to use in counteracting the
emergence of a dual economy, under the more restrictive conditions outlined above.
But it should be noted that at present also, the proponents of basic income may have
more of a rough ride to stay in the race, for two connected reasons. First, since basic
income has to prove itself in an economically and politically more constrained envi-
ronment, the tax cost of guaranteeing the firm unconditional floor if pitched at the
level of subsistence needs is now even more likely to be perceived as prohibitive than
it was a decade ago. As a consequence, only partial and piecemeal movements toward
unconditional entitlements of benefit are the ones that are going to figure seriously in
the comparative exercise of optimal policy instruments for solving the new social ques-
tion. Secondly, unlike before the early 1990s, basic income can no longer be presented
as the only alternative to the status quo of work- and means-tested conditional bene-
fits, with its large unemployment and poverty traps. For in the policy debate on the
new social question, competing instruments have entered the field, such as Earned
Income Tax Credit, and various kinds of wage subsidies to employees. These instru-
ments, it is now claimed, are able to remove inactivity traps just as efficiently as a basic
income would be able to, and moreover, in ways that avoid the controversial feature of
basic income: its loosening of the links between transfer income and the obligation to
perform paid work.
These changes in the terms of the debate imply that forms of partial basic income
and forms of work-oriented benefit and labour-market policies slide into a broad con-
tinuum of alternatives, each of which can claim to tackle the new social question in
terms of its effects on promoting access to employment at the low end of the labour
market, preventing poverty, and fighting social exclusion. The advantages and draw-
backs of each of these alternatives thus have to be sorted out by a very careful compar-
ative analysis, and in the course of such analysis, as the contributions of Paul de Beer
and of Philippe Van Parijs, Laurence Jacquet and Claudio Salinas clearly show, it is dif-
ficult to claim a knock-down superiority for any particular policy alternative.Thus it is
perhaps fair to say that basic income, after having won a certain kind of respectability as
a normatively unorthodox way of addressing the deficiencies of existing welfare state
arrangements, is now taken seriously enough to be put to the test under rather harsher

16
How Attractive is a Basic Income for European Welfare States?

conditions than its proponents may have anticipated. One object of this volume is to
see if basic income can survive this test.

Four Ideal Types of Basic Social Security

Since the rise of unemployment in the mid-1970s, several measures have been taken to
curb steadily increasing social expenditures (both absolutely and as a share of GDP)
and to counteract the rising trend of unemployment which appeared after each suc-
cessive recession.The ruling diagnosis was, and still is to a large extent, that the vested
security entitlements of European welfare states are too permissive, and that labour
markets are ridden with structural rigidities.8 Accordingly, the menu of social-eco-
nomic policy recommendations has varied from tighter eligibility conditions, shorter
durations and lower levels of social benefits, reduction of the level of minimum wages,
and the relaxation of firing and dismissal procedures.Also, and in part independently of
whether or not the overall unemployment figures in the European Union have
improved (as they have in Denmark, Britain, Ireland and the Netherlands), the persist-
ent problem of long-term unemployment at the lower end of the labour market has
given rise to the introduction of wage subsidies, and a large variety of job, workfare
and learnfare programs. Especially these last types of measures are held to mark the
emergence of an active welfare state, which tries to reduce passive dependency on
conditional social assistance benefits. In general, the stringency of the work-test is
being raised, while at the same time efforts are undertaken to provide access to the
labour market, either directly or indirectly.
The idea of the active welfare state attacks the perceived passivity of both recipients
and government agencies. On the one hand, active welfare state policies are commit-
ted to destroy the legitimate expectation of claimants to holding a social benefit, sub-
ject only to the ritual of turning up at a job centre and noting that no suitable work is
forthcoming. On the other hand, the bureaucracy of welfare administration must be
forced into taking an active interest in getting claimants prepared for permanent
attachment to the labour market. The administration of social security legislation, as
well as the legislation itself, must therefore be changed, by providing job-oriented
offers that claimants are no longer in a position to refuse. Such offers involve mandato-
ry participation, in (re)training, public service employment, or subsidized (private or
public) employment programmes.The active welfare state approach thus tries to strike
a new balance between social security rights and the correlative duties of both
claimants and agencies. It claims that this new balance is needed to maintain redistrib-
utive solidarity in the hard times of mobile capital and high-quality labour assets. It
should be made clear that anyone who is on welfare is also being redirected and reso-
cialized to a norm of a self-sufficient working life, and that a growing proportion of
the taxes to be paid for implementing solidarity is thus being spent on programs
achieving labour participation, rather than on passive income support.
The active welfare state approach may culminate in a system of workfare, if the gov-
ernment steps in to provide nonmarket paid jobs of last resort. These jobs would be
expressly designed to permanently employ people whose attachment to the labour mar-
ket remains weak, despite reasonable efforts.This is the extreme case of activation. So far,
workfare has only been a point of discussion in Europe, rather than a concrete proposal. In

17
Basic Income on the Agenda

Figure 1: Four ideal types of basic social security


and labour market policies

Enforcement of
Lax Stringent
entitlement conditions

Conditional Welfare

Narrow A B

Wage subsidizing and


job-training instruments B Workfare

Conception
of work and
conditions of
entitlement E
C Participation Income
Subsidized exemptions
from paid work
Broad
D C

Basic Income

so far as it is a genuine response to the new social question, workfare could be motivated
by the idea that even artificially created jobs can fulfil social demands which the labour
market may not supply under minimum wage constraints; can serve as bridges to regular
economic participation while maintaining discipline without loss of dignity; and finally, be
a signal on the part of society that active welfare has replaced passive welfare across the
board (WRR, 1997).Workfare schemes, provided that they are truly motivated in these
solidaristic and participatory ways, constitute one extreme on a two-dimensional continu-
um of policies, of which a basic income at the ruling subsistence level is the other extreme.
Before going further into this, note that the arrangements on which the various pos-
sible solutions to the new social question focus are predominantly concerned with uni-
versal minimum benefits, rather than with employee-related social insurance, which covers
risks of earnings losses from unemployment, sickness, or disability. In what follows, we
will concentrate on the treatment of those whose access to these last benefits is limited
because they have an insufficiently secure link to the labour market.9 Although there
has been a spectacular expansion of social insurance and other earnings-related cover-
age after the second World War, a growing part of the labour force now has to rely on
the transfer payments under a socially guaranteed minimum safety net. Let us call these
payments basic security. In most countries, means-tested social assistance benefits
would be the usual form of basic security. Thus understood, the new social question
revolves around the different forms which basic security at a poverty-preventing rul-
ing level of individual or household income may take, and what types of labour mar-
ket policy might best accompany these forms. Figure 1 gives a birds eye view of four
ideal types of basic social security.Together, they define a policy space of alternatives
for achieving full employment without poverty. After having explicated the dimen-
sions of this policy space, we will use it to put into a common perspective the matters
raised in the contributions which make up Part I of this volume.

18
How Attractive is a Basic Income for European Welfare States?

The vantage point of Figure 1 is point A at the top-left corner, which defines basic
security of the work- and means-tested type in most existing regimes. We call it
Conditional Welfare. Conditional Welfare is the type which motivates our exercise,
since its conditionalities set up various unemployment traps.These traps arise because
(a) taking a part- or full-time job with a net wage close to the level of the net benefit
causes the worker to lose the entire benefit and (b) the rules of implementation are lax
enough to allow prospective workers to pass over a job that does not result in a signif-
icant improvement of income and non-income related advantages. Moreover, since
means-testing is applied to the joint income of adult families, the conditionalities also
discourage taking up part-time work by one or both household partners. In many
cases also, Conditional Welfare (at least in its pure form) extends to wealth holdings,
and does not allow benefit holders to undertake training, follow educational courses,
or engage in setting up a business. It thus also discourages activities of human and
financial capital formation.
From point A one can move along two dimensions, vertical and horizontal. Along
the vertical axis, the conditions of entitlement and the conception of what counts as
work, as applied in the work-test, become progressively broader, until one ends up, in
point D, with a pure non-work tested as well as non-means tested Basic Income, at
the ruling social minimum of a single earner. Several varieties of intermediate cases can
be located along this dimension, for example a partial basic income at, say, one-half of
the social minimum, topped up by conditional welfare, a non-means tested but work-
conditional income, or a fully means-tested income with relaxed conditionalities of
work, which reflect a broader conception of work entitlement. Such intermediate
cases might be located at point E in Figure 1.
Going back to point A, let us now consider moving along the horizontal axis.This
dimension is defined by gradations of increasingly stringent implementation of the
entitlement conditions of Conditional Welfare, to some maximum at point B. The
notional move from A to B would virtually remove the disincentive aspect of the
unemployment trap, since in B it would become impossible to refuse any part-time or
full-time job which was actually being offered to someone on welfare. This move
along the horizontal dimension is only notional, because it does not correspond to any
existing or even proposed basic security policy.Yet in one way, the move from A to B
captures the logic of the active welfare state approach discussed above, in which bene-
fits are to be discontinued as soon as paid work becomes a possibility. Of course, what
the move from A to B does not capture is the complementary feature of the active
welfare state approach.As we have seen above, this consists in making available facilities
of job search, training or occupational reorientation, as well as paid work in various
kinds of government-sponsored kinds of job (ultimately including the workfare jobs of
last resort) which are envisaged as the ultimate consequence of the active welfare state
approach.Thus, the policy extreme that we identify as constituting the active welfare
states ideal type here called Workfare must be located further down along the ver-
tical dimension than point B in Figure 1 at point B.This is because activating policies
necessarily involve broadening some of the conditions of entitlement, so as to include
all activities which contribute to enhancing the employability of the welfare recipient
as legitimate grounds for the basic security transfer.
In a similar way, one can envisage a notional move along the horizontal dimension,
proceeding rightwards from Basic Income in (Point D), to point C. Obviously, this

19
Basic Income on the Agenda

move is of only analytical significance, since the conditions of basic income citizen-
ship status or long-time residence are relatively simple to monitor (which is not to
say that they would always be simple to enforce in a given country). For the present
purpose, however, the real interest of moving along the horizontal dimension to point
C, is to locate our fourth ideal type of basic security, Participation Income, which is a
special form of work-conditional citizens income, originally proposed by Atkinson
(1993b). We arrive at this type by moving upwards along the vertical dimension, to
point C. The move from C to C signals the fact that a Participation Income, even
though it is not means-tested, like basic income, is forthcoming only in return for the
performance of socially useful activities, such as care work for the young, disabled or
elderly, or community work of officially approved kinds, in contrast to basic income.
These unpaid activities figure as grounds of entitlement to Participation Income, in
addition to the entitlements generated by paid work, or generated by the activities of
enhancing labour-market employability that the active welfare state defines.
It should be noted that Participation Income was envisaged by Atkinson as an inde-
pendent and non-means tested alternative to Basic Income, with work-related condi-
tions that would render it invulnerable to the powerful charge traditionally directed
at Basic Income that it violates the notion of reciprocity. So understood, Participation
Income is a form of basic security that must take the enforcement of its work condi-
tionalities just as seriously as Workfare does, the difference with workfare being that the
conditions for receiving a Participation Income are more inclusive. Note however, that
the arrangements of Workfare, as described in Figure 1, are also subject to means-test-
ing, while Participation Income is not meant to be means-tested. Thus one might
envisage intermediate forms between Workfare and Participation Income on the line
BC, and of course one could also imagine laxer forms of Participation Income, which
would start to resemble Basic Income, as one moved along the line CD in the policy
space of basic security.
So far, our description of the policy space has concentrated on the possible legisla-
tive and implementation forms of basic security. In practice, these forms need to be
complemented by policies of labour market regulation appropriate to each. Roughly
speaking, one can locate policies aiming at enhancing the demand and supply of paid
work at the top end of Figure 1, while policies that facilitate the transition of individ-
uals between paid and unpaid work would be located at the bottom end. Policies of
this first kind include wage subsidies and tax credits for workers, as well as various
forms of training- and job-programmes. Policies of the second kind, by contrast,
include provisions for parental leave, sabbaticals, subsidies on going from full-time to
part-time work, or subsidized early retirement schemes. It should be noted, however,
that these last policies have not yet been developed in the trajectory of minimum
income guarantees, on which Figure 1 focuses. In so far as such policies exist at present,
they are typically attached to a secure employee status offering social insurance bene-
fits, a point to which we return later on.
Moving from left to right in Figure 1 will ordinarily require the introduction of sup-
porting labour market policies of one kind or the other. For instance, if one wants to
transform Conditional Welfare into something close to Workfare (along line AB), then
the corresponding increase in the stringency of benefit conditions will only be seen as
reasonable, if the recipients of basic security transfers also get better chances to actually
fulfil the tighter conditions. This, in turn, requires labour market policies, such as a

20
How Attractive is a Basic Income for European Welfare States?

wage subsidy for long-term unemployed, combined with a retraining programme.The


more these supporting labour market policies succeed in expanding employment
opportunities of their target groups, the more scope there will be to impose strict
duties on welfare recipients to accept work, and penalize non-co-operation. At the
Workfare extreme, finally, these labour market programs would become an integral
part of basic security legislation, since they would have to involve permanent jobs of
last resort. In a similar manner, one can argue that moving from Basic Income in the
direction of Participation Income (along line DC) will require supporting policies that
actually enable the recipients to meet the broader conditions of work that this last
form of basic security wishes to impose. In part, such policies are of the kind that are
traditionally regarded as subsidized exemptions from paid work.
As a final note, basic social security in advanced capitalist countries is mainly situat-
ed along the line AB, with the U.S. more workfare-oriented, and Europe more wel-
fare-oriented, but perhaps increasingly shifting rightwards. What happens on the line
DC is strictly virtual, since neither a basic income nor a participation income actually
exist anywhere in welfare states. One can at most detect elements of these pure types
here and there. Admittedly, our characterization of existing arrangements does no jus-
tice to the great, mainly group-specific, variety in entitlement conditions (nor to the
great variation in basic social provisions across European countries, e.g., in Italy condi-
tional guaranteed minimum income is not universally granted). For instance, care law
exemptions for single parent families might be taken to constitute a diluted form of a
Participation Income. Mandatory job programs for youthful unemployed definitely
belong to Workfare. Universal and non-means tested state pensions can be seen as a
group-targeted form of Basic Income, if they are paid out regardless of whether per-
sons have worked before age 65, as in the Netherlands.
A similar remark applies to the rather lumpy classification of labour market instru-
ments in Figure 1. Although there is a vast array of different kinds of wage subsidies
varying in type, level, duration, target groups and administrative and regulatory details
the primary policy objective of wage subsidies is to raise the level of employment by
impinging on either the labour demand function for low-productivity work, through
employer subsidies, or on the labour supply function, through employee subsidies.
Under the former, the wage subsidy reduces wage costs for the employer, while under
the latter it acts as a stimulus to accept low-paid jobs. Although both types of wage
subsidies are equivalent in a neo-classical framework with invariably clearing labour
markets, in real life there may be a definitive preference of one type of instrument
above the other. As Anton Hemerijck remarks in his contribution below, the shortfall
of low-paid jobs in Europe makes it most obvious to adopt employer wage subsidies
(such as a reduction of social security contributions), whereas in the U.S., the great
number of working poor calls for employee wage subsidies (like an Earned Income
Tax Credit). Equally, although there are numerous public employment programs and
(often unco-ordinated) constituency-based training programs in most European coun-
tries, these are predominantly temporary expedients, and they are targeted to the long-
term employed at the far end of the labour queue. In other words, they fall short of a
permanent and comprehensive workfare scheme, in which the government truly acts
as an employer of last resort. Genuine workfare would call for a much larger task than
any European government (except Sweden in the past, as paradigmatic case of
European workfare) has started yet.

21
Basic Income on the Agenda

Despite the variety in the actual configuration of different welfare arrangements and
instruments, then, the four ideal types of basic security, as linked to the most appropri-
ate labour market instruments, may be helpful to discuss specified objectives of social
policy.

Fighting Poverty, Unemployment and Gender Inequality

With this overview in mind, we now ask which types of basic social security and
labour market policies are recommended by the contributors of Part I, for reducing
unemployment without increasing poverty or income inequality, and for enhancing a
more equal gender division of paid and unpaid work. As we will see, some authors are
in favour of packaging schemes, that is, they choose positions in between the ideal
types represented in Figure 1.The central question posed by Paul de Beer is which of
the following instruments an Earned Income Tax Credit, a general wage cost subsidy,
direct job creation,10 or a basic income can be seen as a double edged sword, in
terms of success in simultaneously reducing poverty and unemployment. In the short
run, there is a definite winner, direct job creation. If the additional jobs are targeted on
the long-term unemployed, then each job reduces unemployment, and ends poverty
for the job-holders, provided the remuneration is above the poverty line. If the long-
term unemployed are forced to take such jobs under threat of their social benefit being
withheld, then this policy comes very close to the Workfare scheme of Figure 1.
Crucial for the long-term impact is the extent to which targeted job creation helps the
long-term unemployed to move on to regular (non-subsidized) jobs. If it does not help,
then the policy amounts to an expansion of the public sector proportionally to the
number of jobs created, with higher tax burdens than would have been the case with-
out the job program. Now consider basic income.This policy is inferior to the job cre-
ation policy in the short run, but may become superior in the long run, provided two
conditions are met. Firstly, a basic income should actually work as an incentive for the
unemployed to take up part-time jobs (which will also be facilitated if many who
would otherwise work full-time choose to work part-time under a basic income
scheme, and so leave more jobs for the unemployed to fill). Secondly, the higher tax
rates required to finance the basic income should not raise gross wage costs (and hence
reduce labour demand), nor impair investment in human capital. Even if the reader
agrees with De Beer that these two conditions are likely to be met in a liberalized mar-
ket economy, then still his conclusion is rather sobering for those who think that the
introduction of a substantial basic income is around the corner. For even if basic
income would prove to be the sharpest double-edged sword in the long run, the
greater effectiveness of job creation, or the nearly equal performance of an Earned
Income Tax Credit in the short run, might be more attractive to politicians under the
pressure of re-election.
What distinguishes Conditional Welfare and Workfare on the one hand from
Participation Income and Basic Income on the other is not merely the conception of
work, but also the presence or absence of means-testing. Both a Participation Income
and a Basic Income are non-means-tested, whereas social assistance under welfare and
workfare schemes are usually means-tested (including not only social assistance, but
also other benefits such as rent subsidies, or subsidized day-care centres). Under the

22
How Attractive is a Basic Income for European Welfare States?

present arrangements, those who draw from basic security face a very high marginal
tax rate on the income they could earn, up to the level of the means-tested benefits.11
There are various ways to remedy this inactivity trap: through an Earned Income Tax
Credit, or a reduction of social security contributions for low-paid work, or by means
of a partial basic income. To compare these three policy alternatives in the unified
framework of a common minimum guaranteed level of basic security, and a common
minimum wage, is the aim of Van Parijs, Jacquet and Salinas.12 Their starting point is
that with the rise of the new social question, more and more people find themselves in
the range of a 100 percent marginal rate of taxation.This makes it imperative to study
available options for cutting back this prohibitively high rate.
With commendable rigour, the authors demonstrate the following equivalence the-
orem. Assuming that all income is formal wage income, the three policies to alleviate
the inactivity trap are equivalent.That is to say, given a suitable choice of parameters,
Earned Income Tax Credit, reduction of social security contributions and partial basic
income will result in exactly the same trajectories of post-tax-and-transfer income,
given that the level of basic security and the minimum wage is the same in all three
cases. Since Earned Income Tax Credit policies are used in Anglo-Saxon countries,
while most continental European countries are trying out some form of reduction of
social security contributions for low-paid work, this insight seriously challenges the
strong preferences held by politicians in favour of either of these two policies, and their
almost unanimous rejection of the (in principle, equivalent) partial basic income. If it
became widely appreciated, this equivalence theorem might perhaps induce the more
thoughtful policymakers to re-adjust their stance towards a partial basic income.
But this is only the first part of the story.Van Parijs, Jacquet and Salinas devote the
remainder of their contribution to sorting out where the equivalence claim between
the three different policies breaks down.Without giving a full overview of their argu-
ment, it turns out that a partial basic income is better than the other two policies for
poor households with some unearned income (e.g. pensioners and divorcees with
alimonies), for low-earning self-employed and for low-paid voluntary working-time
reducers. Moreover, a partial basic income might have a strongly favourable impact on
the bargaining power of low-paid workers towards employers.There is, however, one
important drawback. Partial basic income requires higher marginal tax rates on inter-
mediate-range and high-wage workers. Due to its unconditionality, partial basic
income has greater tax costs, which are avoided by Earned Income Tax Credit and
social security contribution exemptions, because these last policies are targeted at the
low-wage employed.
This disadvantage may or may not be compensated by two types of behavioural
effects of a partial basic income on welfare claimants and low-wage workers. First,
fewer applications for supplementary social benefits, and secondly, the reshuffle effect
of increased work-sharing. Regarding the first type of behavioural effect, the higher
the partial basic income is, the higher the number of welfare recipients will be who
can earn a small supplementary wage income which brings them above subsistence
level, and hence takes them off welfare. Additionally, reduced applications for supple-
mentary benefits can be expected because of the inconvenience to the claimant of
claiming the full means-tested, willingness-to-work-tested guaranteed minimum
income (intrusiveness, dole queues, job applications, risk of being caught cheating,
etc.).These effects will work more strongly to the extent that welfare recipients under

23
Basic Income on the Agenda

present arrangements hesitate to take a job because of the fear of leaving the relative
safety of a regular flow of benefits for the uncertainty of a job that may pay late or
prove too demanding.
The second behavioural effect of a partial basic income that may compensate its
higher tax cost is the reshuffle effect. Under a partial basic income, more full-time
workers will choose to work part-time, freeing up jobs to the unemployed, while at the
same time these unemployed have greater incentives to accept part-time jobs. As a
result, both savings in social expenditures from fewer applications for supplementary
benefits, and a more equal distribution of jobs among the workforce through work
sharing (and hence, a smaller caseload of supplementary benefits) may be large enough
to compensate for the higher fiscal costs of a partial basic income. To the extent that
this holds good, a partial basic income would then compare favourably to the two
other policy alternatives of Earned Income Tax Credit and reduction of social security
contributions.
So, by a different route,Van Parijs, Jacquet, and Salinas arrive at a similar overall con-
clusion to De Beer. Taking into account its likely behavioural effects, a partial basic
income may be superior to other alternatives on the table, once there is enough time
to let those effects play their part in the complicated institutional environment of the
labour market and social policy constraints. However, partial basic income is bound to
be the politically least feasible policy option, not least because giving unconditional
income to the rich, in the interests of the poor, is a message difficult to understand for
the ordinary citizen.
Frank Vandenbroucke and Tom Van Puyenbroeck address the policy choice between
proportional working hour employment subsidies and basic income from an entirely
different perspective. This is the perspective of responsibility-sensitive egalitarianism,
that is to say, a criterion of justice which seeks to compensate for low productivity, but
holds people responsible for their own choices of income and leisure.They first explain
why even a well-defined egalitarian yardstick of this type does not in itself dictate either
of these two types of policy. The choice of employment subsidies or basic income (or
some combination of the two) is shown to depend on the governments stance towards
the non-pecuniary (dis)advantages of (un)paid work, leisure and labour market partici-
pation.This implies that under responsibility-sensitive egalitarian principles of distribu-
tion, the governments view on the work ethos is decisive for the choice of policy
instruments. For example, if participation in paid work is highly valued by the govern-
ment, because of its beneficial consequences for sustaining solidarity, the integration of
immigrants, or the development of skills and social contacts, while it does not believe
that these effects would result from participating in activities outside the domain of paid
work, then the government may definitely favour employment subsidies and supple-
mentary activation programs above the basic income solution. Conversely, if the general
wisdom is that paid work imposes heavy burdens on workers (revealed in stress, burn-
outs, incidence of disabilities, etc.) whereas non-market activities (care and volunteer
work) and leisure are experienced as highly valuable, then this would give a basic
income a much better chance.13 Vandenbroucke, who is currently the Minister of Social
Affairs in the Belgian Labour-Liberal government, and one of the most progressive pro-
ponents of the active welfare state approach, thus makes the point that the choice of the
most appropriate instruments of basic security policy depend both on principles of egal-
itarian justice and on democratic judgements concerning the good life of citizens.

24
How Attractive is a Basic Income for European Welfare States?

Joachim Mitschke takes issue with the conditional welfare arrangements in


Germany for their manifest inability to provide enough low-wage jobs. As he points
out, this is partly caused by the wage bargaining policies of the unions, which set the
lowest wages above the productivity of low-skilled workers. The other cause of the
German failure to induce employment at the low end of the labour market is that
minimum social benefits are contribution- rather than tax-financed. This raises the
non-wage labour costs of employers. Job creation and training programs are only of
limited use, Mitschke argues, because qualifications can only be improved within nar-
row talent-, milieu-, and age-specific boundaries. Mitschke is also pessimistic about
the adoption of temporary wage subsidies (e.g. equal to half the pre-tax wage up to
one year):To fetch an unsubsidized job at the same wage rate, after the subsidy ceases,
the former social assistance recipient would have to double his productivity within
(less than) one year.These perversities of employment-unfriendly social security can
be set right by introducing a negative income tax, or Brgergeld, of which Mitschke
has designed several variants that have been widely discussed in Germany from the late
1980s onwards.These proposals show the potential of a negative income tax for har-
monizing a wide range of existing instruments of social policy directed at the low end
of the labour market. A negative income tax would act as a uniform and permanent
graded wage subsidy directed to the workers, without the behavioural drawbacks of
temporary wage subsidies, or the administrative complexities of local wage subsidizing
policies.
Having looked at several contributions that address the dual objectives of poverty
alleviation and employment growth, we now turn to the issue of gender in the labour
market. With reason, Ingrid Robeyns can claim that with minor exceptions, serious
analyses of how basic income impacts on different policy objectives are gender blind.
The same applies to other policy instruments. In this respect, it would be of interest to
find out what a workfare scheme, with its narrow focus on the virtues of paid work,
would mean for the position of women. Robeyns, however, is concerned to investigate
the effects of basic income in her systematic overview of the literature. Among the
female population, a precarious attachment to the labour market is much more com-
mon than among the male population. This fact justifies taking a critical look at the
contention, dear to proponents of basic income, that basic income will act as an eman-
cipation fee. It will, so proponents say, improve the bargaining position of (especially
poor) women against bosses and husbands, and also encourage men to start working
part-time, in order to take a larger share in care work. Robeyns compares the plausibil-
ity of this contention with the opposite view, which maintains that basic income, far
from acting as a stimulus of emancipatory practices, is essentially a form of hush
money. In this view, basic income will act to serve as a housewives wage, despite or,
for some, because of the fact that a basic income recognizes the social value of unpaid
work for both men and women, in a gender-neutral way.As a result, so the hush money
argument goes, men and women would sort themselves spontaneously into the tradi-
tional categories of breadwinners and housewives, and there would be hardly any way
to complain about that, since it would be the consequence of free choices. In between
these two extremes is the view of Hermione Parker. She argues that a basic income is to
the advantage of women, not because it is especially women-friendly, but because pres-
ent social security arrangements are far more biased towards male breadwinners, given
that these arrangements are still strongly based upon the presumptions of the postwar

25
Basic Income on the Agenda

welfare state: the stable, long-term employment relationship of the male family provider.
This gives men a large stake in preserving the structure of earnings- and work-history-
related social insurance benefits of unemployment, disability and retirement.Against this
background, a basic income, as well as a participation income, would be reforms that
revalue the importance of non-market work for society at large, and reduce the stakes
involved in building up social insurance rights through paid labour.
As Robeyns shows, considerable clarity in this controversy can be attained by distin-
guishing three dimensions: (i) the short-term and long-term effects of basic income,
according to whether (ii) women are highly skilled or low skilled, and whether (iii)
women have a weak or a strong labour market attachment. In the short run, a substan-
tial basic income will probably decrease womens overall labour supply.This might be
taken to support the hush money thesis. In the long run, however, when new genera-
tions enter the labour market, among which it is more commonplace for men to work
part-time, and take a greater share in domestic work, it is far less obvious that hush
money effects will dominate the emancipation effects of a basic income. Robeyns dis-
tinction by groups then indicates that the real winners from a substantial basic income
will be low-skilled women with a weak labour market attachment: greater economic
independence, more bargaining power, and no loss of non-pecuniary advantages of
paid work, given their already low participation rate. On the other hand, it is unlikely
that career women, being high-skilled, and having paid-work as a central life interest,
will give up their jobs to live from a basic income only.The evidence is mixed for the
other two groups of women in Robeyns classification.
Perhaps it is fair to say that the final evaluation of a basic income, from the stand-
point of womens emancipation, depends as much on the expected effects as on ones
view of what emancipation is all about. Does gender equality require no educational
and occupational segregation, as well as no gender division of labour, or can some of
this be tolerated, if equality of opportunities still results in different choices reflecting
different preferences between men and women? These questions clearly emerge from
Robeyns thorough treatment of the empirical issues. As a final note, we would like to
point to an idea only casually mentioned by Robeyns.This is a basic income targeted
at children, which would cover the material costs of upbringing, as well as some of the
opportunity costs of child care. Of course, even though such a basic income would
replace all present child allowances as well as existing subsidies for child care and fami-
ly tax allowances, it will still be a very expensive measure. But it would offer each par-
ent especially mothers, as long as they are the ones predominantly taking care of the
children much more of a real opportunity to choose freely between full-time work,
full-time care work, or any mix of these.
The essays discussed above suggest that participation income or basic income are
promising ways to address the problems posed by the new social question, or to
empowering low-skilled women. However, as Anton Hemerijcks essay makes clear,
experience in the Netherlands has shown that less radical measures in between basic
income and workfare can serve to address the new social question as well. In particular,
the Dutch policy of sustained wage moderation has proved to be successful in terms of
employment growth.This policy has recently been flanked by targeted wage cost sub-
sidies for long-term unemployed and low-wage workers, the introduction of modest
schemes for educational, parental and sabbatical leaves, and a central agreement
between unions, employers and government which traded a relaxation of firing and

26
How Attractive is a Basic Income for European Welfare States?

dismissal procedures for full-time core workers against greater job and social security
rights for flexible and part-time workers. Despite the apparent ability to accommodate
the trend towards more flexible labour markets the Netherlands has an unparalleled
high share of part-time workers the Dutch miracle has not yet succeeded in over-
coming structural inactivity, nor the precarious position of specific groups on the
labour market.As Hemerijck points out, structural inactivity has remained more or less
constant at about 20 percent of the labour force, and it is concentrated among the low
skilled, older workers, immigrants and women. The majority of the older, predomi-
nantly low-skilled, workers are either on early retirement or on disability insurance.
Finally, the problem of long-term unemployment, still about half of total unemploy-
ment, persists as long as the baby boom cohorts of younger and better skilled workers,
along with increased participation of women, absorb employment growth. For the
near future Hemerijck is in favour of embracing wage subsidies following a negative
income tax logic, as the most effective and feasible route to increase participation of
the most vulnerable groups.
Hemerijck is right in stressing that in a corporatist climate, with the commitment of
all parties (unions, employers associations, and government) much can be achieved by
piecemeal engineering. However, it may be doubted that the Dutch case can serve as
the benchmark of a best practice policy mix for other European countries. For one,
wage moderation can be expected to have less favourable results on labour demand
when adopted Europe-wide than when it is practised in one country (the begging-
thy-neighbour argument). Secondly, shared commitments and collective agreements
on wage moderation may be more difficult to achieve in countries like Germany,
France and Britain, with their more militant trade unions, than in the consensus-ori-
ented society of the Netherlands.This raises the question of the next section, whether
European countries would at all be able to find new ways of co-operating in the search
for full employment without poverty.

A Participation-Based Eurodividend: The Key to Social Europe?

To introduce the European dimension, consider the following statement, in which


Atkinson (1998: 148-9) reiterated his earlier plea (1993b) for a European Participation
Income:
It is noteworthy that, despite the attention which basic income has been given, and despite
finding supporters in all political parties, the scheme has not got close to being introduced.
If one asks why, then, in my judgement a major reason for opposition to basic income lies
in its lack of conditionality. There are concerns that it will lead to dependency, or state-
induced social exclusion. I believe therefore that, in order to secure political support, it
may be necessary for the proponents of basic income to compromise not on the princi-
ple of no test of means, nor on the principle of independence, but on the unconditional
payment I believe that such a Participation Income offers a realistic way in which
European governments may be persuaded that a basic income offers a better route forward
than the dead end of means-tested assistance. New ideas in this field are needed, and this
one combines the twin concerns with poverty and with social exclusion.
As this passage makes clear,Atkinson is in favour of reforming the present means-test-

27
Basic Income on the Agenda

ed basic social security arrangements (in terms of Figure 1, Conditional Welfare) into
non-means tested basic provisions, preferably conditioned on a broadly applied work-
test. Atkinsons preference for non-means tested social benefits is motivated by the
problems of the new social question, in particular the fact that a two-tier structure of
(non-means tested) social insurance and (means tested) social assistance strongly dis-
criminates against the most vulnerable in the labour market. This focus on the detri-
mental effects of means-testing explains why Atkinson prefers a participation income
to a basic income, on the assumption that the work test of the former would be capa-
ble of securing the required political support for doing away with means tests in basic
security.This view is attractive, even though a more relaxed work test would have to be
enforced seriously, as we have pointed out in our discussion of Participation Income as
an ideal type of basic security (see Figure 1).This may well prove to be no easy task, in
view of the reasonable disagreement as to what counts as participation. In any case, the
proposal for implementing some kind of participation income at the European level,
here stated in guarded terms by Atkinson, is essentially favoured by Steve Quilley, as we
will discuss below.14 But before turning to Quilleys argument, we want to introduce
the exchange of views between Fritz Scharpf and Philippe Van Parijs on the impor-
tance of European co-ordination.
As Scharpf argues powerfully, the hope that any form of Social Europe will come
about without concerted decision-making at the European level is entirely unrealistic.
Competitive pressures resulting from the single economic market (shortly to include
several Eastern European countries), and from a single currency, would continue to
have an adverse impact on the national social and economic policies of the Member
States.According to Scharpf, economic integration constrains national welfare arrange-
ments in two important ways. First, in a relentlessly competitive market without bor-
ders, governments are forced to shape social policies with an eye to the establishment
of a competitive welfare state. Secondly, even if one country could manage to provide
generous welfare arrangements, while preserving its international competitiveness,
sooner or later it would become vulnerable to welfare migration, particularly of low-
skilled workers from other countries in or outside the European union. In the longer
run, this would undermine the viability of the generous policies.
Tax competition between European countries, and unco-ordinated reshaping of
welfare arrangements is likely to lead everywhere to a separation between individual-
istic social insurance and solidaristic redistributive programs. If so, the new social
question would be reinforced.That is, the gap in lifetime prospects between a core of
medium- and high-skilled workers with stable job and income security assets, and a
marginalized workforce which has to rely on basic security, would widen. Why?
According to Scharpf, workers would tend to regard social insurance entitlement as a
form of delayed earnings (because of the actuarial fairness between contributions paid
and coverage provided). Therefore, social insurance would be less vulnerable to tax
resistance everywhere, and it thus would not create competitive disadvantages. By con-
trast, generous tax-financed redistributive programs would be likely to run into far
more resistance, on the part of the net contributors.As a result, keeping such programs
at a high level would be electorally unpopular, hence far more vulnerable to being
eroded by tax competition. Countries that decide to maintain generosity in basic secu-
rity would have to pay the price of reduced international competitiveness, while at the
same time attracting welfare migration.As long as social policy remains a national pre-

28
How Attractive is a Basic Income for European Welfare States?

rogative, the institutional separation of social insurance and basic security will contin-
ue to induce new rounds of competitive pressure on basic security. In the absence of
European policy co-ordination, this may lead to a race to the bottom. Under such
conditions, it seems obvious that national states would want to avoid introducing a tax-
financed and highly redistributive basic income scheme, or a participation income. So
in Scharpf s view, the only hope for the disadvantaged is that competing redistributive
alternatives of basic income, like the Earned Income Tax Credit and reductions in
wage costs, can still command sufficient political support.
But is this all one can say? Not entirely. For Scharpf s realistic assessment is logically
compatible with some kind of a European basic income.This, however, would require
a prior effort at co-ordination of social policy. For example, if Member States can
somehow first agree to guarantee a system of Europe-wide minimum income stan-
dards (for example, related to the per capita income of Member States), and if, more-
over, the rich Member States were willing to fund the required additional expendi-
tures, then this would check the tendency of levelling down basic security provisions.
Against this more optimistic background, Scharpf says:if such support were forthcom-
ing perhaps through a redirection of the cohesion funds it might be necessary and
possible to avoid the work disincentives inherent in the present social assistance pro-
grams of the richer Member States. In that case, basic income programs, most likely in
the form of the negative income tax, might indeed provide the most effective and effi-
cient solution to the twin problems of poverty and unemployment, and European pol-
icymakers might well be persuaded to promote this strategy.
Van Parijss reply to Scharpf seizes on this possibility of prior co-ordination in a
Social Europe. His assessment is that a European participation income along the lines
suggested by Atkinson, would then be the way forward in an attempt to reduce the
danger of fiscal and social competition between Member States still further. As we
explained in the previous section, while a participation income avoids means-testing
and the ensuing inactivity traps, it is politically more viable because its broad participa-
tion conditions signal a concern for tying the receipt of transfer income to the recip-
rocal performance of socially useful activity. It is thus a good candidate for counter-
acting the divisive effects of the separation between social insurance and basic security.
For these reasons,Van Parijs proposes to recast the term participation income as a
Euro-dividend for all active European citizens. He sees two further advantages. First,
if the Euro-dividend were to be set at a uniform level which would probably be
close to the level of the minimum income guarantee of the poorest countries in the
EU this would provide a universal floor, on top of which each more affluent
Member State could then maintain its own favourite mix of welfare arrangements.
Secondly, a uniform Euro-dividend, even if it were low in comparison to the average
European level of basic security, would considerably increase inter-European solidari-
ty. For, irrespective of its tax base, a uniform Euro-dividend would raise redistribution
from rich to poor countries, or from booming to depressed areas, far beyond the pres-
ent redistributive effect of the structural funds.15
Steve Quilleys political reflections chime in with Scharpf s assessment as well. Since
there is hardly a chance that any full-fledged basic income scheme will get off the
ground at the national level under increased intra-European competition, a framework
of co-ordination is imperative for getting politicians to think the unthinkable. In a
way, taking this as a starting point is to admit that the project of basic income depends

29
Basic Income on the Agenda

on a degree of institutional co-operation that may seem rather utopian, given that
social harmonization is at the tail end of the agenda of European integration at present.
Quilleys main concern is to address this problem. He argues that while the debate on
basic income has become more mature in clarifying the ethical desirability of uncondi-
tional grants, as well as the feasibility of (revenue-neutral) schemes of basic income,
such intellectual clarity does not flow naturally into a plausible political project.
The debate, so far,has offered few clues as to possible points of departure and the pol-
itics of transition. It is necessary, therefore, to reflect on why it makes good political
sense, in the longer run, to regard a small Euro-dividend of the type envisaged by Van
Parijs (see above) as the nub of a basic income trajectory, that is to say, as a strategic
measure that could create the conditions for its own metamorphosis into a more sub-
stantive redistributive mechanism.The merit of Quilleys contribution to Part I is that
he seeks to locate the political opportunities that exist, at present, for discussing the
new social question at the European level, in ways that would move likely solutions
away from Conditional Welfare and Workfare, and towards Basic Income or
Participation Income that is to say, downwards along the vertical dimension in the
policy space of Figure 1.
According to Quilley, there are several reasons for expecting a more favourable
political constellation over time. First (and especially looking at the problem from the
British point of view), the operation of the European single market under conditions
of increasing flexibilization is creating pressures to introduce an element of fairness
and even-handedness in the process of corporate restructuring and relocation.
Secondly, the inter-regional and national inequalities resulting from the single market
can be sustained only if they are partially legitimated by a sense of European citizen-
ship. But while both of these features show that the logic of competition that has
driven European integration so far is creating a political need for redistributive social
cohesion, this in itself does not imply a policy preference in favour of basic income.
As Quilley admits, the redistribution involved in basic security seems to be tied more
closely everywhere to the work ethic, targeting, and means testing. If anything, then,
European basic security is moving from Conditional Welfare to Workfare, along the
horizontal dimension in the policy space of Figure 1.There is no straightforward way
to achieve a ninety-degree change of direction.What one can envisage, however, is
a possibility to attract political forces toward Participation Income, by appealing to
the ideology of a broadened and civic work ethic, which would be compatible both
with the Anglo-Saxon rhetoric of communitarianism and self-help that underlies at
least some of British New Labours work-to-welfare policies, and some of the more
enlightened forms of the active welfare state on the continent. Thirdly, Quilley
strongly endorses the funding of the Euro-dividend through a combination of eco-
taxes, because taxing environmental bads (rather than productive activities) may
seem a more acceptable ethical basis for the distribution of universal benefits, and
also because linking basic income to the Green movement is politically opportune:
The emergence of a space for a green and socially responsible capitalism, is perhaps
the nearest thing to the big economic idea for the left since Keynesianism. As
Quilley emphasizes, these features of the political landscape create no more than
windows of opportunity, which can be utilized in the development of a basic
income trajectory. But it should be understood that the effectiveness of such a tra-
jectory will require dropping the idea that basic income, in whatever form, is a self-

30
How Attractive is a Basic Income for European Welfare States?

contained blueprint to be put up on the political agenda as a straightforward choice.


Thus, any realistic attempt to move the politics of European redistribution in the
direction of more universality and less conditionality will have to be a war of posi-
tion, of institutional and political jockeying, in which proponents must seek to link
these objectives with other political agendas, emphasizing similarities of purpose,
rather than focusing on programmatic contrasts. While there is certainly a lot to be
said in favour of Quilleys realist utopianism, it does of course presuppose that the
idea of basic income has gained sufficient foothold in the European Member States.
We now want to examine to what extent this can be said to be the case.

Basic Income in European Countries

The second part of this volume is entitled Political Chances. It offers seven papers,
each of which illustrates major aspects of the political fortunes and failures of the basic
income proposal in European countries, without necessarily attempting to cover every
relevant development. In order of population size: Germany (Stephan Lessenich),
France (Chantal Euzby), Finland and Sweden (Jan-Otto Andersson), the Netherlands
(Loek Groot and Robert van der Veen), Belgium (Yannick Vanderborght), Ireland
(Sean Healy and Brigid Reynolds) and Denmark (Erik Christensen and Jrn
Loftager).16 These papers enable one to assess the claim with which we started: that
basic income has evolved to the stage where it has entered the political agenda, that is,
has become a recognized political possibility. But it is important at the outset to see
what it means to say that basic income is on the political agenda. Does it just mean
that it is regularly discussed in the broad forum of public opinion (the popular media,
position papers of policymakers, academic conferences) or does it mean that properly
costed reform proposals involving a full or partial basic income, participation income,
or negative income tax, have been, or are about to be, put up for decision on the leg-
islative agenda of a ruling government? Obviously, the answer must be varied: every-
thing that goes on in between these two definitions should be counted.
Then there is the separate question of judging the results of these discussions and
decisions. Since at present the policy space of basic security is really only inhabited at
the top half of Figure 1, if basic income has at all been on the agenda of a particular
country for a certain length of time, this has not yet had much of a definitive policy
impact. So far, then, the agenda status of the proposal must signify that basic income
has been considered and then rejected, only to resurface at a later date, perhaps in a dif-
ferent form, and with different arguments, for a new round of consideration and rejec-
tion, or hopeful postponement, as the case may be.At the end of the period considered
roughly from the late 1970s up into the first months of the new millennium the
commentator may be in the downswing of facing up to the latest rejection (basic
income is now nearly dead), or be able to give a more upbeat report to the effect that
finally, the idea has been taken up by a social movement, is being ardently discussed
in the media, is being seriously debated in parliament, or is at least being singled out
for further study, by some prestigious commission, or governmental advisory board.As
the papers of Part II show, moreover, the agenda status of basic income between differ-
ent countries must be considered against the background of the widely varying social
security systems that have been in existence in each of them in the last two decades, as

31
Basic Income on the Agenda

well as the country-specific major events that induce changes in the climate of policy,
such as the re-unification process in Germany.
In some cases, the institutional status quo has effectively prevented basic income from
being admitted at all into the arena of discussion. This is the case most notably in
Sweden.As Andersson shows, the reason is the highly developed Swedish welfare state,
with its wide and effective coverage of social insurance, its long history of active labour
market policy, and the firm hegemony of a social-democratic work ethic. In this set-
ting, basic income does not seem much of an issue, primarily because the area of basic
security itself does not yet stand out as being particularly problematic. Even where
basic security certainly is seen to be problematic, as in Germany, the predominance of
social insurance, the sheer complexity of the patchwork of social assistance, and the tra-
dition of corporatist wage bargaining practices present conditions under which a basic
income solution, such as Mitschkes Brgergeld, may in the end be rather far removed
from what are perceived to be politically viable deviations from the status quo, as
Lessenich notes in his instructive discussion of the policy stance of the social-demo-
cratic Friedrich Ebert Stiftung.
However, in France, basic income is largely confined to the margins of academic dis-
cussion, precisely because it seems to be more of a pressing problem to get a universal
system of basic security one which covers all age groups off the ground in the first
place, following up from the 1998 Revenue Minimum dInsertion (RMI). In such a
political context, as Euzby puts it politely, basic income is an interesting but uncertain
idea.The reason is that policymakers with solidaristic goals find it more rewarding to
start working on a basic pension system, and to take steps in the direction of including
the young, the intermittent workers in the service sector, and the self-employed, in one
integrated national safety net. From that point of view, rightly or wrongly, further ques-
tions about the conditionalities of social assistance are ones that have to be decided
along the way, in order to advance at all. In addition, policymakers in France are strong-
ly concerned to improve the employability conditions of the RMI, which has up to
now largely failed to connect its clients to the labour market. In view of this goal, as
Euzby notes, it again stands to reason that a move to basic income should be preced-
ed by intermediate and far less radical measures.
Given what we have said up to now, the natural home of basic income policies
would seem to be countries with highly developed (and cost-of-living or wage
indexed) universal basic security provisions with high rates of take-up. Roughly, these
are represented by the smaller Nordic welfare states of Belgium, Denmark, and the
Netherlands. Here, it would at least seem that insofar as the ideological constraints (the
recent activism of the work ethic) and financial restrictions (budget neutrality, the
EMU-norms) allow, there is some scope for a gradual erosion in the conditionalities of
a social minimum framework which is already securely in place. However, judging
from the contributions from these countries, the current political prospects of promot-
ing a basic income with open vizier are not favourable.
This message is conveyed in different ways. In the Danish case, as Christensen and
Loftager show, basic income was effectively removed from the political agenda in the
1990s by a decisive top down ministerial intervention, silencing the Radical Liberal,
Green, and generally the alternative voices in favour of the idea. In Belgium, the sud-
den advent of a political party (VIVANT), which was committed to a clear and unam-
biguous form of basic income head on, has not seriously affected even the state of the

32
How Attractive is a Basic Income for European Welfare States?

public debate, according to Yannick Vanderborght. Significantly also, the efforts of this
party have hardly been supported by the two Green parties, both of which have been
consistently in favour of basic income since the late 1970s. And while in the
Netherlands, after twenty years of dramatic ups and downs, a small though analyti-
cally significant element of negative income tax has been built into the recent tax
reform, the political understanding shared by policymakers and politicians alike is that
this, surely, has nothing at all to do with the concept of basic income. If one believes
that these countries can resist the grim process of convergence to the competitive wel-
fare state (as described by Scharpf) long enough, however, it would be natural to think
that astute institutional jockeying (as advocated by Quilley) may go some way to
achieve slow shifts towards forms of negative income tax or participation income
Finally, there are two countries that might be regarded as the jokers in the pack
Ireland and Finland. Both of these seem to have in common a climate and history of
social policy which is more conducive to sudden changes, and is more receptive to the
central intuitive argument of fairness, efficiency and simplicity, which is associated
with basic income. Sustained economic growth from a relatively backward starting
position (Ireland), and the combined impact of high unemployment and exposure to
the electronic age in the 1990s (Finland) may have something to do with this apparent
volatility in the policy space of basic security. Cultural variables may also matter, in the
case of Finland. If it is true, as Andersson argues in his survey, that as compared to
Swedes, Finnish workers and citizens are more disposed to go for innovative and radi-
cal solutions, then some of the many concrete proposals that have been circulating in
Finland since the 1980s involving basic income or negative income tax may be actual-
ly implemented.The more so, since Osmo Soininvaara, one of the main players in this
field, has taken office as Minister of Social Affairs in a coalition including the Finnish
Greens (see his Preface to this volume).
We resist the temptation to speculate at length on these cases.There is not enough
information to go on, as yet, to decide whether the impression that basic income is on
the fast track in either Ireland, Finland or both, is justified. One small remark about
Ireland, though.The sudden popularity of basic income can partly be explained by the
fact that although the Irish economy is booming, the incidence of poverty remains
high. The former gives some leeway to increase social expenditures (Healy and
Reynolds use the wonderfully optimistic expression of revenue buoyancy), while the
latter forces politicians who want the poor to share in the fruits of growth to seriously
consider radical solutions.The case also illustrates how a relatively small but excellent-
ly well-organized community group (the Conference of the Religious of Ireland
CORI) can have a major impact on the political agenda.Yet the outcome of CORIs
costed proposal for a full basic income is extremely uncertain, until the Irish govern-
ment has actually taken an official stand on the substance of the proposal which it has
not yet done, despite its promises.The Dutch experience, meanwhile, has shown that as
soon as the political establishment takes basic income reform proposals seriously, such
proposals are subjected to extremely harsh tests, and moreover, that actual decisions on
them tend to be shifted forwards in time, when an outright rejection is inopportune. It
is to be hoped that the Irish lan will be kept alive if the window of opportunity were
to narrow to the point of piecemeal implementation, and the long march through the
institutions starts to take its toll.

33
Basic Income on the Agenda

Some Common Themes

The surveys of Part II speak eloquently for themselves. By way of concluding this
introduction, however, we want to look at some common themes. First, the initial
attempts to launch basic income on the agenda in the 1970s (at least in countries with
long histories of the idea) came from relative outsiders, whose interest was to promote
a critical politics of free time, as opposed to the mainstream productivist politics of full
employment. Secondly, what helped these ideas to gain wider currency in politics has
invariably been sudden rises of unemployment, together with the idea of jobless
growth, or later in time the fear that economic growth is permanently linked to
insufficient demand for low-skilled labour.
Thirdly, the radical unconditionality with respect to the willingness to work has
invariably proved to be a stumbling block for basic income to become part of the
mainstream alternatives, despite its heightened salience under conditions of high
unemployment. Apart from the popular spectre of able-bodied scroungers, the objec-
tion to the no-work feature of basic income translates naturally into the recurrent (and
highly damaging) images of generalized state dependency and of legitimizing the
ongoing process of social marginalization (see Christensen and Loftager, below). In
part, the intellectual state of the debate on basic income may be measured by the fre-
quency with which convincing answers to these standard points are brought into play.
As the account of Healy and Reynolds suggests, at least some of the success of moving
basic income closer to the Irish legislative agenda must have depended on the sheer
didactic effort of the proponents (notably, but not exclusively, CORI) in patiently
countering a host of popular objections.
Many commentators to Part II note the unmistakable shift of European social pol-
icy towards the active welfare approach, since the early 1990s. As Lessenich observes
for the German case, this has put basic income advocates in the difficult position of
having to argue that their proposals are the most cost-effective method of how to
make them all work, which he rightly considers to be utterly sobering for any apolo-
gist of basic income in its purist sense. But, as the histories of the Dutch, Danish and
Finnish cases show quite clearly, the no-work objection predates the shift to active
welfare policies. It has always been quite powerful, and there is reason to think it will
remain powerful not merely as a policy conception, but mainly as an electoral con-
straint on feasible policies as long as the no-work objection seems to be widely
shared by net contributors to basic security and net beneficiaries alike. Note, howev-
er, that the extent of this presumed sharing is far from being a well-researched fact. It
is not known exactly what the electorate, or the ordinary people actually think
about issues of income conditionality, since nowhere are citizens being asked to give
their opinion on those issues in any systematic way, apart from the occasional survey
question.
Fourthly, even though it is difficult to generalize across the European ideological
landscape, the social-democratic parties have always been highly critical of basic
income, whereas the radical Left (early on, in the 1970s) and the Greens (in the 1980s
and 1990s) were basic incomes most loyal allies.This is so, at least, if they do not come
to power all of a sudden. See below, where Lessenich acidly remarks on how the
German Greens silently dropped their advocacy of a more or less basic-income-friend-
ly proposal, on entering the Red-Green government coalition.

34
How Attractive is a Basic Income for European Welfare States?

Social democracy has its roots in the trade union movement, and to some extent it
remains stamped by the old social question of capital against labour. Unsurprisingly,
therefore, the social policy of much of modernized Labour is strongly oriented to the
activity of paid work, though predominantly in the form of employability and of dis-
ciplining transfer recipients in acquiring work skills, as the developments in the United
Kingdom reported by Quilley also show. Outside of Sweden, where an enlightened
attitude to paid work has always been a marked feature of the welfare state, there are
recent signs of an increased willingness to engage in the discourse of integrating
unpaid work and leisure. A good example is the Dutch Labour Partys 1994 election
slogan of a relaxed organization of work, which refers to a kind of lifetime employa-
bility in both paid and unpaid activities, with flexibility of choice to move in between
the two.
But just as in Sweden, this more relaxed attitude is at present largely confined to the
sphere of work-related social insurance. With respect to basic security, Dutch social-
democrats generally still tend to insist on the centrality of paid work, perhaps driven by
a vaguely Victorian logic of the need to discipline the poor. This explains why the
enlightened stance of unpaid work counts as well can nicely go together with brand-
ing basic income as a defeatist policy, which is bent on trading away the right to work
for those who need it the most, against a politically insecure right to income. The
same may be said for Denmark, on Loftager and Christensens account.There, as in the
Netherlands, basic security is moving towards the activation of welfare clients, in tai-
lor-made instatement contracts with administrative case-workers.17 In the Danish case,
this goes together with the further expansion, and the great popularity among work-
ers, of comprehensive schemes of paid leave. In terms of Figure 1, one might be tempt-
ed to see this last development as a vertical movement, in the direction of the ideal
type of Participation Income. But as we stressed, that would be a mistake. For Figure 1
exclusively depicts the policy space of basic security, not that of work-related social
insurance. Paid leave, obviously, is the privilege of those performing paid work in col-
lective (or in semi-private) arrangements, from which an increasing number of people
are excluded.The distinctive hallmark of a basic income, and similarly of a participa-
tion income, is to extend such privileges universally, at the level of basic security.
The sympathy and occasional support for basic income of Green parties across
Europe can be traced to the progressive middle-class intuition that the productivist
stress on employment sits uneasily with promoting environmentally-friendly ways of
life. Nevertheless, as the Greens have moved to the centre of politics in Europe, they
tend to be more in favour of a moderate partial basic income strategy (Germany and
the Netherlands), or for shortening the standard working week, as in France. As
Quilley notes, this might be explained by the fact that social policy is only one item,
and not necessarily the main one, on Green platforms of ecological modernization.
Taxing environmental bads instead of labour may be a way of creating a new, and
more generous, foundation for basic security. But it may equally be used to simply shift
the tax base (as in the recent tax reform in the Netherlands), or to create the fiscal
means for assisting investment in renewable energy sources. In any case, up to now,
Green parties have not yet actively engaged in bringing forward the national or
European eco-dividend, as envisaged by Van Parijs and Quilley.
Fifthly and finally, moral intuitions and efficiency concerns are connected in poli-
tics.This can be seen from another recurrent theme. Understandably, those who regard

35
Basic Income on the Agenda

basic income reforms as morally suspect attempts to provide handouts to everyone


will also tend to regard such reforms as fiscally and economically unsound.There is no
need to illustrate this standard point by reference to the surveys of Part II. But as the
debate on basic income has matured over the years, a host of more sophisticated effi-
ciency arguments have emerged from the heart of political exchanges. One of these is
the impossibility theorem, as we have called it in our report on the Dutch debate.The
impossibility theorem asserts an inescapable dilemma: in its economically or politically
feasible range, a basic income will be too low to be socially acceptable, while in its
socially acceptable range which must be close to the ruling level of conditional basic
security basic income is too expensive for it to be either economically sustainable at
all, or too expensive, given political constraints on marginal taxation levels.
This line of reasoning has been used both in Denmark and the Netherlands to great
effect. It obviates the need to argue the moral issue directly, granting for the sake of
argument that unconditional incomes would be socially acceptable, if they could fea-
sibly be pitched at the level of the ruling social minimum. Now, if a sensible proponent
of basic income admits that this, indeed, is not economically feasible at present, then
she is also forced to admit that a partial basic income is the only possibility, and that in
order to be socially acceptable, the partial basic income will need to be supplemented
with conditional benefits. The next move of the opponent is now to grant that a full
basic income could combine adequate social protection with the demands of flexible
labour markets; that it could lead to a more equitable distribution of income, of paid
work, of care work and of free time between men and women; to less involuntary
unemployment; to better working conditions for low wage workers; to a removal or
shortening of poverty traps; and to a reduction in the administrative costs of providing
social security. However, the opponent then goes on to say that while all of this might
be true, the beneficial effects of a partial basic income would surely not be significant
enough to make the reform worth the trouble. The opponent finishes by concluding
that the modified basic income proposal will not make good on its initial promises, and
would still be more expensive than a streamlined and more employment-oriented
scheme of basic security would be. Even though this argument has often been put for-
ward by opponents who also resist basic income on moral grounds, it is by no means an
easy one to answer. In fact, as we show below, the argument has contributed to the
development of costed basic income models in the Netherlands, which attempt to
track the dynamic behavioural effects of specified changes in tax rates and benefit lev-
els under various conditionalities of the benefits. In view of the uncertain validity of
such models, however, arguments of the type of the impossibility theorem also point to
the need for generating more reliable knowledge by promoting local experiments with
basic income schemes.18
With this last point, we are back where we started in this Introduction: the undis-
putable success of the basic income discussion of the last two decades has been to set
higher standards of expectation. We now invite our readers to judge to what extent
these standards are being met in the contributions that follow.

36
How Attractive is a Basic Income for European Welfare States?

Notes

1 Founded in 1986, the Basic Income European Network (BIEN) aims is to serve as a link
between individuals and groups committed to, or interested in, basic income, and to foster
informed discussion on this topic throughout Europe.The name has turned out to be some-
what mistaken by now, as not only European, but also politicians and scholars from North
and South America have joined the network. BIEN publishes a Newsletter which provides
an up-to-date and comprehensive international overview on current ideas and publications,
organizes bi-annual BIEN-congresses where people from more than twenty countries meet
to report and discuss on all aspects of basic income and related proposals, including its moral,
economic, political, social, and fiscal justifications, feasibilities, alternatives, objections, prem-
ises, experiments and outcomes. More information, as well as the previous BIEN Newsletter
issues, can be found at BIENs Web-site: http://www.etes.ucl.ac.be/BIEN/bien.html.
2 See White, 1997;Van Parijs, 1995;Van Donselaar, 1997;Vandenbroucke, 1999a; and Van der
Veen, 1998.
3 In the normative discussion, moreover, the debate around basic income is also concerned
with exploring the consequences that work-sensitive or unconditional forms of redistribu-
tion may have for the self-respect of claimants (Wolff, 1998) and for the extent to which the
labour market will work so as to compensate for the disutility of lowly productive jobs
(Groot, 1999 Chapter 4).
4 The contributions of Van Parijs et al. and De Beer in this volume revolve centrally around
this hard exercise. It may be said, perhaps, that the proponents of basic income in the tradi-
tional sense of full unconditional grants at social minimum level will not receive maximum
reassurance from what is said. A response which is invited by the exercises of examinations
of unheeded differences by Van Parijs et al., and De Beers cautious assessment of short- and
long-term advantages, is to revert to the well-tested strategy of pointing out that if basic
income cannot win out on any one or two policy objectives, then surely it may still prove
superior on a more inclusive set of objectives. We shall not be offering examples of this
seductive reasoning here, but point out the connection between the themes of Robeyns
(gender equality) and Hemerijck (citizenship) in Part I and to the middle range effect,
described by Fitzpatrick (1999: 44-45) as follows:... in terms of each policy objective taken
individually basic income would be trumped by the other proposals..., but scores rather well
when the entire range of objectives is taken into account... the reason why basic income has
been ignored is because of the tendency of politicians and policy-makers to examine social
objectives in isolation.
5 See Van Parijs et al. in this volume; Offe and De Deken, 1999; and Standing, 1999.
6 This was one of the main themes of the Basic Income European Network Congress in
Amsterdam, 1998.
7 For similar assessments of the present situation, see e.g.Van Parijs, 1993: 134-39; Scharpf,
1999; Standing, 1999; and Vandenbroucke, 1998.
8 Poverty and unemployment traps (giving rise to hysterisis among long term unemployed),
binding minimum wages restricting the number of low paid, labour intensive service jobs at
the bottom end of the labour market, restrictive firing and dismissal procedures, and exten-
sive collective labour agreements (see e.g. De Neubourg, 1995).
9 We do not want to suggest, of course, that present arrangements of earnings-related social
insurance or tax-financed benefits are immune to the call for reform.

37
Basic Income on the Agenda

10 Direct job creation occurs through generous marginal wage subsidies for additional jobs
open to long-term unemployed workers only.
11 This is due to the high withdrawal rate on all net labour income up to the social security
benefit, and because working may engender additional costs (e.g. travelling expenses, costs of
day-care centres, etc.). It is no exception that welfare recipients face a marginal tax rate of
100 percent or more.Those caught in these poverty and employment traps therefore experi-
ence a strong disincentive to work: they can only escape the poverty trap when they succeed
in finding a job with pre-tax earnings considerably higher than the level of their benefits.All
(part-time) work with pre-tax earnings below a certain threshold will not yield any financial
reward for those on welfare.This may partly explain why part-time work is mainly under-
taken by women.Women with a working partner are not entitled to any benefit and there-
fore they do not face the poverty trap. For them, any part-time work will raise family
income.
12 Note that the authors do not include stringent workfare policies among the alternatives to
be considered. Their comparison does not cover the whole of the horizontal dimension in
Figure 1.
13 Even in that case, it still has to be shown that a basic income policy is better than, say, a com-
prehensive scheme of paid sabbatical, parental, educational leaves.
14 In the concluding chapter, Atkinson (ibid., 152) writes in less guarded terms: As we have
seen, the popular recommendation of greater targeting is less promising than appears at first
sight.We have to search for new approaches, particularly at the European level.The way for-
ward, in my view, is in (reformed) social insurance at the national level, coupled with a
Participation Income to provide a European minimum.
15 See Genet and Van Parijs (1992) for a clear exposition.
16 We regret not having been able to include a contribution from the United Kingdom, in
which basic income has been promoted actively for many years by the broadly based
Citizens Income Trust. However, for a comprehensive survey of the debate in the United
Kingdom, see Fitzpatrick (1999).
17 See Van der Veen (1999).
18 Comparing basic income and workfare (or the shift towards activating labour policies replac-
ing passive welfare), it is interesting to note that a basic income experiment may serve as the
right counter-experiment for all kinds of workfare-oriented experiments.As argued by Peck
and Theodore (2000: 124-5), the recent popularity of workfarism in the US and the UK can
to a large extent be attributed to the positive results of local workfare experiments in the
early 1990s.Workfare experiments show the effects of mandatory welfare-to-work programs
compared to the normal treatment (e.g. the duty to apply for jobs, the duty to resume work
as soon as possible) of a control group of welfare beneficiaries. Running a workfare and basic
income experiment simultaneously might show what a difference it makes when recipients
must participate, as a condition of income support, in programs designed to improve their
insertion in paid work as under workfare, or when they can freely choose themselves what
to do as under basic income. Because there are no basic income experiments going on, we
can only guess what the differences would be.

38
Part One Policy Objectives
In Search of the Double-Edged Sword
Paul de Beer

As is well-known, the United States and continental Europe have shown a remarkable
divergence in socio-economic development the last 15 to 20 years (e.g. OECD, 1994c;
Nickell, 1997). On the one hand, unemployment rates in the United States have
remained quite low, at about the same level as in the 1960s and 1970s, while income
disparities have risen sharply and poverty has increased. On the other hand, in most
continental European countries unemployment levels mounted in the first half of the
1980s during a deep economic recession, fell only slightly in the second half of the
1980s and rose again in the first half of the 1990s, only to decrease recently. But
income inequality either remained stable or increased only moderately while the
poverty rate also showed no marked increase.This diverging development seems to be
a perfect illustration of the famous (or should one say, notorious?) trade-off between
equality and efficiency (cf. Okun, 1975). Or, to put it in plain English, you cant have
your cake and eat it. Each country seems to be faced with a choice between either a
low unemployment rate and a high poverty rate, or a high unemployment rate and a
low poverty rate.1 The former outcome can be attained by a (neo-)liberal free market
policy, combining low tax rates with a residual and harsh welfare state, the latter by a
Keynesian policy of extensive market regulations, a generous but lax welfare state and
high tax rates.
If this trade-off between efficiency and equality is some kind of natural (or eco-
nomic) law, as many seem to believe, the only option is to move along a downward
sloping transformation curve of efficiency and equality.This means that one has to pay
for every small reduction of the unemployment rate by an increase in the poverty rate,
and vice versa (see Figure 1). The position of different countries on this curve would
then simply be a matter of social preferences instead of inferior or superior economic
performance. However, it seems that both Americans, who worry about their high
poverty rate, and Europeans, who are concerned by their massive unemployment,
believe it is possible to improve their performance by either reducing poverty without
simultaneously increasing unemployment, or reducing unemployment without
increasing poverty.That is, they attempt to shift the trade-off curve inwards instead of
moving along the curve.

The American attempt to shift the trade-off curve inwards amounts to abstaining from
interference with the unfettered labour market while alleviating poverty by some sort
of income relief for the working poor. This is accomplished by the so-called Earned
Income Tax Credit (EITC), a tax subsidy which equals a fixed percentage of self-
earned income, up to a (quite moderate) income ceiling.The European approach, on
the other hand, tries to change the lax and passive welfare system into more active
labour market policies, without reducing the level or duration of their social benefits
substantially. A range of measures are being adopted to achieve this, most of which
amount to either a wage cost subsidy to employers, in order to boost low wage

41
Basic Income on the Agenda

Figure 1: The trade-off between poverty and unemployment

?
poverty

unemployment

employment, or an income incentive to the unemployed to encourage their search


efforts and willingness to accept a low paid job. In this paper I will try to assess the
impact of both kinds of policies and compare them with a third possible way to try to
shift the trade-off curve, viz. the introduction of a basic income scheme.
In their paper in this volume,Van Parijs et al. show that it is possible to shape these
different measures in such a way that they are in effect equivalent as far as their direct
impact on net incomes is concerned. However, it is unlikely that these measures will
really be equivalent in practice. First, they will be implemented in different labour mar-
ket contexts and with the different purposes of the policymakers in mind. Secondly,
they will generally not be equivalent as far as the (dis)incentives for the subjects of
these measures are concerned. So, despite the theoretical similarities, it seems justified
to consider them as really different policies to tackle both unemployment and poverty
in practice.

Short-term versus Long-Term Effects and Relative versus Absolute


Poverty Measures

The test for the success of these different policies is of course the expected outcome
in terms of unemployment level and poverty rate. In assessing the impact of a partic-
ular policy it is important to differentiate between short-term and long-term effects.
Of course, it would be possible to reduce both unemployment and poverty consider-
ably in the short term by raising benefit levels and simultaneously creating a lot of
additional jobs for the unemployed in the public sector. But it is generally believed
that the huge increase in tax rates that would be necessary to finance such a policy
would have detrimental effects in the long term, so the favourable short-term effects
would not last.

42
In Search of the Double-Edged Sword

In the following analysis, I will distinguish between three time periods. First, I will
assess the initial redistributive impact of a particular measure, before economic agents
have had time to react to it. Secondly, the short-term effects which manifest themselves
after the agents have adjusted fully to the particular measure, will be examined. And
thirdly, the focus will shift to the long-term effect which results from the interaction of
the behaviour of all economic agents. A full and consistent assessment of these long-
term effects is very difficult and calls for an analysis with an advanced econometric
general equilibrium model. I will not attempt such an analysis and will restrict myself
to a few remarks on the possible long-term effects of different policies, especially their
impact on economic growth.

The economic growth rate is of crucial importance with respect to a specific interpre-
tation of the poverty level. As is well-known from the extensive literature on poverty
measures, in the long run it matters greatly whether one uses a relative poverty meas-
ure or an absolute poverty measure (see, e.g., Foster, 1998).A relative poverty rate is cal-
culated as the share of the population that has an income of less than half or two thirds,
or some other percentage, of the average or median income of the population.
Whether one is poor relatively speaking depends therefore on the incomes of other,
non-poor people in the same population. An absolute poverty measure, however, is
independent of the average or median income of the population. It counts the number
of people (or the share of the population) with a real income below a certain absolute
poverty threshold or poverty line.A rise or fall in the average income of the population
does not affect the absolute poverty line.
Since the level of both the relative and the absolute poverty line can be fixed arbi-
trarily, it makes no difference in the short term which poverty measure is applied
(although the level of this threshold matters greatly, of course). But in the long term,
using a relative measure might result in a completely different conclusion than using an
absolute measure. For example, if there is a secular rise in national income (or GDP)
per capita while income inequality remains constant, the relative poverty line will keep
pace with the per capita income, while the absolute poverty line, by definition, will
remain the same. Hence, the relative poverty rate will not change whereas the absolute
poverty rate will drop sharply.
In this respect, it is important to note beforehand that in the 1980s and 1990s the
United States and Europe did not diverge as far as economic growth is concerned: from
1980-1996 real GDP per capita grew on average by 1.7 percent a year in the fifteen
countries of the European Union and by 1.6 percent in the United States.2 This
implies that, as long as income disparities remain constant, the absolute poverty rate in
the US and in Europe would fall in about the same rate. For one country to perform
better than the others it would have to succeed in either reducing relative income
inequality or boosting economic growth.

Income Support for the Working Poor

To make things as simple as possible, I start with an ideal-type liberal market econo-
my, with a very flexible labour market, without a statutory minimum wage (or a very
low one) and an austere welfare system. I will further suppose that not only all unem-

43
Basic Income on the Agenda

ployed people who are dependent on a social benefit are poor, both by a relative and an
absolute poverty standard, but also a considerable number of the working population,
whose wages are below the poverty line. This neoclassical labour market can be
regarded as a stylized version of the present-day American labour market. I will also
suppose that an Earned Income Tax Credit (EITC) is introduced, which raises the net
disposable income of all employed people whose wage is below or a little above the
poverty line.
Of course, the immediate impact of the EITC will be to lift the income of some, but
probably not all, of the working poor above the poverty line. Scholz (1994) estimated
that about one in every four households in the US that are eligible would be taken out
of poverty by the EITC.The income of the non-working population would however
not be affected by this measure.The poverty rate would therefore be slightly reduced,
but only for people already employed.
How would people react to the EITC? For people in a low paid job the EITC is
effectively an incentive to earn more, since every self-earned dollar is, up to some limit,
supplemented with 40 dollar cents.3 The main impact of this incentive would probably
be to increase the number of hours that people in low-paid jobs are willing to work.
This would lift an additional number of people above the poverty threshold. People in
the so-called phase-out range, earning more than the income which offers the maximum
EITC, would however experience a disincentive, because 21 cents of every extra dollar
are withheld. This might induce them to reduce their number of working hours,
although it seems unlikely that their net income would fall below the poverty line.
Although the EITC widens the net income gap between non-working people and
people with a low paid job, it is questionable whether this would much encourage the
willingness to accept a low paid job. After all, the benefit level of the unemployed
would already be so far beneath the poverty line that an extra incentive to look for a
job can hardly be expected to exert much influence on their job search behaviour.
The long-term effects of the EITC are hard to predict, but would probably differ
not much from the short-term effects.The crucial point, as observed above, is whether
the EITC would speed up or slow down economic growth. To judge the impact on
economic growth one has to weigh the probable positive effects of the incentive for
the low wage earners against the disincentive for the (much larger) group in the phase-
out range of the EITC and the overall increase in the tax rate which would be necessary
to finance the EITC. If anything, it seems likely that this would slacken economic
growth a little. Since it is unlikely that the EITC would result in a substantial increase
in the number of working people, there is not much compensation to be expected
from that side.
As far as our two poverty measures are concerned, the relative poverty rate would
probably fall slightly as a consequence of the EITC, especially in the long run when the
working poor with a part-time job would succeed in expanding their working hours.
But, since the EITC would not alleviate the poverty of the non-working poor, it is
unlikely that the relative poverty rate would fall to the level of continental European
countries.The absolute poverty rate would probably also fall, but to what extent seems
to depend far more on the general economic development which is hard to predict
than on the specific impact of the EITC.

44
In Search of the Double-Edged Sword

Activating the Passive Welfare State

Continental European welfare states have been quite successful in fighting poverty, but
since the early 1980s they have shown a deteriorating performance regarding their
unemployment level. This is often imputed to the passive character of these welfare
states, which have been far more concerned with compensating income losses as a
result of unemployment and illness than with the re-entry of the beneficiaries of the
welfare system into employment.
Recently, most European countries have switched to more activating labour market
policies without seriously impairing the protection offered by their welfare state. One
of the means to achieve this is to supply wage cost subsidies to employers who create
(extra) low paid jobs for the unemployed.This is intended to increase the number of
jobs at the lower end of the labour market but above the poverty line, and to promote
the outflow of non-working poor from welfare to work.
It is important to distinguish between two kinds of wage subsidies, viz. general and
marginal wage subsidies.The former apply to all low-wage jobs, the latter only to extra
jobs or to vacancies that are filled by (long-term) unemployed job seekers.The impact
of both kinds of wage subsidies will be discussed separately.

A general wage cost subsidy is in effect equivalent to a shift in payroll taxes from low
wages to higher wages.This is sometimes called a Robin Hood policy (Bovenberg, De
Mooij and Van der Ploeg, 1994).The immediate impact on unemployment and pover-
ty is, of course, nil, since this kind of wage subsidy is only effective if it induces
employers to create extra jobs.
The positive impact of lower payroll taxes on the demand for low skilled workers in
the short run will be at least partly offset by the displacement of high skilled workers.
The net effect on total employment depends on the wage cost elasticity of the demand
for low-skilled labour compared to the demand elasticity for high-skilled labour. If the
demand for low-skilled workers is more elastic than the demand for high-skilled work-
ers, as seems likely from empirical research,4 the net effect on employment of an
upward shift in payroll taxes will be positive. Nevertheless, this net effect is probably
quite small. Besides, it does not necessarily imply a falling unemployment level, since
the extra jobs might also be taken by new entrants to the labour market, e.g. school
leavers and housewives.This is quite likely to happen, since the wage of the new jobs
will in most cases be not much higher than the social benefit of the unemployed, who
will therefore experience hardly any financial incentive to apply for these new jobs.This
problem might be aggravated if many of the new jobs are part-time jobs and if means-
tested subsidies and income supplements are reduced or withdrawn if one accepts a job
(which causes the so-called poverty trap). One may object that this still reduces the hid-
den unemployment of people who are not officially registered as unemployed but are
nevertheless looking for a job. However, this would not contribute much to alleviate
poverty, since most of these newcomers probably belong to non-poor families.
A wage cost subsidy might also have an unintended negative effect if employers
lower the wage of existing jobs that are just above the income ceiling of the subsidy in
order to become eligible for the wage subsidy. Although the workers in these jobs
would not drop below the poverty line, the position of this low income group would
nevertheless deteriorate.

45
Basic Income on the Agenda

So, although a general wage cost subsidy will probably increase employment in the
short run, the expected decline in unemployment is small and the impact on the
poverty rate negligible.
The long-term effects of a general wage subsidy might differ from the short-term
effects, firstly, if the wage subsidy hampers the upward mobility of low wage earners,
and secondly, if part of the wage subsidy is appropriated by the workers. The former
effect is likely to occur since the cut-off point of the wage subsidy puts a very high
marginal tax rate on workers whose wage rate surpasses this point.This might be a dis-
incentive to invest in skills, something which, in the long run, also hinders productivi-
ty growth and hence economic growth.
If the labour market is in equilibrium, the part of the wage subsidy that ultimately
results in a rise in the net wage (instead of a reduction of wage costs) is determined by
the elasticity of labour supply relative to the elasticity of labour demand. As explained
above, in the short term labour supply might be quite elastic because of the influx of
school leavers and housewives, so not much of the wage subsidy would be shifted to
the employees. However, in the long term, this additional labour supply might dry up
and the labour market might become more tight, which would increase the opportu-
nity for workers to appropriate a (large) part of the wage subsidy. Of course this would
improve their income (but they were already above the poverty line), although it would
impair the positive impact of the wage subsidy on employment.
To summarize, a general wage subsidy or, equivalently, an upward shift of the payroll
tax, probably increases employment in low-paid jobs, although this positive effect
might be slightly weakened in the long term. However, this may result in only a slight
decrease in the number of unemployed and hence the poverty rate would hardly
change at all. Since investment in skills is somewhat discouraged, a general wage sub-
sidy might have a small detrimental effect on economic growth, which would increase
absolute poverty a little in the long term.

A marginal wage cost subsidy is only paid out for extra jobs or for hiring unemployed
job-seekers.As with a general wage subsidy there is no immediate redistributive impact
on poverty or unemployment, since a marginal subsidy is, by definition, only paid out
if something happens first.
In the short term, a marginal wage cost subsidy is of course much cheaper than an
equivalent general wage cost subsidy, since only additional jobs or formerly unem-
ployed job-finders are subsidized. So, given a particular budget, a much larger financial
incentive can be given. In this respect the most efficient application of a wage subsidy
seems to be the creation of additional jobs for the (long-term) unemployed in the pub-
lic sector. Every Euro spent on these jobs would directly benefit the unemployed who
are employed in these jobs. If the wage of these jobs is above the poverty line, this
would also immediately reduce the poverty rate.
Of course, creating an extra job is more expensive than paying an unemployment
benefit or social assistance, so a rise of the tax burden would be necessary to balance the
government budget.This tax rise might have some deleterious effects on employment,
weakening the positive impact of the job creation scheme somewhat. Creating extra
jobs in the public sector might also be more expensive than is at first apparent, because
part of the unemployed who obtain these jobs would also have succeeded in finding a
job otherwise. This so-called deadweight loss can be quite large, since in many active

46
In Search of the Double-Edged Sword

labour market programs a process of creaming takes place: the unemployed with the
best chances on the regular labour market are selected to take part in the program (cf.
Erhel et al., 1996). Nevertheless, in the short term it seems likely that creating addi-
tional jobs in the public sector reduces both unemployment and poverty substantially.
The long-term effects are, however, far more insecure. The more successful a job
creation scheme is, the more likely it is to reduce effective labour supply on the regu-
lar labour market, causing an upward pressure on wages. This hurts employment
growth in the private sector in the long term.An important issue is, therefore, whether
people in subsidized additional jobs move on to regular, unsubsidized jobs. If they do
not, the job creation scheme amounts to a structural expansion of employment in the
public sector, which has to be financed on a permanent base.The unemployment ben-
efits or social assistance that can be used to finance the subsidized jobs in the short-
term do, in principle, have a temporary character. So, in the long term, subsidized jobs
cannot be considered additional and the full weight of them will be added to the tax
burden.This might worsen the deleterious effects on the overall employment level and
on economic growth. In the long term, it is also hard to persist in discriminating
between the formerly unemployed and other job seekers, so it will be tempting to
open these jobs to all applicants. In effect, the question of the long-term impact of sub-
sidized jobs boils down to the question of the economic sustainability of a structural
expansion of the public sector. Since the mounting unemployment level in continen-
tal Europe in the 1980s is often at least partly blamed on the size of the public sec-
tor, it is rather doubtful whether in the future an expansion of the public sector could
be the solution to Europes unemployment problem. If the expansion of the public
sector and the rise of the tax burden hurts economic growth and employment in the
private sector, one ends up worse than where one started from. In the end, this might
result in a substantial increase in the absolute poverty rate, and perhaps even in the rel-
ative poverty rate.The warning of the poor Swedish performance in the 1990s should
be taken to heart in this respect.
To conclude, creating additional jobs in the public sector seems to be quite an effec-
tive means to reduce both unemployment and poverty in the short term, but the dura-
bility of these positive effects in the long term is questionable.

Instead of subsidizing employers in order to promote job growth, some European


countries try to induce the beneficiaries of social benefits to actively search for and/or
accept available jobs. This is accomplished by some sort of income support to low-
wage earners in the form of a subsidy or a tax credit.Although the exact form may dif-
fer, such income support is similar to the EITC.The impact on (un)employment and
poverty might, however, be different because it is applied in a different labour market
context.Whereas the EITC is meant to lift the working-poor out of poverty, in Europe
income support is intended to stimulate the transition from social benefit to work by
alleviating the poverty trap. With respect to this purpose it is important whether the
level of income support depends on the hourly wage rate or on monthly or annual
income. In the latter case, most people who receive the income support will probably
have a part-time job. But many of them would not be entitled to social benefit in case
they were out of work, since their (male) spouse has an income above the poverty line.
So, by mainly inducing housewives to accept a part-time job, this measure will reduce
neither unemployment nor poverty. If the income support is restricted to working

47
Basic Income on the Agenda

people with a low hourly wage (and perhaps a full-time job), the problem might be
that there are simply not enough jobs for which the unemployed are qualified. At the
same time the unemployed who receive a social benefit will not have any incentive to
accept a part-time job, of which a larger number might be available.
In the long run as neoclassical theory predicts there is probably not much differ-
ence between the impact of a subsidy to employers and a subsidy to employees, so it is
likely that the aforementioned effects of a general wage subsidy also apply to an
income-support measure.

To summarize the preceding sections, softening the harsh effects of a liberal free mar-
ket economy by way of a tax credit for the working poor will probably reduce the
poverty rate somewhat, without worsening the unemployment rate, both in the short
term and long term. It might therefore result in an inward shift of the trade-off curve,
but this effect will probably be quite small.The non-working poor will find no relief,
since income support is targeted to the working-poor and the chances of finding a job
are not improved.
Adding general wage cost subsidies for employers to the generous and passive
European welfare state will probably increase employment, but hardly reduce (formal)
unemployment and the poverty rate. In the long term these effects will be even small-
er than in the short term. A job creation program in the public sector seems to be far
more effective in the short term and may reduce both unemployment and poverty sub-
stantially.The long-term effects however are dubious and might well result in a serious
deterioration of both the unemployment rate and the poverty rate (the absolute rate in
particular). Income support to people with a low-paid job might stimulate labour mar-
ket participation of housewives, but will probably not result in a lower unemployment
or poverty rate.

Basic Income: The Double-Edged Sword?

Although each of the policies mentioned above will very likely ameliorate the unem-
ployment-poverty trade-off slightly, either in the short term or in the long term, none
of them can really be considered a double-edged sword, that is, an instrument that cuts
both unemployment and poverty at the same time and is sustainable in the long term.
Hence, one might wonder whether perhaps an entirely different instrument, namely a
basic income scheme, turns out to be such a double-edged sword after all.
To assess the impact of a basic income it is, of course, very important to specify what
kind of basic income one has in mind. Because I am looking for some kind of golden
mean between the American and the European model, it seems reasonable to start
with a basic income which is comparable to the level of social assistance in the United
States.5 In fact, I will simply assume that this kind of basic income is introduced in a
liberal free market economy.This means that the basic income will replace all existing
social benefits (except wage-related unemployment and disability insurance), but will
be added to the gross income (wage, profit) of all other people. To finance this basic-
income scheme the income tax rate will have to be raised by about 10 to 15 percent-
points.6

48
In Search of the Double-Edged Sword

In contrast with the aforementioned policies, a basic income is not targeted at the
groups that are most in need of assistance, such as the poor and the long-term unem-
ployed. Accordingly, a basic income is often charged for being inefficient: the bulk of
basic incomes is paid out to people who are neither poor nor unemployed, so there is
a very large deadweight loss. However, if the basic income is implemented as a nega-
tive income tax, most people will not actually receive a basic income since it will be
cancelled out by the rise in the marginal tax rate. So, in effect, a basic income is also
targeted at the low-income groups.A basic income is not, however, tagged to employ-
ment status: people with and without a job are treated alike.This has the advantage that
a basic income can act as a wage cost subsidy and an income supplement at the same
time. Besides, there is no danger of displacement effects, since both employed and
unemployed, low-skilled and high-skilled people receive the basic income.

The immediate redistributive effect of the introduction of a basic income will be a


substantial increase in the net income of people with a low wage and people with (at
present) no income, mainly non-working spouses whose husbands earn an income.
The higher-income groups will of course lose some money, since for them the rise in
the tax rate exceeds the basic income.The immediate impact on the poverty rate will
be similar to that of the EITC, for at first, only the working poor profit from the basic
income. But since the basic income level is higher than the EITC, the magnitude of
the initial effect on poverty will be larger. Nevertheless, due to the fact that the basic
income is, by assumption, much lower than the present social-benefit level in Europe,
the poverty rate among the non-working population will be much higher than in
present-day Europe.
In the short term a basic income will evoke different reactions as compared to the
EITC. A basic income does not incite employed people to supply more working
hours, as the EITC does. On the contrary, both the income effect (of the basic income
itself) and the substitution effect (of the higher tax rate) will encourage workers with a
low-paid job to reduce their working hours, although it is unlikely that this will cause
them to fall below the poverty line.
However, a basic income does work as an incentive for the unemployed to try to
find a part-time job.After all, the extra income is not deducted from the basic income,
so every self-earned dollar or Euro, net of income tax, will be added to disposable
income. It is quite probable therefore, that many social-benefit recipients will try to
supplement their basic income with a part-time job. On an unfettered and flexible
labour market many of them may indeed succeed in getting a small job (especially if
many employed people want to reduce their working hours simultaneously), thereby
raising their income just above the poverty line. The poverty rate might then drop
appreciably. Nevertheless, non-working people who do not succeed in getting a job
and who have to live on only their basic income, will stay below the poverty line.
The financing of the basic-income scheme might hurt employment if the tax rise is
shifted onto employers, and wage costs rise. However, both theoretical and empirical
evidence suggests that a rise in the marginal tax rate might compensate the upward
pressure on wages of a higher average tax rate (e.g. Koskela and Vilmunen, 1996; Gelauff
and Graafland, 1994). This is explained by the fact that a higher marginal tax rate
reduces the net worth for employees of a given rise of the wage cost for the employer.
So, relatively speaking, it is cheaper to shift priorities from a wage raise to, e.g., a reduc-

49
Basic Income on the Agenda

tion in working hours or an increase in employment. Hence, it is quite likely that a


simultaneous rise in both the average and the marginal tax-rate, will not exert a large
negative influence on the demand for labour. If a basic income turns out to be a stim-
ulus for shorter working hours, there might even be a substantial increase in the num-
ber of jobs as a result of worksharing.
In the long term, the crucial point, as before, is whether a basic income will exert a
substantial influence on the structural rate of economic growth. Again, this is hard to
predict. If the rise in the tax rate, needed to finance a basic income, does not put an
upward pressure on wages, there is probably no negative impact on capital investment
and hence on productive capacity. As far as investment in human capital is concerned,
the negative effect of a higher (marginal) tax rate on the return on human capital may
be counterbalanced by the fact that investment costs are lower. The net effect of a
basic-income scheme on human capital might, therefore, be quite small, perhaps even
negligible. So there does not seem to be a decisive argument that a basic-income
scheme will hurt economic growth. The long-term impact of a basic income on
unemployment and poverty may not differ much from the short-term effects.The most
important question is which share of the non-working population will be able to find
a (part-time) job in the long term. Since there is no impediment to a completely flex-
ible labour market under a basic-income scheme, it might turn out that, ultimately, the
greater part of the non-working population will succeed in finding a (small) job and
hence climb above the poverty line.

A Trade-Off between Short-Term and Long-Term Prospects

The foregoing discussion of three different strategies to shift the trade-off curve
inwardly by simultaneously reducing poverty and unemployment, does not end with a
definite winner.The reason is that there is not only a trade-off between unemployment
and poverty, but also a trade-off between the short-term and the long-term impact of
labour market policies.
If one restricts attention to the short term, there certainly is a clear winner: creating
a large number of extra jobs in the public sector for the (long-term) unemployed
reduces both the unemployment rate and the poverty rate considerably in the short
and medium term. But there is a serious risk that this kind of policy will turn out to be
the worst alternative in the long run. Compared to the extension of the public sector,
the introduction of a tax credit for low paid workers seems quite innocuous. However,
both in the short term and the long term the positive effects are probably quite mod-
est, because the EITC only affects the income of the working poor, who in Europe
make up only a small portion of the poor.
A basic income-scheme will initially fall short compared to an extension of public
sector employment, since its level will inevitably be below the minimum social-benefit
level in Europe. Nevertheless, its short-term impact on the poverty rate will be
favourable compared to the EITC, since many non-working people who succeed in
finding a part-time job will profit from a basic income. In the long term, the crucial
issue is the impact of a basic income on the economic growth rate.The economic sus-
tainability of a basic income is subject to much debate. Definitely, many economists are
convinced that a substantial basic income scheme is not feasible in the long term.

50
In Search of the Double-Edged Sword

Nevertheless, it might also be argued that the abolition of the poverty trap and the
even spread of the marginal tax-rate over all income groups would be quite favourable
for employment growth and for upward mobility of low income groups. This might
offset the negative effects of the high average tax-rate under a basic-income scheme.
However, even if my optimism is justified that a basic-income scheme comes closest
to a double-edged sword in fighting both unemployment and poverty in the long term,
the trouble is that it is certainly not the most effective means in the short term.This fact
might explain why it is so hard to find popular and political support for introducing a
basic-income scheme. Most people and certainly most politicians are not very inter-
ested in the possible favourable effects in five or ten years time. And it is, indeed, quite
harsh to ask the present poor to wait another ten years until they can be drawn out of
poverty. So, even if one is convinced of the favourable effects of a basic income in the
long term, it might still be wise to propose a basic income disguised as a program that
favours the poor and reduces unemployment in the short term. Fortunately, as Van Parijs
et al. show in their contribution to this volume, different policy measures can be shaped
in such a way that they are, in fact, equivalent. Hence, it seems perfectly possible to start,
e.g., with an EITC and gradually transform it into a real basic income. In other words,
perhaps one should first forge some ordinary single-edged swords and later on try to
fuse them into the double-edged Excalibur of a basic-income scheme.

Notes

1 The United Kingdom seemed, at least until quite recently, to perform particularly badly by
combining the worst of both worlds: sharply increasing poverty and a high unemployment
rate at the same time. The Scandinavian countries, however, seemed to have escaped the
trade-off in the 1980s by keeping both unemployment levels and poverty rates quite low.
The demise of the Swedish model in the 1990s, however, has cast doubt on the sustainabili-
ty of this kind of policy in the long run.
2 Although economic growth (change in real GDP per year) was higher in the US (2.5 per-
cent) than in the EU (2.0 percent), this was fully compensated for by the higher population
growth in the US (1.0 percent) as compared to Europe (0.3 percent, excluding the effect of
the unification of Germany). Source: OECD (1995a and 1997).
3 This applies from 1996 on only for households with at least two qualifying children. For
households with one child and with no qualifying child the credit rate of the EITC is 34
percent and 7.65 percent respectively. Source: Scholz (1994).
4 Hammermesh (1993: 117), considering a number of empirical studies, states that,... it seems
fairly safe to conclude that additonal education (....) reduces the labor-demand elasticity.
5 That is, the Temporary Assistance for Needy Families (TANF), which has replaced the Aid to
Families with Dependent Children (AFDC). If one should choose a basic-income level
comparable to the level of social benefits in Europe, it is clear that in the short run this
would reduce the poverty rate substantially, since the social benefit recipients would receive
at least as much as at present, while all people without income and most workers with a low
income would get a higher income. The economic sustainability of such a generous and
therefore very expensive basic-income scheme is, however, very shaky.The discussion would
therefore be reduced to the question whether such a high basic income can be sustained in
the long run.

51
Basic Income on the Agenda

6 Suppose that both the social benefit level and the basic income level amount to a fraction f
of the average net labour income. Denote the share of the adult population that is employed
by e and the share that is dependent on social benefit by s.Then, under the present system,
the tax burden t on the employed population that is needed to finance the social benefits, can
be calculated from: te=fs(1-t). Hence t=fs/(e+fs). Now, suppose a basic-income scheme is
introduced in the form of a negative income tax. For employed people the basic income will
then be deducted from their income tax and the basic income for people on social benefit
will replace their social benefit.Then only the basic income for non-working people with-
out social benefit is added to the government outlays. So the new tax rate t can be calculat-
ed from: te= f (1-e)(1-t). Hence t= f (1-e)/(e+ f (1-e)). Suppose both the social benefit and
the basic income are equal to 40 percent of the average net labour income (f =0.4), half of
the population is employed (e=0.5) and a quarter is receiving social benefit (s=0.25).Then,
under the present system, the tax burden needed to finance the social benefits is 17 percent,
while a tax burden of 29 percent is needed to finance a basic-income scheme, hence an
increase by 12 percent-point. Similar changes in the tax rate result if other realistic figures are
used.

52
Basic Income and its Cognates
Partial Basic Income versus Earned Income Tax Credit and Reductions
of Social Security Contributions as Alternative Ways of Addressing the
New Social Question

Philippe Van Parijs, Laurence Jacquet and Claudio Caesar Salinas*

At least three types of transfer policies have been advocated as ways of fighting unem-
ployment without worsening poverty: reductions of social security contributions, the
earned income tax credit, and an unconditional basic income (possibly in the form of
a negative income tax). Many proponents of some of these are passionate opponents of
some of the others.Yet, in the institutional context of much of todays Western Europe
and within some broad limits, each of them can, in principle, be so calibrated as to gen-
erate exactly the same profile of tax rates and the same pattern of disposable incomes
as the corresponding variant of each of the other two. So, despite all the heat, is there
nothing to choose between?
Not quite. For beyond the prima facie equivalence, a closer look reveals important,
sometimes unexpected differences between the three policies. These differences con-
cern, for example, the impact of the policies on the unemployment trap, on the devel-
opment of self-employment and informal work, on the accumulation of human capi-
tal, on workers bargaining power, on Trade Union attitude and on political feasibility.
Using a battery of simple graphs, the article spells out these differences and explores
their significance.

Introduction: Full Employment without Poverty

Europes new social question can be said to consist in an emerging dilemma between
high unemployment and worsening poverty.This new social question arguably stems
from the very solution that had been gradually developed, over the last century, for
the old social question, the unsustainable inequality between capitalists and proletar-
ians generated by the industrialization process.Along with public involvement in the
accumulation of physical and human capital, the furthering of workers rights most
prominently in the form of collective bargaining, labour legislation and social insur-
ance schemes gradually turned full jobs from unavoidable toil into valuable assets.
The resulting pattern of distribution seemed to be on the right track as long as
* This paper was written within the framework of project PAI P4/32 The new social question
(Belgian Federal Government, Prime Ministers Office, Federal Office for Scientific, Technical
and Cultural Affairs). Earlier versions were presented at the Harvard Centre for European
Studies (29 April 1998) the Oxford Centre for the Environment, Ethics and Society (14 May
1998) and the VIIth Congress of the Basic Income European Network (Amsterdam, September
1999). Useful comments by Anne Alstott, the editors of this volume and all members of the PAI
project are gratefully acknowledged.

53
Basic Income on the Agenda

access to a job and the entitlements associated with it including, for example, extra
child benefits in periods of involuntary unemployment or the right to a decent pen-
sion for a workers widow without any employment record were secured to the
overwhelming majority of households. For a variety of interacting reasons includ-
ing technical change, European economic integration, so-called globalization, privat-
izations, marital instability, educational homogamy, etc. such a broad coverage can
no longer be taken for granted.1 This is why a new social question arises. It consists
in a growing proportion of households proving unable to secure access to adequate
job assets, with cumulative consequences for both the monetary and non-monetary
aspects of the welfare of all their members.This new social question may therefore be
said to generate a new class divide, based on job endowments, characteristic of wel-
fare-state capitalism and crucially different from the old class divide, itself based on
the ownership of material means of production and rooted in industrial capitalisms
old social question.2
To investigate how the new social question might be solved, one first needs to fur-
ther specify the underlying diagnosis. Under developed welfare-state capitalism,
income redistribution within the population of working age operates mainly through
the taxation of labour income (personal income tax, employers and workers social
security contributions) and the distribution of the proceeds to people who are involun-
tarily unemployed (unemployment compensation, means-tested minimum income guar-
antee, disability allowances). However effective at reducing income poverty, this pattern
of redistribution, if sufficiently developed, displays a strong tendency to generate per-
sistently high levels of unemployment, as a growing number of households becomes
unable, for the reasons listed above, to durably achieve through their labour a net
income that exceeds the level of social protection.To reduce unemployment without
worsening poverty and to thereby tackle the dilemma in which the new social ques-
tion expresses itself one therefore needs to challenge the (near-) exclusive focus of
redistribution on the involuntarily unemployed. In other words, one needs to channel
more of the explicit or implicit transfers (1) towards low-paid workers (in-work benefits),
and/or (2) towards people who choose to stop working or to work less (chosen-time sub-
sidies). This distinction can help us map the landscape of policy proposals currently
under discussion, and thereby structure the key socio-economic debate among people
with both a sense of justice and a sense of reality.3
The introduction or expansion of in-work benefits aims to increase the total volume
of employment by boosting, sometimes indistinguishably, either the demand for
labour (the number of low-paid jobs that are profitable for potential employers) or the
supply of labour (the number of low-paid jobs that are acceptable for potential
employees). They can take the form of (a) reductions of employers social security
contributions; (b) reductions of workers social security contributions; (c) direct
employment subsidies or tax credits (or job voucher reimbursements) to firms on
account of the number of workers they employ; (d) direct earnings subsidies or
refundable tax credits restricted to workers; or (e) employment-motivated subsidies to
public sector jobs. These reductions or transfers may be allocated either (1) only to
low-paid jobs, or (2) indiscriminately to all jobs (but with a net benefit to low-paid
jobs only, owing to the way the scheme is funded), or (3) only to jobs with a charac-
teristic correlated with low pay (such as having an incumbent with a low level of edu-
cation or a long period of unemployment).

54
Basic Income and its Cognates

Unlike in-work benefits, chosen-time subsidies do not purport to boost the total vol-
ume of (profitable and acceptable) employment, but to distribute it differently. They
include (a) compensation for voluntary early retirement (whether part-time or full-
time), (b) compensation for voluntary career interruption (whether part-time or full-
time, short-term or long-term, restricted to specific reasons, such as parental or educa-
tional leave, or unrestricted) and (c) reductions of income tax or (employers or
workers) social security contributions for those who choose, individually or collec-
tively, to reduce their working time.
These two types of policies seem to work in opposite directions. In-work benefits
can be viewed as addressing the unemployment trap: they try to make it easier, more
attractive, less costly, at least for those with a low earning power, to increase their paid
working time by accepting low-productivity jobs. By making them acceptable, they
aim to bring them into existence: the unemployment trap is also relevant to the
demand side. Instead, chosen-time subsidies can be viewed as addressing the employ-
ment trap: they try to make it easier, more attractive, less costly, at least for those with a
low earning power, to decrease their paid working time.
Nonetheless, some policy proposals belong to both types. This is the case for any
form of general lump-sum transfer or basic income scheme (henceforth BI), which pro-
vides transfers to all adults, whether or not in paid employment, either unconditionally
(citizens income) or subject to their making some contribution in a sense that extends
significantly beyond full-time waged employment (participation income): the narrower
the interpretation of the contribution condition, the weaker the chosen-time-subsidy
character of such proposals and the greater their in-work-benefit nature. Basic income
schemes in this sense may or may not be integrated with a universal child benefit sys-
tem. They may be sufficient to cover basic needs (full basic income) or they may not
(partial basic income).They may take the form of ex ante payments to all (in the social
dividend version) or rather of refundable income tax credits (in the negative income tax
version, or NIT, whether of the linear or non-linear variety). Finally, the per capita level
of the payment may be affected or not by the composition of the household.4
In-work-benefit policies tell the unemployed that they can keep some transfer if
they work. Chosen-time-subsidy policies tell the employed that they can have some
transfer if they work less. BI policies tell both the unemployed and the employed that
they can have an (explicit or implicit) transfer whatever they do.

A Puzzling Equivalence

In this light, the introduction of an unconditional BI can be viewed as the simplest and
most radical among a whole range of proposals that attempt to tackle unemployment
without worsening poverty, through changing the pattern of income redistribution
under welfare-state capitalism.5 The purpose of this chapter is to contribute to the
identification of the main differences between the consequences one can expect from
the introduction of an unconditional BI6 and from its two most serious contenders,
qua strategies for tackling the core of the new social question, namely the earned
income tax credit, currently most popular in the US and the UK, and reductions in the
social security contributions on low-paid work, currently most popular in continental
countries. Identifying these differences with the help of the most appropriate analyti-

55
Basic Income on the Agenda

Graph G1 Current situation

Net K
Income

45 t

F
D
M
E
t = Rate social security
contributions
t = Rate of income taxation

O A B C Gross
Income

cal tools and on the basis of the most relevant available evidence is essential to feed a
well-informed and dispassionate debate on these issues.7 But, as we shall see, it is no
straightforward matter, for much of the standard modelling of a BI and its alternatives
is simply blind to the crucial differences between them.

A stylized picture
In order to bring these differences into focus, we shall start by comparing, on the back-
ground of a highly simplified picture of the present situation in continental Europe, the
impacts of the three policies on disposable income and material work incentives. To
represent in the simplest possible way the (purely arithmetic) relationship between net
and gross income under the present tax and benefit system, we initially assume that all
gross income is waged income earned in the formal sector and that each household
consists of a single adult. Graph G1 offers a stylized picture of the lower range of the
income distribution under this assumption.The 45 line represents what the situation
would be in case there were no taxation and households would therefore receive the
full amount of their gross earnings. Social security contributions are assumed to be paid
at source at a proportional rate (t), starting from the very first Euro earned (O). Income
taxation proper is also proportional (at rate t), but only kicks in at a higher level (C):
any gross income lower than OC is tax-exempt. Moreover, there exists a means-tested
guaranteed minimum income scheme (henceforth GMI), in the form of transfers mak-
ing up the difference between the net earnings of any household and some chosen
minimum level (OM).

In graph G1, the lightly shaded area represents the social security contributions. The
darker area represents the linear income tax.Triangle MEO corresponds to the means-

56
Basic Income and its Cognates

Graph G2 Net average tax rates of taxation

t+t
t+ t

O A B C
Gross
income

tested GMI payments to households with pre-transfer incomes comprised between 0


and AB. Finally, the thicker line shows the resulting relation between net (post-tax-
and-transfer) and gross (pre-tax-and-transfer) income. In graph G2, the solid line
shows the corresponding profile of the net average tax rate, defined as the ratio of net
taxation (tax plus social security contributions minus benefits) to gross income. In
graph G3, the solid line shows the corresponding profile of the effective marginal tax rate,
defined as the ratio of the increase in net taxation (increase in tax and/or social securi-

57
Basic Income on the Agenda

Graph G3 Marginal effective rates of taxation


%

100

t+t
t+t
t+t *

Gross
O A B C income

ty payments plus decrease in benefits) to the increase in gross income which prompts
it. Graphs G1 and G3 highlight the crucial fact that households with (potential) gross
incomes lower than OB are stuck in the unemployment trap.The profile of net income
is horizontal in this range, and the effective rate of taxation is 100 percent. If they are
unable to earn a gross income higher than OB, households have no financial incentive
whatever to earn anything through declared work and are in this sense trapped in a no-
work situation. Nor do firms have any incentive to create any such job, even when they
are not legally prevented from doing so, as they would find it hard attracting and retain-
ing suitably motivated workers. As characterized above, the new social question can be
very simply portrayed in our stylized graph: it consists in a steady increase in the pro-
portion of households whose earning power falls in the OB range, as a result of the
interaction of technological, economic and social factors.
It is not obvious that such a 100 percent effective rate of taxation on the lowest
earnings should be regarded as unfair and urgently abolished.To start with, this highly
regressive profile of marginal rates (G3) is fully consistent with an even more highly
progressive profile of average rates (G2): those who lose most marginally are also those
who gain most overall.8 Moreover, under assumptions commonly made in the optimal
taxation literature, the sustainable maximization of the lowest incomes requires the
highest marginal rates to affect the lower layers of earned income.9 However, the obser-
vation of a steady upward trend in the numbers of the long-term unemployed or of the
beneficiaries of GMI schemes has fed a strong suspicion that the lower (OB) range of
potential earnings is getting more crowded. And this is a source of concern precisely
the very concern which defines the new social question , in part because of the direct
and indirect impact of this phenomenon on the sustainable maximization of the lowest
incomes, but also because exclusion from paid work arguably matters as such, not only
as a cause of low income.11 To deal with the problem, our stylized graphs provide

58
Basic Income and its Cognates

unambiguous guidance: one must find a way of reducing the unemployment trap, i.e.
of lengthening left-ward the lower part of the U-shaped curve of marginal rates (G3),
so that it encompasses a larger share of the active population.

Reduction of social security contributions (RSSC)


One striking feature of the situation depicted in G1 is that some households with gross
earnings higher than the income guarantee (OM) nonetheless fall into the trap
because of social security contributions pushing their net earnings below OM.11 One
obvious suggestion, depicted in G4, is to scrap social security contributions on all
earnings below the minimum income (OA = OM), while lowering them to a decreas-
ing degree in the next range (say, between A and C, the point from which income tax
starts being paid) and collecting whatever is needed to achieve budget neutrality in a
purely arithmetic sense, i.e. abstracting for the moment from any behavioural effect
by raising the rate of taxation (from t to t) in the upper range (beyond C).The size of
this adjustment will (arithmetically) depend on the number (and distribution) of
households in range OC. Because of the unemployment trap mechanism, one has
every reason to expect that the range OB will be practically empty.The required net
funding should therefore reduce to what is needed to finance the relatively small dis-
count on the social security contributions of households in the BC range.

In graph G4, the lightly shaded areas represent the amount by which social security
contributions are being reduced and the matching increase in income taxation. The
triangle ODF represents the part of the social security contributions that has been
scrapped. The darkly shaded area shows the amounts still payable as contributions.
People with a gross income higher than C will pay exactly the same amount as before
in social security contributions, even though the lower part of their earnings (OA) has
also been exonerated.The reason is that the gradual phasing out of the reduction in the
AC range amounts to imposing, compared to the initial situation, a far higher rate of
social security contribution on each Euro earned in this range.This is reflected in the
flattening of the slope of DF, relative to that of EF (45t), which has been calibrated
to make the reform exactly neutral for someone earning gross income OC.
The thick line in G4 shows the resulting relation between net and gross income.
The dotted line in G2 shows the corresponding profile of the net average rate of taxa-
tion (inclusive of social security contributions and benefits). The dotted line in G3
shows the corresponding profile of the effective marginal tax rate.When compared to
the thick lines in G1 and G3, which represent the current situation, this highlights the
crucial fact that the unemployment trap, though far from abolished, has been reduced
from OB to OA. Barring a reduction in the GMI level M, this reduction could only be
achieved at the expense of a significantly increased marginal rate in the BC range and
a milder increase in the marginal rate on higher incomes (see G3). In other words, if
reductions of social security contributions are to significantly alleviate the unemploy-
ment trap without worsening poverty, it is (nearly) an arithmetic necessity that each
Euro earned by some of the less well paid among the current workers will be effec-
tively taxed (inclusive of social security contributions) at a significantly higher rate
than before.12 Yet, by no means does it follow that they can be regarded as the victims
of the operation. Quite to the contrary, as graph G2 shows, they are the main net ben-
eficiaries of the reform in terms of net average tax rates, and hence disposable incomes.

59
Basic Income on the Agenda

Graph G4 Reductions of social security contributions

Net Income
K

t
45

G F
D
M
E

t = Rate social security


contributions
t = Rate of income taxation
t

O A B C Gross Income

Earned income tax credit (EITC)


Let us now turn to something (apparently) altogether different. First introduced under
the Ford administration, massively expanded under the first Clinton administration, the
so-called Earned Income Tax Credit (EITC) has now displaced Aid to Families with
Dependent Children (AFDC) as the USAs main federal transfer programme.13 The
central idea of the programme is quite simple. In order to alleviate the poverty of poor
workers without damaging their work incentives, let us supplement their earnings with
a refundable tax credit the level of which grows proportionally with the level of earn-
ings up to a point at which it stabilizes, before being gradually phased out. EITC itself
does not give anything to households who do not work at all. In Europe at any rate, it
could not therefore be considered as a complete alternative to the existing income sup-
port system. But EITC makes sense as a way of improving work incentives and reduc-
ing the unemployment trap even if the existing GMI is maintained.14
To understand this, let us take again as our point of departure a stylized picture of
the current situation (graph G1). On this background (with social security contribu-
tions collected at source), we assume EITC to come into operation by giving all work-
ing households with gross incomes not exceeding OA (if there are any) a refundable
tax credit that rises proportionally to their earnings. We want the chosen variant of
EITC to be as comparable as possible to the RSSC scheme explored above, and there-
fore calibrate it in such a way that this rise occurs at a (constant) rate exactly equal to
the rate (t) at which social security contributions are levied (graph G5). Beyond level
OA of gross earnings, the tax credit is gradually phased out until it disappears altogeth-
er for gross earnings in excess of OC. Beyond C, income tax is paid at a somewhat
higher rate in order to finance the cost of the reform.This cost is the sum of all the tax
credits conceded to earners in the OC range (triangle DOF). But it essentially reduces

60
Basic Income and its Cognates

Graph G5 The Earned Income Tax Credit

Net Income K

45
Q
F
G
S D
M
E
t = Rate of social security
contributions

t=Rate of income taxation

O R A W B C Gross
Income

(arithmetically speaking) to the set of (shrinking) tax credits in the BC range (triangle
DEF). For prior to the reform, there was no financial incentive to earn anything in the
OB range, and the latter can therefore be expected to be practically empty. One may
wonder how EITCs positive effect on work incentives can survive its being combined
with a GMI scheme. For in the range in which the tax credit grows with each Euro of
earning (OA), the effective marginal rate remains 100 percent. The whole point, it
would seem, is lost. But this inference is incorrect. For the tax credit on the lower lay-
ers of income does not only affect the pre-GMI incomes of those whose gross incomes
entirely lie in range OA. Its key effect is that it makes it easier to reach a level of gross
income (now lowered from OB to OA) above which working starts making financial
sense.

This can again be clearly seen by examining, on graph G5, the profile of the thick line
that depicts the relationship between gross and net income after the reform.This pro-
file, it turns out, is exactly the same as in the case of RSSC (graph G4), and so are the
profiles of both average and marginal tax rates (G2 and G3). Because of the specific
rates deliberately chosen for the tax credit and its phasing out, the effects of EITC and
RSSC coincide exactly in the range OC. And the identity also holds in the range
above C, since the net cost of modifying the profile of disposable income in the OC
range is obviously the same in both cases and must therefore be reflected in an identi-
cal increase in the linear tax rate on the highest incomes. In both cases, therefore, the
unemployment trap is reduced by the distance AB, the net (arithmetic) beneficiaries
are in the AC range, and marginal rates increase on all gross incomes in excess of OB.

61
Basic Income on the Agenda

Partial basic income (PBI)


In order to get a large number of households out of the unemployment trap, another,
again apparently quite different, idea is to give each of them a basic income (BI), or tax-
free income floor, which they can keep whatever they earn.We might think of intro-
ducing this BI at level OM, which would enable us to get rid of the current GMI and
the associated trap altogether. But let us suppose, for the time being, that we want to
proceed cautiously and decide to start with a partial basic income (or PBI) at some
lower level OP. In order to make comparison with the previous schemes as convenient
as possible, let us simply choose P as the intersection of the DF line and the vertical
axis.15 Handing out an income to all, instead of only to the poor, is of course a hugely
expensive operation, which we assume to be funded by a massive linear increase (by t*)
in the income tax as from the first Euro earned. Existing social security contributions
are untouched, and the GMI is kept at the same level OM, with means-tested payments
reduced by OP as a result of every households means being increased by the amount
of the PBI.

This reform is depicted in graph G6.A PBI is given to each household at level OP.This
has the immediate consequence of shifting the 45 line upwards, as every households
pre-tax income rises by amount OP. The lightly shaded area below the new 45 line
represents the proportional social security contributions, the rate of which remains
unchanged (t).Taxation proper, by contrast, needs to be massively expanded to fund the
huge new outlays on the PBI.To secure this funding, a proportional tax is now raised
from the first Euro earned, at a rate t* chosen in such a way that someone with a pre-
tax-pre-transfer-income of OC ends up, as in the initial situation, with a net income of
CF. In G6, the effect of this additional tax on net income is depicted by a straight line
PF passing exactly through D because of the specific choice made for the level of OP.
Whatever outlay is not paid for in this way has to be funded by an adjustment in the tax
rate that applies beyond C. By how much taxation needs to rise in this range is given
by the total cost of the PBI minus the taxes now raised in the OC range and the
means-tested payments now no longer made in the AB range.16 The total cost of the
new tax required to finance the PBI (minus the savings from the reduced cost of the
means-tested GMI) is then represented by the massive expansion of the darkly shaded
area, relative to what it was in the initial situation (graph G1).17
Once again, we can bring out the consequences of the reform by focusing on the
resulting profiles of disposable incomes, average and marginal tax rates. Despite the very
different intellectual gymnastics we have just gone through, we end up with the very
same three after-reform profiles as in graphs G2 to G4. First, the level of OP and the
implied linear tax rate were chosen in such a way as to achieve the same profile of dis-
posable income in the OC range as with the previous two policies. Second, precisely
because of these identical profiles in the OC range, the net cost to be picked up by
increased taxation beyond C the complex net result of the introduction of PBI pay-
ments, the increase of taxation and the decrease of means-tested payments in the OC
range is also necessarily identical to what it is under the other two policies. Hence,
despite the massively larger tax revenues required under this third policy, the econom-
ically relevant marginal rates and the politically sensitive disposable incomes are exact-
ly equal, at every level of gross income, under all three schemes.

62
Basic Income and its Cognates

Graph G6 Partial Basic Income

45
Net Income 45 45
*
t
Y K

t
t*
t
G
F
X T
M E
D
t I
H
P Z

O V U A B C Gross Income

The challenge
This simple exercise in graph-assisted elementary arithmetic yields the challenge that
constitutes our point of departure. We have explored three tools for alleviating the
unemployment trap which are commonly associated with very different approaches
and certainly sound extremely different: scrapping social security contributions on low
wages by exonerating the lower layer of everyones earnings, introducing a refundable
tax credit reserved for the working poor, and paying all households, rich and poor, a
uniform grant.Yet, in each case, we ended up with an identical net impact: all three
tools reduced the unemployment trap to exactly the same extent; all three tools mod-
ified the distribution of disposable incomes in exactly the same way; all three tools
generated an identical pattern of marginal taxation.
Of course, this arithmetic exercise was rough and simplistic: it started from an over-
simplified picture of the existing complex system of social insurance and assistance; it
did not use any precise estimate of the distribution of households across the various
ranges of earnings; and it did not incorporate any conjecture about the way in which
economic agents would react to the new incentive structure. Bringing in each of these
important considerations would of course affect the outcomes. But for the purpose of
formulating our challenge, this does not matter in the least. For the changes brought
about by using the three tools, as depicted in our graphs, are strictly equivalent, and can
therefore be expected to be affected symmetrically by the introduction of each of the
considerations just mentioned. In particular, it can no doubt be pointed out that it is
only when the behavioural effects of the various reforms are taken into account as

63
Basic Income on the Agenda

households and firms adjust to the new pay-off structure that the differences between
the various policies can come to light. But how could any such difference emerge if the
new payoff structures are identical in all three cases? Indeed, when scrutinized closely,
most, if not all, existing attempts to formally model the behavioural impact of any of
the three policies (in a context in which a GMI is and remains in place) would apply
just as much to the corresponding variant of either of the other two policies.
Such a formal equivalence constitutes at least prima facie a disturbing challenge for
anyone who embraces (sometimes passionately) any one of the three policy proposals,
while rejecting (sometimes no less passionately) some of the others. It might be tempt-
ing to object that the whole exercise from which the challenge emerged was rigged,
since in each case levels and rates were selected so as to generate the equivalence. Some
actual proposals of each type are quite remote to the particular one we have consid-
ered, and they may therefore generate very different effects.Actual RSSC proposals, for
example, tend to recommend that one should scale down contributions on the lower
layers of earnings without scrapping them altogether. EITC, as implemented in the
United States, differs from the variant selected above because the level of the tax
credit, after growing proportionally to earnings as these increase from zero, and before
being gradually phased out, remains constant over some range. Some PBI proposals rely
at least in part on the taxation of land, energy or consumption, rather than exclusively
on an adjustment of the income tax. EITC as it exists and most NIT proposals make
the amount of the benefit crucially dependent on the composition of the household.
Countless more variations of this kind could be mentioned, sometimes implying mas-
sive departures from the profiles of marginal and average tax rates depicted in graphs
G2 and G3. Such variations matter a great deal if the effects of specific proposals are to
be assessed. But they are irrelevant to the challenge itself, at least within the broad lim-
its within which the parameters of each of the three proposals can be adjusted to pre-
serve the equivalence.

What about a full basic income?


It must, however, be acknowledged that there are such limits. In particular, the equiva-
lence claim becomes rather far-fetched as one moves from the sort of substantial but
partial BI depicted in G6 to a full BI (at level OM), one that could entirely replace the
existing GMI without increasing poverty and would enable households to increase
their net income as from the first Euro of gross earnings. True, the same net relation
between gross and net income could still be achieved through a RSSC that would
allow for negative social security contributions, i.e. net employment subsidies, in the
OA range. It could also be achieved through an EITC with refundable tax credits mak-
ing net income jumping all the way to OM as from the first Euro of earning. But these
would hardly be natural ways of expanding either RSSC or EITC.18 Advocates of a full
BI may therefore feel immune from the threat of the equivalence result. Except in a
strained, administratively cumbersome way, what they propose and want cannot be
achieved through some version of RSSC or EITC.
This is true, but does not make the equivalence irrelevant, even to them. For as a
measure designed for immediate implementation, there are two strong reasons for
focusing on a partial rather than a full BI. One is that the sudden introduction of an
individual BI at the current level of GMI for single people (inclusive of housing
allowances, if such exist) would unavoidably create a massive upheaval in the distribu-

64
Basic Income and its Cognates

tion of disposable income between various types of households, in particular at the


expense of one-adult households and in favour of two- or more-adult households.The
infliction of serious and sudden losses on a broad set of households is not desirable, not
only for reasons of political feasibility, but also for reasons of intrinsic fairness which
this is not the place to spell out.19 While decisive for short-term proposals of a strictly
individual full BI, this objection is much weaker in the case of household-based vari-
ants of BI, which are able to mimic the current dependence of GMI levels on house-
hold composition and thereby to avoid these massive shifts.20 Compared with this
strategy, however, a strictly individual but partial BI, combined with a residual house-
hold-based and means-tested GMI, has the symbolic advantage of asserting more
clearly that this is not merely improved social assistance but the expression of equal cit-
izenship, and it has above all the crucial practical advantage of making entitlements
independent of living arrangements for the bulk of the population, which makes it
both administratively cheaper and less intrusive of peoples privacy.
Secondly, both an individual and a household-based full BI would naturally be
designed to enable households to improve their net incomes as from the first Euro of
gross earnings. However, compared to a PBI strategy, this would have the unavoidable
consequence of increasing marginal rates of taxation higher up, in the much more
crowded middle range of the distribution of potential gross earnings, and therefore of
having an impact on economic activity (via weaker incentives to train, seek promo-
tion, etc.) that is likely to be more negative than maintaining an unemployment trap
for the least productive, at the very bottom of the distribution of earnings.21 This is no
decisive argument at all against moving towards a full BI, especially as both the average
gross earnings and their dispersion of gross earnings can be expected to keep growing.
But it is definitely an argument for adopting a cautious approach, one which reduces
significantly the depth of the trap without getting rid of it in one swoop. Combined
with a residual GMI, an individual and universal PBI would do precisely that.22
In this light, the equivalence issue gains a different significance. For supporters of an
(eventually) full BI, it offers a potential for converting to a PBI the first stage of what
they want policymakers who have already travelled so far as to advocate RSSC or
EITC.This potential is strengthened if a closer look at the equivalence comes up with
some hidden advantages for PBI. It is weakened if closer scrutiny reveals instead some
significant benefits of RSSC or EITC, to which the equivalence claim was blind. Of
course, a supporter of a full BI is unlikely to regard these benefits as decisive. It is
nonetheless in her interest to understand their nature.The most powerful plea is one
that grasps the full strength of the opponents case. Even for those whom the equiva-
lence claim leaves undisturbed, a close look at it is most likely to repay the trouble.

Unheeded Differences

Perhaps the most obvious challenge to the validity of the equivalence claim is that its
formulation completely overlooks the crucial distinction between social insurance
contributions and redistributive taxation. Once this distinction is made, policies which
scrap or reduce the contributions of the low-paid can no longer be viewed as equiva-
lent to policies which provide tax credits or cash benefits without reducing these con-
tributions. For in the latter case (EITC and PBI), the entitlements coupled to the

65
Basic Income on the Agenda

insurance contributions remain intact, whereas they are curtailed in the former
(RSSC).This asymmetry would stick if the insurance principle were seriously upheld
by the advocates of RSSC. But it seldom is, if ever, and rightly so. If the aim is to fight
unemployment without increasing poverty, it does not make sense to reduce the old-
age pensions, unemployment benefits, health care entitlements or sick pay of people
with low earnings, as a quid pro quo for an increase in their take home pay.The versions
of RSSC which are relevant in the present context and which are actually put for-
ward are therefore versions which do not affect social insurance entitlements any
more than EITC or PBI.The putative equivalence still sticks.Yet, there are important
differences that derive from the nature of the three reform schemes, rather than from
the particular variants adopted.

Unearned Income, Self-Employment and the Informal Sector

Actual proposals do not only vary in terms of the profiles they imply.They can also be
more or less selective. For example, RSSC proposals are sometimes restricted to specif-
ic industrial sectors, or to newly created jobs, or to workers with a low level of educa-
tion or a long record of unemployment. EITC was initially confined to families with
children. In the form of a non-contributory and non-means-tested pension, a BI
restricted to the over 65s already exists in some countries. Many of these features can
be readily disqualified as potential responses to the equivalence claim, as they can easi-
ly be mimicked within the framework of the other two policies. But some of them
for example, a restriction to waged workers of the formal sector cannot be so easily
dismissed because of their link with intrinsic differences between the three schemes.
This difference can only appear as one relaxes the simplifying assumption made so far
that household incomes consist entirely of formal sector wages. Indeed, because of
their constitutive features, RSSC, EITC and PBI do not relate in symmetric fashion to
the distinctions between earned (or labour) and unearned (or non-labour) income,
between waged employment and self-employment, and between formal and informal
income.This can be brought to light, in the simplest possible way, as follows.

PBI better for poor rentiers, pensioners and divorcees?


Let us define unearned (or non-labour) income as any form of income that does not
consist in direct compensation for the performance of labour, for example, interest on
savings, capital gains, contributory pensions, invalidity allowances, or alimonies received
from divorced partners. As a simplifying, but not too unrealistic, assumption, suppose
that unearned income is not subjected to anything analogous to social security contri-
butions, and hence is only taxed, in the initial situation, from level C, with net
unearned income rising along the 45 line OK.
Obviously, for someone with nothing but unearned income, RSSC and EITC
leave the profile of disposable income unchanged (along MDK), except for the usual
tax adjustment for gross incomes exceeding C. But PBI stands out. The new levy
introduced to fund the PBI applies at the same rate (t*) and from the first Euro to
both unearned and earned income. Hence, GMI aside, the net income of a house-
hold with nothing but unearned income will move along PK in graph G6.23 There
will therefore be a net gain for households with an unearned income in the UA

66
Basic Income and its Cognates

range, who can now combine the latter with the PBI in such a way that they reach a
net income in excess of the GMI and hence escape the range in which they would
qualify for means-tested payments.There will also be a net gain represented by the
distance between the old OK line and the new PK line for households whose
unearned income falls between OA and OC. Somewhat paradoxically, the PBI
scheme is the only one that imposes a tax on low unearned income at a sizeable
rate and from the first Euro and yet it makes some of the more modest recipients
of this unearned income better off that they would be under the other two propos-
als and under the status quo.
If unearned income were, for some reason, exempted from the new levy or subject-
ed to a much lower rate, the profile of net unearned income (inclusive of PBI) would
not be lifted from OK to PK, but from OK to PY, with the necessary consequence that
even recipients of unearned incomes far in excess of OC would benefit. Since all are
entitled to the PBI, there is of course no principled reason to exempt any income
recipient from contributing to it. But there may be pragmatic reasons, for example
when the cost of detection of major categories of unearned income is prohibitive or
their responsiveness to taxation very high. Under such conditions which quite plau-
sibly apply to capital income a PBI would seem to necessarily involve, relative to
both the status quo and the other two policies, a large transfer towards the recipients of
unearned income, including very affluent ones.This would count as a serious, indeed
conceivably as a fatal objection to PBI (and, even more, to a full BI) if one could not
rely on the existence of a strong positive correlation between capital income and other
income. Most people with a sizeable capital income can be expected to also have
either a more detectable form of unearned income (typically, retirement pensions) or
labour income on which a levy can reliably be raised. In the terms of graph G6, few
households with a total income above C, if any, will therefore be net beneficiaries of
the proposal, as the additional levy on their labour or pension income will completely
recapture their PBI, or nearly so, and increased taxation beyond C is likely to erase any
remaining gain.
Nonetheless, it is true that, compared to the status quo, EITC and RSSC, PBI is
more favourable to modest rentiers, pensioners, recipients of alimonies and other forms
of unearned income, even if the new levy applies equally to unearned and earned
income. Not only does PBI shrink (from OA to OU) the savers poverty trap (i.e. the
range in which there is no incentive to accumulate entitlements to such income at the
lower end of the income distribution), but it also improves the net incomes of
unearned and earned income recipients alike in the AC range, whereas EITC and
RSSC restrict this improvement to earned income. Because of this difference, the net
cost to be made up by higher taxation (on all incomes) above C is unavoidably higher
under the PBI. How much higher depends on how much unearned income is being
received by comparatively poor households.

EITC and PBI better for small shopkeepers and freelance artists?
Let us now leave unearned income aside and consider the asymmetry between waged
and self-employed labour. If these are subjected to the same level of social security
contributions, RSSC, EITC and PBI have strictly symmetric effects, assuming of
course (as is reasonable under the stated condition) that RSSC is not restricted to
waged labour. But take the other extreme case, in which self-employed labour is con-

67
Basic Income on the Agenda

tribution-free.24 RSSC then applies exclusively to waged labour and achieves two
things. It brings the marginal rewards of self-employed and waged labour in line with
one another up to level A (in graph G4), thus bringing down the unemployment trap
for waged employment (OB) to the same level as for self-employment (OA). At the
same time, it steeply increases the gap between the marginal rewards for the two types
of work in the AC range, with the self-employed moving from D to K, and the waged
workers from D to F, as their gross earnings increase (see graph G4).
EITC, under these conditions, has a very different impact, even if its level is deter-
mined (as assumed throughout) by a persons post-contribution (as opposed to gross)
income (see graph G5).While treating waged employment in the same way as RSSC, it
lifts the net rewards for self-employment above the 45 line (to OSQ) over a range of
gross (and hence net) income from self-employment OW, itself equal to CF, the net
wage at which the tax credit for waged employment is completely phased out. Hence,
while EITC reduces the unemployment trap from OB to OA for waged employment
(like RSSC), it reduces this trap from OA to OR for self-employment (whereas RSSC
leaves it unchanged).
Under PBI, all earnings are subjected to the same increase in taxation from the first
Euro, but being exempted from social security contributions, earnings from self-
employment can exceed the GMI level (PM) more quickly, with the unemployment
trap for self-employment lowered from OA to OU, while the unemployment trap for
waged employment drops, as usual, from OB to OA (graph G6). Consequently, in the
extreme case in which self-employment escapes all social security contributions (and to
a reduced extent in all cases in which it is subjected to a lower rate than waged labour),
EITC and PBI can be viewed, relative to RSSC, as favouring self-employment by mak-
ing it profitable from a lower level of gross earnings (OR in graph G5, OU in graph
G6) than was previously the case. As usual, the net gain for the low-earning self-
employed (RW in graph G5, UC in G6) needs to be made up by higher taxation above
C. How much higher depends on how high a share of total income is earned by self-
employed people in the relevant ranges.

PBI better for LETS traders, volunteers and drug dealers, but worse for the tax base and moral
guidance?
Finally, consider a third possibility of asymmetry in the taxation of two types of
income: labour income can be either formal and hence subjected to discounting in
the means-testing of benefits, to social security contributions and to taxation or
informal and escaping all of this. Informal work in this sense can consist of drug deal-
ing and moonlighting at odd jobs, but also of producing ones own food, looking after
the household in exchange for a share in ones partners purchasing power or perform-
ing volunteer work in exchange for a number of in-kind advantages (free meals and
phone calls, computer use, and accommodation) or taking part in a network of
(untaxed) exchange of services (the so-called LETS schemes).
If a persons labour income is entirely informal, obviously she could not, by defini-
tion, benefit from either RSSC or EITC, whereas she might, in principle, benefit from
PBI. But given that there is a means-tested GMI in the background, to the full amount
of which she is entitled (under the above assumptions) since she has no formal means,
this does not make any difference.Whether or not any of the three schemes is in place,
the person could be said to use her guaranteed income OM as a full BI. Her informal

68
Basic Income and its Cognates

income can be fully combined with it, and her total income therefore rises from M
along the top 45 line of graph G6.
Suppose now, more realistically, that what income is taken into account for the sake
of means-testing is considerably more comprehensive than what is taken into account
for the sake of taxation (and social security contributions): it includes, for example, an
estimate of the market value of ones home and other belongings, or the claims one
may be able to make on the help of close relatives, whether in cash or in kind, or some
degree of self-production, or various black-market earnings far more likely to be
detected by the social worker than by the tax controller. To make the contrast in the
sharpest form, let us suppose that informal income is completely untaxed, but fully part
of the means by reference to which means-tested benefits are being assessed.The pro-
file for an informal worker then becomes MDK in the initial situation as well as under
RSSC and EITC (see graphs G1, G4 and G5). But here again, and even more sharply
than with unearned formal income, PBI stands out. For the informal worker receives
the PBI at level OP and can start earning at a zero rate of tax as from that level (along
the PY line in graph G6). Hence her disposable income profile is MXY rather than the
less favourable MDK. Relative to the other two formulas, therefore, PBI can be seen as
a subsidy to informal labour at all levels of earnings: someone with informal earnings
at level CK, for example, will remain at that level after taxes and transfers under RSSC
and EITC, while being promoted to CK+CI under PBI (see graph G6).
How much of an advantage or a disadvantage this is heavily depends on the nature
of the informal work thereby encouraged and on the way it is distributed among var-
ious levels of earning power. If poor people have little access to informal income
sources and all the PBI does (in this respect) is top up the underground income of a
handful of wealthy mafiosi, it constitutes, at best, wasted money. But suppose, perhaps
more realistically, that the potential for informal earnings is not insignificant in the
lower reaches of earning power.Whereas PBI has exactly the same impact on the for-
mal unemployment trap as the other two schemes (down from OB to OA), it has a
dramatically stronger impact, under the stated assumptions, on the informal unemploy-
ment trap, which it brings down from OA to OV (in graph G6), while the other two
schemes leave it unaltered at OA. Owing to the PBI, people need to possess an infor-
mal earning power of only OV for them to have access to a total net income in excess
of OM and hence find themselves beyond the maximum limits for means-tested ben-
efits.25 Exiting the range in which the means test applies not only has the advantage of
avoiding what may be regarded as unwelcome intrusions into the claimants privacy
(on a scale that far exceeds what a tax controller could get away with). More important
for our present concerns, it enables poor people in the VA range (graph G6) to get out
of the trap and start earning in the informal sphere without being taxed at an effective
rate of 100 percent. Moreover, the administrative costs of the means test can be expect-
ed to shrink significantly, at least if only a small proportion of those currently on
means-tested benefits have earning powers in the very lowest range OV.
On the other hand, this very reduction in the reliance on the means test may be
considered a serious disadvantage by those who view transfer schemes as an opportu-
nity for enforcing proper conduct.The very fact that a PBI would, relative to the other
two schemes, reduce the scope for meddlesome casework from the OA range to the
OV range of earning power then counts as an argument against it.26 So does, less con-
troversially, the fact that the dramatic lowering of effective taxation on informal

69
Basic Income on the Agenda

income in the VA range under PBI, may lead some people who would be earning a
formal income beyond level OA under any of the other two schemes to substitute
some informal for formal earnings, thereby reducing the tax base. This effect may or
may not be offset by the fact that those in the VA range of earning power will have, rel-
ative to the other two schemes, a somewhat greater incentive to do some formal work
too and, above all, to maintain their skills and sanity.

Underneath the GMI

A second set of differences emerges even if all income consisted of formal waged
income as soon as one allows for the possibility that some households incomes may
fall below the GMI by virtue of their choosing to earn less than this amount. That
some households may have an income below the GMI is an obvious possibility in those
countries in which the GMI is restricted to certain categories of households (e.g. to
families with children or to single parents). But even in those countries in which there
is an effective and general GMI applying to all types of households, it is possible for
people to find themselves under level OM because the right to GMI payments is usu-
ally subjected, not only to a means test, but also to some willingness-to-work test.
Consequently, people who willingly reduce their working time in such a way that their
gross income falls in the OA range are typically not entitled to having their disposable
income lifted to level OM. If an income equal to OM were strictly necessary for sur-
vival, this would be an insignificant fact, as no one would make use of such an option.
But in reality, even if the GMI does not exceed sheer survival requirements, account
must be taken of the scope for intertemporal transfers (living off ones savings or ones
loans) and interpersonal transfers (above all within households). Hence, finding oneself
in the OA range as a result of choosing to give up, be it temporarily, part or all of ones
job, is far from inconceivable.

PBI better for low-paid working-time reducers?


For this reason, it is not irrelevant to look at the profile of disposable incomes, under
the three policies, in the gross income range OA. Under RSSC and EITC, disposable
income falls steeply along the 45 line (DO) as people voluntarily reduce their work-
ing time (see graphs G4 and G5). Under PBI, in sharp contrast, disposable income
goes down far more mildly in the same circumstances (along DP in graph G6).27 This
basic fact can easily be used to clarify and qualify our earlier suggestion that, unlike
employment subsidies of any kind (such as RSSC and EITC), BI schemes can be
advocated, not only as unemployment-trap-reducing in-work benefits, but also as
employment-trap-reducing chosen-time subsidies. When displaying the apparently
identical net outcomes of all three policies, the thick line that shows the profile of
disposable incomes in graphs G4 to G6 is simply blind to the fact that if people choose
to earn less than OA, RSSC and EITC send them down the DO track, whereas PBI
keeps them on the DP line. Relative to RSSC and EITC, therefore, PBI cheapens,
and hence encourages, working time reduction in the OA range. How much of an
encouragement this proves to be depends on how many people find it feasible and
sufficiently attractive to live below the GMI with voluntarily reduced working
hours.28

70
Basic Income and its Cognates

For those who believe that the expansion of individually chosen part-time jobs is
desirable, this is an important argument in favour of PBI against RSSC and EITC. But
others believe that such an expansion is undesirable for example, because of the
training or organizational costs it generates, because of the gender bias in its distribu-
tion, or because of the lesser involvement in the work atmosphere that may be associ-
ated with it.They can therefore use the very same difference to substantiate their pref-
erence for RSSC and EITC over PBI.They must, however, be careful not to overstate
their case. For whereas the policies have sharply diverging relationships to working
time reduction at sub-minimum levels of earnings (the OA range), all three of them
favour it in a strictly symmetrical way in the probably more crucial BC range. For
people whose earnings are in this range, the three policies decrease identically the cost
of reducing gross income, and hence working time, since any voluntary move from C
to A is now matched by a smaller decrease in disposable income than was the case in
the initial situation (graph G1).29

PBI necessarily more expensive in an economically relevant sense?


Like the asymmetries pointed out when different types of income are considered, the
asymmetry just emphasized underneath the GMI level unavoidably upsets the net cost
equivalence between the three schemes, and hence their impact on the tax adjustment
required in the upper reaches (above C) to secure budget neutrality. But which way the
resulting net cost difference will go is a complex and contingent empirical matter.
Voluntary working time reducers in the infra-minimum range OA are entitled to higher
net transfer payments under PBI than under RSSC and EITC.This justifies a strong prima
facie expectation that the latter two schemes must be cheaper than the former two, not
only because the people who happen to find themselves voluntarily in that range in the
initial situation (graph G1) will cost more under PBI, but above all because PBI creates a
greater incentive to give up some tax-paying working time and move into this range. But
there are two countervailing effects which may more than offset this difference.
Firstly, the financial sanction if one were to openly admit that one deliberately keeps
ones working hours down in the OA range is notably tougher under RSSC and EITC
(it corresponds in both cases to the gap between MD and OD in graph G6) than
under PBI (it corresponds in this to the gap between MD and PD). Given the choice
between being fully and (allegedly) involuntarily unemployed and being partly and
(openly) voluntarily unemployed, some people may choose the former option under
RSSC and EITC (and hence cost the government the full amount OM), whereas they
would choose the latter option under PBI (and hence cost the government the small-
er amount OP, minus the tax and contributions, which rise from zero to DY=OP as
gross earnings rise from zero the break-even level OA).This assumes (plausibly, it seems
to us) that the inconvenience to the claimant of claiming the full means-tested, will-
ingness-to-work-tested GMI (intrusiveness, dole queues, job applications, risk of being
caught cheating, etc.) are neither so great that everyone would choose instead to work
part-time under RSSC and EITC, nor so mild that no one would choose the part-
time option even under PBI. PBI would then offer a potential for savings by dissuad-
ing people from relying on the full amount of the GMI and encouraging them instead
to earn a (low) taxable income.
Secondly, there is the work sharing aspect of the encouragement of voluntary
working time reduction by PBI. As mentioned before, this encouragement espe-

71
Basic Income on the Agenda

cially the one which is specific to PBI (in the OA range), as opposed to the one com-
mon to all three schemes (in the BC range) is only sizeable for those with a low
earning power. But this is also the category of workers which is most significantly
plagued by involuntary unemployment. The very fact that some voluntarily reduce
their working time, be it temporarily for example, in order to look after their chil-
dren or acquire further education frees slots for some of the others. This is of
course at the core of the chosen-time-subsidy aspect of the PBI strategy. But it is also
a potential source of savings, as the net transfers to these newly employed people
shrinks from OM (or whatever higher level of unemployment benefit they are enti-
tled to) to OP minus the taxes and social security contributions on their earnings.
Suppose for example that two workers with gross earnings OB decide to halve their
working time under PBI whereas they would not have done so under RSSC or
EITC (because their disposable income would then have fallen too steeply along
GDO, rather than GDP, in graph G6). Suppose further that both halves of their jobs
are taken up by an unemployed previously claiming benefits at level PM (in addition
to her PBI at level OP). PBI payments are obviously unchanged. So are taxes and
social security contributions, with the third person now paying what the first two no
longer pay. But a net saving of PM (or more) is booked by virtue of the unemploy-
ment benefit no longer needing to be paid.
This is the dividend from work sharing, from the mutually beneficial redistribution
of leisure. Added to the dissuasive effect on GMI claimants mentioned before, it is
bound to offset at least in part the direct net cost that stems from PBI, giving a better
deal to the low-paid voluntarily underemployed.What the net balance is and hence
whether the tax rate beyond C needs to be readjusted upward or downward relative to
RSSC and EITC depends on such factors as the availability, among the involuntarily
unemployed, of suitable substitutes (qua location and skills) for the voluntary time-
reducers, and can therefore not be told a priori.

PBI better for low-paid quitters and strikers?


The same difference in what happens below A is also most relevant to assess the differ-
ence between the three policies in terms of the redistribution of bargaining power they
bring about. If a worker chooses to quit because (s)he is fed up with her working con-
ditions or pay level, the immediate cost (s)he has to bear is smaller by amount OP
under PBI than under the other two policies. Similarly, workers on strike would keep
receiving their PBI (which could therefore be regarded, among many other things, as a
systematic collective subsidy to strike funds), while they would obviously lose all ben-
efits from EITC or RSSC. 30
For highly paid workers, this is of little significance, partly because the PBI corre-
sponds to only a small fraction of their earnings, and partly because, for most of them,
their bargaining power derives mainly from the alternative job opportunities they have.
But for poorly-paid, low-skilled workers, even a low PBI can make a significant differ-
ence to their bargaining power, with noticeable consequences for both the working
conditions and the pay of the jobs in which employers will want to keep them. It does
not follow from this difference that the quit rate can be expected to be higher or strikes
to be more frequent under PBI. Simply, the fact that the threat of quitting or striking
needs to be taken more or less seriously, depending on the scheme adopted, will sys-
tematically lead to different deals. This argument, again, is two-edged, as some may

72
Basic Income and its Cognates

regard this equalization of bargaining power (however modest) as a major danger: for
those concerned that there should be enough people to do cheaply the dirty jobs,
EITC and RSSC offer, for this reason, a better promise.

PBI better for human capital accumulation?


In the discussion on BI or NIT, it is sometimes pointed out that the incentive to
improve ones skills and thereby ones earning power will be reduced. This can be
attributed in part to the rise in marginal tax rates upward of gross income OB (in
graph G6): the return to skill acquisition, and productive effort generally, is significant-
ly reduced in the BC range, in which many people start their working careers, and to
a lesser extent also beyond C.The negative impact on incentives can also be attributed
in part to the fact that some young people will be satisfied to supplement their PBI
with the income from a low-skilled more or less regular job in the AB range, whereas
in the absence of a PBI they would have bothered to acquire further skills so as to fit
into a more productive job in the BC range.31 The overall result would be a less edu-
cated labour force and a less productive economy than could be, and would otherwise
be, the case.
This is a potentially important argument, which applies in exactly the same extent
to RSSC and EITC as it does to PBI, since in the AC range all three policies amount
to straightening DEF into DGF (see graphs G4 to G6). How weighty this argument is
against the family formed by all three policies needs to be assessed bearing in mind,
among other considerations, the following three. First, intra-organizational promotion
provides non-monetary incentives (power, titles, non-taxable privileges) no less than
monetary ones, and the former are left unaffected by the change. Second, rises in mar-
ginal tax rates may go hand in hand with rises in marginal returns, if it operates on the
background of a growing inequality in gross earning power which is precisely one
central aspect of the trends which are creating the problem in which the new social
question consists.Third, the human capital of the people stuck in the unemployment
trap is getting quickly eroded, owing to a powerful positive feedback process of skill
obsolescence and motivational adjustment, which the three policies, by reducing the
unemployment trap, are helping to keep in check.
All these considerations apply symmetrically to all three policies. If there is a signifi-
cant difference between them, as regards human capital accumulation, it must again be
due to differences arising below the GMI level. One possibility is that some people may
be happy to combine their PBI not only with a low-paying job in the AB range, but also
with an even lower-paying job in the OA range, one which would yield them a far lower
disposable income under RSSC and EITC (see the gap between PD and OD in graph
G6).Would some people really choose to durably stick to such a modest standard of liv-
ing by voluntarily refraining from upgrading their skills? Perhaps. But this difference is
quite likely to be more than offset by the following three countervailing differences.
First, one standard reason for voluntarily and substantially reducing ones working
time in such a way that ones disposable income temporarily falls below M, is precise-
ly that one may wish to invest in further education and training so as to boost ones
future earning power. In this fashion, a PBI can work as a permanently available study
grant, whereas RSSC and EITC cannot.
Second, more speculatively, another major reason for choosing to temporarily
reduce ones earnings below the (permanent) subsistence level is ones desire to spend

73
Basic Income on the Agenda

more time with ones children at the time they need it most. Given some striking stan-
dard empirical facts about the determinants of educational achievement such as the
strong predictive power of ones mothers educational level freeing poor households
from a compelling pressure to work full time at the expense of bringing up their chil-
dren as they would like to can be a major contribution to the productively usable
human capital of the next generation.
Thirdly, the impact on bargaining power associated, as pointed out above, with the
differential cost of quitting and striking is likely to show up in the training content of
the low-productivity jobs (in the AB range) which the reform aims to make viable:
workers with a higher bargaining power will be less willing to put up with low pay
unless the job provides them with a useful experience or training which could help
them move up.The heavier the cost to them of quitting or striking, on the other hand,
the less discriminating they can afford to be and the more likely the low-skilled are to
be stuck in dead-end jobs.32 Whether directly or indirectly, therefore, the improvement
of the lot of those who choose to find themselves in the OA range would seem to
enable PBI to foster a better educated work force than RSSC and EITC.

Universality

PBI more effective as an instrument against poverty?


Finally, the most striking difference between PBI and the other two instruments is that
it is given ex ante to all, rich and poor.33 In terms of the fight against income poverty,
this has the obvious advantage of making sure that at least some purchasing power
reaches the poorest. The rate of take up for universal benefits is systematically higher
than for means-tested ones, owing both to the difficulty of providing the information
to those entitled to claim them and to the stigmatization that tends to accompany any
benefit scheme restricted to the poor. Of course, a PBI does not lift people out of
poverty and therefore does not make the GMI dispensable. But for those people in the
OA range for whom the GMI scheme does not do what it is supposed to do, whether
permanently (because of the inhibition generated by intimidating or humiliating pro-
cedures) or temporarily (because of information failures or file-processing delays), it
makes a big difference whether they can move along the PD curve, as the PBI regime
enables them to, rather than along the much lower OD curve, as the other two policies
restrict them to in the most favourable case, or even along the even lower OZ curve if
tax credits take a while to reach their beneficiaries under EITC (see graph G6). How
much of a difference this makes clearly depends on the relative effectiveness of GMI
and PBI at honouring the entitlements of people in the OA range.The greater the gap,
the greater the additional net cost of PBI (to be offset again by tax adjustments beyond
C), but also the stronger the prima facie case in its favour as an incentive-friendly but
nonetheless effective tool against income poverty.
On the other hand, it may be argued that it is precisely this administratively straight-
forward nature of the transfer, the fact that it does not rely on means-tested transfers,
that makes PBI less effective as a strategy for tackling those aspects of poverty which do
not reduce to income poverty. Desperate isolation, the inability to manage ones
income or a shaky mental health may often be no less crippling than the lack of ade-
quate purchasing power. Against this background, the social workers implementation

74
Basic Income and its Cognates

of the means test, while sometimes perhaps unpleasantly intrusive, provides precious
opportunities for them to effectively identify and tackle these further problems. This
argument would definitely be worth a close look if we were here talking about a full
BI. But a PBI is coupled with a residual GMI which gives social workers the opportu-
nity and power to help as aptly as they can in those cases in which non-income aspects
of poverty require it. Indeed, by automatically softening the blow of sudden adversity
(by virtue of its dispensing with the need for any claiming procedure) and by lifting
more people out of the means test than the alternative schemes (at least if there is
something to the informal work argument and the working-time-reduction argu-
ment) a PBI might enable social workers to do a better job by concentrating, in a less
emergency-dominated way, on the people who really need their professional help.

PBI better at handling the uncertainty side of the unemployment trap?


Field researchers have pointed out that what keeps many of the excluded from accept-
ing a job or actively looking for one is often less the lack of an income differential
between no-work and work than the fear of leaving the relative safety of a regular flow
of benefits for the uncertainty of a job that may pay late or prove too demanding. For
the risk of a period without any income is something households at the margin of sol-
vency cannot responsibly afford.34 If this is the case, the trap may not be suppressed for
someone with a gross earning power of OB for example, by the sole virtue of the cor-
responding net income being lifted by the reform from BE to BG (for example in
graph G5). People may therefore stick to joblessness with the lower income level OM,
because of the feeling that the higher income BG is less safe: the job can be lost, and in
case it is lost, going back to OM is often far from automatic.
Hence, it may prove of far more than marginal importance to point out that under
PBI, not under the other two policies, part of BG is made totally safe, because people
keep it no matter what.With a PBI, the net income BG of someone with gross income
OB is neither less nor more than under the other two policies, and the income-differ-
ential aspect of the alleviation of the poverty trap is therefore identical (as reflected in
graph G3, or in the thick lines of graphs G4 to G6). But under PBI, jumping from
earning nothing to earning OB is less of a risk than under EITC or RSSC because
only the difference HG (in graph G6) is affected by uncertainty, while the firm flow
BH is unaffected. The importance of this difference can vary from the trivial to the
crucial, depending on (1) how large a share of net income the PBI represents, (2) how
insecure the relevant jobs and earnings are (private sector precarious jobs, self-employ-
ment, workers co-operatives, etc.)35 and (3) how complicated, lengthy, humiliating and
in other ways difficult it is to get the flow of means-tested benefits running again once
the job has vanished, or has been taken away by the employer or been given up by the
worker.

PBI less appealing to Trade Unions ?


The fact that PBI is paid ex ante to all may be better, for the reason just explained, for
the sake of fighting unemployment. It might also provide a reason for expecting PBI to
be less popular with the Trade Union movement than the other two policies.36 That
this should be the case is not obvious from the considerations explored so far.True, PBI
is comparatively more favourable to informal labour than the other two schemes,
which makes it unlikely to be a vote catcher among organized formal workers. But

75
Basic Income on the Agenda

compared to RSSC, it has the advantage of leaving untouched the level of social secu-
rity contributions which, unlike tax revenues, are often to a notable extent under
Union control. Moreover, PBI can be seen as a massive contribution to strike funds. Of
course, unlike strike funds of the standard form, PBI is not Union-controlled. It gives a
power to strike without the Unions consent and may therefore prove a mixed blessing
from the standpoint of the Unions leadership and its ability to effectively mobilize
working people. Nonetheless it should, all in all, strengthen the bargaining power of
organized labour.
So, why are the Unions not more enthusiastic? If a Unions objective can be reduced
to the interest of its median member and if the latter can be depicted as earning a gross
wage in excess of OC and hence having nothing to gain from the reform then the
Unions being at best lukewarm should come as no surprise. But this would apply sym-
metrically to all three policies and would therefore do nothing to predict a specific
reluctance to embrace PBI. The PBIs ex ante payment may be the key. For even if a
workers net income, her effective marginal tax rate, her comprehensive average tax rate
and the income difference between her income at work and out of work (whether
social assistance or unemployment benefit) are exactly the same in all three cases, her
take-home pay is significantly lower under PBI than under the other two schemes (in
graph G6, IF instead of CF for a worker with level CK of gross earnings).The differ-
ence is exactly the amount of the PBI, which the workers household receives inde-
pendently of the workers pay package.The household should not care, but the Union
will, as the fraction of the workers material welfare which it is perceived to control, or
at least affect, will be significantly curtailed.This perception, no doubt, rests on an illu-
sion, since in all three cases the public tax-and-benefit system modifies the distribution
of gross incomes in exactly the same way. But this is an illusion of a particularly credi-
ble and possibly powerful kind. If take-home pay is a far smaller proportion of a house-
holds income under one scheme than under another, how can this fail to affect the
degree of unionization or the ease with which the Union leadership can mobilize the
rank and file?37
To the extent that Union support is important to secure the adoption of one of the
policies, this effect, if significant, provides a tactical case for EITC, RSSC and the NIT
version of PBI against the latters universal, ex ante version. But there may be more at
stake than political feasibility. The Unions concern with the non-decrease of take-
home pay may generate a different dynamics of labour costs depending on which of
the policies is adopted. For if such a concern is of decisive importance, the introduction
of a universal PBI and any increase in its level would affect collective bargaining very
differently from corresponding advances with EITC, RSSC or NIT. As organized
workers insist on protecting their net wages, not only their net incomes, they would
trigger off a wage-inflationary process, with detrimental effects on the achievable
trade-off between unemployment and non-accelerating inflation.

PBI politically less attainable but more stable?


A final asymmetry that stems from the same fundamental difference between the ex
ante PBI and the other schemes concerns their political chances in the democratic
process. There is bound to be a tremendous difference in perception between an
income that suddenly starts being paid separately to every citizen (PBI), and such more
localized and less visible changes as a modification in the schedule of social security

76
Basic Income and its Cognates

contributions which will remain unmentioned in any document routinely received by


workers and citizens (RSSC), or a tax reimbursement to the working poor (EITC). In
all likelihood, workers in the BC range will soon notice, under each of the three poli-
cies, that they have become better off, though possibly only with some delay, owing to
the length of the tax procedure (especially with EITC). Gradually, people will hope-
fully also start discovering the increased potential in the AB range or indeed, as far as
voluntary underemployment is concerned, in the OA range. Moreover, the tax adjust-
ment above C, if significant, is also going to be felt by some. But all this is relatively
minor and local, compared to the highly visible introduction of an income henceforth
paid from the same source to every citizen, coupled with a dramatic increase in the
apparent rate of taxation.
There are at least three reasons why this feature may make the introduction of PBI
more difficult than equivalent variants of the other two alternative policies and
indeed the much closer NIT even assuming that there is no difference whatever in
their economic consequences and in their impact on the material fates of all categories
of households. One reason is simply that, being less conspicuous, the other policies can
be phased in more swiftly by politicians clever enough to alert the likely beneficiaries
without attracting too much attention from those likely to lose out (those with
incomes above C). A second reason is that opponents can easily exhibit the (alleged)
absurdity of handing out benefits to scores of people who do not need them in the
least, namely with a gross income in excess of OC. 38 It would not be very hard for
them to be persuasive, as their audience may well fail to see the equivalence between
PBI and the corresponding NIT (with all transfers on graph G6 netted out) and be
eluded by the subtle superiority of giving to the rich in terms of the interests of the
poor (whether because of higher take-up rates or the trap aspects discussed earlier in
the present section). A third reason is the scare of high apparent tax rates. Whereas
RSSC and EITC (and NIT) can be sold as tax cuts (admittedly compensated by a
somewhat higher taxation in the range above C), PBI cannot but be perceived as a
massive increase in government expenditure and taxation. One can no doubt devote
some energy to explaining that what matters is the profile of effective tax rates and dis-
posable incomes, which happens to be exactly the same as in the tax-cut alternatives,
and that one should think about the cost of redistributive programmes quite different-
ly from the way one thinks about the cost of substantive expenditure programmes.39
But, in some countries at any rate, it is nonetheless likely that opponents to the pro-
posal (whether in good or bad faith) will manage to focus public attention so intense-
ly on this huge cost to the tax payer that, for a mainstream politician, defending it will
look tantamount to political death.
PBI, therefore, does not fare too well in terms of political attainability. On the other
hand, it may fare better in terms of political stability.The experience with the Alaskan
Dividend Scheme provides some evidence in support of this conjecture. Despite occa-
sional observations that the money would be better spent if it were more targeted or if
it were used for public investment, the scheme is proving a political sacred cow.40 By
contrast, being less visible, tinkering with contribution rates and tax rebates to the low-
paid may for this reason be easier, not only to introduce, but also to roll back. Further
indirect support for this claim can be gathered from the discussion on family
allowances.True, there has been a wave of reforms subjecting previously universal child
benefits to a means-test of varying severity on the grounds that a universal payment to

77
Basic Income on the Agenda

all mothers regardless of a familys means was wasteful (as Thatchers government put
it). But the first two countries to travel this road have since returned to a universal sys-
tem (Denmark in 1981 and Japan in 1985) and similarly motivated government means-
testing plans were successfully resisted in several other countries, including the UK in
1987, Ireland in 1991, Sweden in 1995 and France in 1998. Moreover, comparative evi-
dence seems to support the view that the level of the transfer is more secure when
everyone receives it than when only the poor do. For example, the level of child bene-
fits as a proportion of average wages is systematically higher in countries which have
stuck to a universal system.41
Greater political irreversibility is a precious advantage if one is certain that reducing
the unemployment trap, as done by each of the three policies, is the way to go.
Otherwise, it may be regarded as a serious defect.What if, for example, the disincentives
to work or train in the BC range which are, as we have seen, a necessary corollary of
the stronger incentives to work in the AB range are so strong that a dramatic net loss
in economic efficiency results, once the full effects of having a more laid back, less
skilled labour-forced (drifting leftward on our graphs as worker cohorts succeed each
other) make themselves felt? In this case the very superior political robustness of the
PBI scheme (if established) would prove a handicap, as it would prevent swift readjust-
ment once the negative effects of the policy were detected and their full size assessed.

Conclusion: Partial Basic Income on the Agenda?

Underneath the prima facie equivalence between matching variants of the three poli-
cies, our very stylized graphical analysis has thus enabled us to highlight a number of
potentially important differences. Once we laid aside the distinction between taxes as
pure levies and social contributions as insurance premiums, we were left with three
basic sources of differences: how the three policies relate to different types of income;
how they treat those who voluntarily find themselves under the GMI level; and
whether they rely on ex ante payments.This systematic inventory of what we believe
to be the main relevant differences is obviously inconclusive on many counts. For
most of the differences we explored, it was possible to state a priori, if there was an
advantage, which way it would go. But our assessment of the significance of this
advantage has always been rather vague and tentative, based on casual or indirect evi-
dence if any. In many cases, a far more serious empirical evaluation of the differen-
tial impact would be useful, as would, in some cases, more complex theoretical mod-
elling.
However tentative, our exploration should force supporters of each of the three
policies to qualify a number of arguments they routinely make in favour of their
favourite.This holds, in particular, for those who support a universal PBI. If they do so
out of a basic concern for improving the options open to the worst off a plausible
normative foundation for the objective of fighting unemployment without worsening
poverty they will no doubt have been pleased to see their case upheld in connection
with the impact of universal payments on take-up and traps and the importance of
unconditional support under the poverty line for bargaining power and human capital
formation. But there are at least two important differences between PBI and its alter-
natives which present supporters of PBI with serious challenges.

78
Basic Income and its Cognates

One concerns PBIs political feasibility. Owing to its ex ante nature and the implied
height of the apparent rates of taxation it requires, we have seen that there are reasons
to expect a universal PBI to be comparatively less popular with organized workers and
public opinion.True, much of this unpopularity can be traced to variants of an illusion
basically the failure to perceive the sense in which a tax expenditure and a benefit are
equivalent. But this illusion may well be so resilient as to block any direct introduction
of a PBI. One can no doubt endeavour to undermine it through effective pedagogical
efforts. But this is likely to prove a Sisyphus task. Alternatively, one can try to use
opportunities to introduce a universal PBI as a uniform dividend on a commonly
owned asset (royalties on oil extraction, for example), or as uniform compensation for
a commonly suffered nuisance (energy consumption, for example), or even out of
non-inflationary money creation.42 But this is unlikely to provide more than a very
low floor. Beyond this, the most promising way forward for shrewd politicians who
believe in PBIs substantive preferability is probably to first introduce an appropriately
calibrated uniform refundable tax credit (or NIT), soon to be inconspicuously turned
into a tax-creditable benefit (or PBI).43
The second challenge may be viewed as more serious still, as it does not concern
PBIs achievability, but its very desirability in a context in which informal (i.e. legally
or illegally untaxed) income represents a major option. Providing one can (plausibly)
assume that the assessment of GMI entitlements is more sensitive to informal income
than taxation is, we have seen that PBI is unquestionably more favourable to informal-
income earners than the other two policies. It is not altogether absurd to regard some
boosting of the informal sphere as a meaningful objective in itself. In one interpreta-
tion, for example, political ecology can be defined by this objective and contrasted on
this basis with liberalism and socialism.44 However, this assumes an unrealistically
benign perception of what is bound to be a very heterogeneous bundle. It might be
good, not just for the quality of human relations but also for the long-term perform-
ance of the economy, if people are less hooked on monetary rewards and spend more
time with their families, their vegetable gardens, their neighbourhoods and their vol-
untary associations. But some informal work is ruled by no less strong a cash nexus
than formal work, or is performed within the framework of a barter relationship with
no intrinsic virtue compared to monetary exchange. Indeed, much informal work,
precisely because it escapes the standard controls of formal activities, may be more
degrading, unsafe and in other ways unpleasant than had it been performed formally. If
this is the typical case, there is not much of a case left for promoting informal activities.
Moreover, the PBI will be wasted on some high-income people from whom little or
nothing will be clawed back in taxes. And by increasing the relative attraction of
untaxed activities, it may jeopardize the sustainability of the GMI, and hence of the
level of poverty alleviation already reached. How much of a threat this really is
depends, for example, on how much a countrys economy relies on non-monetary
exchange, on how weak or corrupt its tax authorities are, and on how much dishon-
esty its citizens feel comfortable with. Under such circumstances, PBI is unlikely to be
better than EITC, for example, as way of tackling unemployment without worsening
poverty, even if political feasibility were no problem. Or at least it will not become
superior until the background institutions have changed in such a way that the bulk of
sizeable market incomes has become sufficiently visible to a sufficiently effective tax
administration.

79
Basic Income on the Agenda

These two challenges do not really overturn the fundamental presumption in favour
of a PBI and, beyond it, in favour of a full individual BI for those whose ultimate
objective is neither maximal output nor maximal employment, but is captured in a
conception of justice that gives priority to the real freedom of the worst off.45 But they
do invite them to shed any dogmatism in terms of immediate political agendas. If the
cosmetic-didactic dimension of politics is taken into account, if the administrative
background conditions are given the attention they deserve, the most direct route is
not always likely to be the best one. Under certain circumstances, some of the other
strategies for fighting unemployment without increasing poverty may be either more
feasible or more appropriate. Under certain circumstances, BI may need to step aside
and give way to one of its cognates.This is a concession, but no sacrifice of principles
to expediency.To best serve ones principles, one must not stubbornly advocate, under
all circumstances, the immediate implementation of their most straightforward expres-
sion.To wish that one day, everywhere, an individual and universal BI should belong to
the acta, does not prevent one from believing that sometimes, in some places, it is bet-
ter that one of its cognates should be on the agenda.

Notes

1 On the shape and causes of the growing dispersion of (potential) earnings in OECD countries,
see e.g.Atkinson (1993a), Gottschalk and Joyce (1993),Wood (1994),Atkinson (1998), etc.
2 See Van Parijs (1987). One can conceive of other characterizations of the new social question
and the corresponding new class divide, for example by emphasizing the unprecedented
importance of ones generational location, as a result again of a set of interacting factors such
as rising life expectancy, rising potential cost of health care, development of the old age pen-
sion system and increasing ability to knowingly cause (and avoid) long-term environmental
damage.
3 This belief is consistent with our awareness that several relevant policy proposals are being left
out of the picture, in particular (1) policies which are ethically unacceptable (for example,
lowering the general level of income protection or sending working women back home); (2)
policies which, however well intended, would be counterproductive (for example, protection-
ism or across-the-board reduction in the maximum working time); (3) policies which do not
constitute substitutes but (arguably) complements to the sort of socio-economic reform we
want to focus on (for example, macroeconomic co-ordination or continued education).
4 The notion of basic income, as used here, is therefore broader than the definition standardly
used by BIEN in three important respects: it is not necessarily paid to all on an individual
basis (even if the entitlement is individual, its level may depend on household composition),
nor quite without means test (in the sense in which even a uniform refundable tax credit is
means-tested), nor quite without work requirement (in the sense in which even a broadly
characterized participation condition can be construed as a work requirement).
5 See e.g.Atkinson (1995),Van Parijs (1996), Schokkaert,Van der Linden and Van Parijs (1997),
Van der Linden (1996; 1999) and Standing (1999) for a set of arguments in favour of basic
income as an attempt to tackle (what is here described as) the new social question. See also
Fitzpatrick (1999) for a recent overview of arguments for and against.And see the web site of
the Basic Income European Network (BIEN) for a comprehensive, regularly updated, anno-
tated bibliography (http://www.econ.ucl.ac.be/etes/bien/bien.html).

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Basic Income and its Cognates

6 In this chapter, we shall focus on the social-dividend version. But much of what will be said
about it also applies to the NIT version, with the level of the lump-sum refundable tax
credit pitched at the same level as the social dividend. However, there are important differ-
ences (see Van Parijs, 1995: 35-37), some of which will be pointed out as we go along but
which are not the focus of this essay.
7 With a number of specific features to be presented shortly, our inquiry fits therefore into a
long sequence of attempts to assess the merits of alternative transfer schemes on the basis of
a careful comparison of their differential consequences, from Zeckhauser (1971) and
Garfinkel (1973) to Phelps (1994) and Besley and Coate (1995), for example.
8 In the OA range, people lose everything they earn, since each Euro earned is cancelled by an
equal reduction in the benefit. But it is precisely people whose income is in the OA range
who are the net beneficiaries of the scheme.
9 The intuitive ideas behind these results are lucidly explained, for example, in Piketty (1997).
If the aim is to maximize the tax yield, raising the rate of tax on a particular slice of income
has both a positive effect because it increases what is collected from anyone with an income
at least as high as the income levels concerned, and a negative effect because it reduces the
incentive to generate income (through work, saving, effort, etc.) for anyone whose income
level falls within the range concerned. Obviously, the positive (or distribution) effect is the
higher, the lower the income slice concerned: when taxing a low slice, one taxes the income
of nearly everyone, when taxing a high slice, one collects income from only a few.The neg-
ative (or incentive) effect, on the other hand, will depend both on the number of people
whose income level happens to fall within the slice considered and on how responsive they
are to a lowering of what they can gain from an increase of their working time, effort level,
etc. If there are relatively few people with very low (potential) earnings, one would therefore
need them to have an extremely high level of responsiveness (or tax elasticity), compared to
people with a higher income, to justify a lower, or even an equal rate of taxation on the low-
est slice of income.
10 See Van Parijs (1995: chapters 2 and 4) and, more briefly, the discussion between Scharpf and
Van Parijs in this volume.
11 To make the comparison more straightforward, we shall generally write as if we were talk-
ing exclusively about workers social security contributions. Under the received wisdom
among economists, however, it does not make much of a difference whether the social secu-
rity contributions are levied on the workers or on the firms side. Whether under perfect
competition or under reasonable non-competitive assumptions, whatever balance of forces
leads the workers net compensation (and hence their share in the burden of the levy) to set-
tle at a certain level under one administrative arrangement will lead it to settle at the same
level under the other. See, however, Rasmussen (1994) and Muysken and Van Veen (1996) for
attempts to come up with a significant discrepancy.
12 This necessity holds under the assumption that the income of the better-paid workers is not to
be taxed at a rate approaching 100 percent either. Only nearly, because it is imaginable, if there
are sufficiently few workers, not only in AB, but in the AC range as a whole (in graph G4), that
the lifting of DE to DG and the upward shift of EF (henceforth starting from G, while keep-
ing the slope unchanged) will cost so little that the marginal tax rate on gross income above C,
while unavoidably much higher than before, will still fall short of 100 percent.
13 In 1998, the federal share in the cost of TANF (Temporary Assistance to Needy Families),
the programme that replaced AFDC in 1996, was a shrinking US$ 20 billion, compared to a
growing US$ 22 billion for EITC (Figures from the Budget of the US Government kindly pro-

81
Basic Income on the Agenda

vided by Anne Alstott). For illuminating critical discussions of EITC, see Alstott (1995) and
Shaviro (1997).
14 Keeping this GMI in the background is essential to the arguments below. These, therefore,
hardly apply (even in highly stylized fashion) to the US, since (1) the main assistance pro-
gramme for able-bodied working-age people (earlier AFDC, now TANF) provides aid only
to poor single mothers with children and a very small number of poor married couples with
children, while all others have to rely on local and state general assistance programmes which
provide very little cash aid, if any; (2) even for those covered by TANF there is now a time
limit of five years.
15 At this stage, the PBI can be interpreted either as a citizens income (if it is granted without
any activity condition) or a participation income (if it is subjected to a broad condition of
participation). It can also be interpreted as either a social dividend or a negative income tax.
16 Because of the PBIs effect on lower incomes prior to the means test, less households qualify
for means-tested payments (only those in the OA range, no longer all those in the OB
range), and those who qualify are entitled to lower payments (a maximum of PM, instead of
a maximum of OM).
17 In some proposals, for example Pelzers (1996; 1999) Ulm Modell, the BI is supposed to be
funded by a specific proportional Brgergeldabgabe (citizens income levy) with a broader
income base than both social security contributions and the ordinary personal income tax
(no exemptions allowed).
18 The equivalence of PBI and EITC with RSSC becomes far-fetched as soon as they enable
(irrespective of the GMI) households with gross earnings of less than OA (=OM) to reach a
net income of OM or more. Even if regressive tax schedules are ruled out (if explicit mar-
ginal taxation in the OA range is not higher than beyond A), these limits should encompass,
in the Western European context, quite substantial PBI levels.
19 See Van Parijs (1995: section 4.6) on the importance of predictable taxation to avoid negative
employment rents. Even the introduction of a partial BI could not avoid significant shifts,
however astutely the various available tax instruments are used to minimize sudden down-
ward shocks on some categories of (not very well off) households. (See Gilain and Van Parijs
(1995) and Terraz and Joyeux (1998) for micro-simulations of various scenarios in the case of
Belgium.)
20 See, for example, the versions of NIT advocated by Mitschke (1985; 1995), Haveman (1988),
Brittan and Webb (1991), Bourguignon and Chiappori (1997), Godino (1999), and endorsed
by Castel (1999), etc.
21 In Graph G6, net earnings would no longer fall on the PF line, but, for example, on a straight
line MF, with a bigger tax adjustment beyond C. Just as a flattening of the net gains in the BC
range was a price to pay for getting the AB range out of the trap, a flattening of the gains in
the BC range is a price to pay for getting everyone out of the trap.
22 In principle, a full BI could do it too, simply by imposing, somewhat oddly, a 100 percent tax
rate on the lower layer of income (as in a variant studied e.g. by Salverda, 1984). But given
that a full BI is not needed to achieve such a profile whereas it would be to abolish the trap
, the first argument in favour of a PBI becomes decisive.
23 The measure is therefore neutral for someone with an unearned income of OC.The differ-
ence FK between the net income of a household with unearned income OC and that of a
household with earned income OC corresponds to the amount of social security contribu-
tions to be paid by the latter.

82
Basic Income and its Cognates

24 While not yielding any less entitlements to benefits than waged labour.As mentioned earli-
er, we are treating taxes and contributions as equivalent in this respect.
25 The difference also holds, in a gradually attenuated form, when the earning power accessi-
ble to the poor is a combination of formal and informal earning power.As the formal com-
ponent increases, the extent of the reduction of the trap gradually shifts and shrinks from VA
to AB (in graph G6), whereas for the other two schemes it expands from nothing to AB.
Needless to say, the difference is also reduced as informal income is treated less differently
from formal income by the tax system (at the limit, they are taxed at the same rate and with
the same probability) and more differently by the means-tested GMI (at the limit, any level
and kind of informal income can be combined with the GMI, just as with the PBI).
26 On this disadvantage of any variety of BI relative to NIT (as interpreted), see e.g. Petersen
(1997: 58): whereas the means which determine the level of the NIT transfer take the right
to support payments by spouses and relatives into account, the introduction of a nontested
transfer program would destroy the important role of self-responsibility in the family.
27 For NIT, two interpretations are possible. Either the payment of the negative tax is subject-
ed to exactly the same (willingness-to-)full-time-work requirements as the payment of the
GMI, in which case the disposable income of a willing working-time reducer follows the
sharp DO slope. Or it is kept distinct as an unconditionally refundable tax credit, in which
case the relevant slope is the milder one DP, the same as under PBI. Under the latter inter-
pretation, people with a gross income below A could claim some amount even if they are
not job seekers as an advance on their NIT, and a further amount only if they are job seek-
ers.This can easily become confusing for both the public officials in charge and, even more,
for the ordinary claimant. As long as a residual conditional GMI remains in place, therefore,
the strict, PBI-equivalent NIT is quite tricky to implement. I shall nonetheless assume that
such implementation is possible.
28 To judge by the experience of Belgiums voluntary career interruption benefit scheme, this
number may well be considerable.The scheme was started in 1986 by the then Employment
Minister (and later Director General of the ILO) Michel Hansenne.The number of benefi-
ciaries at any single time has risen from less than 10,000 in 1987 to around 50,000 in 1996
(about 2 percent of total employment), most of them women (86.5 percent) and most of
them retaining a part-time job (69 percent). See Szabo (1997: 16-18) for further data.
29 This is one of the central reasons why Phelps (1997) rejects EITC as badly designed, in
favour of his own hourly wage subsidy restricted to full-time workers.
30 Under a sufficiently broad specification of the participation condition (part-time work, edu-
cation, child care, etc.) most of what applies to PBI in this section also applies to Atkinsons
(1993b; 1996) participation income. One exception concerns the power to strike, as it
would be hard to construe strikers as fulfilling the participation condition.
31 These two facets of the human capital argument against BI are being presented as the cen-
tral objection against it, respectively, by Bovenberg and Van der Ploeg (1995) and by Krause-
Junk (1996).
32 The first argument (educational grant) is closely related to Standings (1986; 1992; 1999)
case for BI as a strategy for facilitating the back-and-forth between work and education
which our flexible economies require. The second argument is related to Mayhews
(1991) cautious claim that the introduction of a BI should lower the relative attraction of
low-skill poor-training full-time jobs from both the employers and the employees
standpoint, and thereby help a country such as Britain out of a low quality/low skills
equilibrium.

83
Basic Income on the Agenda

33 Contrary to the features of PBI discussed in the previous two sections, universality is not
shared by NIT, which will therefore side, in the discussion to follow, with EITC and RSSC.
34 See Delvaux and Cappi (1990), Jordan et al. (1992).
35 This ties up with the old theme, developed by Nooteboom (1986) and Meade (1989) among
others, that a BI would be a way of spreading entrepreneurship in the population, and also
with the idea that there is a natural complementarity between a BI and both a co-operative
economy and a share economy (see Van Parijs, 1995: section 6.4).
36 By no means do we want to imply that there are no voices in the Trade Union movement
that support the BI approach (see, for example,Van Berkel and Hindriks, 1991; De Henau,
1996). But with the remarkable and partly enigmatic exception of the Voedingsbond FNV in
the Netherlands (Van Berkel et al., 1993), there is to our knowledge no single Union leader-
ship which has openly and systematically advocated it (which cannot be said for RSSC,
employment subsidies or even forms of NIT).
37 In some countries, this effect may be reinforced by another, which derives from the differen-
tial impact of the various schemes on unemployment compensation. Under both EITC and
RSSC, the level of unemployment benefits should be hardly affected, if at all. But under PBI,
their (post-tax) level needs to be reduced by an amount about equal to the PBI. In some
countries (such as Belgium), the distribution of a large proportion of the unemployment
benefits is managed by the Unions and a significant fraction of the Unions revenues takes
the form of a share in the amount distributed by way of compensation for the expenses
incurred in the provision of this service. If the latter is dramatically reduced, the Unions may
fear that a significant part of their funding will become less secure. Even if this is not the case,
the material importance of the Unions role in the (unemployed and potentially unem-
ployed) workers eyes may be notably reduced.
38 James Tobin remembers, for example, that, in the 1972 democratic primaries, George Mc
Governs demogrant proposal (which Tobin, as his chief economic adviser, had managed to
squeeze into his platform) was ridiculed by his rival Hubert Humphrey on precisely this
ground (see Van Parijs, 1998: 8).
39 This point is neatly made by Shaviro (1997).
40 See Olson and OBrian (1990), Brown and Thomas (1994).
41 See Gauthier (1996: 164-166) on the back and forth between universality and means-testing
since 1976, and on the putative effect of universality on benefit levels. See also Bezat (1998)
on the recent U-turn in France.
42 An old and suspicious idea recently rehabilitated by Huber (1998; 1999).
43 If the strength of illusions makes a NIT version the best strategy, part of the case for an indi-
vidual PBI (versus a household-sensitive full basic income) delineated at the end of the first
section becomes shaky.
44 Each of the three main ideologies of industrial and post-industrial society can then be repre-
sented in a triangle whose angles correspond to a fully market-ruled, a fully state-governed
and a fully autonomous society: liberals, socialists and greens are interpreted as claiming that
the optimal mix of activities can be reached by moving somewhat closer to one of these
angles from where our societies currently are. See Van Parijs (1991).
45 Very little has been said here to establish such a presumption, which is vindicated at length in
chapters 2-4 of Van Parijs (1995).

84
Activation and the Burden of Working
On Instrument Choice by a Responsibility-Sensitive Egalitarian Government

Frank Vandenbroucke and Tom Van Puyenbroeck*

Introduction

With regard to employment policy and welfare reform, there is a large degree of con-
sensus among policymakers and scholars that taxes and benefits must not lead to a sit-
uation in which poor individuals (or their families) face very high marginal tax rates
when they take up a job or when their hours of work increase. Benefit systems that are
too selective are beset by inactivity traps: they discourage the labour market participa-
tion of low-skilled workers.
In academic research, various proposals, related to basic income or negative income
taxation, are put forward to remedy such inactivity traps. Obviously, other approaches
to the incentive problem for low-wage earners are possible, such as (a) topping up low-
skilled workers purchasing power by selective tax credits, (b) increasing their net pay
by lowering personal social security contributions on low earnings, or (c) supporting
sufficiently high minimum wages for low-skilled workers by selectively subsidizing
employers.These alternative instruments reflect not only technical differences, but also
more fundamental differences in approach.Therefore, it is useful first to assess alterna-
tive instruments from a normative vantage point, that is, by examining the conceptions of
distributive justice underpinning their use, before assessing them with more explicit ref-
erence to the particular problems created by tax and benefit systems in economies
plagued with involuntary unemployment.
In this paper we focus on this normative issue.Yet we start with a broader question,
namely, why the problem of inactivity traps has gained heightened attention in debates
on social policy over the last years.We present the idea of an active welfare state, which
adopts increased participation as a central goal of social policy. In our view, this idea
should also be based upon a responsibility-sensitive egalitarian conception of social
justice.The active welfare state and responsibility-sensitive egalitarianism will act as the
general background for our discussion of the relationship between a governments
normative conceptions and its eventual choice of instruments.
Subsequently, we explain why defining a government as responsibility-sensitive
egalitarian does not suffice to determine which distributive instruments it is supposed
to choose. Making specific choices depends on the collective decision rule which is
used and on normative positions taken by a government that do not reduce to respon-
sibility-sensitive egalitarianism.We look at each of these in turn. Next we present and
discuss a collective decision rule that is based on the work of John Roemer.We pro-

*
We are grateful to Alan Chipp, Loek Groot, Jeroen Knijff, Erik Schokkaert, Dirk Van de Gaer,
Robert J. van der Veen, and Philippe Van Parijs for comments on earlier versions of this paper.

85
Basic Income on the Agenda

ceed by discussing the impact of a governments normative stance with regard to its
conception of personal responsibility. In the remainder of the paper we emphasize the
impact of a governments conception of individual well-being on the eventual out-
come of using this decision rule.While we keep the level of formal analysis to a strict
minimum, we point out that a formal model can be constructed allowing for a more
general analysis of the issue (Vandenbroucke, 1999a: chapter 3; 2000).We will refer to
some of the results of this model insofar as they indicate how optimal policy design,
with regard to the use of instruments such as labour subsidies or a basic income, is
influenced by a governments conception of individual well-being.
The primary aim of such a model is to make clear how differences in a governments
normative conception lead to differences in policy choices. Such a highly simplified
representation of reality is valuable, if only because it shows that, other things being
equal (e.g. the economic environment), the way a government publicly values an indi-
viduals well-being has a profound impact on the choice of instruments.We briefly dis-
cuss whether one can go further and identify criteria for choosing between the differ-
ent optimal policies established by this model. Yet we also point out that such a
discussion may overlook some essential elements in current debates on social policy.
This point is developed more fully in the last but final section, where we return to the
idea of the active welfare state and indicate in which respect the model falls short of
capturing some of the active welfare states essential constitutive elements.We provide a
short summary and conclusion at the end.

Remedying Economic Inactivity in an Active Welfare State

A fruitful discussion of inactivity traps requires a broader perspective relating to social


policy at large. In various countries, the very functioning of the traditional welfare state
has been increasingly criticized. Briefly, doubts have been raised about the feasibility of
sustaining the welfare state, not only in view of demographic changes, but also because
new kinds of social risks have emerged (such as long-term unemployment for the low-
skilled) and social needs (such as the need to combine work with family life), which
tend to increase even further the demand for social policy intervention. Hence, current
political thinking about the future of the welfare state is also characterized, not surpris-
ingly in view of the sustainability problem, by increased emphasis on getting people
back to work.This explains why the fight against inactivity traps is high on the social
policy agenda.
Combating inactivity traps is not the only indeed, not even the most important
hallmark of a renewed social policy. To safeguard the welfare state, one must alter its
working methods, for example, by gearing social policy intervention more towards
preventive actions, by complementing social spending with social investment in human
and social capital, etc.This new kind of welfare state can be characterized as an active
welfare state (Vandenbroucke, 1999b), to express both the change of methods (an
intelligently active state) and the change of goals (a state of active people, i.e. a state
combining social protection with citizens active participation in society).
Arguably, the potential sustainability problem of the current welfare state has served
as an impetus to the debate on the re-orientation of social policy. However, this prob-
lem in itself cannot be taken as an ethical underpinning of the plea for increased partic-

86
Activation and the Burden of Working

ipation.The fundamental argument should start from the recognition that participating
in society can be regarded as an individual functioning, in the terminology of
Amartya Sen. If one advocates genuine equality of opportunity, active participation in
society should be included in any individuals option set.
Cohen states that pursuing equality of opportunity is tantamount to removing obsta-
cles to opportunity from which some people suffer and others dont (1999: 354). He
distinguishes socialist equality of opportunity from right-liberal and left-liberal alterna-
tives in that it seeks to correct for all unchosen disadvantages, disadvantages, that is, for
which the agent cannot herself reasonably be held responsible, whether they be disad-
vantages that reflect social misfortune or disadvantages that reflect natural misfortune.
We believe this maxim should apply to a social-democratic, that is, an egalitarian active
welfare state. Hence, the egalitarian active welfare state, so conceived, is bound to
address questions of individual responsibility.Thinking about distributive justice on egali-
tarian lines compels us to distinguish personal luck from personal choice.
It is not surprising that the notion of individual responsibility emerged on the social
agenda at the same time as the call for a new kind of activating social policy. Some of
the new social risks are more predictable than their traditional counterparts, and more
easily linked with personal behaviour. For example, being long-term unemployed is
closely associated with having a lower level of educational achievement. Achievement
in education obviously depends on circumstances, such as family background and
innate talents, but also on personal effort and choice. Hence, socio-economic develop-
ments in themselves already explain why questions regarding ones personal responsi-
bility are showing up more than they used to do in discussions about welfare. But, as
we have just indicated, these questions also arise if one limits the discussion as we do
in this paper to more abstract thinking about normative issues. In this paper we will
confine our discussion to the case where government is committed to the idea of
responsibility-sensitive egalitarianism.

The Idea of Responsibility-Sensitive Egalitarianism and the Practice


of Policy Making

On the most general conceptual level, egalitarians sensitive to the idea of responsibili-
ty consider it unjust for individuals to be disadvantaged relative to others because of
personal characteristics for which they are not held responsible.1 Justice requires equal
access to advantage: if everybody has such equal access, differential advantage must
reflect genuine choices for which people are responsible.2
When phrased in such a general manner, this responsibility-sensitive conception of
equality provides little guidance to a government in the actual design of its distributive
policies. More specific substantive questions have to be answered if one wants to
understand why and to what extent a responsibility-sensitive egalitarian government
would actually prefer particular instruments to achieve particular goals.What is the gov-
ernments actual conception of personal responsibility, that is, which individual charac-
teristics does the government take the citizens to be personally responsible for? What
is the governments conception of the individual well-being of citizens, or, what con-
stitutes an advantage according to this government? In addition, there is an operational
question to be answered: how will an egalitarian government actually choose between

87
Basic Income on the Agenda

alternative policies? These questions are examined in the following sections. We shall
handle the operational question first.

Responsibility-Sensitive Egalitarian Policy Choices

How will a responsibility-sensitive government actually choose between different poli-


cies? Let us start from the preliminary observation that the idea that distributive justice
should distinguish between luck and choice fits in naturally with the idea that true
equality is equality of option sets. Le Grand (1991: 87), for instance, writes: (O)ur
judgements concerning the degree of inequity inherent in a given distribution depend
on the extent to which we see that distribution as the outcome of individual choice. If
one individual receives less than another owing to her own choice, then the disparity is
not considered inequitable; if it arises for reasons beyond her control, then it is
inequitable. Le Grand concludes: (A) distribution is equitable if it is the outcome of
informed individuals choosing over equal choice sets.We propose taking as our point
of departure the view that equality of option sets provides a definition of equality tout
court.
Admittedly, our broad phrasing of what responsibility-sensitive egalitarianism
amounts to, does not refer to equal option sets, but rather to equal access to advantage,
where advantage refers to a governments evaluation of an individuals well-being
(whereby we take it that well-being can be measured in a cardinal and interpersonally
comparable way).To explain the relationship between the general idea of equal option
sets and equal access to advantage, we propose to focus immediately on the issue of
participation in the labour market. A group of people has identical option sets in the
labour market when everybody in that group has access to everybody elses job, for the
same salary, in similar circumstances, etc. Calling this situation equal access to all jobs,
one thus assumes that it holds if the only reason why individual A has a different job to
individual B is because she genuinely chooses to have a different job.There are a vari-
ety of reasons why this situation is not the same as equal access to advantage. For
example, peoples well-being in distinct jobs may be evaluated by a government in the
same way, so that two individuals may have equal access to advantage even when their
option sets are not identical. Conversely, different people may not be able to convert
identical jobs into the same level of personal advantage. Nevertheless, if a government
values the advantage of a job independently of the person who holds the job, then
equal access to all jobs is a sufficient condition for equal access to advantage.
Throughout we will assume that a government does indeed value advantage in such a
way.We will use in our numerical examples the (highly unreal) situation of equal access
to all jobs (hence, equality) as a useful counterfactual, serving as a benchmark for judge-
ments on justice.

Consider then a situation in which only two jobs are on offer, fully described by the
following data:

job F: full-time, salary 10;


job P: part-time, salary 5;
zero option Z: not working, income 0.

88
Activation and the Burden of Working

Call this option set I. Consider then option set II:

job F: full-time, salary 9;


job P: part-time, salary 6;
zero option Z: not working, income 3.

Let us further assume that alternative policies can give all people access to all the
options in option set I (by using a policy I), or to all the options in option set II (by
choosing a policy II). Hence, both policies admit equality as a result. Note that, while
both admit equality, they are clearly different. For example, policy II is naturally associ-
ated with the establishment of an unconditional basic income, whereas policy I rules it
out. We now want to indicate how a responsibility-sensitive egalitarian government
would actually decide which option set is best for the collectivity.
There is a natural way to proceed here. We could, first, determine for option set I
the choice each individual would effectively make when confronted with that option
set.3 Second, the government would proceed to value the benefits and burdens of this
choice for each individual using an objective, synthetic measure of advantage. Third,
one could average over all individuals, counting each individual for one in the weight-
ing procedure. This last step clearly has a utilitarian flavour. More precisely, it can be
seen as expressing a utilitarian conception of impartiality.The same exercise could be
performed with regard to option set II, and the government would choose that policy
which yields the highest average advantage.
It should be noted that this natural way to proceed builds into the conceptual
framework of responsibility-sensitive egalitarianism an additional idea. That is, when
making choices between policies, one should be impartial between the individuals with
whom one is concerned, and simply aggregate the advantage those individuals choose
to obtain.This feature captures an essential aspect of a methodology developed by John
Roemer (1994; 1996a: 279; 1996b) to implement responsibility-sensitive egalitarian
justice.
Let us provide a more detailed account of this implementation procedure. Consider
a world in which individuals differ from each other with regard to their economic
productivity and with regard to their preferences over income and time for non-mar-
ket activity (i.e. their propensity to work). Accordingly, one can subdivide the popula-
tion into productivity types (people having a certain level of productivity in common)
and preference tranches (people having a certain preference ordering in common).
Let us represent citizens by indexed capital letters, the letter indicating a preference
tranche and the subscript indicating a productivity level. So, A1 is a person belonging
to preference tranche A and productivity type 1. Productivity type 1 comprises a range
of citizens {A1, B1, C1,...}, preference tranche A consists of citizens {A1,A2,A3,...}.
Next, we state explicitly which individual characteristics are assumed to be the subject
of personal responsibility and which are not. Except for the following section, we will
assume in this paper that implementing responsibility-sensitive egalitarian justice requires
choosing an allocation rule that satisfies the principle no individual should be put at a
disadvantage relative to his fellows because of his lower productivity level; if such a disad-
vantage is the result of his preferences, we do not consider that unjust. (Any model sim-
plifies reality, of course. One may also consider productivity as a metaphor for productive
talents and preferences for working time as representing economic choice.)

89
Basic Income on the Agenda

Roemer then proposes to reason as follows. Ideally, what the responsibility-sensitive


egalitarian would like to do is choose the policy which equalizes advantage across pro-
ductivity types, but allows it to differ within the productivity types according to the
choices people make concerning their working time. Or, put another way, two people
with different productivity levels that have the same propensity to work should end up
with the same advantage, whereas two people with the same productivity level but dif-
ferent propensities to work should not have the same advantage. Of course, full equali-
ty is not always feasible. In such cases, the responsibility-sensitive egalitarian has to sat-
isfy herself with an allocation rule that maximins advantage across productivity types
for each preference tranche. In other words, she must look for the policy that yields, for
each tranche of preferences, maximal advantage for the worst-off productivity type. In
terms of our notation, what the egalitarian government would like to do is to maxi-
mize the advantage of the worst-off productivity type within tranche {A1, A2, A3,...},
do the same within preference tranche B={B1, B2, B3,...}, etc. Now, as such a series of
maximizations cannot be performed simultaneously, Roemer proposes to choose the
policy that maximizes a weighted average of the minimum advantages across produc-
tivity types, where the weight assigned to a given preference tranche is its frequency in
the population.
Hence, if, for example, the productivity 1 type-individuals are the worst-off in
terms of advantage in each of the preference tranches A, B, C, ..., N, Roemer proposes
a method which maximizes a weighted average of the advantage of A1, B1, C1, ..., N1. In
his own words, this position can be described as one where, when looking at a prefer-
ence tranche, it is Rawlsian; among tranches, it is utilitarian, in giving equal considera-
tion to each tranche.4 Roemer justifies this method by appealing to the fact that egali-
tarians who hold people responsible for their preferences must, for that reason, be
impartial to variations in individual preferences in the population. Responsibility-sen-
sitive egalitarians have to count each preference for one.

We now state two basic assumptions that serve to simplify the setting. First, we assume
that it is indeed the case that the worst-off citizens belong to a single productivity type
(e.g. type 1, as in our examples above). This is not, of course, a trivial assumption; it
depends not only on empirical facts, but also on the way one measures individual
advantage. Second, it is assumed that productivity levels and preferences are distributed
independently from each other.Within every productivity type one finds the same dis-
tribution of preferences; within every preference tranche one finds the same distribu-
tion of productivity types.
Under these assumptions, Roemers procedure is straightforward and proceeds as we
indicated in our examples above. First, identify the (unique) worst-off productivity
type.5 Then, select the option set that maximizes average advantage for the worst-off
group. Since by assumption the distribution of preferences within these worst-off
groups corresponds to the population-wide distribution of preferences, impartiality
between the preferences of the worst-off is equivalent to impartiality between the pref-
erences of all individuals.6
At this point, we stress two things. First, a collective choice rule such as the one just
presented is needed to guide choices between states of affairs, i.e. to turn from a situa-
tion in which a responsibility-sensitive egalitarian could only distinguish equal states
from unequal states, into one where actual policy choices (between option sets) can be

90
Activation and the Burden of Working

made. This need for guidance appears both in situations where different allocation
rules can achieve equality (as in option sets I and II), as well as in situations where only
maximin can be satisfied (where some individuals would enjoy better option sets, but
where the policy that maximizes the position of the worst-off is chosen). Second,
when calling this collective choice rule impartial, we actually refer to the impartial
way of aggregating interindividual differences in responsible traits. Clearly, the very
fact of using an objective evaluation of personal well-being,independently of the per-
son who holds the job, will introduce a bias in favour of those individual preferences
most in fitting with the publicly affirmed normative valuation.

The Governments Conception of Personal Responsibility

Given that individuals have multiple characteristics, policy decisions in a framework


such as the one just presented also depend on the question of which of these charac-
teristics people are held responsible for, and which they are not. Recall that in the very
simple world we consider, people have two characteristics: their level of productivity
and their preferences for non-market activity.
The responsibility-sensitive egalitarian way of choosing between policies can be
contrasted with a case in which an egalitarian government does not consider individu-
als to be responsible for their preferences (next to considering them not responsible for
their productivity).7 The profound difference between these two conceptions of
responsibility can be illustrated starting from our option set example. Whereas both
option sets depict an equal state if one holds people responsible for their propensity to
work, neither of them does so if the government thinks people are not responsible for
their preferences. Indeed, since the government then thinks people do not genuinely
choose the number of hours they work, equality would only be obtained in our sim-
ple setting if the reward is the same for everybody.
More generally, if we still take the maximin rule as expressing egalitarianism, such a
government would not look at averages across preference tranches. It would choose a
policy that maximizes advantage for the worst-off individual across both preference
tranches and productivity types. Clearly, such a government would opt for a policy that
differs from the one chosen by its responsibility-sensitive counterpart.
Since such a government holds people responsible for fewer characteristics, it will in
general redistribute more (referring to the example, it would prefer an option set in
which one receives the same salary, whether one chooses job F, job P, or the zero
option).This does not imply that it is more egalitarian than a responsibility-sensitive
government.They simply have a different conception of what equality (and compen-
sation) implies.
Before we proceed, we should emphasize that the conception of individual respon-
sibility and the conception of advantage are two distinct normative issues that each
bear on the ultimate choice of instruments. The first bears on how the government
aggregates something, whereas the second determines what it aggregates. In fact, the
conception of advantage would also be important if the government is responsibility-
insensitive or even non-egalitarian if its aggregation method is merely to add up
advantages.Yet, it is clear that both questions are pertinent when linking responsibility-
sensitive egalitarianism with government decision-making.

91
Basic Income on the Agenda

To keep our exposition brief, we will focus in the remainder of the paper on the
impact of the conception of advantage on the choices of a responsibility-sensitive egal-
itarian government. (We refer the reader to an appendix for an additional discussion
about the influence of the conception of personal responsibility.) Hence, we now
return to the setting in which people are held responsible for their preferences but not
for their productivity.

The Impact of the Metric of Advantage on Policy Choices

The two different option sets in our example instantiate a difference with regard to the
underlying principle of reward. In option set I, a full-time job yields twice the income
of a part-time job, whereas in option set II a full-time worker holds an income that is
only one third higher than that of a part-time worker. Moreover, not working implies
no income in option set I, whereas a work-independent basic income of 3 is available
in option set II.We have nonetheless indicated that, if people are held responsible for
their preferences, the two option sets result in equality (i.e. equal access to all jobs is
assumed to be fulfilled in both cases). The question arises of whether responsibility-
sensitive egalitarianism would force a choice between the two underlying principles of
reward.
Some have claimed that responsibility-sensitive egalitarianism entails a principle of
natural reward.Thus, according to Fleurbaey (1995: 685), an ethic of responsibility con-
veys the ideal that a society should let the agents exercise their responsibility and bear
the consequences of such exercise, without trying to distort their outcomes in a partic-
ular way and with particular incentives. If there is some natural reward scheme, it
should, according to this view, operate as freely as possible.The differentials in individ-
uals responsible characteristics should operate fully. One can formulate various axioms
specifying a principle of natural reward. Such an axiom could be constituted by the fol-
lowing requirement: if all individuals are identical with regard to the traits for which
the government does not hold them responsible, there must be no difference between
the pre- and post-transfer distribution of resources in society. Hence, in the setting we
discuss, this axiom demands that there be no redistribution when all individuals have
the same level of productivity.
In Vandenbroucke (1999a) it is argued that responsibility-sensitive egalitarianism by
itself does not lead to the imposition of natural reward, but we will not develop this
issue here.We do want to show a related point, however. On the basis of what has been
said previously, we want to highlight the interconnection between principles of rewards and
metrics of advantage.This interconnection is most visible when, starting from given spe-
cific assumptions, one establishes a highly simplified optimization model. Given specif-
ic assumptions, it can be shown that with the use of a Roemerian impartial collective
choice rule, principles of reward and metrics of advantage completely determine each
other. Or, stated differently, if decision making by a responsibility-sensitive (egalitarian)
government is based on this collective choice rule, the actual governments conception
of individual well-being will drive the choice between various ways of framing the
option sets (and hence between their associated principles of reward).8
This can be illustrated by some simple calculations on the basis of our earlier exam-
ple. Recall that the two option sets allowed for equality, and recall the three-step pro-

92
Activation and the Burden of Working

cedure we indicated for choosing between them. First, we determine the choices peo-
ple would effectively make in each of the option sets. Then, we assess the level of
advantage associated with these choices. Finally, we average advantage over all individ-
uals, counting each individual for one in the weighting procedure, after which the two
option sets can be compared. It can already be seen that valuing advantage, which
comes in at the second step, will thus be quite crucial in determining the eventual out-
come.

To illustrate this, we need assumptions about peoples effective choices. Hence, we


assume the following responses:

Given option set I,


50 percent of the population choose job F;
50 percent of the population choose job P;
no one chooses the zero-option.

Given option set II,


40 percent of the population choose job F;
55 percent of the population choose job P;
5 percent of the population choose the zero-option.

Consider, next, some alternative public systems of metric to calculate the individual
advantage associated with particular choices. In each alternative system we count the
advantage of income as being equal to 1 per unit of income.The difference between
the metrics is based on different conceptions of the burden of paid labour. More pre-
cisely, the government thinks that, when one does not take into account the monetary
reward, paid work is on balance a burden for people.Work may be a mixed blessing: paid
work brings some benefits (developing human capital, structuring ones life,) and
some burdens (having less time for the family, less leisure, etc.).We will use the burden
of working as shorthand for the non-monetary advantages and disadvantages of labour
market participation, where we assume that, on balance, the former are outweighed by
the latter. We measure the burden of working in a particular job as a disadvantage
expressed in numbers:9

Metric M1: disadvantage job F=0; disadvantage job P=0;


Metric M2: disadvantage job F=5.5; disadvantage job P=2.5;
Metric M3: disadvantage job F=7; disadvantage job P=3.

Metric M1 implies that the government measures advantage only in terms of the income
people have. Metric M2 implies that government conceives individual well-being as
being negatively influenced by working and metric M3 associates an even higher disad-
vantage with the burden of working. A lower level of disadvantage can be connected
with a government that attaches relatively more weight to the (positive) value of non-
monetary rewards associated with participation in economic activity.Admittedly, this is a
very rough and even somewhat ambiguous way of incorporating the value of participa-
tion in society.We return to the complexity of the issue under review later on.

93
Basic Income on the Agenda

Given our assumptions, calculations of average advantage yield the following result:10

Option set I Option set II

Metric M1 7.5 7.05


Metric M2 3.5 3.475
Metric M3 2.5 2.6

Clearly, if government measures peoples well-being only in terms of money, option set
I is preferable as it yields a higher average advantage in comparison to option set II. But
if we increasingly value time for non-market activity (i.e. if we attach growing disad-
vantage to working time), there comes a point at which option set II is preferable (e.g.
given metric M3), because policy Is strong work incentives lead people to overwork
on advantage-maximizing standards.
Broadening the perspective to a case where more option sets are available, the exam-
ple suggests that to each metric corresponds a best option set. Since each metric
describes a definition of advantage, we may summarize this by saying that, given the
Roemerian collective choice rule, to each governmental conception of individual
well-being, i.e. to each public metric of individual advantage, corresponds a collective
choice of the best option set, and hence, a best policy, (and a best principle of
reward). This implies that no further philosophical arguments are required within the
framework of this model to explain differences in policy choices. For example, choos-
ing option set I, characterized by the absence of a basic income, is not justified by
appealing to a principle of reciprocity (no productive contribution, no income).
Conversely, if in the above setting the government chooses option set II, this is not
because it appeals to deeper philosophical foundations justifying an unconditional basic
income. Of course, this last remark should be put into the right perspective. It should
by no means be considered as a proof of the superfluous character of such foundations
per se. For instance, White (1997) appeals to a principle of reciprocity to reject basic
income; following White, we may supplement the principle of equal access to advan-
tage by a principle of reciprocity.The approach presented here does not rely on such a
principle; in a sense, it boils down to advantage-maximizing among equal-access-to-
advantage structures.

A more General Assessment of the Influence of Different


Normative Vantage Points on Policy Choice

The conceptual apparatus presented in the previous sections can be generalized into a
formal model in which government has different policy instruments at its disposal.
Unless explicitly indicated, we assume in this and the following section that govern-
ment uses earned-income taxation and a labour subsidy as instruments. More specifi-
cally, we consider a simple case in which government taxes labour income at a constant
rate t (where we assume t 1).To this income tax scheme is added the possibility that
government taxes or subsidizes individuals in a uniform way (independently of earned
income).That is, we allow for the possibility that individuals must, next to their earned

94
Activation and the Burden of Working

Figure 1: An optimal policy track


s
a1
1

a0

0 t
1

income taxes, all pay the same tax or receive the same benefit. Denoting this fixed
amount as a transfer B, it follows that the complete income tax scheme studied here
can take the form of a negative income tax, thus creating an unconditional universal
basic income (in casu when the transfer B>0). The government can also use a labour
subsidy, with the subsidy rate s proportional to the time spent in paid work.The choice
between different policies therefore boils down to a choice between different instru-
ment vectors (B, t, s). Such a model allows for a more general systematic assessment of
alternative instruments from a normative vantage point than in the previous sections.
It can be used to check how optimal policies i.e. optimal choices of instruments (B,
t, s) are influenced by differences in the metric of advantage.
It is not our intention to present and discuss such a formal model here (see
Vandenbroucke, 1999a: chapter 3; 2000). Nevertheless, it has a clear conceptual sim-
ilarity with the examples hitherto provided, and we can therefore repeat and discuss
here some of the findings that can be obtained from such a model. As in the previ-
ous section, a key variable in this model is the governments conception of individ-
ual well-being. Income enters positively into the public advantage metric; working
time or more precisely the burden of working time enters negatively. If one
scales the impact of working time on an individuals overall advantage by a (variable)
policy parameter, thereby effectively allowing for different metrics of advantage, one
can construct a figure such as Figure 1.This figure displays the optimal policy track,
i.e. the locus combining optimal values of the instruments s and t for different met-
rics of advantage.

95
Basic Income on the Agenda

The horizontal axis of Figure 1 measures the earned-income tax rate t, the vertical axis
measures the subsidy rate s.The bold line is the optimal policy track for these instru-
ments: each point on the track between a0 and a1 is an optimal combination of income
tax rates and labour subsidy rates, maximizing the position of the worst-off productiv-
ity type among all preference tranches. In other words, each point on this track repre-
sents the best choice a government would make. Now each point on the track also
corresponds to a different metric of advantage.At the starting point a0 the government
considers paid work a heavy burden, giving it a heavy weight in its measurement of
peoples advantage. At the other end of the track, at a1, the government thinks paid
work is not a burden at all.At that point it only considers peoples income when meas-
uring their advantage. In other words, at a1, maximizing a citizens advantage amounts
to maximising that citizens income.
Hence, on the basis of such a model, one can draw the following conclusion regard-
ing the relationship between the normative stance of a government (in casu the way it
values time for non-market activity) and its eventual instrument choices:

a. The optimal earned-income tax and labour subsidy rate increase as labour counts
less as a burden in the governments conception of peoples individual advantage.

It follows that if a governments conception of individual well-being narrows down to


a moneys all that matters stance, then it will induce people to spend as much time as
possible on the shop floor. Let us next consider by way of example those cases where
the tax rate is at its (assumed) maximal value of 1. The optimal policy track still pre-
scribes higher labour subsidy rates for increasing values of a.11 In view of the observa-
tion that a higher a can be interpreted as capturing a government with a more out-
spoken emphasis on the positive value of participation in economic activity, the fact
that such a government continues to subsidize a working individual, even if t is fixed,
does not come as a surprise.

To understand conclusion a intuitively, it is important to note that it is indeed plausible


that a government with a higher a would choose to subsidize labour at a higher rate,
since this ceteris paribus leads to higher advantage (the underlying model takes it that
people will work more if they earn more). Both an individuals disposable income and
her hours worked increase with a higher subsidy, and the amount of work performed
yields less disadvantage when a increases. Of course, granting more subsidies requires
the government to increase its revenues, in order to keep its budget balanced.
Increasing revenues implies raising t, or lowering B, or both. Suppose that government
would then finance the increased subsidy entirely by increasing the uniform tax (or, if
this transfer has the opposite sign, by lowering the unconditional basic income) B.This
would run counter to the idea that the earned income tax instrument allows us to
compensate for differences in individuals productivity, which, to recall, is a characteris-
tic that is not considered as being within the realm of individual responsibility. For that
reason, the rise in s that follows from a higher a will be accompanied by a rise in t.

The fact that earned-income taxation rises as the burden of working becomes less
important may seem a bit odd by itself. But, as just indicated, this feature follows from
the fact that the government has more instruments at its disposal.To see this, note that

96
Activation and the Burden of Working

Figure 2:
Figure 2:An
an optimal
optimal policy
policy track
track when
when only
only taxes
taxes are
are available
available

0 t
a1 a0 1

Figure 2:
3: An
an optimal policy track with constrained subsidy level

1
a

a1
s*

a0

0 t
1

97
Basic Income on the Agenda

there would not be a rise in the earned-income tax rate if the government could not
observe an individuals working time and could therefore not use the subsidy instru-
ment. Indeed, in such a setting, it can be shown that the optimal tax rate decreases as a
increases.That is, when no subsidies can be used it is optimal to let the net reward for
working increase hence, let the tax rate decrease , as the burden of working becomes
less important in the public metric of advantage. This case is illustrated in Figure 2.
(Intuitively, this can be compared with our earlier numerical example: metric M3 con-
siders the burden of work relatively more important than metrics M1 and M2. On the
basis of metric M3 the government selects an option set with a lower net reward for
working).
Finally, Figure 3 displays the result for an intermediate case in which there is a con-
straint of the type s s* (covering for example a setting in which a government pays a
limited wage subsidy which benefits low-paid workers relatively more, but which is
universal qua technique to avoid training disincentives).The outcome is a mixture of
the unconstrained case considered in Figure 1 and the regime without labour subsidies
as captured by Figure 2.

Basic Income

And what about B, the constant term in the labour income tax scheme, which repre-
sents a universal unconditional basic income in those cases where B > 0? A balanced
budget requirement allows one to consider B as a residual instrument, the value of
which could be retrieved by solving B(t,s) once the other optimal values for the instru-
ments have been found. It must be noted that, in principle, a policy can be devised that
would keep a given basic income level unaffected. That is, a policy can be designed
which fulfils the requirement that any rise in government outlays for labour subsidies is
exactly offset by a rise in earned-income taxes, so that B neither decreases nor increas-
es. The crucial question is whether such a B-preserving policy would be compatible
with the optimal policy track as displayed in Figure 1, which already links the level and
movement of the two instruments s and t. Stated otherwise, if s is required to increase with
t along the optimal policy track at a more rapid rate than necessary to keep B at a given
level, then basic income will fall, given an upward move along the optimal policy track.
Or to put it in yet another way, basic income will then decrease as the normative poli-
cy parameter a rises.
It can be proven that this will indeed always be the case. In the neighbourhood of
the optimal policy track which depicts an optimal relationship between s and t an
increase in the subsidy leads to a lower level of B (which still is, given the governments
objective, an optimal level).Two conclusions can thus be drawn as regards the relation-
ship between basic income and the responsibility-sensitive egalitarian government
depicted in this paper:

b. The government will, for a given set of instruments and constraints, propose a lower
basic income level as the burden of work in the governments conception of indi-
vidual well-being becomes less important (in other words, the more exclusive the
importance the government attaches to income, the lower the basic income will
be).

98
Activation and the Burden of Working

Figures 4a,b: The conception of well-being and optimal instrument values


(a: no constraint on s, b: constraint s 0.25)

0,9

0,7

0,5
t
0,3 s
0,1
B

-0,1 a

-0,3
M
-0,5

0,9

0,7

0,5
s
0,3 t
0,1
B

-0,1

-0,3

-0,5

c. Given a set of instruments and constraints (particularly given the balanced budget-
relationship between B, t, and s), there is an irreducible conflict between the level of
the labour subsidy and the basic income level.

An alternative statement of conclusion b is that a lower basic income level is associated


with a government valuing more highly the non-monetary rewards associated with

99
Basic Income on the Agenda

participation in economic activity. Referring to our discussion in the previous section,


conclusion b implies that, in general, a rise in s will not be exclusively financed by a rise
in t.What underlies this result is the fact that a change in the metric of advantage entails
a change in the overall reward structure for paid labour, which can be achieved by shift-
ing the balance between income taxation and the unconditional transfer B.
Finally, we point out that conclusion b also holds when the model operates with an
additional constraint on the level of s.12 A fortiori, it also holds for the restricted model
without labour subsidies (i.e. where s is restricted to the value zero, as in Figure 2).
Again, the underlying reason for this result is that one seeks to increase the net reward
for working when the burden of work is regarded as less important.
To conclude the discussion of this more general model of optimal instrument
choice, we offer an alternative graphical representation of the conclusions identified in
this and the previous section. In Figures 4a and 4b, the value of a [0, 1] is measured
on the horizontal axis: from left to right, the weight of the burden of working declines
in the normative conception of peoples individual well-being. The optimal values of
the three distributive instruments as identified by the model (conditional on the
parameter values we used for this specific simulation) are given for the case that was
previously considered in Figure 1, as well as for a mixed scenario as depicted in Figure
3. Comparing the optimal policy track of Figure 1 with its counterpart in Figure 4a,
note that the labour subsidy rate s, indeed, keeps rising (initially) even when the
earned-income tax rate t is at its upper bound.The fact that the optimal policy track in
the unconstrained regions of Figures 1 and 3 is a straight line is mirrored in Figures 4a
and 4b, since in such regions the t- and s-curves are related through a linear transfor-
mation. Our conclusion a can be inferred directly from the alternative representation
in Figure 4a, whereas Figure 4b shows the reversal in the movement of t as soon as s is
constrained. Focusing on the work-independent transfer B, one sees that, initially, we
have a basic income, but as a increases the unconditional transfer decreases.This pro-
vides an illustration of conclusion b.As we have stated earlier, and as is shown in Figure
4a, B can even become negative, that is, a poll-tax. Overall, the two figures also reveal
the residual, budget-balancing character of B, thus providing a graphical illustration of
conclusion c.

An Optimum Optimorum?

A model such as the one outlined produces a systematic catalogue linking different
distributive policies with different public conceptions of advantage and/or with differ-
ent conceptions of personal responsibility. It thus adds flesh and bone to the generic
concept of a responsibility-sensitive egalitarian government.To repeat, for the simple set-
ting outlined above, a government that gives little weight to time for non-market activi-
ty will, other things being equal, opt for a policy with higher labour subsidies and a
lower basic income. Or, as stated earlier, it is the governments stance towards the non-
monetary advantages and disadvantages of labour market participation that can ceteris
paribus be considered as the driving force between different policy choices.
Some may ask whether there exists something like an optimum optimorum on the
optimal policy track.That is, whether the different optimal policies are not merely dif-
ferent per se, but differ in offering greater or lesser justice. In other words, one could

100
Activation and the Burden of Working

take the findings of the model as a point of departure and then ask whether a policy
favouring labour subsidies over basic income offers greater or lesser justice than its
opposite. Within the framework of the model, this requires one to focus on choices
between different metrics of advantage.
In this respect, we first point at a negative result that follows from conclusion c iden-
tified above. Conclusion c is important with respect to the operational value of the real
freedom inclusion rule discussed by Van der Veen (1997; 1998) in the context of the
broader debate on basic income.Van Parijs (1995) defines real freedom as the ability to
do what one might want to do (irrespective from what one actually does).Van der Veen
(1997; 1998) suggests an ordering of option sets on the basis of this concept:a persons
real freedom is said to improve from one regime to another if and only if his choice set
unambiguously expandsIf someones choice sets in two regimes contain non-over-
lapping income-leisure combinations, it follows that the extent of his real freedom in
this regimes cannot be compared. (1997: 276-277) The irreducible conflict between s
and B when the metric of advantage changes results in any pair of alternative option
sets (defined by t,s, and B) not being comparable on the basis of the real freedom met-
ric.The real freedom inclusion rule has consequently no operational value as a means
to help someone choose between alternative definitions of advantage.13

An alternative approach starts from the observation that metrics of advantage and
principles of reward determine each other, given the adoption of a Roemerian impar-
tial collective choice procedure and specific assumptions of the model under review. If
one accepts the argument stated earlier that a principle of natural reward is intimately
linked to responsibility-sensitive egalitarianism, then one can use such an (axiomatic)
principle to identify its associated advantage metric, which we may then call the neu-
tral conception of advantage.This would evidently amount to the identification of a
specific point on the optimal policy track, given the parameter values in the complete
model.

While we have indicated above that one may raise fundamental doubts about the fact
that responsibility-sensitive egalitarianism necessarily entails such a principle of natural
reward, it is still true that someone could wish to rely on it to select a specific policy.
When this is the case, the following result becomes highly relevant (see
Vandenbroucke, 1999a). If government opts for a neutral conception of advantage by
adhering to the axiom that there should be no redistribution when all individuals have
the same productivity level , and if it can achieve equality by using earned-income
taxes and labour subsidies, then it will not cash out a basic income. In other words, it
follows from a model such as the one outlined above that a neutral government that
can achieve equality (as its optimal policy), will use earned-income taxation exclusively
to fund labour subsidies.14,15
Of course, it is clear that if one introduces an external argument for choosing a
metric of advantage, a particular point on the policy track may be justified. But, to
engage in such an exercise against the background of real-life debates on social policy
carries the danger of missing another, more important point.To wit, that the underly-
ing model is extremely simple. We limited our analysis to redistribution via a
(Walrasian) labour market in this paper.The only individual endowment that was con-
sidered is internal, namely, the individuals productivity level. Obviously, individuals

101
Basic Income on the Agenda

also have external endowments, such as houses or capital, yielding an income that can
also be redistributed in a welfare state. Moreover, active participation in society is not
limited to participation in the labour market.With specific reference to the idea of the
active welfare state mentioned in the introduction, it is therefore essential to consider
what this model does not capture.

Beyond the Model: Policy Choices in the Active Welfare State

Let us return to the idea of the active welfare state and its ethical foundations as they
were identified in the first section, and confront them with the set-up of the model. It
is important to point out that the model reduces the discussion on participation to a
simple dichotomous choice. Increasing participation in the model only refers to par-
ticipation in the labour market. Of course, such an interpretation is appropriate if one
wants to study inactivity traps.Yet the perspective should be broader in current discus-
sions on social policy. Our goal should refer to participation in society, rather than to a
narrower interpretation confined to labour market participation.
Indeed, one should recall that the ethical justification of the active welfare state con-
siders participation in society as one of the social bases of respect and self-respect,
thereby making clear that one should not merely look at participation in the labour
market. For, evidently, the social bases of respect and self-respect can also be strength-
ened through other, non-market activities such as taking care of a child, a parent, a
friend, voluntary social or cultural work, etc.
One could claim that such activities are nevertheless subsumed in the model, more
specifically through the individual advantage associated with time for non-market
activity. Still, this is a rough and indirect manner to treat them. It is a rough manner
because it does not allow us to distinguish between various forms of non-market activ-
ities e.g. pure leisure versus voluntary social work, versus taking refresher courses,
etc. which could be valued differently by the government. Moreover, such valuations
would then again be dependent on normative choices (relating to the question of to
what extent such activities are considered as bases for respect and self-respect), which in
this instance could be captured in principle by some multidimensional metric of
advantage. It is an indirect manner because the advantage of time for non-market activ-
ity appears in the model only as the mirror image of the disadvantage associated with
the burden of paid labour (which turns the model into a simple dichotomous model).
More generally, the model lacks an explicit valuation of participation in social activi-
ty, be it in or out of the formal labour market. Indeed, also with regard to participation
on the labour market, there is no direct reference to its capacity as a social basis of
respect and self-respect. In short, it would be erroneous to consider the model as one
that describes how different conceptions of participation would influence policy design.
Put into the right perspective, it is a model which is suited to capture the influence of
public valuations of some specific qualitative aspects of paid labour (such as stress, or its
opportunity cost in terms of time for other activities), but it does not address the
importance of participation per se.
Finally, the model is very much a simplification because it has no intertemporal
dimension and, therefore, can only incorporate a limited set of distributive instruments.
The broader conception of participation in society requires one to think about the

102
Activation and the Burden of Working

most appropriate combination of work and non-market activities over the entire life cycle
(e.g. should we not design policies such that, as compared to the current situation, peo-
ple work less between ages 25 and 40, and more between ages 55 en 65?). A relaxed
labour market would allow people to leave and re-enter the labour market easily (e.g.,
in order to care for someone, to update their qualifications, or simply to replenish their
reserves; see Vandenbroucke, 1999b). The model we have presented cannot capture this
conception of a relaxed labour market. Assuming that it could capture it, and neglect-
ing the other problems we have just discussed, it is not at all clear whether a govern-
ment granting a high value to an individuals time for non-market activity would still
opt for a high basic income, or whether it would instead favour other policies such as
attaching to every job a right to full-time or part-time sabbatical leave, which acts as a
more direct (qualitative) supplement to the monetary reward of paid labour.

Summary and Conclusion

Getting (poor) people back to work is an important concern in many of todays


welfare states, although opinions differ on why and how one should achieve this
goal. It is precisely this matter of differing opinions which we wanted to focus on in
this paper. We have shown how the publicly affirmed relative valuation of income
and time for non-market activity drives the choice of a responsibility-sensitive egal-
itarian government between earned income taxes, labour subsidies, and an uncondi-
tional basic income. The model, we believe, can illuminate the choice between the
instruments it considers. For example, it highlights the irreducible conflict between
the level of the labour subsidy and the basic income level, or points out the absence
of basic income if the government is committed to a neutral conception of advan-
tage and can achieve equality.Yet, it is still a limited model. It is, in particular, too
limited to offer an adequate description of an active welfare state, which is also
founded upon the notion of responsibility-sensitive egalitarianism, but rests on a
broader interpretation of participation as a goal for society and allows for a larger set
of policy instruments.
Hence, one should avoid extensive optimum optimorum-debates within the confines
of a limited model.We nevertheless think it is worthwhile to convey the basic message
that a discussion about how to get rid of inactivity traps is not merely a matter of
choosing the most appropriate instrument given economic circumstances.We have to
make a complex political choice on at least two issues: a conception of responsibility,
and, as we stressed in this paper, a conception of individual well-being. As we have
mentioned in the previous section, if a richer model were to be constructed, it would
ultimately need to address the same kind of issues in a multidimensional way.
Therefore, even if one constructs a model that directly addresses the broader idea of
participation and/or allows for more instruments, one still faces the issue that the way in
which one measures the quality of life or the level of advantage in particular that of the
worst-off co-determines policy choices with regard to distributive instruments.
Being a responsibility-sensitive egalitarian is no sufficient basis for guiding policy
choices. Implementing policies presupposes that one makes choices concerning the
metric used to evaluate the quality of life; a choice that can only emerge from demo-
cratic debate in general and from the political process in particular.

103
Basic Income on the Agenda

Finally, it serves to note that such choices are implicitly made in daily practice, such
as through the use of poverty and inequality measures that serve as benchmarks for
social policy.To the extent that these benchmarks are exclusively based on the distribu-
tion of income or wealth, they presuppose an extremely biased conception of individ-
ual well-being. Indeed, just as it has become generally acknowledged that GDP is not a
very adequate indicator of economic development, this model carries the message that
monetary inequality measures are at best only partial indicators of distributive justice.

Appendix

The Governments Conception of Individual Responsibility

The model in Vandenbroucke (1999a; 2000) also systematically compares different nor-
mative conceptions of individual responsibility. With reference to the figures in the
main text, the difference between a government that holds people responsible for their
preferences and a government that considers individual preferences as non-responsible
traits can be equally captured by a difference in the parameter a. Specifically, except for
some limiting cases, a government that does not hold people responsible for their pref-
erences will have a lower a. Hence, the results that were identified above mutatis mutan-
dis carry over to a case in which one analyses differences in normative conceptions
regarding personal responsibility.We can consequently state the following conclusions:

a. All things being equal, a government that considers people responsible for their
preferences concerning time for non-market activity will propose a higher earned-
income tax rate and labour subsidy rate than a government that does not hold peo-
ple responsible for their preferences.16

b. For a given conception of advantage, and given a set of instruments and constraints,
a government that considers people responsible for their preferences will propose a
lower basic income level than a government that neither holds people responsible
for their productivity nor for their preferences for working.

Obviously, the choice of instruments is not exclusively driven by normative concep-


tions, but by the economic environment as well.To illustrate this, we reproduce here a
simple formal expression for the optimal earned-income tax rate in a regime without
labour subsidies.The optimal t in this case depends on two variables, the policy param-
eter a, and a factor J that captures pre-tax inequality:
0.5 - a J (wL / w) 2
t= where J=
1-aJ s w2 / w 2+1
with w denoting the citizens individual productivity. Hence, J is a factor that decreases with
two measures of inequality: (i) the productivity level of the worst-off, wL, divided by aver-
age productivity, and (ii) the coefficient of variation of the productivity levels. In line with
our previous discussion, this expression shows that t decreases as the policy parameter a
rises. But it also shows that, in a regime without labour subsidies, earned income taxes will
decrease when inequality (as measured by J) decreases.

104
Activation and the Burden of Working

Notes

1 We are well aware that behind this phrase lies the difficult debate as to what responsibility
means, i.e. whether one is responsible for a certain characteristic because one is actually in
control of it, or whether one is held responsible for that characteristic on the basis of a
mutual agreement.
2 This succinct statement is inspired by Cohen (1993: 28; 1989: 916).
3 This first step is the natural way for economists to proceed: they traditionally assume that the
real value of an option set lies in the best use that can be made of it, which is under their
usual assumptions the use that is actually made. This can be criticized from a freedom per-
spective, i.e. it can be said to neglect the importance of flexibility for individuals (the impor-
tance of having options which are not actually taken up, but which might be taken up given
some change in preferences).
4 The expression utilitarian may be somewhat misleading in this context since we are not
comparing utilities, but a publicly affirmed objective notion of advantage. Nevertheless, it
clearly reveals the similarity with the utilitarian conception of impartiality.
5 Note that the simple example deals with a case in which two equal states are compared.
Therefore, in this example everybody belongs to the worst-off (or best-off) type, implying
that we will have take into account the effective choices of the entire population to calculate
average advantage. This is notably the way we proceed when choosing between the two
option sets of the example (as can be seen in more detail in note 10).
6 Moreover, if these basic assumptions hold true, Roemers approach yields the same results as
those obtained through a slightly different implementation procedure proposed by Van de
Gaer (1993) and Van de Gaer, Martinez, and Schokkaert (1998). On this, see Vandenbroucke
(1999a).
7 At the risk of introducing some confusion in terminology, such a government could be
labelled Rawlsian, since Rawls in his mainstream exposition rules out individual responsi-
bility for work effort (Rawls, 1971: 312).
8 Of course, as we mentioned at the end of the previous section, the conception of advantage
will influence the choice between policies as soon as advantage is an argument in the social
objective function of a government.
9 This implies that we allow for the inclusion of time for non-market activity in the Rawlsian
bundle of social primary goods.
10 For instance, for the entry combining option set I with metric M2, the average advantage is
found using the formula 0.5 x (10-5.5) + 0.5 x (5-2.5) = 3.5. Or, given option set II and
metric M1, using (0.4 x 9) + (0.55 x 6) + (0.05 x 3) = 7.05, etc.
11 It can be seen on the figure that the track eventually stops at the point where s=t=1. This
feature follows from the assumption that t can be at most 1, and from a labour supply con-
straint in the complete model ensuring that an individual cannot work more than a certain
maximum number of hours.The latter requirement is fulfilled if the subsidy is not set high-
er than the income tax rate.
12 Cf.Vandenbroucke (1999a).
13 Referring to the appendix, it also cannot help to choose between different conceptions of
personal responsibility.
14 As the model in Vandenbroucke (1999a) allows for another revenue source, viz capital
income taxation, and for spending on education, the result as identified there states that,
under the conditions identified in the main text, there will be no positive basic income

105
Basic Income on the Agenda

unless there is a positive residual left after having funded educational expenditures generated
by the capital income tax. In other words, if this residual were negative, B<0, and one ends
up with a uniform poll tax to co-fund education.
15 Moreover, given the specialized setting identified in the main text, it can be shown that this
result is essentially the Egalitarian Earnings Subsidy Scheme as proposed by White (1999).
Recalling our remark at the end of section entitled The Impact,Whites underlying idea
of reciprocity (no paid work, no subsidy) is thus vindicated in this setting, without having to
appeal to other philosophical foundations than those presumed in the maximin rule and
neutrality.
16 Again, the relationship between the value of a and the level of t has the opposite sign if one
considers a regime without labour subsidies. In this case, a responsibility-sensitive govern-
ment will propose a lower earned-income tax rate than a government that does not hold
people responsible for their preferences concerning time for non-market activity.

106
Arguing for a Negative Income Tax in Germany
Joachim Mitschke*

Introduction

At the 1998 Amsterdam Congress of BIEN, three alternatives of providing basic secu-
rity consistently with raising employment were discussed:

1. a tax-financed, institutionally independent and unconditionally granted basic


income,
2. a negative income tax and
3. a permanent wage subsidy.

As I shall argue, I am in favour of a negative income tax (henceforth NIT). However,


my arguments are not meant to claim comprehensive validity independently of
national or historical conditions. My position is more modest. It is based upon the
contemporary institutions of the tax and transfer system in Germany, which is marked
by a historic dualism of tax-financed social benefits and contribution-financed social
insurance entitlements of wage-earners. My plea for NIT, in the form of the Citizens
Income Plan Brgergeld addresses the experiences, debates and expectations sur-
rounding policies of income taxation, social security and the labour market as they
exist in Germany. My argument in favour of Brgergeld thus rests on a specifically
German evaluation of current social problems and worthwhile social goals.
In general, I take the view that each country has to find its own ways and means to
achieve a social optimum, even though the different alternatives of providing basic
security have general advantages and disadvantages not limited to either a specific loca-
tion or time period. While my ranking of these alternatives in terms of their problem-
solving capacities is addressed to the German case, it may offer insights that are useful
in other countries, to the extent that similar problems and similar goals exist in those.

Diagnoses of the German Labour Market Policy and Social Policy

The necessity for a new social and employment policy framework


For decades now, the level of hard-core unemployment has risen whenever the econ-
omy has shown signs of recovery.And the (timid) economic upturn at the turn of 1999
is passing the labour market by as companies cut jobs and further automated their pro-
duction during the previous recession. Also, companies hesitated in hiring new
employees, with the experience of the recession fresh on their minds, and they hesitate
even when more orders start coming in again. Economy and society can take the rise
* Translated by Tina Haux and Anna Klinkner.

107
Basic Income on the Agenda

of unemployment, despite all the bitterness for those affected by it, as long as the vol-
ume of the redundancies is not too high and as long as it can be absorbed in tradition-
al ways through unemployment benefit, unemployment assistance, employment pro-
motion schemes, and social assistance in order to prevent the worst damage. Now,
however, the social net is beginning to be torn apart because a level of unemployment
has been reached which no longer allows us to ignore the doubts about the function-
ality of the traditional economic and social policy framework.
The German Council of Experts on Economic Development calculated in their
annual report of 1997/1998 that the total of open (registered) and hidden unem-
ployment in Germany amounted to 6.3 million people who are both able and willing
to be in paid employment given a rate of 11.4 percent of registered unemployed (4.3
million unemployed).1 There is no doubt that neither quantitative nor qualitative
growth of production can reduce the lack of jobs to a bearable level. Growth of pro-
duction on a national or supranational level encouraged through measures such as
investment- or demand-oriented tax policy, through money supply or adaptation of
interest rates as well as through deregulation of employment organization may be
effective in the fight against unemployment due to the business cycle. However, it can-
not be of any use where the employment and social political framework has created
wage levels which prevent the creation of jobs.There we do not have a temporary busi-
ness cycle problem but a structural shortfall of employment opportunities.
According to the official labour market statistics, about half of the registered
unemployed do not have any completed professional training.2 Hence, it is above all
the unskilled or low-skilled workers in lower wage brackets who are affected by unem-
ployment.The steady reduction of low-paid jobs can firstly be explained by the basic-
wage policy which the unions have pursued for decades.This wage policy has levelled
off wage differentials without taking into consideration qualificational differences, and
has thus raised labour costs, including non-wage labour costs, above their productivity,
particularly in the low-skill and low wage bracket.
Secondly, the German treasury has increased non-wage labour costs by using not
only tax-financed but also increasingly contribution-financed benefits for social
policy. According to the original ideas of Bismarcks social legislation, the purpose of
the latter is to provide a contribution-equivalent inter-temporal reallocation of the
individuals purchasing power, instead of a comprehensive interpersonal redistribution.
Due to the lack of a universal tax-financed basic security, social policy has increasingly
relied on compulsory work-related social insurance (for health, pensions and unem-
ployment) in guaranteeing a minimum standard of living.The insurance funds have had
to raise their contribution levels. Interpersonal redistribution in pension insurance has
been estimated to range from 25 percent to 40 percent of the pension volume, and was
calculated by the Association of German Insurance Funds for 1995 to have been 101.8
billion DM.3 What was originally meant to be the subject of a society-wide contract,
has thus become a cost-increasing part of the individual contract of employment.
The unions are reluctant to agree to lower wage brackets in collective bargaining,
because they are concerned about the minimum living wages of low-paid workers.
The basic income function of wages cannot be performed by any of the transfers of the
present system. Unemployment benefit and one type of unemployment assistance are
paid for within a limited amount of time anyway. Moreover, it is often necessary to top
up the insufficient unemployment assistance benefit with social assistance. German

108
Arguing for a Negative Income Tax in Germany

social assistance was originally conceived to alleviate the individual situation of mem-
bers of social fringe groups, rather than being conceived as a transfer for absorbing
extensive unemployment. According to the latest statistics, about 40 percent of social
assistance recipients are registered as unemployed.4 These numbers do not yet include
the potential social assistance recipients who have been made redundant in the course
of the mass dismissals of the past few years, and who are currently receiving either
unemployment benefit or unemployment assistance. The share of social assistance
recipients in Germany seeking employment will be likely to rise to more than half.
Social assistance, however, is only able to repair the financial consequences of unem-
ployment in a meagre way. Substantial psychological and social burdens also remain.
Firstly, apart from small exemptions, earned income is fully deducted from social assis-
tance.Thus, monetary incentives to re-enter the labour market are being undermined
to a great extent. Secondly, even if the recipient of social assistance is willing to work,
he is faced by means-tests which extend to members of the family.Thirdly, social assis-
tance administration involves large material powers of discretion, giving rise to insecu-
rity of entitlement. Finally, being the recipient of social assistance is typically accompa-
nied by a social stigma.
The sheer size of funds which have to be raised by the communities to
finance social assistance expenditures make it obvious that social assistance in Germany
cannot replace the basic security function of wages. For these reasons, it is understand-
able that the unions, for the time being, refuse to open up the clauses in existing wage
agreements so as to re-employ workers with insufficient training or experience. The
result may be that employers will continue to reduce low-skilled jobs, or transfer them
abroad.
Within the existing framework of labour market policy and social policy,
trade unions and firms behave quite rationally, though they do so to the detriment of
society. Employers behave rationally when cutting unprofitable jobs with high wages
and low productivity; organized workers behave rationally when they insist on pre-
serving decent minimum wages in the lower wage brackets. Low-paid workers are thus
faced with a dilemma: if they claim a living wage, then they jeopardize their jobs; but
if they agree to lower wages to safeguard their jobs, then even worse they jeopard-
ize their subsistence level. Consequently, employees fight together with unionists to
protect minimal living wages, with the predictable result of job losses.
However, the party in the labour market process which does not act rational-
ly is the government. In setting an action framework which cannot be utilized by mar-
ket participants to preserve low-qualification jobs, it is mainly financing unemploy-
ment instead of employment, at a tremendous cost to the tax payer and those paying
social security. In addition, as noted above, the government is applying the wrong
(contribution-financed) instruments for basic security and interpersonal redistribu-
tion, with the result that it further accelerates the demographically caused increase of
non-wage labour costs. Given this perverse set of institutions, it is hard to feel sympa-
thy for politicians who complain that German politics is being held responsible for the
disastrous employment results of collective bargaining, on which politics is said to have
no influence.
The reduction of low productivity jobs is by no means an inevitable tribute
to technical progress. Firms are not driving technology forward as an end in itself, but
because the replacement of manpower by automation is paying off. In the increasingly

109
Basic Income on the Agenda

important service sector, there are inherent boundaries to rationalization. But new, sim-
ple jobs are also being created by automation in industrial production. It is an issue,
however, whether these jobs will remain viable due to the cost of labour.

Unsuitable cures following traditional recipes


The weaknesses of the employment- and socio-political framework have not gone
unnoticed by parliament and government.Yet legislation and administration have stuck
to more or less marginal corrections of the outdated employment policies. Apparently,
a more radical change of ideas would be uncomfortable for ideological, party political
and bureaucratic reasons. The current series of employment promotion measures5 is
based on the assumption that the wage level cannot be controlled by the state.Thus the
attempt is made to reduce the disparity between work productivity and wage level by
raising the level of qualifications.
But this approach has serious limitations.Years of experience of state-subsidized
training, for increased professional and employment qualifications, and of private
retraining and job-creation companies, show that these qualifications can only be
improved within narrow talent- milieu- and age-specific boundaries. Such programs
cannot compensate for the thrust of dismissals on the regular labour market, and
become more difficult to sustain as the requirements of productivity grow faster and
faster through international competition in labour and goods. It is well known that
East-Asian developing countries now possess production technology which until quite
recently was thought to be exclusively in German possession. Either the cheaper day-
labourers are coming from the neighbouring states (Poland, the Czech republic), or the
cheaper import products from afar.
There are also politics of state support for the secondary labour market through
wage subsidy and other job creation schemes. Unfortunately, these are only a drop in
the ocean.There are not that many fallow lands of industry to rehabilitate, and there is
not that much communal child care, care for the elderly or upkeep of public amenities
to go around to even out the unemployment balance sheet after the redundancy waves
in private industry. However, efficiency objections to such schemes of market interfer-
ence weigh more heavily than these limitations of scope.The jobs which are created by
the public sector in the secondary labour market are lost to the regular labour market,
for example in redevelopment companies, garden shops and private homes for the el-
derly. Consequently, these practices do not bring about an increase in the number of
job vacancies. If money from taxes and social security contributions is available for such
work, then local authorities should place the orders with private companies, who,
experience shows, are better able to place workers than authorities and national com-
panies. It does not make sense to establish a secondary labour market with public funds,
apart from exceptions such as workshops for the handicapped.
Lately, the state has also started to financially support the regular labour market in
order to preserve or create jobs. This is done through temporary wage subsidies.
However, this kind of policy is largely ineffective as it only enables local government
to pass on the cost of supporting the unemployed.Treasurers of cities are subsidizing
private firms who employ social assistance recipients. These wage subsidies usually
run for six months up to a year, and sum up to DM 1,500 per month, which often
exceeds the social assistance payments, and amounts to more than half of the work-
ers gross pay. The result is predictable. To obtain an unsubsidized job at the same

110
Arguing for a Negative Income Tax in Germany

wage rate, after the subsidy ceases, the former social assistance recipient would have
to double his productivity within (less than) one year. With a few exceptions, this
does not succeed and most workers will be unemployed again. However, neither the
budget of the city, nor that of the subsidized firms will have suffered from the oper-
ation.The tax payer picks up the bill as long as the subsidy lasts. Moreover, the cost
of supporting the dismissed workers is financed by the Federal Employment Service,
as they are now entitled to social insurance benefits, rather than locally financed
social assistance.Thus the buck is being passed, as it were, between state institutions,
with hardly any gain in employment.

Requirements for an employment-friendly basic transfer


From these insights and experiences, five requirements can be deduced for a new basic
transfer which creates and preserves employment:

On the one hand, the basic transfer has to be preventive, and set wage-induced
incentives for employers to preserve or create low-qualification jobs. Free-rider
behaviour has to be avoided. On the other hand, the basic transfer must enable
employees and potential employees to stay in work or to find a job, at a lower wage.
This makes it necessary to conceive the transfer as a wage-supplementing income,
which must be reliable, indiscretionary, easy to administer, needs-oriented, and with-
out time limits.

The wage supplementing transfer should aim first and foremost to supplement wages
earned in the regular labour market.

The basic transfer has to be tax-financed. It should ease the financial burden of social
insurance caused by elements of interpersonal redistribution, so that the demographi-
cally caused increase of social security contributions and non-wage labour costs will be
slowed down, if not exactly halted. Proposals (such as Biedenkopf and Miegel, 1997)
which integrate social insurance in a comprehensive tax-financed basic security with
additional voluntary private provisions throw the baby out with the bathwater. Apart
from constitutional problems, it is to be expected that insufficient voluntary private
provisions would lead either to mass poverty in old age, or to pressure to increase the
level of basic security payments, which would then become too expensive.

Taking into account all needs-oriented benefits, the basic transfer has to be worthy
of a welfare state, but it must not reach a level of comfortable living. In particular, it
has to be ensured that the disposable income of those in employment is always suffi-
ciently above the income of those receiving only the basic transfer to act as a work
incentive.

In view of the federal debt and the negative effects of a tax increase on employment,
the reform of basic security can only be designed within budget neutrality.

111
Basic Income on the Agenda

The Brgergeld-Plan as a Negative Income Tax Approach:


Stability of Social Security and a Flexible Labour Market

Aims and design


A reform of social security which can fulfil the five requirements just listed, and which
enables the search for acceptable compromises in labour market and social policy, is the
Brgergeld-Plan. It has been suggested by me, as a specific variant of a NIT (see
Mitschke 1985; 1993; 1994; 1995).
Listed in order of priority, the aims of the Brgergeld-Plan are threefold. Firstly, to
combat structural unemployment in the low-wage sector of workers with poor qualifi-
cations. This aim follows the maxim that a successful employment policy is the best
social policy. (Note, however, that Brgergeld is not an instrument to deal with unem-
ployment in the high-wage sector of employees with competitive qualifications.)
Secondly, to establish general prevention of income poverty for whatever reason; whether
in times of education and training, in cases of disability, sickness, pregnancy, child care or
insufficient retirement benefits, Brgergeld recognizes that in the future, changes of work
biographies will leave more and more income gaps to be filled. And thirdly, Brgergeld
minimizes the redistributive apparatus of the state and reduces dispensable social bureau-
cracy. In this section, it will be shown how these aims are interlinked in the design of
Brgergeld.
Unlike social assistance, which is a palliative, Brgergeld is conceived to be preventive,
designed to prevent the emergence of unemployment. It creates the conditions
under which unskilled or low-qualified employees can take jobs with lower wages without
having to fear for their material existence. It thus aims to tap the potential of employment,
which is estimated to be 4.7 million net jobs by the Cologne Institute of the German
Economy.6 Other research7 and my own approximate calculations show a similar figure.
New jobs for the low-qualified can be opened up in Germany especially in the retail trade,
repair and maintenance service, catering, tourism and many social services. The main
emphasis of job-creation is on small business and middle-sized companies, which already
provide more than three quarters of the jobs in Germany today .
As with all negative income concepts, the basic idea of Brgergeld is to incorporate
welfare benefits and income taxation into one system. All tax-financed social ben-
efits will be combined into a universal transfer, the Brgergeld, applying uniform social
and means-tested criteria. The level of this universal transfer determines the amount to
be deducted in the calculations for tax allowances, especially that of child and basic tax
allowances. Thus, social assistance and related benefits can be smoothly transferred into
the tax system without the unbearable and unintended jumps of the current tax and
social law. The following benefits could all be integrated:

child benefit, parental allowance, housing and training allowances;


unemployment assistance (which is tax financed, unlike unemployment benefit
which is financed through contributions);
both regular and supplementary forms of social assistance;
means-tested and individually assessed subsidies in social housing, farming,public trans-
port, y outh work and communal activities;
redistributive elements in social insurance, which can be detached fr om existing social
insurance entitlements.

112
Arguing for a Negative Income Tax in Germany

.As will be explained below, the Brgergeld system requires that income from employ-
ment or property be taxed by 50 percent after taking account of social insurance con-
tributions. For example, an unskilled worker, single, working half-time, without any
wealth, would be entitled to DM 1,100 Brgergeld after allowing for family status,
work ability, etc. Suppose that this worker earns DM 900, net of social insurance con-
tributions.Then DM 450 would be deducted from his Brgergeld, and he would end
up with DM 900 net pay (tax free) and DM 650 Brgergeld, which sums up to DM
1,550. He would then receive DM 450 more than if he did not work, and received
only the Brgergeld. But DM 450 less than if he would earn at full-time work.There
would always be a wage gap due to the arithmetic of the system.Thus, the Brgergeld
does not lock people into low paid employment, as the transition to better paid or full-
time employment is smooth, and financially rewarding.
To integrate tax revenue and tax-financed welfare benefits, while at the same
time retaining the contribution financed social insurance, seems sensible.The reason is
that socially motivated tax allowances and needs-oriented elements in wage bargaining
apply the same or similar grounds of entitlement as social minimum benefits.A further
advantage of integration is that the tax and transfer claims would be netted for all
employees, so that the public tax and welfare budgets would not be inflated without
redistributive effects, as is the case today. The income, tax and welfare systems would
thus become better adjusted to each other in an administratively much simpler frame-
work. This is particularly necessary in Germany, where 38 different authorities and
semi-authorities administer 155 different tax- and contribution financed policies.8
The Brgergeld-concept represents a way to top-up wages below the subsis-
tence line which is acceptable for both employees and trade unions. It frees workers
with low wages from the dilemma of having to choose between a high wage which
threatens to eliminate their jobs and a low wage which jeopardizes their material exis-
tence. It also makes it easier to create part-time jobs, which many employees want, or
which are the only jobs offered to them anyway. In this respect, Brgergeld avoids
some problems of negotiated labour time reduction under present conditions.A short-
ening of the working week from five to four days would need to be followed by a 20
percent cut in gross wages in order to be neutral with regard to wage costs. Most com-
panies are unable to compensate for such a cut in wages by reducing elements of
remuneration beyond the wage agreement, as Volkswagen has done. On the other
hand, workers on low wages would come dangerously close to the subsistence level if
their wages were to be cut by 20 percent. Under Brgergeld, the effect of a 20 percent
wage cut would be reduced to only a 10 percent reduction in disposable income.This
would enable a cost-neutral reduction of working hours to take place in a socially
acceptable way. To go without a compensatory wage increase does not necessarily
mean to go without the respective amount of income. A clear majority of employees
prefer an acceptable reduction of income to the loss of their jobs.
After decades of experience of collective wage increases, it is hardly to be
feared that trade unions will be unable to prevent individual employers from pressing
through wage reductions unrelated to productivity, if collective bargaining agreements
in the low wage sector were to be opened up, after introduction of Brgergeld.
Brgergeld is not a wage subsidy in the traditional sense anyhow.The employee is the
recipient, not the employer. It is based on comprehensive individual needs (other jobs,
income through property, family status, ability to be in employment, etc.) instead of

113
Basic Income on the Agenda

being linked to the insufficiency of one particular type of income. Because of its com-
prehensive nature, Brgergeld is better when it comes to targeting, and it therefore
requires less money than wage subsidies. Social partners would not agree to lower
wages paid for by the volume of subsidies and the tax payer, without having good rea-
sons to do so. However, such apprehension is justified for traditional wage subsidies.
The interest of the employee to watch the level of his income remains, as his
Brgergeld is only compensating for half of the wage reduction. This prevents firms
from taking advantage of the Brgergeld-system.
Incentives for clandestine work will continue to exist, as long as earned income is
not completely free from contributions and charges. To exempt the low wage sector
entirely from such charges would be indefensible, both from a social policy and fiscal
point of view. Yet, it takes two to arrange clandestine work, an employer and an
employee. Brgergeld, by enabling social partners to agree on lower wages, may reduce
the incentives of employers to avoid negotiated wage costs, including social insurance
contributions, through unrecorded employment the more so since this practice is
always penalized. Thus, the decisive impulse for the reduction of clandestine employ-
ment through Brgergeld is likely to be coming more from the side of the employers,
rather than from the employees.

To summarize, Brgergeld is an integrated tool for meeting subsistence needs from a


multiplicity of causes, without having to rely on the traditional system of fragmented
and badly co-ordinated means-tests. It is more amenable to stimulate market incentives
in the relatively inflexible German system of wage-bargaining, and less reliant upon the
bureaucracy of social assistance, since its entitlements are independent of wage or
income status. As has been argued above, unlike present-day German social assistance,
the administratively simple, reliable, sufficient, permanent and non-stigmatizing basic
income of the Brgergeld can coexist with a relieved system of social insurance in
Germany. It is basically a form of minimum income guarantee which underwrites
needs through mobilizing employment. In particular, Brgergeld:

1. preserves and create jobs in the low-wage sector,


2. makes it easier to set-up and fill part-time jobs, and
3. to absorb negotiated wage cuts and reductions in working hours, thus avoiding
unnecessary dismissals.

In short, Brgergeld may help in the adjustment towards a more flexible labour market,
and more flexible circumstances of lifetime work, without far-reaching social conflicts.

Financing
Politicians dealing with taxes have the habit of not paying much attention to the social
and economic conditions of getting the revenue; politicians dealing with social policy
have a tendency of not thinking through how their favours can be financed.This brings
us to the topic of financing.The very first proposal of Brgergeld (even though it was
designed in times of economic growth) was determined to respect the conditions of fis-
cal neutrality (Mitschke, 1985).This is because it is neither reasonable nor honest to bur-
den other parts of the national budget, or the tax payers, with the financing of a struc-
tural reform of basic security, even in times of a growing economy and high tax revenue.

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Arguing for a Negative Income Tax in Germany

For any size of Brgergeld, the break-even level of earned income which marks the
transition from transfers to taxes, with a tax rate of 50 percent, will be at twice the size
of the Brgergeld. According to my own calculations (Mitschke, 1993) of the first
order effects on the basis of 1992 figures, the notional average size of Brgergeld for
1992 would have to be at DM 9,200, when adjusting the average subsistence level for
adults and children according to the rulings of the constitutional court. This would
mean a break-even level of DM 18,400.Taking into account the average tax allowance
in this year, the consequent loss of income and wage tax receipts would be 25.5 billion
DM. This loss would be entirely compensated by the reduction of legal and illegal
cumulation of benefits, as well as the abolition of object-centred subsidies to those in
need.Thus, the introduction of Brgergeld could be achieved under budget neutrality
without reducing the level of basic social security and without tax increases. In this
calculation, moreover, the savings on administrative costs, as well as the abolition of
minimum income guarantee provisions in the existing social insurance laws, have not
been taken into account.
These results have been contested in alternative calculations of the financing
required by Brgergeld, which arrive at higher estimates of the amount of foregone
tax receipt to be covered, and also envisage lesser savings from the abolition of existing
basic security provisions.9 After reviewing the evidence, a recent report of the General
Secretary of the German Council of Experts on Economic Development (Hther,
1997) has confirmed that a budget neutral introduction of Brgergeld, along the lines
I have sketched, is feasible after all. According to the report, the financing needs of
Brgergeld (as estimated by the costing method of the Institute for World Economy in
Kiel, for 1996) would in the worst case scenario be as high as 24 billion DM. However,
the reduction of benefit claims as a result of Brgergelds positive employment effects
have not been included in this calculation.And according to the report, every 100,000
persons taken off the benefit rolls would reduce the total of social security outlays
including social insurance by about 4 billion DM. Thus, if 600,000 of the unem-
ployed were re-employed under Brgergeld, then its budget neutrality would be
achieved.This figure is not implausible, given that the employment potential for those
with low qualifications is estimated to be as high as 4.7 million jobs, if collective wage
agreements are opened up.
To be sure, there are limits on a viable way of financing basic security of the kind
I have outlined above.These limits, as demanded by both politics and society, lead us
to reject casting basic security in the form of an entirely unconditional basic income. In
theory, an unconditional basic income might correspond to the same configuration
of effective marginal tax rate and benefit (Van Parijs, 1995: 57). The crucial differ-
ence, however, would be that the basic income (of the same size as the entitlement
of Brgergeld for a person without any earned income) is paid out unconditional-
ly to every adult, independently of taxation. As a result, the volume of taxes needed
to cover this huge amount of social benefits would have to increase drastically, and
the perceived burden of taxation on each persons earned income would increase
correspondingly, even though most of the tax would of course flow back as basic
income. For example, a persons earning 4,000 DM a month (net of social insur-
ance) would have to pay a virtually confiscatory amount of 2,000 DM to the tax
authorities, and receive DM 1,000 from a different channel, the basic income dis-
tribution authority.

115
Basic Income on the Agenda

This way of financing the system would be politically disastrous. It would increase
resistance against distribution, due to the sheer size of the tax budgets and benefit
expenditure volumes. It would also surely overstretch the solidarity with those in need:
the poor would be blamed for the confiscatory tax burden on the wage earners. Hence,
even though the incentive effects of unconditional basic income might be exactly the
same as those of Brgergeld (being based in the same effective tax schedule), the
chances of basic income achieving social integration through increasing labour partic-
ipation would be utterly ruined.10

Political Response to the Brgergeld-Plan in Germany

The Brgergeld-Plan which I elaborated (Mitschke, 1985) was adopted about six years
ago by the Christian-Democratic Employees of Germany, the Business Association
North Rhine-Westphalia within the Conservatives and by the Free Democratic Party
FDP of the liberal wing.11 As a result of this, a close examination of my proposal has
been incorporated into the coalition agreement between the Christian Democratic
and Social Union CDU/CSU and the FDP for the thirteenth term of German parlia-
ment (CDU/CSU/FDP, 1994) which ended in autumn 1997.12
The commission of experts for Alternative Tax and Transfer Systems, of which I
was member just up to the passing of the commission report, was set up by the then
Chancellor following the coalition agreement. It rejected the integration of personal
income tax and tax-financed social benefits which I proposed, but it nevertheless rec-
ommended the co-ordination of numerous benefits in a new department for social
transfers.13 In spite of the commission result which had been pre-programmed by the
then Chancellor and party leader of the CSU, both the CDU of the Lnder Hessen and
Saar included the option of my Brgergeld-concept in their employment programmes
of 1996. Similarly, the federal CDU decided to aim for an integration of the tax and
transfer system under clause 76 of its manifesto in Hamburg in 1994.14 The FDP
explicitly wrote the Brgergeld-Plan into its manifesto in Wiesbaden in 1997 and in its
election programme of 1998.15
Even though the heads of the German trade union council (DGB) and the power-
ful metal union (IG Metall) show themselves willing to consider a new form of basic
security in the face of increasing unemployment, especially in the low-wage sector,16
the majority of unions are still opposed to opening clauses of wage agreements for
lower wage brackets, and they also oppose a tax-financed basic income.This stance of
the unions has led to a divided attitude towards issues of basic income within the Social
Democratic Party SPD of Germany. Whereas the left-wingers reject a tax-integrated
basic income, both the leadership of the party and the parliamentary wing have
declared the concept to be worth considering. The political-economic hypotheses
which have been presented by the candidate for Chancellor call for wage subsidies in
the low-wage sector through NIT.17 In addition, the commission on the future spon-
sored by the social democratic Friedrich-Ebert-Foundation, in which I was a non-
party member, is looking at my basic income concept as the best proposal to overcome
the negative effects of the German welfare state on employment, even though it has
pointed at the considerable obstacles involved in a transition from the existing arrange-
ments (Zknftskommission der Friedrich Ebert Stiftung, 1998: 262).

116
Arguing for a Negative Income Tax in Germany

Finally, the green party (Bndnis 90/Die Grnen) has abandoned its idea of a stan-
dard basic income, put forward during the last federal election campaign in 1994. It has
now included in its program a needs-orientated basic income,18 which contains some
elements of my Brgergeld concept. Nevertheless, the party is not in favour of inte-
grating basic security in the tax system.According to the coalition agreement between
the SPD and the Greens, the new coalition should develop a concept of a needs-ori-
ented social basic income, and introduce it step by step.19

Summary in the Form of Seven Hypotheses

1. A basic security which is complete, reliable, transparent and permanent facilitates


the use of human labour. It does so by supporting the person in the increasingly fre-
quent phases of life in which little or no income is earned: training, retraining, part-
time employment, change of career, illness, pregnancy, child-raising, and also in the
initial stages of setting up ones own business.

2. Unlike the present welfare benefit system, a basic income of the Brgergeld-type
acts to prevent the formation of unemployment in the particularly hard hit low
wage sector (of the low qualified and those for whom it is difficult to obtain further
qualifications) by permitting the opening of collective agreements without hurting
the subsistence requirements of the workers.This increases the possibilities of low-
ering wage costs, and is particularly important since unemployment is not due to a
lack of supply but rather to insufficient demand for labour in this sector.With basic
income security, new jobs can be formed which pay off for the employer, even if
the employee has little training or qualifications, and needs of the employee would
be covered in a reliable, permanent way with little bureaucracy involved. Society
finances employment instead of unemployment.

3. Basic security through NIT increases the incentive to work due to the more
favourable rate at which earned income is effectively taxed, in comparison with the
current system of welfare benefits. On the other hand, the limited compensation of
the wage reductions provided by Brgergeld prevents employers from taking
advantage of the subsidization effect in wage negotiations. Furthermore, the incen-
tives to accept clandestine work diminish for both employers and employees. The
arithmetic of the system ensures that those in employment will always be better off
than those solely relying on basic security.

4. Basic security through NIT decreases the volume of state redistribution substan-
tially as it balances tax and transfer claims: citizens are no longer financing their
own transfers through taxes. Both the tax and the social expenditure budget
shrink.

5. Basic security through NIT can be financed without a general increase in taxes,
while maintaining the level of benefit entitlement.The costs are mainly to be met
through replaced social transfers, the abolition of unnecessary object-subsidies, as
well as superfluous provisions of minimum security within the social insurance sys-

117
Basic Income on the Agenda

tem. In the long run, the positive employment effects which can be expected will
also reduce the financing burden of social insurance more generally.

6. The NIT serves to co-ordinate tax and social legislation, and to simplify its respec-
tive administrative requirements. By combining the different tax-financed social
benefits that presently exist in one system, it facilitates mutual adjustment of their
purposes.Thus, the bureaucracy of social policy will be cut back, as the same or sim-
ilar social and economic data will no longer have to be collected several times.

7. The integration of social benefits in the tax system reduces the stigmatization of
those in need of basic security.This will counteract the tendency of society to split
into a class of state supporting tax payers and a class of state burdening social
claimants.

Notes

1 Announcement of the federal government: Annual Report of the German Council of


Experts on Economic Development. German Parliament, 13th legislation period, Druck-
sache 13/9090, 18.11.97, p. 91 ff.
2 There were 4,308,094 registered unemployed, 1,629,537 without completed professional
qualifications, summing up to 37.8 percent at the end of September 1997. In the old
Lnder the rate of the unemployed without professional qualifications was 45.7
percent, in the new Lnder it was only 21.1 percent: Bundesanstalt fr Arbeit, Struktur-
analyse 1997. Bestnde sowie Zu- und Abgnge an Arbeitslosen und offenene Stellen.
Sondernummer der amtlichen Nachrichten der Bundesanstalt fr Arbeit, Nrnberg
1998, p. 8, 48 and 136.
The formally lower rate in the new Lnder is giving the wrong picture of the whole of
Germany. In the former GDR a duty to enter some form of training or eduction pro-
gramme existed and many of the qualifications do not meet the requirements of the market.
3 See also: Transfer-Enqute Kommission: Das Transfersystem in der Bundesrepublik
Deutschland. Bericht der Sachverstndigenkommission zur Ermittlung des Einflusses
staatlicher Transfereinkommen auf das verfgbare Einkommen privater Haushalte. Stuttgart,
1981, p. 247-9; Wagner, G: Umverteilung in der gesetzlichen Rentenversicherung.
Frankfurt/New York, 1984; Schmhl, W: Finanzierung sozialer Sicherung, in Deutsche
Rentenversicherung, 9-10/9186, p. 541-570; Andel, N: Finanzwissenschaft, 4th edition,
Tbingen 1998, p. 468-471; Ruhland, F: Versicherungsfremde Leistungen in der geset-
zlichen Rentenversicherung, in: Deutsche Rentenversicherung, 1/1995, p. 29-31 for doubts
related to the constitution; Schlenger, M: Versicherungsfremde Leistungen in der
Gesetzlichen Rentenversicherung Einsparungen anstreben. Schriften des Karl-Brr-
Instituts des Bundes der Steuerzahler,Volume 86.Wiesbaden 1998, p. 12.
4 Statistisches Bundesamt; Statistik der Sozialhilfe. Empfnger/-innen von laufender Hilfe zum
Lebensunterhalt am 31.12.1997.Arbeitsunterlage,Wiesbaden 1998, p. 14-15.
5 In addition to advice and placement these include the special measures for employees,
employers and the providers of training and employment according to the third book
(Arbeitsfrderung) of the Sozialgesetzbuch, such as the support measures of the
Bundessozialhilfegesetz (especially 18, 19 and 20 BSHG).

118
Arguing for a Negative Income Tax in Germany

6 Kls, H.-P.: Analyse: Dienstleistungslcke und Niedriglohnsektor in Deutschland, in iw-


trends, 3/1997, p. 33-59; Kls, H.-P.: Dienstleistungslcke, Niedriglohnsektor und transfer-
politischer Reformbedarf. Paper presented at the second meeting of the circle of experts
Dienstleistungsbeschftigung im 21. Jahrhundert in the Soziologisches Forschungsinstitut,
20/21 February in Gttingen. Institut der deutschen Wirtschaft, Kln 1998 (to be pub-
lished).
7 Sesselmeier, W., Klopfleisch, R., Setzer, M.: Mehr Beschftigung durch eine negative
Einkommenssteuer: Zur beschftigungspolitischen Effektivitt und Effizienz eines integrier-
ten Steuer- und Transfersystems. Sozialkonomische Schriften, Volume 10 (ed. Rrup, B.),
Frankfurt am Main, 1996; Klopfleisch, R., Sesselmeier, W., Setzer, M.: Beschfti-
gungspolitische Mglichkeiten einer negativen Einkommenssteuer, in Konjunkturpolitik,
43 Jg. (1997), p. 224-247.
8 Mitschke, J., Schildbach, S.: Enumeration der wichtigsten in der Bundesrepublik
Deutschland existierenden steuer- und beitragsfinanzierten Geldleistungen sowie der sie
verwaltenden Behrden und Krperschaften des ffentlichen Rechts. Frankfurt am Main,
1996 (Umdruck).
9 Becker, I.: Das Brgergeld als alternatives Grundsicherungssystem: Darstellung und kritische
Wrdigung einiger empirischer Kostenschtzungen, in: Finanzarchiv, N.F. 52, 1995, p. 306-
338; Deutsches Institut fr Wirtschaftsforschung (DIW): Fiskalische Auswirkungen der
Einfhrung eines Brgergeldes, Report for the Chancellor, revised by Meinhardt,V. et al.,
Berlin 1996; Institut fr Weltwirtschaft at the University of Kiel: Das Brgergeld ein sinn-
volles Konzept? Abschlussbericht zum Forschungsauftrag der Friedrich Naumann Stiftung
(authors: Boss,A. and Gern, K.-J.), Kiel 1996; Rrup, B., Sesselmeier,W.: Mglichkeiten und
Grenzen der Entkopplung von Erwerbsarbeit und sozialer Sicherung. Report for the
Zukunftskommission der Lnder Bayern und Sachsen, Darmstadt 1996.
10 In my advisory report on basic income for Austria (Mitschke, 1997), I have calculated how
much taxes would need to be raised in order to finance an unconditional basic income. Basic
income for the year 1995 would cost 619,585 billion Schilling, if it is differentiated by age,
as has been considered by parties and welfare organizations, and set at a monthly rate
excluding benefits which are contribution financed of 4,000 Schilling (under 15 years),
6,000 Schilling (between 15 and 20 years) and 7,000 Schilling (over 20 years). The social
expenditure which is tax financed was 253,638 billion Schilling that year which means that
about 366 billion Schilling would have to be found in addition to pay for a universal basic
income in Austria. This does not include costs caused by the transition. Note that the tax
revenue through income and wage tax of that year was 180.2 billion, not even half of the
additional cost.
11 Christlich Demokratische Arbeitnehmerschaft Deutschlands (CDA): Press conference CDA
and WIV on the topic: Negative tax Brgergeld, Informationen CDA 22.11.1993,
Knigswinter 1993; Freie Demokratische Partei F.D.P.: Sozial- und Gesellschaftspolitik. To
the Brgergeld-system: Excerpt from the draft for discussion of the manifesto for the gener-
al election 1994, Resolution of the BHA in Madgeburg from 15 and 16.03.1993 as well as
the manifesto of the F.D.P. for the general election 1994, Part VII, Social policy, Health poli-
cy and Societal policy, p. 36-38.
12 CDU/Christlich Soziale Union CSU/Freie Demokratische Partei F.D.P. (1994), Koalitions-
vereinbarung fr die 13. Legislaturperiode des Deutschen Bundestages. Bonn, 11.11.1994.
13 Expert-commission Alternative Steuer-Transfer Systeme: Probleme einer Integration von
Einkommensbesteuerung und steuerfinanzierten Sozialleistungen. Report, Schriftenreihe
des Bundesministeriums fr Finanzen,Volume 59, Bonn 1996, particularly p. 103 ff.
119
Basic Income on the Agenda

14 Christlich Demokratische Union CDU Hessen:Arbeit in Deutschland Programmentwurf


zum Landesparteitag. Kassel 1996, p. 11-12; Christlich Demokratische Union CDU Saar;
Arbeit fr alle Programmentwurf zum Landesparteitag. Neunkirchen 1996; p. 5; Christlich
Demokratische Union CDU: Grundsatzprogramm. Freiheit in Verantwortung. Resolution
of the fifth party conference of the CDU from 23 February 1994 in Hamburg. CDU
Dokumentation 7/1994, Bonn 1994. See also Christlich Demokratische Union CDU North
Rhine-Westphalia: Mehr Gerechtigkeit und weniger Brokratie durch ein neues
Steuersystem (Negativsteuer/Brgergeld).Application of the CDU-party in the Lnder par-
liament of North Rhine-Westphalia, Drucksache 11./13.1.1994.
15 Freie Demokratische Partei F.D.P.: Wiesbadener Grundstze: Fr die liberale Brger-
gesellschaft. Grundsatzprogramm der F.D.P. Resolution from the 48. Regular Party
Conference of the F.D.P. on 24 May 1997 in Wiesbaden, Wiesbaden 1997, Section 11: Der
liberale Sozialstaat, p. 37-39.
16 Statements by the DGB-leader Schulte in the Frankfurter Allgemeine Zeitung no. 179,
5.8.1997, p. 11 and of the head of the IG-Metall Zwickel in Der Spiegel no. 50/1994, p. 96.
17 See also statements by the then head of the SPD Rudolph Scharping in the Frankfurter
Allgemeine Zeitung no. 54, 4.3.1995, p. 15 and by Lafontaine in Der Spiegel no 41/1997, p.
32 as well as Sozialdemokratische Partei Deutschlands/Wirtschaftspolitischer Diskussions-
kreis: Eine echte Renaissance der Sozialen Marktwirtschaft. Eckpunkte einer sozial-
demokratischen Modernisierungs- und Reformpolitik Thesenpapier des wirtschaftlichen
Diskussionskreises, published in: Die Zeit, Gerhard Schrder, die SPD und die konomie:
Ein Pldoyer fr mehr Wettbewerb, unternehmerische Tatkraft, Innovationen, no. 39,
19.9.1997, p. 28-29 (hypothesis 9).
18 Bndnis 90/Die Grnen-Bundestagsfraktion (1998), Die Grne Grundsicherung. Ein
soziales Netz gegen die Armut, Bonn.
19 Sozialdemokratische Partei Deutschlands SPD/Bndnis 90/Die Grnen (1998), Aufbruch
und Erneuerung Deutschlands Weg ins 21. Jahrhundert. Koalitionsvereinbarung vom
20.10.98, published in: Handelsblatt, Dokumentation (I), (II), (III) und (IV), no. 203,
21.10.1998, 63.

120
Hush Money or Emancipation Fee?
A Gender Analysis of Basic Income*

Ingrid Robeyns

One of the major attractions of the basic income debate is its genuine interdisciplinary
and multi-dimensional character. This diversity of the discussion is reflected in the
publications on basic income. These include philosophical theories (e.g.Van Parijs,
1995), economic studies providing a theoretical analysis of implementation proposals
and labour market effects (e.g. Atkinson, 1995), microsimulation models predicting
labour market effects and testing budgetary feasibility (Atkinson, 1995; Gilain and Van
Parijs, 1995; Nelissen and Polk, 1996) and socio-economic analyses studying a basic
income in the context of welfare state reforms (e.g. Schokkaert,Van der Linden and
Van Parijs, 1997;Van Parijs, 1990;Walter, 1989).
However, most of this research is gender blind in the sense that it does not tackle the
question of whether a basic income would have different effects on men and women.
Moreover, when gender aspects are occasionally discussed, the claims on the desirabil-
ity of a basic income for women are quite contradictory.
Proponents of a basic income argue that unpaid work would get some recognition
(Miller, 1986;Walter, 1989;Withorn, 1990), that the autonomy of poor women (McKay
and VanEvery, 1995) or all women (Walter, 1989) would increase, that it would help to
achieve greater gender equality in the labour market by improving womens bargaining
position and by encouraging men to work part-time, thus allowing them to share more
in domestic work (Standing, 1992) and that it would be possible to choose for unpaid
labour (Miller, 1986;Walter, 1989). Jordan (1998: 93) argues that a basic income would be
a compensation that does not confine women to their homes, but recognizes unpaid
work as an essential element in the reproduction of the national social system.
Additionally, it would offer some income to men and women willing to forego labour-
market opportunities in order to do it. Jordan evaluates a basic income for women very
positively, and argues that a basic income will lead to a maximum of the population hav-
ing basic autonomy so that they can participate on chosen terms in the household, the
informal public sphere and the labour market (ibid.: 173, my italics). Jordan further
believes that a basic income might ensure that a couple negotiates over paid and unpaid
work roles from positions of relative autonomy (ibid.: 194). Parker (1993) is the only
author whose positive evaluation is explicitly conditional. She argues that a basic income
holds more advantages for women than the British social security system, not because a
basic income favours women, but because the current British social security system ben-
efits men more. However, according to Parker a basic income is not enough to change
*
A related article on gender and basic income but focusing on the moral problems and related
justice considerations, called Will a basic income do justice to women? is published in a special
issue on basic income of Analyse und Kritik. I would like to thank Mieko Bond, Sarah Bracke,
Loek Groot, Roland Pierik, Erik Schokkaert, Holly Sutherland, Guy Van Camp, Robert-Jan van
der Veen and Walter Van Trier for comments on earlier versions of this text.

121
Basic Income on the Agenda

the current situation, and equal opportunities and equal wages are crucially important.
In conclusion, proponents see basic income as a kind of emancipation fee for women,
as it will make it possible for women to get financial recognition and support for a way
of living that values unpaid care work, hence enhancing her autonomy. Implicitly, this
view uses a concept of emancipation that does not focus exclusively on paid work, but
also on more societal recognition for unpaid work that is typically performed by
women, i.e. child care and household work.
These positive evaluations stand in sharp contrast with the belief among some fem-
inists that a basic income will be a kind of housewives wage, sending women back
home and tempering emancipation. Basic income is seen as hush money, providing a
financial reward for household and care labour, so that women are expected to be
grateful (or at least contented) instead of advocating more profound changes in their
societal position and gender roles. Emancipation is here inextricably linked with paid
work and financial independence through labour market activities.
According to Orloff (1990), a basic income is not a good strategy to reach gender
equality and justice. She claims that the unequal division of household responsibilities is
crucial in the explanation of the disadvantageous position of women in society and that
other elements of social policy, which alter the structure of both paid and unpaid work,
can be much more effective to reach gender justice. Although there are very few aca-
demic articles arguing for this point of view, it has often been raised by audiences of aca-
demic or public debates on basic income. Some feminist pamphlets and articles in popu-
lar magazines also strongly oppose a basic income. However, it is important to stress that
not all feminists share this belief there are also feminist advocates of a basic income.
I want to address the question of whether a basic income is favourable for women,
and if so, under what conditions and to what extent. What are the gender-related
effects of a basic income, and how will the introduction of a basic income interact with
several gender-related aspects of society, such as gender roles? First, I provide a positive
gender analysis of a basic income by distinguishing the first order effects and the sec-
ond order effects. Second, some normative arguments are presented. Next, I focus on
the conflicting claims of the desirability of a basic income for women. In the last but
final section I discuss some brief suggestions on how a basic income could be integrat-
ed in a broader packet of social policy measures, in order to evade its undesirable gen-
der effects.The last section draws some conclusions.

A Positive Analysis: First Order Effects

First order effects are the direct effects taking place in the short run.They are more vis-
ible, easier to recognize, and individuals are more aware of these effects than the second
order effects, which only take place in the long run.There are three relevant first order
effects: changes in labour market supply and participation, changes in incomes, and
changes in direct well-being derived from (professional) activities as people have more
possibilities to do the work they like most.1

Labour supply effects


If a basic income were introduced, what would be the expected labour supply reaction
of men and women? Neoclassical economic analysis concludes it to be theoretically

122
Hush Money or Emancipation Fee?

impossible to predict these labour supply effects (Atkinson, 1995; Nelissen and Polk,
1996). Do empirical studies perform better?
In general, most empirical research on labour supply and participation agrees that
the labour market participation of women is positively influenced by the educational
degree and the net wage, whereas the number of children, the age of women, the non-
labour income of the household and the income of the husband all have a negative
effect on womens labour market participation. Concerning the number of hours
women work, a consensus only exists with regard to the negative effect of the number
of children.Atkinson (1995) reviews the relevant literature and stresses the complexity
of estimates on female labour supply. Empirical labour economists agree rather unani-
mously on the highly inelastic character of male labour supply.The change in female
labour supply is much harder to predict, and depending on the estimation specifica-
tions, wage elasticities vary from close to zero to two.
As far as I know, there are only two studies estimating womens labour supply
changes after the implementation of a basic income, both concluding womens labour
supply will decrease. Ksenne (1990) modelled the introduction of a basic income of
15,000 BF (about 360) on a small-scale representative Belgian sample, financed by a
constant marginal tax rate of 42 percent.This change in the tax system would decrease
the labour supply of women with about 20 percent, but Ksenne argues that there
would hardly be a decrease of the female participation rate. However, this is only pos-
sible if there is a large increase in part-time jobs.
Nelissen and Polk (1996) find on the basis of Dutch data a wage elasticity of the
labour supply of 0.79 for women, compared to 0.10 for men.The elasticity of the non-
labour income is -0.20 for women, while there is as good as no effect for men. The
authors simulate a basic income amounting 900 Guilders (about 390).They simulate
the situation in 1990 compared to 2015, and find an increase in the labour market par-
ticipation of men from 77 to 84 percent, whereas for women it would decrease from
49 to 40 percent. An important finding is the large differentiation among women: for
low skilled women, this decrease would be around 30 percent, compared to only three
percent for female graduates.
Finally, we can point at the labour supply effects after a recent policy reform in
Belgium, which gives workers a premium for a career interruption.The Belgian feder-
al government pays monthly 12,066 BF (about 287) for a full-time interruption,2
and the Flemish government adds to this a premium of 2,670 BF (about 64) for a
part-time interruption or 4,450 BF (about 106) for a full-time interruption. It turns
out that 85 percent of the employees making use of this system are women.The moti-
vation for taking a career interruption equally differs: women leave their job to raise
small children, whereas men try to start an independent business, or use it as a transi-
tional stage to early retirement (Szabo, 1997).
Summarizing these labour market effects, we can expect that the labour supply of
women will decrease, though probably not en masse. It is very difficult to give an idea
of the magnitude of this effect. Microsimulations use information on the behaviour of
women actually in the work force, but a basic income could lead to such drastic cul-
tural and socio-economic changes that we do not know how reliable this information
is. Furthermore, the labour supply of men and women differs drastically over genera-
tions. Hence, information on the labour supply of the working-age women could be
of limited predictive use for new generations. Social experiments might therefore be a

123
Basic Income on the Agenda

better source of information on expected changes in the labour market. However, the
current career interruption premia can serve as an approximation of such a real-life
experiment, and it does show a strong gender effect.
We should also note that it is not clear whether predominantly low-educated or
high-educated women will change their labour supply.The results of Nelissen and Polk
for the Netherlands are contradictory to recent experiences with career interruption
premiums in Belgium, which are used more by highly educated women. A hypothesis
might be that a small basic income has a negative effect on the labour supply of highly
skilled women, whereas low skilled women will only redraw from the labour market
when the basic income is high enough.A possible explanation could be that low skilled
women are often more income insecure and poor, and therefore it would be impossi-
ble to withdraw from the labour market when there is only a small basic income.

Total income effects


It is very difficult, if not impossible, to predict the changes in total income for house-
holds, and for womens income expressed in absolute levels and expressed relative to
their husbands income.Therefore, I give only some general remarks.
Those women who had no income from labour or unemployment benefits, will
experience a pure income improvement.These are mainly housewives, women not eli-
gible (yet or anymore) for unemployment benefits and students.
For married or cohabiting women, it is impossible to predict whether their income
share relative to their partner will increase or not.To judge this effect, one has to take
into account all the details of the basic income proposal that would be implemented,
and of the particularities of the fiscal system of the country under consideration. For
example, in a country with a progressive tax on labour earnings, a basic income pro-
posal financed by a flat tax on wages will on average lead to a larger decrease in net
wages for wives compared to husbands.This is because wives on average earn less then
their husband, and therefore are less taxed under a progressive tax system. If then a basic
income is introduced, and neither husband nor wife change their labour supply, the
wife will have a greater labour income loss compared to her husband.
The amount of a basic income will be of crucial importance when we ask whether
the basic income will compensate the labour income loss of those women previously
working and who decrease their labour supply. It is obvious that a monthly basic
income of, say, 500 will, in this respect, do a far better job than a basic income of
100.
For lone mothers, a basic income appears to be an improvement. If social security
allowances are paid for the amount exceeding the basic income, as proposed in e.g.
Gilain and Van Parijs (1996), single mothers can only improve their financial situation.
The major positive effect will be a (partial) elimination of the poverty and the unem-
ployment trap. Jane Lewis (1998) claims that single mothers need incomes from all pos-
sible sources: fathers, the state, and labour. Single mothers experience great difficulties
with decisions concerning paid labour, due to the responsibilities they bear both as pri-
mary care taker as well as breadwinner. Flexibility, therefore, has to be central when
developing a social policy for single mothers. If a basic income is seen as a pedestal
upon which other social policy rules can build, this will definitely be an improvement
for single mothers.

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Hush Money or Emancipation Fee?

Effects on the choice of labour and job


The last first-order effect of a basic income is the higher subjective well-being that
individuals can gain when they are able to choose the job they like better but which is
worse paid, or when they can choose for unpaid care labour instead of wage labour.
Many young mothers want to withdraw (temporarily) from the labour market to raise
their children themselves. If these women have to choose between a badly paid job, or
the possibility to stay at home, the second option is much more attractive to many of
them.

Second Order Effects

In this section, I discuss the second-order effects which appear the most important for
judging the desirability of a basic income for women.

A revaluation of unpaid and care work


We can expect that a basic income will lead to some revaluation of unpaid work. In
Western societies, there is a societal tendency to undervalue unpaid work, especially
household work and care labour. European societies often value the job one has as the
most important source of status and integration into society.A basic income will in an
indirect way contribute to a financial revaluation of unpaid work, which might also
help to increase the respect people show for this kind of work. However, it is not sure
and even impossible to predict whether a basic income will lead to a substantial revalu-
ation of unpaid work.

Gender-related effects of a basic income for children


An important gender-related effect will be the different effects a basic income for chil-
dren will have on their father and mother. I see two direct ways in which a basic
income for children has a beneficial effect for mothers.
First, the childs basic income can serve as a financial benefit or wage for the care
taking parent, which is almost always the mother. Moreover, parents will receive the
basic income for their children irrespective of whether they take care of the children
themselves at home, or bring them to child care. It has been argued extensively, and
shown by empirical studies (e.g.Ward, Dale and Joshi, 1996), that child care is of para-
mount importance for women in their decision to join the labour market or work at
home.The basic income for children thus serves as a financial compensation for child
care, independently of whether the mother or the father does this care, or whether
they wish to pay a child minder to take care of their child. Second, female-headed
households are over-represented among poor people.The poverty and unemployment
trap many single mothers face will thus not only be weakened by their own basic
income, but also by the basic income of their children.
Hence, the basic income for children has two positive effects for women. It is an
(indirect) financial reward for people who are responsible for the day-to-day care of
their children, independently of whether they look after their children themselves or
whether they prefer to pay others to do so.And it is particularly helpful for single par-
ents.This should be taken into account when the level of the basic income for children
is fixed. Many basic income proposals entail lower levels of basic income for children,

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Basic Income on the Agenda

often 50 percent of the basic income of adults, or only provide a basic income from the
age of 18 onwards. This choice is probably due to household economies of scale and
the lower material needs of children. However, the immaterial needs of children, more
precisely, their need for care, offer us a quite different perspective.To sum up, if we want
a basic income to be beneficial for carers, we might need a basic income for children
covering the cost of direct material needs plus the (opportunity) costs of child care. A
basic income pitched at this level would allow carers the freedom to do the care them-
selves or to buy child care services on the market.

Psychological effects on housewives


One can expect a basic income, even when it is small, to be positively valued by house-
wives or househusbands. It gives them a feeling of contributing to the incomes of their
families, and a feeling of getting more recognition for the care and household work
that they do. Pahl (1989) notices that for British housewives the child allowances they
receive are very important, even though they are very small.

Bargaining position and power in the household


Basic income proposals often have an (implicit) concept of the household that is an
idealization of how most households in Western Europe function in reality. Many social
scientists recognize both conflicts and co-operation within households. As Sen (1990)
argues, households can best be seen as co-operative conflicts. In principle, all family
members gain by the formation of a household, but how the gains from this co-opera-
tion are divided depends, among other things, on the bargaining position of the indi-
viduals.
It appears that the partner with the highest income is more dominant in decision-
making, and women with paid employment have on average more power than women
working unpaid at home (Pahl, 1989). Ott (1995) shows with the help of game theory
that specialization in unpaid labour weakens the bargaining position of housewives and
that education and non-labour income increase the power of housewives in the house-
hold. Although these studies are limited in number and most of them are small-scale
and thus difficult to generalize from, there is growing evidence that personal income
increases power.This implies that the introduction of a basic income will increase the
bargaining power of housewives. However, for women working on the labour market,
everything depends on the first order effects of the labour supply and total net income
change.

Non-pecuniary advantages of paid labour


Women who quit the labour market not only lose their labour income, but also some
non-pecuniary advantages. For Orloff (1990) these advantages are the construction of a
network of colleagues, a place where one can demonstrate ones competence, and a
feeling of self-respect. Steil (1997) adds to this list increased self-esteem, affirmation,
enhanced contacts and more independent children. Kildal (1998) argues that paid work
structures everyday life, is a source of social relations and an escape from social isola-
tion, a means to self-realization and an important source of self-respect. However, she
also points out that these can also be attained through alternative activities, like volun-
tary work.

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Hush Money or Emancipation Fee?

Decrease of human capital and expected income in the long run


Studies of the division of labour between partners do not always fully recognizes the
long-term effects of this specialization. Specialization can indeed be optimal in the
short run, but it can lead to unwanted dependencies in the long run (Wunderink-Van
Veen, 1997).
Human capital depreciates when it is not used.As a consequence, when re-entering
after some years out of the labour market, the potential wage will have decreased (Joshi
and Davies, 1993; Wunderink-Van Veen, 1997). The total expected income over the
lifetime cycle will therefore decrease in three ways: the lack of income during the peri-
od that no paid labour is done, a decrease of the expected wage in case of an eventual
return to the labour market and smaller personal pension rights. If the human capital
of a woman erodes because she doesnt have a job for some years, the probability of
financial distress in case of divorce or decease of the husband increases (Joshi and
Davies, 1994).

Spillover effects on all women due to statistical discrimination


A last second order effect is the spillover effect on all women due to the changed
labour market behaviour of some women, through the process of statistical discrimina-
tion. Statistical discrimination is a form of indirect discrimination based on the fact
that a person belongs to a group that fits certain characteristics. These characteristics
are then used as proxies for the average productivity of that group.3
Women on average bear one or two children, take maternity leave, work less hours
than men on the labour market, bear more responsibility for the household and care of
the elderly and children, have more career interruptions and are more absent from the
workplace. Employers have a possibly biased perception of this and conclude that
women are on average less productive on the labour market than men. For an employ-
er, it is rational to believe that an individual woman will share these (perceived) char-
acteristics, because he has no information on her future behaviour and commitments.
Thus, an employer will discriminate against a woman (by not hiring her or giving
her a lower wage) because he has no exact information on her productivity and there-
fore looks at the average productivity of the group she belongs to, i.e. women. In other
words, their perception of the average productivity of the group counts. A woman who
does not want children, who wants to pursue a career or has a husband who under-
takes half of the household responsibilities, will thus have to bear the consequences of
the fact that other women are child and household oriented.4
This implies that if a basic income is introduced, and a group of women withdraws
from the labour market, it will also be expected that other women will be less labour
market attached and they will be statistically discriminated against. Hence, a basic
income will probably worsen the statistical discrimination against women.5

Some Normative Arguments Pro and Contra

In this section, I will discuss four arguments which appear crucial in this normative
evaluation, and indicate how they are used by proponents and opponents of a basic
income.

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Basic Income on the Agenda

Basic income and economic independence


Economic independence is the key-concept of most second-wave western feminists in
their arguments against a basic income. However, dependency has many different
meanings (Lister, 1990). Absolute economic independence is the degree to which a
person can take care of herself and eventually dependent others, now as well as in the
future.This is what counts if a woman or a man wants to leave an unhappy or violent
marriage: without the potential of absolute economic independence, one has the
choice of staying in the unhappy marriage, or moving into (deeper) poverty. Relative
economic independence concerns the income of one spouse relative to the income of
the other, for example, the income of one spouse should not be below 45 percent of
total household income.
Ward, Dale and Joshi (1996) argue that paid employment is the only way for women
to avoid economic dependence, either on their partner, or on the state. Absolute eco-
nomic dependence on the husband can have negative consequences in the case of mar-
ital breakdown. This has been shown by Jarvis and Jenkins (1999), who studied the
financial consequences of divorce or separation in the UK. The mean net income of
men after divorce increased with two percent, whereas for women and children it
decreased dramatically (-14 percent and -18 percent respectively).
Can the opponents claim that a basic income will worsen womens economic inde-
pendence be supported? Whatever the level of the basic income, women (and men)
who did not receive any income before would experience an improvement both in the
level of their absolute as well as relative economic independence.The level of the basic
income determines whether this improvement is limited to the psychological effects. If
a basic income does not replace other social security allowances, but is made comple-
mentary to them, women on the bottom of the income and employment distribution
will benefit from it. Again, the problematic evaluation concerns, in particular, the
women who decrease their labour supply. It is very difficult to judge how their
incomes would change.
When one addresses the importance of the social security system for womens eco-
nomic independence, child care appears to be of great importance. Joshi and Davies
(1993) argue that child care provisions have to be seen as an investment in the human
capital of women.They demonstrate for Britain that the resources generated are larger
than the costs of child care, and that the revenue gain to the exchequer might even
exceed the cost of a 100 percent subsidy.Ward, Dale and Joshi (1996) show that child
care facilities are crucial in the decision for women to work full time.

Basic income: more real freedom to choose or less?


Parker (1993) claims that a basic income will give each individual more real choice
between paid and unpaid work. Schokkaert,Van der Linden and Van Parijs (1997) also
regard one of the advantages of a basic income as being that it would give everybody
more opportunities for temps choisi, referring to the need to have more time for chil-
dren or to interrupt paid work for other reasons.
Feminist critiques often question the concept of individual choice. This is not dif-
ferent in the basic income debate. From a household point of view, and in the short run, it
could be a rational choice of a husband and wife to introduce gender specific labour
specialization.The moment they have to decide which one of the partners works less
or withdraws from the labour market, the choice is often rather obvious, and the

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Hush Money or Emancipation Fee?

framework in which this choice is made may have a strong influence. In other words,
gender related structures and constraints convert this choice from an individual
autonomous choice under perfect information into a collective choice under socially
constructed constraints with imperfect information and risks. This totally different
nature of choice appears not to be fully acknowledged in most of the basic income lit-
erature.6
Advocates of a basic income want to extend the opportunity to choose to every-
body, so that a real choice between paid and unpaid labour becomes possible (Van Parijs,
1995). However, this real choice, to be possible at all, needs more than only a basic
income. First, spouses have to be aware of the expected consequences of a (temporary)
withdrawal from the labour market, and women should not have the expectation that
those they are taking care of now will necessarily take care of them later.The low per-
centage of women who get alimony for themselves and their children after divorce,
together with the fact that not all fathers actually pay alimony, brings carers de facto into
an insecure situation. Second, men and women should have equal opportunies, which
requires the end of all kinds of gender discrimination. It might also require a labour
market organized around the basic assumption that every breadwinner is also a home-
maker.This again points to the importance of child care facilities, as has been stressed
by Joshi and Davies (1993), Parker (1993), and Ward, Dale and Joshi (1996). The fact
that these two conditions are not fulfilled yet, mean that these choices are not real
choices, but choices taken under the existing constraints on the opportunity sets which
are different for men and women.

Basic income between unemployment benefits and housewife wages


In the strict sense, a housewifes wage is a wage or benefit for individuals working in
the home, who are paid for their household and care labour. It could be made explic-
itly conditional upon taking care of small children. Organizations of housewives in
Europe advocate such a housewifes allowance. They refer to the unjust situation
occurring as some women who are now receiving unemployment benefit use it in an
improper way (as they are de facto not available for the labour market).This also hap-
pens when working parents can apply for career interruption premia if they withdraw
temporarily from the labour market, mostly to take care of small children. It is obvious
that housewives are being treated unjustly as they perform the same care labour, but
are not paid for it.
It is not certain, however, whether a housewifes wage would not create other injus-
tices amongst women. It would have to be financed by general tax revenues. A work-
ing wife doing household chores after work and in weekends would hence have to pay
taxes for women who do the same household chores in a paid fashion.With a house-
wifes wage, working women would face a triple disincentive: working outside the
home increases their workburden, they are taxed extra to pay for the housewifes wage,
and they do not receive any allowance for the household work they perform.
A basic income would resolve part of these problems. It is nondiscriminatory
because housewives would get it, and would not feel treated unjustly especially with
regard to career interruption premia and the improper use of unemployment benefits.
For unemployed women, a basic income has the advantage that everyone receives it
unconditionally, so that it cannot be denied for one reason or another.The fact that the
unemployment benefits are conditional on the willingness to work and limited in

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Basic Income on the Agenda

duration, mean that women especially are denied benefits (Schokkaert,Van der Linden
and Van Parijs, 1997). Further, contrary to the housewifes wage as defended by Krebs
(1998), there is no need for a bureaucracy to handle the applications of carers with
dependent children or parents.

The importance of the individual character of a basic income


The second wave womens movement in Europe wants individualization of social secu-
rity entitlements.The womens movement is opposed to derived entitlements claiming
that it increases the dependency of women on their husbands. It has also been argued
that an independent benefit entitlement for women in the social security system is nec-
essary for a full exercise of their social and political rights as citizens (Lister, 1990).
A basic income is an individual right par excellence. However, it is not at all obvious
that individual social security rights will work to the financial advantage of women. If
these rights are implemented in a society with persistent wage differences between
men and women, partly because women bear more family responsibilities, and espe-
cially with a large part of women working part-time, a complete individualization of
pension rights will in any case work to the disadvantage of women (Joshi and Davies,
1994). It has been argued that the individualization of entitlements may be part of a
long-term strategy for gender equality, but in the short term it may worsen the social
security position of women (MacDonald, 1998).
If a basic income is introduced, it might be better implemented together with a
credit split system, where individual entitlements are determined based on the entitle-
ments partners build up together during the period of marriage or cohabitation. In
other words, all social security entitlements accumulated during the marriage would be
divided if the spouses split up.A basic income appears perfectly complementary to such
a credit split system, and it could soften the hard financial consequences of divorce for
women who made choices under gender-specific constraints.

Can We Untangle the Different Claims?

Thus far I have presented two different views regarding the desirability of a basic
income from a gender perspective. One view claims that a basic income will provide a
financial appreciation for womens unpaid work, and will make it easier for them to
take care of children. Authors taking this view evaluate a basic income positively: it is
seen as an emancipation fee, because men and women performing typical female work
will be financially supported, and a certain level of economic independence will be
provided for the carer.
The other view argues that a basic income would send women back into the home and
make it less attractive for them to enter the labour market, hence supporting the backlash
against womens emancipation and independence.A basic income would then function as
a kind of hush money: women would get a financial reward for the work they do at home,
which would refrain them from advocating profound and fundamental changes in the
gender relations which these critics regard as necessary to achieve gender justice.
The main reasons why a basic income is beneficial for women is the value it indi-
rectly attaches to unpaid care work, and the unemployment and poverty traps it elimi-
nates. In European welfare states most women are penalized in terms of income and

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Hush Money or Emancipation Fee?

Table 1: Effects of a basic income on women according to their labour


market attachment and their earnings generating capacities

strong labour market attachment weak labour market attachment

high earnings No major first order effects. Statistical The problematic concept of the real free-
generating discrimination will hurt these women more. dom to choose is especially relevant.
capacities A reinforcement of the traditional gender Decrease in their human capital. A poten-
roles affects these women. tially considerable inefficient allocation of
talent and hence loss of productivity for
society. Ambiguous evaluation.
low earnings In the short run: higher well-being and Only positive effects of a basic income,
generating loss of non-pecuniary advantages of although it will not make them totally eco-
capacities paid labour. nomically independent.
In the long run: decrease in human
capital, expected income and bargaining
position, all increasing the risk for
material deprivation after divorce.
Ambiguous evaluation.

social security because of the gender division of labour, which gives them a major share
in household and care work. The challenge for them is to find a welfare state reform
that re-values household and care work without reinforcing womens responsibilities for
it and hence penalizing them in the market (Folbre, 1995; MacDonald, 1998). This is
exactly what makes a basic income an interesting policy for those women whose repro-
ductive work is at last valued, but at the same time, a dangerous policy as the negative
effects of the reinforcing of their home responsibilities might make them more depend-
ent within marriage and more vulnerable at marital breakdown.
Is it possible to sketch how a basic income affects different groups of women? To do
so, I divide women in groups along two dimensions: earnings generating capacities and
labour-market attachment, which is in many cases closely related to the presence of
children (see Table 1).
Women with low earnings generating capacities and (as good as) no labour market
attachment, appear to gain the most from a basic income.These women are primarily
housewives and most single mothers. But to this group also belong permanently ill or
handicapped women and other vulnerable women such as refugees and some groups
of non-Western immigrant women.They have no labour income, and have little or no
prospect of earning a decent income of their own in the future.There is only one rel-
evant first order effect, i.e. an increase in net personal income. Concerning the second
order effects, they profit from the psychological effect for non-earners and a stronger
bargaining position in the household. They do not lose any of the non-pecuniary
advantages of paid labour nor experience a decrease in human capital, as these prob-
lematic second order effects were already fully affecting them before.They are not hurt
by statistical discrimination either, and their relative economic independence increases.
The removal of the injustices existing between different kinds of social security
arrangements will only be to the advantage of these women. In short, they have only
to gain from a basic income.

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Basic Income on the Agenda

For women with high earnings generating capacities and a strong labour market
attachment, the analysis is also rather straightforward. These are women who have a
career, often without children, or who rely heavily on child care facilities. These
women are, according to the norms of second wave feminism, highly emancipated and
both absolutely as well as relatively economically independent. They will not leave
their jobs, as they place a large part of their self-worth and personal development in it.
For them, there are no major first order effects. However, they might suffer from an
increase in statistical discrimination against women in general.When these women are
young, it will be difficult for an employer to distinguish whether one of these women
belongs to this category, or to the category of the women with high earnings capacities
but lower labour market attachment.This group of women has a lot to gain from the
removal of traditional gender roles, whereas it appears that a basic income as such
implemented in the current European welfare states will rather confirm these roles
instead of challenging and changing them.
For the remaining two groups, a basic income will produce a mixture of positive and
negative effects, leading to ambiguous results.Women with a (temporary) weak labour
market attachment but high earning potentials would probably, given the gender relat-
ed constraints they face, favour a basic income.The women in this group are students,
young mothers taking parental leave or women taking care of dependent elderly or ill
persons.These women have been or are potentially economically independent, but are
temporarily in a situation of dependence on others, be it parents, partners or the state.
They might use a basic income as a means to withdraw from the labour market only
selectively in periods when they have young children or dependent or ill relatives.They
profit especially from the first order effect that one can choose more freely the kind of
work one does. However, it is possible that a basic income can be used as a tool to exer-
cise social or individual pressure on these women to withdraw from the labour market.
It is likely that they would be the first to choose for options which they would not
have chosen in a situation without a basic income, and therefore the problematic nature
of the concept of choice in a gender setting is highly relevant for these women. From
the point of view of society, there is a potential loss in human capital for high-skilled
women who decide to withdraw from the labour market.
The last category of women has a strong labour market attachment, but has low
earnings generating capacities.This is the large group of women who need to work
to keep the welfare of themselves and their families at a decent level. For this group,
it appears important to make a distinction between an evaluation in the short and the
long run.These women are now unable to withdraw from the labour market, as they
need the money to make ends meet in their households.They would experience an
increased well-being by choosing for other work or unpaid labour. However, with
the current divorce legislation as it exists in most European countries, the risk of
material deprivation after divorce increases for these women.This group would, per-
haps without anticipating it, experience three second order effects: a possible
decrease in their bargaining position, a loss of the non-pecuniary advantages of paid
labour, and a decrease of human capital and expected income in the long run. For
these women, a basic income would in the short run be a good thing, if their choice
were better covered by a change in the divorce legislation, for example, by a credit
split system.

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Hush Money or Emancipation Fee?

Basic income as part of a broader package of social policy measures


It is a major challenge to meet womens practical needs in their day-to-day responsi-
bilities, without undermining their strategic interest in changing unequal gender rela-
tions (MacDonald, 1998). A basic income seems to focus especially on the first part of
this challenge. If we want a basic income to be part of a package of social security
reforms that meets the whole challenge, it is necessary to find out which other com-
plementary measures are needed. First, child care facilities are indispensable if mothers
are to be given a real opportunity to participate in the labour market and thus given a
real choice between work inside or outside their homes. I have argued that a basic
income for children should ideally be at a level which also covers the (opportunity)
costs of child care, and that such a basic income for children has beneficial effects on
the mothers. However, a financial contribution is not enough; government should also
have an active child care policy, where quality and a sufficient supply of child care are
central concerns.
Second, contrary to popular belief, we still need an active policy to combat gender
discrimination in the labour market. Recent studies continue to show persistent dis-
crimination of women in the labour market. Obviously, it is not evident how a gov-
ernment can eliminate this. However, more systematic research is certainly needed, and
the proposal of some women groups to have the authority to sue discriminating
employers on behalf of the employees also needs consideration. Reality nowadays is
too often that women who are discriminated against are either not aware of their situ-
ation, are resigned to their situation, or change jobs. Women who are discriminated
against are afraid to sue their employers as this could bring them difficulties in finding
another job.
Thirdly, the culture of the labour market should move into a direction where the
norm is that every worker is also a carer, instead of the worker who has no care respon-
sibilities, as is nowadays too often the case. Employees have a social life outside their
workplace, be it in their families, their community or with other people. Employers
should give more consideration to this aspect of human life. For example, it is easily
avoidable that professional meetings take place after 5 p.m. Planning meetings after 5
p.m. assumes that either employees have no children, or that they have a partner (wife)
working at home, or at least a partner or relative who will pick up the children from
the child care centre or school.The Dutch combination scenario, a proposal to redis-
tribute unpaid work, can serve as an example here (Bruyn-Hundt, 1996).This propos-
al would reform social policy around the assumption that all parents work 30 hours on
the labour market, so that both of them could spend more time on care labour or other
unpaid activities.
Fourth, government and other societal agents have to find ways to challenge gender
roles. I am not saying that government should develop a policy which scraps gender
division of labour forever. Rather, if such a division remains gender-specific, then this
should be the result of real free individual choice, and not the result of subtle societal
expectations and pressures.This is extremely difficult. However, there are ways to chal-
lenge gender roles.
Two examples illustrate how gender roles can be challenged.The first example con-
cerns paternal leave. Parental leave can be constructed in such a way that the probabil-
ity that fathers take part in child care and household work is maximized.This can be
done through a non-transferable individual right, preferably with substantial payment.

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Basic Income on the Agenda

Both personal experiences published in popular press, as well as the results of a social
experiment in Iceland (Einarsdttir, 1998) indicate that fathers taking paternal leave
discover how demanding care and household work is, and as a result, respect it much
more.The Iceland experiment also showed that the gender division of labour would be
more equal if fathers took paternal leave than if they did not take it. Furthermore,
paternal leave creates an opportunity for mothers who are reluctant to share the house-
hold and child care responsibility with their partners to learn to share this responsibili-
ty. In short, paternal leave offers a unique space to experiment with alternative gender
arrangements.
The second example concerns images of women in the labour market in advertise-
ments in Belgium. In the mid-nineties, the government promoted career interruption
premia. One of these newspaper advertisements showed a female executive carrying a
crying child under one arm, and a briefcase under the other. In September 1999, the
Flemish government employment agency launched a spot on television showing a
young girl who is dreaming of becoming an elf when she grows up, while turning
around with a burning sulphur stick. As the image becomes fuzzy, the stick changes
into a welder stick, and we see this young girl (now grown up) happily working as a
welder.While the first advertisement suggests that women in the labour market have a
hard time (and are bad mothers), the second spot shows us a happy energetic young
woman who has chosen a non-traditional job.To sum up, it is certainly true that gov-
ernments are much more aware these days of the implicit messages regarding gender
roles which they are sending out, but permanent attention is needed.
Fifth, varying from country to country, several changes in the current labour market
legislation and fiscal system can be made to give more incentives to share paid and
unpaid work and to make paid work and care work easier to combine. For example, all
workers could be given the legal right to part-time work, and employers who create 20
to 32 hour jobs could be given a government subsidy.The cost of paid care could be
deductible from income taxes, breadwinners subsidies in income tax and social securi-
ty could be abolished, and leaves for ill dependants could become legal rights (Bruyn-
Hundt, 1996).
Finally, if women, or men, still wish to choose for the carers role, a basic income is
probably not enough to protect them from risks.Therefore, a basic income should be
supplemented with fair settlements at divorce and better legal protection against par-
ents who refuse to pay alimony (and use their children as objects of psychological
oppression). Furthermore, it can be argued that in order to provide a more just society,
a credit split system has to be introduced.

Conclusion

There exist two main evaluations of a basic income for womens well-being.The neg-
ative evaluation claims that a basic income will send women back home and will func-
tion as hush money to prevent them from making more important claims for gender
justice. The positive evaluation sees basic income as a financial valuation for unpaid
work that is typically done by women. In this view, basic income is an emancipation
fee, making it possible for women to choose for unpaid work (which liberates them
from the financial constraints that force them to work in the labour market). I have

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Hush Money or Emancipation Fee?

argued that both views contain some truth for some groups of women. Distinguishing
between groups of women with different degrees of labour market attachments and
earnings generating capacities is crucial in this regard.
I have also argued that there are some processes and issues that are insufficiently
taken into account in the current basic income literature and that lead to its gender
blind character. First, statistical discrimination shows us that individual choices affect
other individuals chances and societal treatment.This discrimination is relevant for the
impact a basic income can have on womens discrimination in the labour market.
Second, the gender division of labour is much more problematic than most authors are
willing to admit, and a basic income has an influence on the gender division of labour.
Thirdly, whether a basic income will ultimately be positive or negative for women and
whether it will improve gender justice, will depend on other measures that are simul-
taneously implemented.
The difference between the positive and negative evaluation of a basic income for
women and gender justice boils down to the different underlying concepts of emanci-
pation. People critical about basic income regard the gender division of labour as the
core of gender injustice, and argue that changing the gender division of labour should
therefore be the priority of any policy to reach gender justice. In contrast, authors who
conclude that a basic income is a good social policy for women tend to see the gender
division of labour as unproblematic. They argue that this is the choice of individuals,
whereas the opponents stress the different constraints on choices men and women
face.Although I have provided support for this latter point this did not make me con-
clude that a basic income is a priori bad for all women. I argued that it is beneficial for
some women, bad for others, and ambiguous for most. Furthermore, a definite evalua-
tion can only be made when the interaction with other measures are taken into
account.
There are some limits and shortcomings which should be taken up in further
work. Among the issues that deserve more attention are a detailed analysis of the
effects of a basic income on the division of paid and unpaid work in households, and
a comparison of a large basic income for children with other child-care-subsidizing
policies. Furthermore, we should also investigate other policies that should be con-
sidered as additional measures next to a basic income. This is an inviting path for
future research.

Notes

1 There are many more first and second order effects thinkable. I have tried to list all effects rel-
evant for a gender analysis.
2 This allowance increases if one has small children: for two children under three years old, one
receives 13,215 BF (about 315) per month, and for three children or more 14,363 BF
(about 342). For part-time career interruption, the amount depends on the number of
hours one continues to work.
3 Productive is here used in a very narrow meaning i.e. the degree in which a person creates
additive value in the market production process.
4 Goldin and Rouse (1997: 22) give some evidence of the (biased) perception of womens pro-
ductivity and reliability in orchestras. While the difference between the average leave of a

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Basic Income on the Agenda

female musician and a male musician is very small and statistically insignificant, the alleged
shorter tenure by women justifies a preference to hire males above females.
5 I have discussed some moral questions concerning statistical discrimination in Robeyns
(2000).
6 I have given an explanation for this gender division of labour and why this is arguably unjust
in Robeyns (2000).

136
Prospects for Basic Income in an Age of Inactivity?*
Anton Hemerijck

The Rise of Structural Inactivity

One of the paradoxes of contemporary European welfare states is that while today
practically every adult male and female seeks gainful employment, jobs are hard to
come by. There is a growing number of (economically) inactive citizens, people of
working age who are structurally dependent on social policy for their livelihood.The
predicament of inactivity is concentrated among the low-skilled, ethnic minorities and
the long-term unemployed. A comparison of ten countries, considering unemploy-
ment, sickness, occupational disability, maternity, general need and early retirement, in
the age group between 15 years and the retirement age, reveals that levels of inactivity
have dramatically increased over the past decade, except in the United States, where
there has been a substantial decline (see Figure 1).1

How do we explain the rise of structural inactivity in contemporary European welfare


states? Are we living in a world of jobless growth? Do the citizens no longer wish to
work? Do they, pampered by generous standards of social protection, prefer leisure?
Or, are they sick or otherwise unable to work? In this paper, I wish to explore the rise
of structural inactivity from two contrasting sets of arguments, both revolving around
the unintended or perverse effects of postwar social policy.
The first argument, rooted in cultural sociology, centres around the alleged decline
of the traditional work ethic in the welfare state. By having dissolved the sacred link
between work and income, the welfare state has come to undermine the motivation to
seek gainful employment.The lack of immediate feedback between work and income,
conservative critics of social policy contend, weakens the moral fibre of welfare recip-
ients. The resultant rise in inactivity contributes to the emergence of a dependency
culture of benefit claimants.
While the causal chain of the decline of the work ethic argument runs from the
behaviour of citizens to the rise of inactivity, the second argument, rooted in compar-
ative political economy, suggests that the institutional characteristics of national labour
markets and social security systems structure the level of inactivity.The crisis of inac-
tivity, following this line of reasoning, is not the result of crippling norms and values,
but rather the consequence of accumulated institutional rigidities and historically per-
verse policy choices.

* This chapter is to a large extent based on the paper, published under the title of Prospects for
Inclusive Social Citizenship in an Age of Structural Inactivity, in the series of MPIfg Working
Papers, no. 99/1, Cologne, Germany. I am most thankful to Colin Crouch, Bernhard
Ebbinghaus, Werner Eichhorst, David Peritz, Fritz W. Scharpf and Martin Schludi for their
inspired comments and critical observations on earlier drafts of this paper, and to Cynthia
Lehmann for her editing assistance.

137
Basic Income on the Agenda

Figure 1: Benefit dependency (I/A-) ratios*

0,7

0,65

0,6

0,55

0,5

0,45

0,4

0,35

0,3

0,25

0,2
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

A D JAP NL S Average

* I = Total benefit years: the total volume of social security benefits expressed in years (until 65 years)
A = Total labour years: the total volume of labour expressed in years, from which is subtracted sickness and maternity
absence (15-65 years)
without Japan
Source: Ministerie van Soziale Zaken en Werkgelegenheid

Although I treat the above explanation of the inactivity problem as disconnected


approaches, I am fully aware of the fact that in the messy world of concrete empirical
experience, values and institutions are inherently linked. To be sure, institutions

138
Prospects for Basic Income in an Age of Inactivity?

embody values, and changing values can lead to policy adjustment. By the same token,
both institutions and values structure incentives.
I would like to approach the arguments of the decline of the work ethic and the
proposition of deficient welfare state institutions from the perspective of citizenship.
By so doing, I wish to relate T.H. Marshalls classic portrayal of the extension of citi-
zenship and the struggle for equal social worth to contemporary conceptions of citi-
zenship (Marshall, 1963). Next, I will empirically scrutinize the predicament of inac-
tivity on the basis of evidence from the Netherlands. I concentrate on the Dutch
experience for three reasons. First, the Dutch welfare state is one of the most advanced
welfare states in Europe. Second, the Netherlands experienced a severe crisis of inac-
tivity in the 1980s.Third, the recent Dutch employment miracle presents a case histo-
ry of a social policy regime that has adapted relatively successfully to processes of
demographic change, economic restructuring, international competition, labour mar-
ket flexibilization and individualization, by way of social policy reform bent on revers-
ing the cycle of declining activity and rising inactivity.
The final normative section considers policy. What are the prospects for effective
social policy in an age of structural inactivity, adapting as it were Marshalls principle of
equal social worth to the new realities of diversified labour market conditions and het-
erogeneous household patterns? I will explore two broadly debated policy alternatives
which are often pitted against each other in debates about the future of the welfare
state.These are, first, workfare policies, designed to repair the direct link between the
obligation to work and right to welfare.Alternatively, there is the proposal of the intro-
duction of a universal citizens income, which, by contrast, is directed towards a radical
decoupling of the conditional connection between work and income in social policy.

From T.H. Marshall to Novel Conceptions of Citizenship

The resurgence of the concept of citizenship in contemporary political and social sci-
ence discourse has invited a critical rereading of T.H. Marshalls famous 1949 lectures,
published together in 1963 under the title of Citizenship and Social Class (Bulmer and
Rees, 1995). In these lectures, Marshall portrayed the extension of citizenship rights in
terms of a progressive tale of democratization and class-abatement. Based on the
British experience, Marshall locates the origins of the struggle for citizenship with the
affirmation of civil or legal rights in the eighteenth century. The nineteenth century
gave rise to the inauguration of political rights.The struggle for citizenship reached its
completion in the second half of the twentieth century with the attribution of the
social rights, which Marshall defined as:

... the whole range from the right to a modicum of economic welfare and security to share
to the full in the social heritage and to live the life of a civilized being according to the
standard prevailing in the society. (Marshall, 1963: 74)

Protecting the vulnerable and preventing the disadvantaged from becoming vulnerable
lies at the heart of Marshalls social ethic of equal social worth. As such, the welfare
state held out a promise of the enlargement, enrichment and equalization of peoples
life chances (ibid.: 107). Most important, the introduction of a universal right to real

139
Basic Income on the Agenda

income, not proportionate to the market value of the claimant (ibid.: 100), for
Marshall, was the key institutional innovation of the postwar welfare state.
Marshalls conception of citizenship revolves around three constitutive elements.
First, citizenship is about the membership in a nation-state and a relationship between
the state and its citizens. Second, it delineates a bundle of universal rights. Third, it
refers to a particular collective identity of a political community, within which citizen-
ship rights can be exercised. As a bundle of rights, according to Marshall, citizenship is
inspired by and in turn can strengthen:

a (...) direct sense of community membership based on loyalty to a civilization which is a


common possession. It is a loyalty of free men endowed with rights and protected by a
common law. Its growth is stimulated both by the struggle to win those rights and by their
enjoyment when won. (ibid.: 96)

In other words, social rights not only provide individuals with a sense of material secu-
rity against the adverse effects of poverty, illness, disability, unemployment and old age
in a territorially bound state. They also encourage a sense of belonging and commit-
ment to a kind of society, i.e. the welfare state, within which citizens live.
Marshall was not silent on the obligations for effective social citizenship. He writes:
If citizenship is invoked in the defense of rights, the corresponding duties cannot be
ignored (ibid.: 123). Nevertheless, Marshall was fully aware of a changing balance
between rights and duties in the postwar welfare; whereas precisely defined rights have
multiplied, there are only a few citizenship obligations that are really compulsory, such
as the duty to pay taxes for welfare benefits and social services, pursue an education,
and serve in the military. Many citizenship obligations have turned into informal, non-
committal and rather vague responsibilities (ibid.: 129).
Contemporary students of social policy have criticized Marshalls rather whiggish
portrayal of the progressive extension of citizenship.While perhaps aptly capturing the
British experience, Marshalls logic of social progress has been found wanting when
applied to other national experiences. In Germany, for instance, social policy innovation
came first, so as to compensate for deficient political rights (Esping-Andersen, 1990).
Feminists have criticized Marshall for the absence of gender from his exposition.To be
sure, a theory of social citizenship that is merely applicable to male breadwinners as
right-bearing citizens, cannot claim universality (Pedersen, 1993; Pateman, 1988; Vogel,
1991). In defence of Marshall, I would like to emphasize that today there is much cross-
national congruity in terms of citizenship rights. All the advanced democracies of the
European Union are fully committed to the rule of law, parliamentary democracy, gen-
der equality and the welfare state. Over the last two decades, the European Commission
in particular has actively pursued regulation in the area of equal pay and equal treatment
at work and in matters arising from pregnancy (Meehan, 1993).
More importantly, Marshall, writing at the apex of the Golden Age of postwar pros-
perity and full (male-breadwinner) employment, did not fully appreciate the immanent
tension between negatively defined civil rights and positively defined social rights
(Offe, 1993). Civil rights, by virtue of being defined in negative terms of government
non-interference, are operationally precise and can, as such, more easily be enforced. By
contrast, social rights, defined in substantive terms of need, imply affirmative state
action of meeting the needs of the vulnerable. By their very nature, social needs can

140
Prospects for Basic Income in an Age of Inactivity?

never be precisely demarcated. Social rights, designed to foster an equalization of life


chances, oblige the political community to interfere in and modify the distributive
consequences of market processes. Offe rightly states that any standard of social rights
is inherently subject to potential upward as well as downward adjustment depending,
not only on changes in political commitment towards redistribution and state capaci-
ties to administer and implement social policy legislation, but also on aggregate eco-
nomic performance. Consequently, the question of how much is good enough, and
what kind of social services are required, on behalf of what categories of people, and
at whose expense can never be unambiguously settled.

The Decline of the Work Ethic?

The breakdown of the Bretton Woods monetary system in 1973 and the steep rise in
oil prices between 1973 and 1979 brought an end to the Golden Age of postwar pros-
perity and full employment and stalled the progressive expansion of social rights.While
the advanced industrial societies employed remarkably divergent national strategies of
crisis management during the late 1970s, cutbacks in social security were introduced
practically everywhere during the 1980s.Access to welfare state programmes was made
more selective, levels of benefits were reduced, and periods of coverage curtailed. Many
conservative governments that came to power in the early 1980s were elected on their
promise to scale back the welfare state.
The rhetoric of neo-liberalism and conservatism, touting the superiority of nega-
tive economic over positive social rights, appeared very convincing against the back-
ground of the rise of mass unemployment, failing Keynesian macroeconomics, and
accumulated deficiencies in social policy implementation. Social policy, following the
prevalent sociological critique, had not lived up to the promise of the fulfilment of cit-
izenship because it perversely weakened the moral fibre of citizens. This critique is
echoed in the thought-provoking argument portraying the decline of the work ethic
in the welfare state advanced by Daniel Bell in the late 1970s. In The Cultural
Contradictions of Capitalism (1979), recently republished with a new afterword (1997),
he argues that welfare capitalism has unintentionally fallen victim to its own suc-
cess, because the principles of the economic realm and those of the cultural domain
have led people in contrary directions. The spectre of individualism, released by the
Reformation and the Enlightenment, activated the values of industriousness, hard
work, thrift, entrepreneurship, and deferred gratification in early-modern capitalism.
Under the welfare state, ironically, individualism has encouraged the development of
an alternative hedonist ethos, which is fundamentally at odds with the original sober
mentality of early-modern capitalism. Having dissolved the sacred link between work
and income, the welfare state contributed to the erosion of the traditional work ethic
as a central point of moral reference. This constitutes, according to Bell, the cultural
contradiction of capitalism:

Capitalism has lost its traditional legitimacy, which was based on a moral system of reward
rooted in the Protestant sanctification of work. It has substituted a hedonism which prom-
ises material ease and luxury, yet shies away from all the historic implications of a volup-
tuary system, with all its social permissiveness and libertinism. Hedonism, as a way of life

141
Basic Income on the Agenda

promoted by the marketing system of business, constitutes the cultural contradiction of


capitalism. (ibid.: 84)

Bells cultural critique of the welfare state is based upon the presupposition that, at an
earlier stage, bourgeois capitalism was supported by a strongly entrenched, morally
obliging work ethic, like the one portrayed by Max Weber in his classical study The
Protestant Ethic and the Spirit of Capitalism (1930). Following Bell, there is a paradoxical
elective affinity operative between the institutions of the welfare state and its ethos of
hedonism, which runs counter to the Wahlverwandtschaft Weber found between
Calvinist doctrines and the spirit of early-modern capitalism. To paraphrase Weber: it
seems that the consumerist Gesinnungsethik of the welfare state has driven out the orig-
inal Verantwortungsethik of early-modern bourgeois capitalism.
It should be emphasized that the thesis of the decline of the work ethic is not only
popular among conservative sociologists like Bell, but also in progressive academic cir-
cles, where there was and still is much agreement that the welfare state is no longer able
to reproduce the cultural resources and economic sanctions that are necessary for stabi-
lizing the moral obligation to seek gainful employment. This, however, for altogether
different reasons than the ones suggested by Bell. Claus Offe, and more recently Jeremy
Rifkin, maintain that the work ethic fails as an important function of social integration,
because jobs are being rationalized away by economic restructuring. Technological
change and international competition increasingly put a premium on capital-intensive
production, resulting in the structural elimination of work. Moreover, the time in
which people partake in gainful employment throughout their lives has drastically
decreased over the past fifty years.And as levels of unemployment continue to rise, Offe
believes that the moral stigmatization of living off welfare will wear off. Beyond a cer-
tain threshold paid non-work or inactivity can no longer be plausibly accounted for in
terms of moral default (Offe, 1985; 1996; Rifkin, 1996).
Is the work ethic dead or alive, or has it changed? To what extent have industrial
restructuring and welfare reform contributed to a weakening of the work ethic? Or are
we to observe, contrary to the imaginative sociological reasoning of Bell and others, a
strengthening of the work ethic over the past decade? On the basis of four empirical
research efforts I will now chart changing value orientations with respect to work and
unemployment in Dutch society.
On the basis of survey and panel research on value change in Dutch society, we are
able to assess and interpret changes with respect to the appreciation of work as a moral
obligation, on the one hand, and the norm of the work experience as a central life
interest.The conviction that work is a moral obligation is operationalized on the basis
of survey statements like:If someone wishes to enjoy life, he or she has to be prepared
to work hard for it, or: Everybody who is able to work should do so. Findings from
the period from 1977 to 1985 display a relative decline in the appreciation of work as
a moral obligation (Ester and Halman, 1994). Interestingly, the more drastic decline in
the work ethic of the late 1970s and early 1980s a negative trend of 2.25 percent per
year until 1985 is followed by a marked slowdown, stabilizing at 0.8 percent from
1985 to 1990. Additional panel research reveals inter-temporal changes in the work
ethic as a moral obligation, which are far from consistent with the hypotheses of uni-
linear decline (ibid.: 128). In large part, the variation can be explained in terms of per-
sonal and group characteristics. Elderly respondents endorse a stronger work ethic than

142
Prospects for Basic Income in an Age of Inactivity?

younger people, and more educated respondents embrace a weaker, less obliging work
ethic than low-skilled workers. On the whole, male breadwinners endorse a stronger
work ethic than housewives and mothers.
The evidence of the strong endorsement of paid work as a central life interest in
survey research concurs with the findings of numerous opinion studies of the Dutch
Social and Cultural Planning Bureau (SCP, 1986; 1992; 1994; 1996).According to SCP
research, the wish to partake in the world of gainful employment may, if anything,
actually be growing rather than weakening. The growing appreciation of gainful
employment as a central life interest in Dutch society is, in part, the result of the
increased orientation of women towards labour market participation. This in turn
reflects higher levels of education, values of economic independence and the convic-
tion that labour market participation demonstrates gender equality. Today, 50 percent
of non-working women and mothers with small children aspire to a job in the future.
By contrast, for a majority of elderly men (i.e. above the age of 55), while they endorse
a strong, morally obliging work ethic, the appreciation of work as a central life interest
seems to be receding.This does not necessarily constitute a contradiction. Older men,
apparently, judge that they have worked hard long enough (SCP, 1994: 166-167).
The resilience of the appreciation of work as a central life interest does not imply
that work-related values and aspirations have not changed.The SCP identifies an ever
greater variety of work-related values underlying the general opinion that participation
in the labour market remains of central importance. There is much diversity with
respect to the type of jobs and particular work experiences that people seek, as is
revealed in the significant drop in the number of people who aspire to a traditional, reg-
ular, full-time nine-to-five job, five days a week, 48 weeks per year, for 40 years.An ever
growing share of the population are looking for large part-time jobs, ranging from 20
to 30 hours a week. On average, more that one third of the women currently holding
full-time jobs would prefer to work part-time. Of the number of women who are in
small part-time jobs of less than twenty hours, over a quarter aspires to a larger part-
time job. Among men too, there is a growing interest in part-time jobs. Next to the
popular preference for part-time work, there is a growing interest in different forms of
leave, temporarily allowing adult citizens to work shorter hours or interrupt the work-
ing career for a short break to care for children or parents or to go to university.
Qualitative research on the experience of long-term unemployment and welfare
dependency enables us to assess the relative strength and weakness of the work ethic ex
negativo. A study of three depressed neighbourhoods in Amsterdam, Rotterdam and
Enschede (Kroft et al., 1989; Engbersen, 1990), modelled on the famous study of the
experience of unemployment in the early 1930s in the Austrian industrial town of
Marienthal (Jahoda et al., 1933), found not dissimilar symptoms of social-psychological
strain, despite far better levels of economic support: a loss of time structure, purpose-
lessness, self-blame, strain on mental and physical health, a decline of interest in hobbies
and in regular social contacts, loss of identity, a gradual loss of employability, and a dis-
tinct decline in involvement in political affairs and civic activities. Next to a dominant
traditional culture of unemployment, Kroft et al. found a minority of about 30 percent
of the respondents who displayed a novel, more active way of coping with unemploy-
ment. For those adhering to this modern culture of unemployment, mostly younger
and better educated welfare recipients, gainful employment is not an end in itself: it is
a means, a gateway to a certain standard of consumption and life style.

143
Basic Income on the Agenda

Most recently the Social and Cultural Planning Bureau (1998) has updated earlier
studies so as to allow for a comparison over time among different categories of active
and inactive citizens (the unemployed and disabled workers) between 1974, 1982 and
1995.This study reveals, first, that inactive citizens feel less stigmatized in 1995 than in
1982, which seems to reflect an increased acceptance and tolerance of inactivity in its
multi-faceted forms of structural, part-time and temporary non-participation in Dutch
society.The authors of the SCP study take the increased acceptance of inactivity as evi-
dence for the continuing decline of the work ethic.This is only true for the work ethic,
narrowly understood in terms of the moral obligation to work. By contrast, in terms of
the appreciation of work as a central life interest, the study shows that the inactive of
the 1990s are far less resigned to losing their job than their counterparts in 1982.They
are much more prepared to make efforts and concessions in order to find a job. By the
same token, inactive citizens appreciate social security less as a self-evident right. On
average, the SCP study suggests that inactive citizens seem to accept the new image of
an activating welfare state.To be sure, the disadvantages of inactivity are more keenly
felt in 1995 than in 1974 and 1982. Inactive citizens feel locked out of society, suffer-
ing from feelings of uselessness, aimlessness, health problems and social isolation. One
of the most striking findings is that, despite numerous reductions of benefits and
restrictions in terms of eligibility, the unemployed and disabled workers report that
they are equally satisfied with their financial situation in 1995 as they were in 1982.
Although women continue to appreciate work and inactivity differently from men, the
study reveals that the gender gap is closing. Single women without children virtually
have the same attitudes towards work and inactivity as men.
The overall conclusion that emerges from the above research efforts confirms that
paid work continues to occupy a prominent place in the lives of most adult citizens.
The dynamic of contrary value reorientations over time cannot be considered as evi-
dence for an overall across-the-board decline of the work ethic. If anything, it could be
argued that the paid job is the only sacred cow that has outlived the cultural revolu-
tion of the 1960s.To say that the work ethic is alive and kicking is not the same as say-
ing that work-related values and behaviour have not changed. Increasingly, more
expressive values of self-realization, and hedonistic elements such as paid vacation and
a company car, are sought after in the work experience.While Dutch society at large
seems to have grown accustomed to a significant degree of inactivity, a younger gener-
ation of welfare recipients have come to adhere to a more relaxed, instrumental, work
ethic.

Welfare without Work?

If high levels of structural inactivity cannot be explained by a decline of the work ethic,
under conditions of welfare state generosity and industrial restructuring, it is germane
to concentrate on the interactive effect of the operation of the institutions of the
labour market and the system of social security. Prima facie, persistent divergences in
national experiences of reducing labour supply and facilitating labour market exit since
the late 1970s indeed suggest that structural inactivity may be highly contingent on the
design of national patterns of labour market regulation and social security legislation.
The structure of the link between the labour market and the welfare state is central

144
Prospects for Basic Income in an Age of Inactivity?

to the path-breaking work of Gsta Esping-Andersen (1990). Esping-Andersen high-


lights how social rights serve to protect the inactive the aged, sick, and the unem-
ployed by providing them with social security and public assistance, so as to enable
them to make ends meet without necessarily relying on their (deflated) labour market
value. Esping-Andersen has coined this measure of social protection decommodifica-
tion (1990: 37).The degree and scope of decommodification mitigates the immediate
feedback between work and income. In the language of neoclassical economics,
decommodification translates into structural disincentives to seek employment, under-
mining the proper functioning of the labour market. Esping-Andersens comparative
study, however, reveals that any exhaustive decoupling of work and income in various
welfare state regimes is the exception rather than the rule in postwar social policy.
Levels of social security benefit levels are largely tied to previous work experience and
are generally set below the level of last earned wages. In addition, welfare recipients are
obliged by law to look for work. Sanctions, in terms of benefit cuts, can be forced upon
claimants who reject job offers or refuse to partake in job-training programmes. The
only welfare state regime that comes close to a fully decommodifying system is the
social democratic welfare state regime, of which the Swedish model is exemplary.The
social democratic regime type executes a universal system of highly generous and uni-
versally redistributive benefits.
Esping-Andersens research reveals that the Scandinavian welfare state is not fraught
with excessive levels of inactivity and sub-optimal levels of labour market participa-
tion. Paradoxically, it is the continental welfare state, in which the conditional tie
between work and income has remained far more intimate, that is confronted with a
crisis of spiralling inactivity, falling levels of labour force participation, and jobless
growth. The compensatory transfer based welfare states of France, Germany,
Belgium, Italy, Spain and the Netherlands are, according to Esping-Andersen, trapped
in a pathological vicious cycle of welfare without work (Esping-Andersen, 1996).
Because social security benefits are predominantly financed out of payroll contribu-
tions from workers and employers, a complicated pattern of mutual interaction
between investments, productivity, labour participation, wage costs and (non-wage)
social security arrangements is operative under the continental welfare regime. Under
increased competitive pressure, firms in high-wage economies can only survive if they
are able to increase productivity.This is most commonly achieved through labour-sav-
ing investment strategies, raising productivity levels of workers through high-quality
vocational training and education, and/or by laying off less productive or too expen-
sive, mostly older, workers. High minimum wages and substantial non-wage labour
serve here as a productivity whip. However, they can also engender an inactivity trap,
whereby a virtuous cycle of productivity growth runs into a vicious cycle of high
wage costs, the exit of less productive workers and rising social security contributions,
requiring further productivity increases on competitive firms, eliciting another round
of reductions in the work force. Employment disappears in sectors where productivity
increases stagnate and the prices of goods and services cannot be easily raised.
Moreover, if service-sector salaries are linked to exposed-sector wage developments,
this logic frustrates job-growth in the labour-intensive public and private service sec-
tors, especially at the low end of the labour market.The particular interplay between
competitive adjustment and social protection in the continental welfare state has clear
labour market effects: overall low employment and high levels of structural inactivity;

145
Basic Income on the Agenda

low female participation rates; declining participation of older workers; underdevelop-


ment of part-time jobs; and a below-average job growth in the service sector. At the
low end of the labour market this engenders on the demand side a shortage of jobs for
the low skilled and on the supply side a lack incentives to enter the labour market.
Moreover, the inactivity trap of the continental welfare state reinforces existing insid-
er-outsider cleavages. Existing privileges of a diminishing group of insiders highly
productive workers with high wages and expansive social rights will be safeguarded
at the expense of a growing population of inactive outsiders (elderly workers, women
and youngsters), who remain financially dependent upon either the welfare state or tra-
ditional breadwinners.
To what extent has the proverbial continental welfare state regime of the Nether-
lands followed Esping-Andersens scenario of welfare without work? Dutch labour
market performance seems to contradict the continental pathology of declining activi-
ty and rising inactivity (Visser and Hemerijck, 1997). At a rate of 1.8 percent per year
on average since 1983, Dutch job growth is four times the average for the European
Union. Unemployment has come down from an all-time record in 1984 to just over 3
percent in 1999, while the EU average remained at over 10 percent (OECD, 1999). In
contrast to the American jobs machine, Dutch job growth is less associated with a sharp
increase in earnings inequality.
A number of interrelated developments stand out in the Dutch response to the con-
tinental crisis of inactivity (Visser and Hemerijck, 1997).These are: (1) protracted wage
moderation under the shadow of a non-accommodating monetary policy; (2) labour
time reduction; (3) social security reform; (4) the growth of part-time jobs; (5) the pop-
ularity of temporary jobs; and (6), a record increase of female labour market participa-
tion.
Real wage moderation, agreed in collective bargaining at the sectoral level by trade
union and employers representatives, has contributed to curbing wage costs over the
past fifteen years. Inaugurated by a major Social Accord concluded between the central
union and employers federations in 1982, the sustained policy of wage moderation has
helped to preserve and create jobs. It seems that especially Dutch trade unions, operat-
ing in a highly open economy with a high degree of trade dependence recognized at
an early stage that there was a trade-off operative between wages and work.Wage mod-
eration has had an especially favourable impact on employment in sectors that produce
mainly for the domestic market, making low-wage, labour intensive production prof-
itable again.Wage moderation has also helped to improve the price competitiveness of
Dutch industry. The experience of high growth in the second half of the 1980s and
after 1993 suggests that sustained economic growth has a very strong impact on
employment growth and unemployment decline. Because of continued appreciations
of the Guilder, the level of inflation has been suppressed, which, in turn, has had a
favourable effect on domestic wage trends, contributing to employment and output
growth.
The concerted strategy of wage moderation entailed two political exchanges which
followed each other in time and importance: one between workers and employers, the
other with the government. In the first exchange, wage moderation was traded against
a modest reduction in annual and weekly working hours. In the second exchange,
between the social partners and the government, which gained more prominence in
the late 1980s, wage restraint was compensated for by lower taxes and social security

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Prospects for Basic Income in an Age of Inactivity?

contributions, made possible by improved public finances and a broader tax base as a
result of record job growth. In the wake of the foundational Wassenaar Accord, the
Dutch system of industrial relations moved in the direction towards an dual bargain-
ing system, whereby frame agreements set the pace for bargaining at the level of sec-
tors and firms.
Hard won social security reform and the revived confidence in negotiated adjust-
ment, endorsed by unions and employers, gradually concurred with a general shift in
the problem definition of the alleged crisis of the Dutch welfare state. Policymakers
came to realize that the low level of labour market participation was the Achilles heel
of the continental system of social protection. Gradually, the central policy objective of
fighting unemployment by subsidizing easy-exit and reducing entry was replaced by
maximizing the rate of labour participation.
There is a clear relationship between the prevalence of part-time work (opportuni-
ties) and low levels of unemployment.This seems to hold true for Denmark, Sweden,
the United Kingdom, Finland, and the Netherlands.The extraordinary growth of part-
time jobs has contributed to the massive entry of women in the labour force, and the
replacement of older workers by younger, cheaper and possibly more flexible and
skilled workers.With some delay, the Dutch trade unions have come around in support
of these changes and taken a positive attitude towards part-time employment and flex-
ibility.The share of part-time work has surged from less than 15 percent in 1975 to 35
percent in 1994, a share well above that of any other OECD country. Of all part-time
employment, 75 percent of part-time jobs are held by women: 63 percent of all female
workers are employed part-time.The incidence of part-time work among men is at 16
percent the highest among OECD countries. The EU 15 average of male part-time
employment is only 5 percent. The Netherlands has the highest rate of part-timers
among young people in Europe at 25 percent (OECD, 1998).This suggests that entry
into the labour market is commonly channelled through part-time work.
Following protracted wage moderation, labour time reduction, increase in part-time
and temporary work, and the surge of female market participation, average annual
working hours per worker have come down significantly since 1973. However, net
labour market participation increased from 52 percent to 64 percent from 1983 to
1994. To be sure, it should be emphasized that in terms of participation in full-time
equivalents the Netherlands is, at 50 percent, still lower than neighbouring countries
(OECD, 1998).
The Dutch job miracle, currently praised by many observers, does represent a sig-
nificant departure from the scenario of welfare without work so typical of the conti-
nental welfare state. Sustained wage restraint, welfare reform, and the expansion of
more flexible work and part-time employment, has fueled exceptional job growth in
1980s and 1990s, which has helped to bring the rate of unemployment down to just
over 3 percent. However, all that glistens is not gold. The present state of nearly full
part-time employment may be judged a second-best solution only. The current low
unemployment rate of under 6 percent does not reflect the true state of slack in the
Dutch labour market. The level of structural inactivity, including all unemployed and
inactive persons of working age receiving a social security benefit and persons enrolled
in special job creation programmes, remains high at 20 percent of the current labour
force. New jobs have gone predominantly to younger and better skilled recruits to the
labour market, and many are part-time, sometimes for a limited number of hours only.

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Basic Income on the Agenda

Inactivity is concentrated among the low skilled, older workers, immigrants and
women. The participation rate of older males has dropped to one of the lowest in
Europe. The share of long-term unemployment has started to decrease but is still at
about 50 percent extremely high by international standards (OECD, 1998).

Between Workfare and a Basic Income

As the twentieth century draws to a close, there is much anxiety over the future of the
advanced welfare state based on the conception of social citizenship, as formulated by
T.H. Marshall fifty years ago. Critics point out that postwar social policy has accumu-
lated a vast array of rigidities which impede flexible adjustment, block technological
innovation and hamper necessary economic and employment growth. From this kind
of diagnosis, the obvious recipe is to scale down the ambitions of social policy by way
of curtailing the extent and coverage of social rights. Encouraged by the American job-
machine miracle, the OECD is recommending to European policymakers that they
de-regulate their labour markets, abolish or lower minimum wages, scale back social
security, and give up progressive taxation (OECD, 1994c). European policymakers,
however, are reluctant to follow the American example of recommodifying labour, as
the unparalleled expansion of jobs in the US economy has been accompanied by the
emergence of an underclass of working poor, who are unable to acquire a decent stan-
dard of living through regular earnings.
The challenge of social policy lies in the need to find novel ways of translating
Marshalls rights-based conception of social citizenship into effective policies and insti-
tutions which are able to respond to the new rules of global competition, deal with the
new shape of working life and take into account the new realities of family life and the
predicament of demographic aging. One constraint remains highly relevant: the right
to work as a right of social citizenship cannot be effectively guaranteed in a market
economy (Elster, 1988).The right to work may be anchored in a qualified public com-
mitment to help provide the opportunities to earn a living wage for citizens who need
and demand it, which can be underpinned by an active labour market policy, but in a
capitalist economy the right to work is overwhelmingly dependent for its implementa-
tion upon the voluntary co-operation of autonomously employing firms.
In the academic debate over the prospects for effective social citizenship in an age of
structural inactivity, two diametrically opposed policy proposals are often advocated.
Workfare programmes and a citizens income. Workfare policies are designed to
strengthen and repair the conditional links between work and income which have
been lost with the expansion of the welfare state.The underlying philosophy of work-
fare is one of mutual obligations: welfare recipients must be obliged to accept employ-
ment as a duty in order to receive benefits, while the state has the obligation to provide
the services that make employment possible. For Lawrence Mead, an ardent defender
of workfare, forced labour and/or community care in exchange for public assistance
and welfare services serves the purpose of remoralizing the welfare state (Mead, 1986).
Those who refuse to take part in job-training programmes should have their social
benefits taken away from them.As such, workfare programmes engender an ideology of
blaming the victim: the inability to find and hold regular jobs is blamed on undeserv-
ing recipients, who lack an appropriate work ethic. For the protagonists of workfare

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Prospects for Basic Income in an Age of Inactivity?

the problem at hand, the overall decline in the demand of low skilled labour, is unre-
lated to changes in the economy. In practical terms, workfare programmes, as they
mostly involve additional public sector employment initiatives, are rather expensive.
They require intensive efforts of supervision and implementation. Most successful are
policies of vocational training and education that focus on marketable skills, along the
lines of Swedish active labour market policies. In the United States, mandatory job
programmes, based on a workfare philosophy, have not been all that successful in
achieving lasting integration of low-skilled groups into the regular labour market
(Blank, 1997; Handler and Hasenfeld, 1997). Many workfare initiatives fail to meet cit-
izenship criteria of rights and universalism. In fact, the citizenship content is com-
pletely absent in Meads proposal to selectively put the deserving poor to work for the
sake of remoralizing society. This is less true for workfarist social policy intiatives in
Denmark and the Netherlands. In Denmark, the activation content of labour market
policy is increased by extending job and education offers for long-term and youth
unemployed and making participation obligatory after a certain duration of unem-
ployment, while the level of unemployment benefits remained generous. However, the
maximum duration period of and eligibility criteria for unemployment benefits have
been restricted so as to strengthen work incentives. In addition, schemes for sabbatical,
educational, and parental leave can be regarded as a transitional labour market state
serving partly as buffer zones around the regular labour market while containing hys-
terisis effects and tendencies towards social exclusion caused by long-term unemploy-
ment (Schmid, 1996; Hemerijck and Schludi, 2000). In the Netherlands, selective
product and labor market deregulation and the promotion of part-time employment
have all been achieved as part of a broad social pact covering sustained, co-ordinated
wage bargaining and minimizing any impact on real income disparities. The Dutch
agreement on Flexibility and Security in 1966, relaxation of high levels of security for
full-time core workers was exchanged against greater protection for peripheral
(although increasingly critical) temporary and part-time workers. The compromise
whereby statutory dismissal protection for regular employment contracts, including
more opportunities for negotiating termination of employment, is exchanged for
improving the rights of temporary workers and introducing the presumption of an
employment relation in the case of freelance work. Temporary employment agencies
no longer need a license, but the law assumes that temp agencies take on the responsi-
bilities of employers. The social partners are also in agreement that employers should
honour workers requests to work part-time unless there are compelling firm-related
reasons for rejection.
Many basic income proponents defend a basic income policy on the presupposition
of jobless growth (Offe, 1996; 1997; Rifkin, 1996).A basic income should make it pos-
sible for people to participate more in voluntary activities beyond the sphere of regu-
lar employment, such as community care and learning. The foremost advocate of an
unconditional citizens income, in line with the principles of individual liberty and
equal treatment, is Philippe Van Parijs (Parijs, 1991a; 1992b; 1995; Parijs et al., 2000).A
basic right to real income, granted to all citizens, represents a fully-fledged form of cit-
izenship in terms of a universal right to real income,not proportionate to the market
value of the claimant (Marshall, 1963: 100). A basic income fundamentally recasts the
role of the welfare state. Central to a citizens income is the fundamental disengage-
ment of real income entitlements from employment status, wage-earning conditions,

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Basic Income on the Agenda

and the readiness to accept job offers. Instead of providing income support for inactive
workers and their families, social protection takes place outside the labour market. By
endowing every person with wealth, basic income protagonists argue that government
could quit the business of providing social welfare, since individual citizens would be
able to take care of themselves (Van der Veen and Pels, 1995; De Beer, 2000).
For radical policy alternatives, like an unconditional basic income, to be adopted,
they not only have to be functional to the problem at hand; they also have to be nor-
matively acceptable to the citizenry at large. It remains difficult to translate Van Parijs
ideal of the right to surf for everyone in a normatively convincing way to a world in
which peoples real-life moral understanding of work and social justice is rooted in
conditional social policy. Large majorities in advanced welfare states of the European
Union repudiate the something for nothing philosophy that a basic income policy
seems to endorse. In the Netherlands, 65 percent of the population reject an uncondi-
tional basic income scheme (SCP, 1994: 230).
Still, a basic income helps to reduce the costs of social policy administration and
implementation. But despite these cost reductions, an unconditional basic income,
given to all adult citizens, at the level of the present standards of the social minimum, is
extremely expensive. A less expensive alternative is the negative income tax (NIT)
alternative, which is more narrowly targeted at the needy, and which is gradually with-
drawn as incomes rise. Like the basic income, the NIT requires far-reaching restructur-
ing of present systems of taxation, social assistance, social insurance, pensions, and wage
setting, incurring massive transformation costs of regime-change.
While a fundamental overhaul of the contemporary welfare state may seem too
daunting a task, many of the financial and institutional constraints and moral scepticism
with respect to a basic income policy could be avoided by a modest, less costly, and
more economically feasible and politically viable policy option. For the continental
welfare state of Germany, Fritz Scharpf has, in a number of recent publications, sug-
gested employing the logic of a negative income tax, in the form of regressive employ-
ment subsidies, to create a low-wage job-intensive sector in the fight against inactivity
(Scharpf, 1995; 1997a; 1997b; 1997c). Employment subsidies for low-earning workers,
Scharpf believes, are likely to improve the position of the low skilled by way of reduc-
ing gross wage costs for employers and increasing the take-home pay of low skilled
workers. Scharpf s scheme is fully compatible with citizenship, since it is made available
as a matter of right. Scharpf believes that in Germany and other continental welfare
states there is a considerable potential for an expansion of low-skilled jobs in services
like wholesale and retail trade, personal services, personal and public safety, house
improvements, environmental protection, tourism and cultural recreation. In North
America, where wages are comparatively flexible, there has been a considerable
increase in low-skilled jobs since the 1980s.The North American social policy predica-
ment is the rising class of the working poor. The European dilemma is welfare-
dependent inactivity jobs rather than income. Banking on the large reservoir of social
and political support for a comprehensive welfare state in Europe, Scharpf maintains
that targeted wage subsidies, following a negative income tax logic, could permit a sce-
nario of labour-cheapening and job growth, without an American-style surge in
poverty and inequality. This could open up a wide range of additional, economically
viable employment opportunities at the lower end of the labour market. As employ-
ment subsidies are likely to increase labour demand, Scharpf believes that, if successful,

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Prospects for Basic Income in an Age of Inactivity?

subsidies could pay for themselves in terms of reduced outlays for full-time unemploy-
ment. Moreover, normatively, Scharpf s proposal of targeted employment subsidies is
consistent with the prevailing work ethic and the moral integrity of an employment-
friendly welfare state to which ordinary citizens are willing to contribute through
contributions or taxes. In reply to the kinds of objections raised by Offe, it should be
emphasized that the new jobs that would be created in domestic services would nei-
ther be confronted with the kind of productivity whip prevalent in the exposed sector,
nor would they create environmental problems. Unlike workfare policies, which
require additional public sector employment programmes, the negative income tax
logic in Scharpf s proposal has the advantage of mobilizing private resources. Job cre-
ation and hiring decisions remain in the hands of private firms in the regular economy.
Employment subsidies can be provided to workers or employers.A tax credit could
be given to individual workers or, alternatively, social security charges for employers
could be reduced. For the Anglo-American welfare states, where guaranteed minimum
income arrangements at subsistence level are generally not available and unemploy-
ment benefits are low and of short duration, individual tax credits and social services to
support workers and their families who work for wages below the poverty line would
be most appropriate. Earnings-related subsidies to working families, the so-called
Earned Income Tax Credit, are currently the largest assistance programme for low
income American citizens (Haveman, 1996; Blank, 1997). For the advanced welfare
states of continental Europe, which guarantee levels of minimum income protection
above the subsistence level, it is more appropriate to subsidize employers who are will-
ing to hire low-skilled workers. Here the reduction of non-wage labour costs should
be part and parcel of the solution to the predicament of structural inactivity. Perhaps
Australia has gone farthest, following the logic of a negative income tax, in offering
subsidies in the form of tax credits to workers who work in low-paid jobs, with the
aim of avoiding the strong work disincentives associated with poverty traps typical of
Anglo-Saxon welfare states with their strong reliance on means-tested benefits. The
Australian success has inspired the Blair government in the UK, under the so-called
New Contract for Welfare (1998) to expand tax credits to mitigate unemployment
traps. Some observers argue that as more low income groups become eligible for tax
credits, the logic of tax-benefit reforms inevitably pushes New Labour towards an
integrated negative income tax system, and ultimately towards the establishment of a
universal basic income, more or less through the backdoor ( Jordan, 2000). I think,
however, that in the context of Blairs moralist emphasis on welfare to work as the
core ground of legitimizing tax credits, this will remain wishful thinking for some time
to come.
A policy of tax credits is of minor importance in mainly tax-financed welfare states
such as Denmark, where the tax wedge at the lower end of the income scale is already
rather low. For the continental welfare state, strategies to subsidize employers hiring
low-skilled workers by way of exempting social contributions are gaining ground. In
the Netherlands, the third Lubbers administration and the first Kok administration
introduced several kinds of employment subsidy schemes (Opstal, Roodenburg and
Welters, 1998).The first programme, the Work Replacement Version (KRAP-RAP) was
targeted at long-term unemployed women, ethnic minorities and low skilled groups
(without a job for more than two years). Despite a subsidy of 20 percent of wage costs
for a four-year period together with an initial subsidy of 4,000 guilders, the take-up

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Basic Income on the Agenda

was disappointing. Under the Melkert (2) programme, named after the Minister of
Social Affairs and Employment of the first Kok administration (1994-1998), employers
receive a wage-cost subsidy in the order of about half the wage costs for a two-year
period.The most recent scheme, the Low Wage Reduction scheme, also known as Specific
Social Security Contributions Concession (SPAK), covers all jobs that pay an hourly wage
of up to 115 percent of the minimum wage.According to wage surveys of the Ministry
of Social Affairs and Employment, SPAK jobs are indeed taken up by low-skilled work-
ers. However, the majority of these jobs were occupied by new entrants, young people
and partners of breadwinners, and not by already unemployed workers. In 1998, the
SPAK scheme was reformed in order to raise the number of unemployment benefit
recipients in the programme. All in all, the Dutch employment subsidy schemes have
significantly reduced employers wage costs, through reductions in taxes and social
security contributions, instigating a decline in the tax wedge for employers who hire
long-term unemployed. Employment subsidies can add up to as much as 25 percent of
the annual wage.
Notwithstanding the favourable verdict on employment subsidies following a NIT
logic, it is important to mention a number of practical difficulties. Policymakers should
be aware of abuse by employers who can simply lower their wage rate without neces-
sarily creating new jobs. As many of the Dutch programmes have been targeted at
unemployed people who have been out of work between one and three years, employ-
ers are tempted to substitute long-term unemployed for short-term unemployed, or
delay hiring until the subsidy can be collected. Where new jobs are created, it is vital
that policymakers address the quality of working conditions. It is also important to
emphasize that a policy of lowering social security contributions for employers hiring
low-skilled workers takes the productivity whip out of the old equation between com-
petitive adjustment and social protection. This could harm the incentives to upgrade
skills and thus raises the danger that the employment subsidies lock up low-skilled
workers in a secondary low-wage economy from which they cannot escape. Hereby,
the inactivity trap is replaced by a skill trap.To be sure, in a graduated scheme mod-
eled after the negative income tax there remain clear incentives to get a better educa-
tion and a better paid job. In the Netherlands it seems that this risk is relatively small for
young people, who view a subsidized low-paid job as an investment in their future
labour market position. A more serious social policy question is whether cuts in
employers social security contributions, as they lead to reductions in public spending,
will have an effect on the overall quality of social services. For reasons of economic
internationalization there has in recent years been a gradual shift in the burden of tax-
ation away from capital onto labour.This tendency to increase the tax burden on work-
ers could lead to tax-resistance, which in turn could incite mainstream political parties
to compete on the basis of their ambitions to cut taxes, with the result of reducing pub-
lic spending at the expense of the quality of welfare citizenship. It is possible to consid-
er raising consumption taxes (VAT, excise duties, and green taxes on consumption) and
taxing firms, not on the basis of employees they hire, but in terms of their capital,
equipment and the energy they use and the kinds of environmental damages they
incur.

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Prospects for Basic Income in an Age of Inactivity?

Conclusion

The postwar welfare state is founded on the normative principle of protecting the vul-
nerable citizens the aged, the sick, the unemployed from poverty and from social
and political marginalization.While Marshall could assume stable families and proper-
ly functioning male labour markets, todays social policymakers have to deal with
demographic aging, the new shape of working life and the new realities of double-
income households and the new rules of global competition.The Dutch experience,
highlighted above, gives reason for moderate optimism. Despite some continuing
weaknesses, it has contradicted the scenarios of welfare without work and of jobless
growth through its combination of sustained economic growth, low inflation, respon-
sible wage moderation, extraordinary full-time, part-time and temporary job creation
together with a revolutionary increase in female labour force participation, accompa-
nied by important social policy reform. The Dutch experience also challenges the
intuitively appealing cultural thesis of the erosion of the work ethic as a consequence
of the decoupling of work and income by way of social policy. Gainful employment
remains an important source of social integration and economic independence. Both
men and women wish to partake in regular employment, not merely to earn a living,
but also for reasons of security, social status, prestige, companionship and engagement
in collective action. At present, therefore, there is no cultural support basis for the
introduction of an unconditional basic income in the majority of economically
advanced welfare states.
Moreover, structurally, in terms of social policy design, there is also no need to
introduce a basic income at present levels of the social minimum, as the pathology of
welfare without work can be resolved through a mix of less expensive policy meas-
ures. In order to maintain the universal and rights-based conception of social citizen-
ship, changes are necessary in the design of social security. In particular, the paradig-
matic shift in the world of work and the world at home in a globalizing economy
implies a refocusing on achieving a new balance between flexibility and security. On
both sides of the Atlantic, social policy has to respond to a universal downward shift in
the demand for low-skilled work, especially in the internationally exposed sectors, as a
consequence of economic internationalization and technological change. Two policy
options which may help to increase the employment opportunities for low-skilled
groups are relevant. First, policies geared towards improving the quality of the work-
force, through vocational training and education, are likely to reduce the number of
less-skilled workers (Crouch et al., 1999). However, increasing the employability of dis-
advantaged groups through training and education is not a solution for everyone. A
truly positive-sum solution also requires a concerted policy effort to increase the
chances of low-skilled workers in the regular labour market by making less productive
work, especially in the domestic service sector, economically viable. The proposals of
Fritz Scharpf for the use of targeted employment subsidies through the tax and social
security system could play a major role here.Although gainful employment is no guar-
antee for a good life, targeted employment subsidies, modeled after the negative
income tax, do constitute a significant step towards economic independence, self-
respect, and the social integration of low-skilled groups.
The current predicament of structural inactivity not only adds to the fiscal crisis of
the welfare state, it reinforces labour market segmentation. By contrast, employment-

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Basic Income on the Agenda

friendly welfare policies that provide men and women with job opportunities, help
households to harmonize work and family obligations and train the population in the
kinds of skills that the modern economy demands, strengthen, in the words of
Marshall, the loyalty to a civilization which is a common possession (Marshall, 1963:
101). If the underlying normative criterion is to counter involuntary inactivity and
poverty, there is every reason to support rights-based policies which are likely to result
in an increase of labour force participation in persons and a decrease in hours worked,
which in due course could foster a more generalized, less gendered and more nuanced
work ethic.This, in turn, could help to reconfigure the moral integrity of the welfare
state in short, citizenship.

Notes

1 Inactivity is defined as the relative volume of people in the population in the age group
between 15 and 64 who receive earning-replacing social benefits for the risks of old age, sur-
vivors, disability, sickness, unemployment, and social assistance, relative to the workforce.
Activity is defined as the relative volume of labour expressed in labour years, relative to the
working age population, from which the total benefit years due to sickness and maternity are
subtracted because these risks are already included in the inactivity ratio. Next to inactive and
active people in the population older than 15 years, there is a remaining group of people who
are neither active nor inactive.These are people still attending school or university and people
who are dependent upon other active or inactive people.

154
Basic Income and Social Europe
Fritz W. Scharpf

Before I turn to my assigned topic, let me say that I have great sympathy for the Basic
Income European Network that presented itself so impressively at its Seventh Con-
gress in Amsterdam. However, being an empirically oriented political scientist, rather
than a moral philosopher, I should also confess that I am doubtful of the political via-
bility of the proposed right to a basic income without means-testing and without a
concomitant obligation to do work that is useful to, and appreciated by, other members
of ones society. In political discourses, it will not be enough to persuade potential
recipients of the desirability of a right to be lazy, but it will also be necessary to make
others believe that they have a moral duty to work harder or longer in order to pay for
this program. Personally, moreover, I consider mass unemployment, forced inactivity,
and the exclusion from the processes of social production, a much greater challenge to
the moral integrity of Western European societies than the frustration of leisure pref-
erences.
For these reasons, I would accord normative priority to variants of basic income
schemes that have the explicit purpose of increasing the incentives and the opportuni-
ties for gainful employment, rather than for financially secured inactivity.This implies
that quite apart from any questions of financial feasibility, I would prefer the negative
income tax over proposals for an unconditional basic income,1 and I would prefer both
over presently existing forms of means-tested social assistance with their strong work
disincentives. Moreover, if for political, institutional, or financial reasons the negative
income tax should not be a feasible option, I would much rather see social insurance
contributions for low-wage jobs being reduced than an attempt to increase the gen-
erosity of social assistance in its present forms (Scharpf, 1999b). But all this is by way of
background information since I have not been asked to discuss my comparative evalu-
ation of basic income proposals. My assigned theme, as I understand it, is to discuss the
implications of European integration on the chances of success of basic income pro-
posals in general, regardless of the differences among its several variants.

Economic Integration Constrains National Welfare States

The connection between European integration and basic income proposals is not
obvious. So far, at any rate, there appears to be wide agreement that social policy
choices should remain a national prerogative under the principle of subsidiarity.
National welfare states are too diverse, economically and institutionally, to make poli-
cy harmonization a realistic goal; moreover, if harmonization were attempted, basic
income schemes which are not realized at the national level, or even on the political
agenda in any of the Member States would be among the least likely candidates for
European-wide policy co-ordination. Nevertheless, there are good reasons for advo-
cates of basic income proposals to reflect on the implications of European integration

155
Basic Income on the Agenda

on their chances of success at the national level. Unfortunately, however, these implica-
tions are largely negative.

Regulatory competition undermines economic viability


Even though social policy choices must remain at the national level, they are affected
by the consequences of European economic integration. National social policy is severe-
ly constrained if consumers are able to buy goods and services produced anywhere
within the Union; if capital owners can invest, and firms produce, anywhere in the
Union; and if labour moves freely throughout the Union.
For one, the competition in product markets severely restricts all national solutions
that would add to the cost of production.This affects most directly those countries that
are financing their welfare state through social security contributions defined as a sur-
charge on wages. But it also constrains current proposals to shift from payroll taxes to
green taxes on energy input or on pollution unless care is taken to exempt enter-
prises from such taxes which, however, will defeat or at least weaken the environmen-
tal-protection purposes of such shifts.2
At the same time, the mobility of capital investments and of firms constrains nation-
al policy choices, which would have the effect of reducing after-tax profits and the net
return on invested capital, even if these did not affect the cost of production and hence
the competitiveness of national products. Hence, countries that are financing their wel-
fare state through taxes on personal and corporate income are under pressure to reduce
taxes on business profits and capital incomes, or otherwise risk the out-migration of
corporate headquarters and of job-creating investments.

Welfare migration undermines political viability


Regardless of the mode of financing, however, countries that provide generous mini-
mum income support have become vulnerable to welfare migration under the EUs
freedom-of-mobility rules which do not allow a country to discriminate against the
nationals of another EU Member State.These rules, it is true, are so far applicable only
to workers seeking employment. But they continue to apply after workers become
unemployed, and they apply to their dependent family members.To illustrate, in a case
that is presently much discussed in Germany, social assistance is being claimed by the
large family of a recently immigrated and now unemployed manual worker from Sicily.
By implication, the fear of welfare migration is weakening the potential political
support for basic income programs which if they are tax financed, rather than insur-
ance financed could no longer be restricted to citizens or long-term residents under
EU rules. As I said before, from the point of view of taxpayers, all redistributive pro-
grams depend on normative arguments that could justify a duty to transfer parts of
their own income to others. I have learned to my surprise that the Basic Income
Movement tends to rely on negative, rather than positive, justifications based explicitly
(Schutz, 1998: 2) or implicitly on the logic of Proudhons dictum that Property is
theft.The argument, in other words, is that much of the current income of the better-
off is unearned, depending on accidents of birth, of genetic endowment, of inheri-
tance, or of brute luck in obtaining valuable and scarce external assets (Van Parijs,
1995;Widerquist, 1998), including attractive jobs (Gamel, 1998; De Wispelaere, 1998).3
The normative implication is that since these incomes are undeserved nobody could
rightly object if they are being taxed away.

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Basic Income and Social Europe

At the level of practical politics, however, it may be difficult to persuade most tax
payers of the sinfulness of their possessions. Instead, the justification of real-world wel-
fare states seems to depend on positive arguments implying a duty of mutual help
among the members of a solidaristic community.4 And while universalist moral philos-
ophy may find it logical to extend solidarity to all of mankind,5 real-world solidaristic
communities depend on historically grounded, and emotionally salient collective iden-
tities that are defined more narrowly.6 The largest unit that so far has been able to
achieve this status is the nation state and even national solidarity is currently being
challenged by the assertion of subnational identities: Padanian in Italy, Flemish in
Belgium, Bavarian in Germany.The European Union, at any rate, has not yet achieved
the status of a solidaristic community in the eyes of the citizens of individual Member
States. Hence, one cannot presume broad political support for the postulate of a moral
duty to include citizens of other Member States in national programs of basic income
support.As a consequence, not only proposals for new welfare programs, but also exist-
ing programs are now increasingly scrutinized with a view to their likely incentive
effects on welfare migration, especially under the perspective of the Eastern enlarge-
ment of the European Union.

National Solutions?

National welfare states are everywhere under fiscal stress because of exceptionally high
levels of unemployment and because of demographic changes that increase the size of
the inactive population that must be supported by the active population. Quite apart
from that, however, European economic integration has created additional constraints
which also tend to reduce the capacity for generous welfare policies. If economic
competition discriminates against taxes that will either add to the cost of production or
that will reduce the post-tax return on capital investments, welfare finance will increas-
ingly be raised from taxes on the possession of immobile and non-business property,
from taxes on income from labour, from taxes on consumption, and from user charges.
Since property taxes play only a minor, and generally declining, role in most advanced
welfare states, the main burden has generally fallen on the incomes from work and on
the consumption expenditures of the less mobile majority of the population.The wel-
fare state, in other words, has come to depend mainly on what one might describe as
solidarity within one class (Scharpf, 1991).
But while such shifts may be economically plausible, they are also quite unattractive
politically.Thus, if tax payer resistance is compounded by fears of welfare migration, it
is not unreasonable to conclude that European economic integration and the guaran-
tees of free mobility throughout the Union have greatly increased the political and fis-
cal difficulties that must be overcome by basic income proposals. The question is
whether there are solutions that could avoid these difficulties. If they exist, they must
require a major restructuring of both welfare financing and spending patterns with a
view to making them more robust against international economic competition as well
as against tax payer opposition. In other words, international economic competition
forces national welfare states to transform themselves into competitive welfare states if
they wish to remain true to their solidaristic commitments.
One consequence is the apparently general shift from welfare to workfare and

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Basic Income on the Agenda

toward stricter mean testing that is reflected in the country reports presented in Part II
of this volume. In my view, this has probably less to do with an ideological shift back to
the work ethic than with an attempt to reduce expenditures either by deterring wel-
fare chiselers through more stringent controls or by getting welfare recipients back
into regular employment, preferably in the private sector of the economy.
Another direction that restructuring may take is toward a separation of individualis-
tic and solidaristic programs the former providing protection against insurable risks
over the life course of the individual, and the latter providing for interpersonal redistri-
bution. Examples of individualistic programs are health insurance and funded pension
insurance schemes in which the equivalence between individual contributions and
expected individual benefits is emphasized. Even if contributions are made compulso-
ry in order to compensate for a presumed lack of individual foresight, they can be plau-
sibly justified as being in the interest of the contributing individuals. Hence they
should be relatively immune to tax payer resistance. Economically, they should be con-
sidered as individual savings or consumption expenditures that do not create competi-
tive disadvantages for the national economy; and obviously there are also no problems
of welfare migration.
It is my impression that countries like Switzerland or the Netherlands that have tra-
ditionally tended to separate the individualistic and the redistributive components of
their welfare states for instance by establishing different pillars of their pension sys-
tems are presently less under pressure than countries like Germany that have inte-
grated individualistic and redistributive elements in single, contributions-based systems
of health insurance, pension insurance and unemployment insurance. Another indica-
tion are recent reforms in Sweden that have strengthened the individualistic insurance
elements of the pension system, and I would expect that other countries will be mov-
ing in the same direction.
The main advantage of the separation strategy is, of course, that it reduces the appar-
ent size of the redistributive welfare state that is considered a disadvantage in interna-
tional competition, and that must be legitimated by appeals to solidaristic motivations.
Moves in the same direction can be seen in the introduction of means-tested user
charges such as student fees in Dutch and British universities or co-payments in the
German health care system which emphasize the value-for-money element of pub-
lic services while at the same time targeting tax-financed expenditures on lower-
income clients that could not afford to pay the full cost of these services.An even sim-
pler model is provided by the Swiss system of compulsory health insurance which
requires cost-covering individual premia from all inhabitants, and which achieves redis-
tribution by public subsidies to reduce contributions of low-income individuals and
large families.
To the extent that such strategies succeed, they will reduce the quantitative dimen-
sion of the problems created for the welfare state by European economic integration.
At the same time, however, they have the disadvantage of making redistribution much
more visible and thus increasing the need for explicit political justification, and the
vulnerability to political criticism and opposition. In a democracy, this is as it should be.
I would expect, however, that under such conditions proposals for unconditional basic
income support would have a hard time in mobilizing political support, and that even
means-tested social-assistance programs would remain at relatively low levels of sup-
port for recipients who are able to work. By contrast, proposals for subsidizing low

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Basic Income and Social Europe

incomes from work in the form of a negative income tax, of the American Earned
Income Tax Credit, or of subsidies that directly reduce the cost of certain types of
work to the employer are likely to fare better in public debates. The question is
whether the basic income movement should therefore concentrate its efforts on such
proposals.

European Support for National Solutions?

European integration, I have argued, forces national welfare states to become compet-
itive.The danger is, of course, that this competition could turn into a ruinous race to
the bottom in which the British deregulation of the labour market induces France to
cut employers social contributions, which in turn provides justification for cutting sick
pay in Germany and Sweden, and so on. In the end, all countries could end up with
lower levels of social security than would be preferred domestically, without having
improved their relative competitiveness at all.
If this scenario is considered undesirable, the obvious solution would seem to be har-
monization. However, as I suggested at the outset, uniform European rules are out of the
question because of existing differences in the economic capacity of EU Member States.
Among the present Member States, per capita incomes differ at the ratio of 1:2 or 1:3,
and with the Eastern enlargement the difference between the richest and the poorest
Member States would increase further by a factor of two or three.As a consequence, wel-
fare expenditures at a level that is acceptable in the rich states would simply destroy the
less advanced economies. But even if the economic obstacles were less steep, present dif-
ferences in the spending patterns of European welfare states, and even more so, differ-
ences in the institutional structures of welfare financing and welfare provision, would
surely prevent the adoption of uniform European rules (Scharpf, 1997a).
What might be possible, however, are agreements and rules that would avert the
dangers of ruinous competition among the European welfare states (Scharpf, 1999b).
One such possibility arises from the fact that in spite of their structural and institu-
tional diversity, EU Member States are remarkably similar in their overall commitment
to social welfare. More specifically, since the share of total social spending in GDP
increases in direct proportion to the wealth of Member States, it might be possible to
translate this latent consensus into an explicit agreement among EU Member States to
avoid welfare cutbacks that would significantly reduce their overall spending position.
This would leave all countries free to pursue structural and institutional reforms, but it
would eliminate welfare cutbacks from the tool set of economic competition.
Beyond that, there is now some hope that some forms of tax competition will be
constrained by political agreement on common ground rules for the taxation of for-
eign firms, whereas similar agreements on the taxation of capital interest seem to
remain more difficult. By contrast, there seems to be no progress at all on the more
important issue of establishing a Europe-wide social minimum. For the countries that
already have relatively generous schemes of minimum income support and social assis-
tance, harmonization would again run into difficulty because of structural and institu-
tional differences which could be overcome through agreement on purely quantita-
tive standards of minimum support, defined again in relation to a countrys
average-income position. For the Southern countries, however, that do not yet have

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Basic Income on the Agenda

such programs, and even more so for the future Member States in Central and Eastern
Europe, the implementation of Europe-wide minimum-income standards would
require major additional expenditures, that would not be feasible without financial sup-
port from the Union. However, if such support were forthcoming perhaps through a
redirection of the cohesion funds it might be necessary and possible to avoid the
work disincentives inherent in the present social assistance programs of the richer
Member States. In that case, basic income programs, most likely in the form of the neg-
ative income tax, might indeed provide the most effective and efficient solution to the
twin problems of poverty and unemployment, and European policy makers might well
be persuaded to promote this strategy.

Notes

1 I realize that Basic Income and Its Cognates can be made to generate similar incentive structures
through the appropriate manipulation of parameters (Van Parijs et al., 2000). But the different
versions emphasize different justifications and are designed to optimize the achievement of
different purposes.
2 The most plausible solution would be to raise the value-added tax on energy or material inputs
into production which would shift the entire cost to the ultimate consumers of energy-inten-
sive products, and which would not affect export competitiveness as long as the EU regime still
operates under the country-of-destination principle. But in view of the regressive distribu-
tional consequences of VAT increases, this solution would have high political costs.
3 In addition, there seems to be a second line of argument that attempts to avoid the need to
justify redistribution by proposing sources of revenue that seemingly belong to no one such
as a Land Trust collected from commercial uses of the national territory (Lehmann, 1998), a
European Eco-dividend created by taxing the use of the environment (Quilley, 2000), or a
Tobin tax on speculative transactions (Standing, 1998). It is clear that none of these ideas
could produce the free lunch that they seem to promise.At best they would direct redistrib-
utive efforts at particularly unpopular target populations.
4 Civil and criminal law seem to rely on the same assumption when they impose a universal
duty to refrain from positive action that would injure anothers life, liberty or property, where-
as the duty to engage in positive action in order to prevent, or compensate for, damages
caused by external forces arises only from specific (familial, contractual or situational) relation-
ships between the parties.
5 Interestingly, basic income articles that begin by asserting that the income from the resources
of the planet and the universe should be divided equally among us because that is the only
way that is fair, that is moral, that is right (Schutz, 1998: 1) continue by calculating basic
income payments to inhabitants of the United States on the basis of unearned American
wealth (ibid.: 7). In fact, I did not come across one contribution at the 1998 BIEN Congress
that advocated basic income payments based on an equal distribution of unearned incomes
among the population of the planet. In practical terms, therefore, basic income advocates also
seem to assume that entitlements will be nationally circumscribed.
6 Moreover, since solidarity is based on assumptions of reciprocity, it creates, not only a duty to
assist other members in case of need, but also a duty of recipients to make use of opportuni-
ties to help themselves. This would morally justify means testing as well as a duty to accept
available and suitable work opportunities.

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Basic Income at the Heart of Social Europe?
Reply to Fritz Scharpf

Philippe Van Parijs*

No nonsense. This is the tone of Fritz Scharpf s contribution. This is the language
which basic income supporters must be able to grasp and willing to hear at least if
they are not to degenerate into a motley assembly of soft-minded do-gooders; if they
are not to be ruthlessly driven into the margins by a harsh, uncompromising reality, but
instead to help shape the future in accordance with their visions of freedom and equal-
ity. Not through relentless, repetitive preaching, but by means of the resolute and astute
action which they must aim to inspire and guide, but will never successfully steer
unless they adopt the no-nonsense attitude advocated and practised by Fritz Scharpf.

Goals: Moral Integrity

No nonsense, first of all, about goals. Fritz Scharpf consider[s] mass unemployment,
forced inactivity, and the exclusion from the processes of social production, a much
greater challenge to the moral integrity of Western European societies than the frus-
tration of leisure preferences. So do I. Indeed, it is the plight of the excluded Scharpf
has in mind, not the whims of Malibu surfers, which has been driving me all along,
first in my interest in, and second in my advocacy of, an unconditional basic income.1
But beware: the implied conception of the moral integrity of Western European soci-
eties need not grant any intrinsic superiority to paid work over so-called leisure. Nor
does it need to be inconsistent with formulating the ultimate objective in terms of
freedom. For exclusion from paid employment and all associated material and non-
material advantages is clearly a major impediment to many peoples real freedom to do
whatever they might wish to do with their lives.
However, if real freedom for all is, as I believe, the best interpretation of moral
integrity as an overarching aim rather than, say, enlisting people into labour as much
as reasonably possible then the way in which access to a job is meant to be secured
to all is of utmost importance. For if freedom is what matters, a strong presumption
directly follows in favour of ways of helping people into jobs that give the least well
equipped among them (or the least well connected or lucky) the widest possible range
of choice among the jobs full-time and part-time, waged and self-employed they
might want to take up.This presumption does not quite amount to an endorsement of
an unconditional basic income, but it makes the latter a strong candidate as a compo-
nent of the optimal package.

*
This paper was written within the framework of the PAI project The new social question
(Belgian Federal Government, Prime Ministers Office, Federal Office for Scientific, Technical
and Cultural Affairs).

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Basic Income on the Agenda

All things considered, to sort out the exact place one feels compelled to give to free-
dom in ones overall conception of social justice, or of a societys moral integrity, one
cannot avoid entering explicitly the realm of ethics and political philosophy. It does not
follow that anyone claiming to express a competent opinion on the shape social policy
should take or indeed, more generally, on the direction public policy should go
should be required to be a professional political philosopher. But there are a number of
policy issues for which some normative thinking is indispensable, and one of them is
employment policy.
An apt choice of the means requires a clear mind about the goals. To choose the
most appropriate strategy against unemployment it is not enough to know that
employment is important, but also to sort out why it is. Far from excluding it, a sound
no-nonsense attitude towards goals requires that one should pause to reflect on them.
And once this is done, once reflective equilibrium is reached, I am not sure much
would remain, at this level, to mark off Fritz Scharpf s views from mine.

Instruments: Incentives and Opportunities

No nonsense, next, about the choice of instruments. For a mixture of factual and nor-
mative reasons, Fritz Scharpf leaves out of consideration a large set of common propos-
als for fighting unemployment lowering the level of unemployment benefits, for
example, expanding aggregate demand, or reducing maximum legal working time.
Rightly so. I have no serious issue with this exclusion, nor therefore with Scharpf s no-
nonsense focus on the remaining short list of instruments, the use of each of which he
regards as a potential improvement upon the status quo and definitely as a more ade-
quate measure than an expansion of means-tested social protection: (1) a negative
income tax, (2) a universal basic income, (3) a (US- or UK-type) earned-income tax
credit, and (4) a reduction of employers social security contributions on low wages (or
a direct subsidy to the employers of low-wage workers).
Leaving aside, for the moment, the question of political feasibility, which of these
instruments should be preferred? Either (1) or (2), Scharpf replies, with a likely prefer-
ence for (1) over (2): basic income programs, most likely in the form of the negative
income tax, might indeed provide the most effective and efficient solution to the twin
problems of poverty and unemployment. Why (1) or (2), rather than (3) or (4)?
Presumably because (1) and (2) incorporate the basic income guarantee in the absence
of which poverty cannot be seriously tackled, whereas (3) and (4) need to be combined
with the usual means-tested social assistance.Why (1) rather than (2)? Because a nega-
tive income tax has the explicit purpose of increasing the incentives and the opportu-
nities for gainful employment, rather than for financially secured inactivity.
Fritz Scharpf does recognize (fn1) that, through an appropriate choice of parame-
ters, (1) and (2) can be made to generate similar incentive structures. But a difference
remains, in his eyes, sufficient to vindicate the superiority of (1) over (2): the two pro-
posals emphasize different justifications and are designed to optimize the achievement
of different purposes. From the viewpoint of a no-nonsense assessment of instruments,
these are somewhat perplexing remarks. Why should we care about the explicit pur-
poses of various measures, what they are designed to do or what justifications they
emphasize? The relevant no-nonsense question is simply whether or not one of the

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Basic Income at the Heart of Social Europe?

schemes, whatever its stated purposes, can actually be expected to increas[e] the incen-
tives and the opportunities for gainful employment more than comparable variants of
other schemes would.
If this is the key question, a preference for (1) over (2) might still be justified. But it
is unclear why it would.The potential formal equivalence between a negative income
tax understood, as it usually is, as a refundable lump-sum tax credit and a universal
basic income (or demogrant) has been pointed out from the very beginning of the
academic discussion on the subject. For example, in their classic 1967 article, James
Tobin and his co-authors note this equivalence between the demogrant version (with
the option of waiving the automatic payment for those who do not expect to be net
beneficiaries) and the tax credit version (with an advanced payment on request to
those who expect to be net beneficiaries).They next express their own preference for
the former over the latter, on the grounds that the former is likely to be better at effec-
tively reaching the poor:The declaration method imposes the burden of initiative on
those who need payments; the automatic payment method places the burden on those
who do not want them. It may be argued that the latter are more likely to have the
needed financial literacy and paperwork sophistication.2
But even as regards the incentive to look for and take up jobs, the demogrant ver-
sion arguably possesses the decisive advantage of reducing the uncertainty to which
vulnerable people expose themselves when taking up a paid activity. For under the
demogrants automatic method unlike the negative income taxs declaration
method, part of a claimants income will keep flowing from the same source whatev-
er happens, with near-total certainty.3 Even for the specific group concerned, this
potential advantage may de facto prove insignificant. Or it may be more than offset, for
example, by collective bargaining responding less stiffly to redistribution by means of a
negative income tax than by means of a demogrant.4 Possibly. But these are surely the
terms in which the no-nonsense approach needs to be phrased, not in terms of the
purposes explicitly assigned to each policy by its proponents.To compare rival propos-
als, one will have to use the most relevant data and the most appropriate analytical
tools available in order to make the best possible guesses about their respective likely
consequences if they were to be implemented or about their respective actual conse-
quences once they have been. A harder task, no doubt, but I am sure Fritz Scharpf
will agree the right task for the debate to take on, of course in the background of
reflectively chosen goals.

Political Feasibility: National Solutions

Or at least part of the task. A no-nonsense approach does not only need to think hard
about goals and instruments, but also about what conditions need to be fulfilled for the
best instruments to be politically feasible, or indeed what the best remaining instru-
ment might be once the politically unfeasible ones have been filtered out. Here we
enter the specifically European dimension of the social policy debate, regarding which
I have found Fritz Scharpf s earlier writings particularly illuminating and congenial.5
The no-nonsense news, in this area, is not good. Here it is.
All proposals in the set which Scharpf (rightly) favours over the status quo have one
important feature in common: they all imply an increase in the progressiveness of the

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Basic Income on the Agenda

overall transfer system in such a way that low earners end up with a higher income
than before.6 But what if one of the Member States of the EU introduces such a poli-
cy in the context of a single market with a growing mobility of capital, consumer
demand and skilled workers? True, for the time being, mobility is still low enough for
the economic feasibility of such national moves not to be in doubt. A sufficiently res-
olute government should be able to take advantage of this slack, and to credibly dismiss
as part of a dishonest scare campaign, the claim that any major increase in net transfers
towards low earners would dangerously rock the boat.A no-nonsense view of political
feasibility, therefore, should not preclude advocating a vigorous use of one or more of
the instruments mentioned above. But it does require one to look ahead, to anticipate
in time, without exaggerating its immediate relevance, a growing tension, whose irre-
sistible political exploitation could soon become a painfully binding constraint.
For a higher net taxation of high earners (or their employers) will tend to put off the
carriers of increasingly crucial human capital.7 The lower net taxation of low earners,
on the other hand, will not only make double sure the country keeps its least produc-
tive workers, but will also make the country more attractive for low-skilled immi-
grants, whether from other EU countries or from the outside world, in search of a bet-
ter place to settle.The very success of the various policies considered in fostering the
expansion of permanent low paid jobs (many of which may well enjoy a net subsidy,
taking all aspects of collective consumption into account) will thus create a sucking
effect on poorly productive workers.8 Combined with the deterrent effect on net con-
tributors, this pressure, if sizeable enough, will make it unwise for any member state to
try it alone.9 Or at the very least, it will make it irresistibly easy for people opposed to
it for any reason to brandish so effectively the risk of unsustainability that those advo-
cating significant steps in this direction, indeed even those who will want to do no
worse than now in this respect, will be in for a tough political ride.10
How can the rise of these predictable constraints be halted? I cannot see how this
could be, as elliptically suggested by Fritz Scharpf, through the introduction arguably
desirable for other reasons of a clearer institutional separation between redistributive
and social insurance schemes (on the Dutch, as opposed to German, pattern). Nor can
I see how this could be through the reduction of the visible tax burden that would
result from introducing, on the Swiss pattern, means-tested user charges (for education,
for example) or means-tested public contributions to a compulsory health insurance
package. For either the phasing out of the benefit operates steeply at the bottom of the
wage scale, in which case the unemployment trap of standard means-tested assistance is
deepened, and the objective of fighting unemployment is sacrificed. Or the phasing out
operates more smoothly and reaches higher earners, in which case it amounts again
(compared to a more universalistic status quo) to an increase in the effective net taxation
of the high-earners, through the withdrawal of benefits they previously enjoyed, and
the constraint of tolerable taxation is presumably not better met.11

Political Feasibility: Harmonization

Any serious hope of loosening the constraints that stem from fiscal and social compe-
tition in a single market must lie in a co-ordinated action on a higher scale, i.e. in social
Europe. Harmonization in a strong sense is not very promising, if only because, as

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Basic Income at the Heart of Social Europe?

Scharpf emphasizes here and elsewhere, the structures and levels of social protection
are too different in the various Member States. One could, however, envisage some-
thing very general and supple, but nonetheless firm enough, such as Scharpf s interest-
ing suggestion of a requirement that no country should be allowed to deviate (by too
much) from a ratio of social spending to GDP which would increase as GDP per capi-
ta increases. But apart from technical difficulties, there are two fundamental stumbling
blocks that undermine the political chances of such a proposal.
First of all, think of two countries with family support schemes which affect identi-
cally the disposable incomes of identically situated families, one through cash benefits
and the other through (refundable) tax credits.This plainly illustrates how arbitrary it
would be to only take explicit expenditures into account. Some tax reductions and
exemptions will also have to count. But clearly not all: not a tax reduction conceded,
for example, to expatriates or to innovating businessmen. But if such discrimination is
made among tax expenditures, why not also among explicit public expenditures? Can
family allowances to affluent households count, for example, or expenditure on higher
education, which more than proportionally benefit people who are likely to come
from, and are even more likely to move into, comparatively affluent income categories?
Though convenient, because of the relative ease with which it can be measured, the
ratio of social spending to GDP is therefore far too crude an indicator of a countrys
redistributive performance for it to perform the job assigned to it.
Something more sophisticated and complicated could conceivably be designed
to provide a better proxy for this redistributive performance. One might think, for
example, of some measure of the gap between pre-tax-and-transfer and post-tax-and-
transfer lifetime income inequality. But both the cruder indicator and the more sophis-
ticated one meet a second obstacle. Both the level of social spending of one country
and its redistributive performance, as measured by such an index, may be higher than
those of another, despite the fact that, for any given distribution of income, its tax-and-
transfer institutions would redistribute less than those of the other country. This can
easily happen simply because the pre-tax-and-transfer income distribution can be
more equal in the former country than in the latter. And since the level of pre-tax-
and-transfer inequality is at least partly under the control of a countrys institutions
its educational system, industrial relations, inheritance laws, etc. it would seem wrong
to castigate a country whose redistributive performance is comparatively poor because
its primary incomes are comparatively equal. Something more sophisticated still could
be thought up, but we would then have moved a very long way from the simple, easi-
ly intelligible, readily verifiable, uncontroversial index which would have had some
chance of being accepted by Member States as the basis for a binding, firmly enforce-
able rule.

Political Feasibility: The Euro-Dividend

If this path is no good, then perhaps it is not too early to start thinking about some-
thing that sounds more radical, but may in the end prove more realistic. Instead of try-
ing to harmonize the various national systems, be it only in order to block a race to the
bottom, should one not start building a EU-wide interpersonal transfer system? The
ambition cannot and must not be to erect a EU welfare state that would replicate the

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Basic Income on the Agenda

structure of national welfare states.There are good reasons, not only for regarding this
as unfeasible, but also as undesirable.12 Being far less under pressure, the insurance com-
ponent of the national welfare states does not require urgent protective action. The
focus should rather be on the more important issue of establishing a Europe-wide
social minimum (Scharpf, last al.). Especially if the EU expands into Central and
Eastern Europe, this will require major additional expenditures, that would not be fea-
sible without financial support from the Union (ibid.).
What form should this income guarantee take? According to Fritz Scharpf (ibid.),it
might be necessary and possible to avoid the work disincentives inherent in the present
social-assistance programs of the richer Member States. A.B. Atkinson (1998: 146)
emphatically agrees.A means-tested minimum income guarantee, he argues, is definite-
ly not the way forward for social Europe. Not only for the general reason that it unfair-
ly penalizes the work of poor households more than anyone elses, but also for the spe-
cific reason that a European-wide minimum has to be based on a benefit that is simpler
than means-tested social assistance.13 The alternative, which Atkinson favours, is a uni-
versal basic income that would replace all income tax allowances, but not social insur-
ance benefits. After conceding that, despite finding supporters in all political parties,
the scheme has not got close to being introduced, he expresses his conviction that, in
order to secure political support, it may be necessary for the proponents of basic
income to compromise not on the principle of no test of means, nor on the princi-
ple of independence, but on the unconditional payment. (ibid., 148). He therefore pro-
poses, also at the European level, a participation income, a universal basic income for
all those who satisfy some minimal participation condition (not just full- or part-time
paid work, but also education, care and voluntary work). He is aware that the question
of how to interpret this broad participation condition may prove even trickier at the
European than at the national level.14 Nonetheless, he believes that such a Participation
Income offers a realistic way in which European governments may be persuaded that a
basic income offers a better route forward than the dead end of means-tested assis-
tance. (ibid.: 149).
I have no problem with such a strategy. Nor should, I believe, Fritz Scharpf, given his
concern to work out a compromise around which like-minded people could gather.As
argued above, once goals are suitably clarified, I doubt much disagreement will remain
at that level. Once instruments are evaluated in terms of their actual or likely conse-
quences for the achievement of these goals, the universal floor favoured by Atkinson
and others (including myself) dominates negative income tax schemes, or the combi-
nation of earned income tax credit (or a fortiori other forms of employment subsidy)
and existing means-tested assistance.15 Finally, once the new European context is taken
into account, Fritz Scharpf s insightful analysis of political constraints itself leads, step
by step, to the radical idea of a EU-wide universal basic income.There is no reason to
expect this path, to which the exploration of dead ends has led us, to be easy to tread.
And there will need to be compromises at every stage. One of them is on the so-called
counterpart, on the idea of subjecting the right to basic income to the fulfilment of
some socially useful activity. For reasons stated by both Atkinson and Scharpf, there is
no doubt that subjecting a universal basic income to such a condition would increase
its immediate political chances.
Hence, without neglecting the potential that still exists and must keep existing at
national levels, let us pay serious attention to this Euro-dividend for all active

166
Basic Income at the Heart of Social Europe?

European citizens. Let us work out a precise scheme that credibly offers, at the same
time, a strong brake on fiscal and social competition between Member States and a
decisive contribution to solving Europes unemployment problem. Let us find ways of
persuasively presenting it for what it is: not a mega-welfare state, not a substitute for
national welfare policies, but rather a floor under them all that will enable them to sur-
vive more easily and to do a better job. Let us map in detail the transition path, how
the adjustments will most smoothly be done in the EU budget and in national tax and
benefit structures. Let us get ready for when the strains created by the co-existence of
a single currency and separate governments will make themselves felt; for when the
need to stabilize populations will become more acute; for when European decision-
makers will be looking for a realistic way of preserving and developing, under
unprecedented conditions, something they claim to be a central component of the
European project:social solidarity .
Wishful thinking? Perhaps not, if goals are lucidly stated, if instruments are appro-
priately assessed, and if political constraints are properly understood. Not, in other
words, if Fritz Scharpf s welcome invitation is taken seriously, if his no-nonsense
approach is consistently, tirelessly practised.

Notes

1 See, for example, the final words of my Why surfers should be fed:As often happens, the con-
clusions reached for the hard cases really matter only because of the a fortiori claims they
warrant.While futile if it had no implication beyond Malibu surfers and their likes, the argu-
ment of this article, if correct, derives its practical importance from its direct relevance to the
fate of an affluent societys unskilled workers, its excluded youth, its dependent housewives,
its double-shift parents, its long-term unemployed. By challenging their resignation, by pro-
viding their revolt with intellectual backing, by immunising their demands against a number
of misguided or ill-intentioned objections, it may effectively help them to successfully stake
their legitimate claims. (Van Parijs, 1991a: 131).
2 Tobin et al. (1967: 23).
3 As repeatedly pointed out, for example, by Bill Jordan et al. (1992) and Thomas Piketty
(1997).
4 It may not be ludicrous to suppose that visible take-home pay, rather than the workers dis-
posable incomes, is what Trade Unions are most concerned about in wage negotiations. But
if some negative income tax and some demogrant scheme perform identically in terms of dis-
posable incomes, the latter is bound to perform far worse than the former in terms of visible
take-home pay. For unlike the tax credit, the demogrant is not incorporated in the pay check,
but paid separately. If this is the case, wage moderation is likely to be harder to achieve, and
employment may accordingly suffer.There are of course many ifs in this argument, but their
critical evaluation is the sort of stuff the no-nonsense approach must consist of.
5 See e.g. Scharpf (1994; 1996a; 1996b; 1996c).
6 This fits in with Scharpf s (1999a: section 3.2) most striking conclusion from a systematic
comparative analysis between a countrys employment performance and the structure of its
transfer system: there appears to be a significantly negative impact of proportional forms of
taxation (consumption tax and social contributions) on employment levels, while there is
little effect of progressive taxation (in particular the income tax).

167
Basic Income on the Agenda

7 This is not a matter of increasing compulsory contributions yielding corresponding insur-


ance-based benefits, in the form of pensions, sick leave or unemployment benefits. Growing
mobility may put somewhat greater pressure on such transfers (because of enhanced adverse
selection), but there is no comparison, as Atkinson (1998: 143-44), for example, emphasizes
and as Scharpf is well aware, with the increased pressure on the non-insurance-based, ex ante
redistributive aspects of Europes welfare states.
8 See, for example, what Krause-Junk (1996) regards as the most crucial objection to negative
income tax proposals of the type advocated by Joachim Mitschke (1985; 1995b): As wages
would no longer need to cover subsistence, neither employers nor Unions will be under the
same pressure to keep jobs productive, and Germany will become a low-productivity coun-
try, with a combination of low wages and Brgergeld that will be particularly attractive for
poorly skilled immigrants from Southern (and soon Eastern) Europe.
9 For those who dread this inflow of poorly productive labour power, the threat should be
worse if the attraction is the prospect of (henceforth profitable) low-productivity jobs, rather
than that of benefits. For claimants can, more easily than workers, be kept away by ad hoc
rules or by the social assistance administrations unwelcoming attitude.
10 There may perhaps be some hope of hiding the net subsidies to low-paid work, probably
greater in the case of NIT, EITC or reduced social security contributions than in the case of
a universal basic income. Hence, presumably, one source of Scharpf s lower assessment of the
latters feasibility.
11 Two provisos are in order. Firstly, if the phasing out for higher earners affects selectively
those provisions which disproportionately benefit households with children (family
allowances, child care, education), sustainability may be hardly affected. For households
with children arguably tend to be less mobile than childless households (and the less
mobile, the greater the loss from the phasing out of these benefits) and hence less able to
issue credible threats of leaving, in the emerging globalized context. Secondly, political
feasibility may not only be affected by the political use of the risk of economic unsus-
tainability caused by excessive net taxation, but also by the political use of the perception
of gross taxation. In this respect, the phasing out of a benefit may be less damaging than
a higher explicit marginal rate, just as a funding of the basic income by the value added
tax (e.g. Duchatelet, 1994; 1998), by energy taxation (e.g. Genet, 1991; Robertson ed.,
1998), or indeed by (non-inflationary and de-privatized) money creation (e.g. Huber,
1998; 1999) would have an advantage, in this respect, over the income tax, even though
it also essentially amounts to reducing the purchasing power of relatively high income
earners.
12 I develop the reasons behind this normative undesirability in Van Parijs (1999).
13 See Schmitter (1999) for a radical proposal of a means-tested European minimal income. See
Van Parijs (1996a) for an argument against it along lines similar to the one taken by Atkinson
(1998).
14 Note, however, that, even if the implementation of the condition is pretty much left to the
discretion of national governments, there would be no perverse incentives of the sort gener-
ated by a centrally funded but locally administered means-test.With a means-tested guaran-
teed income funded at the European level, national or local governments would systemati-
cally find it in their political interest to disregard some potential recipients means (and hence
to compete with each other in terms of how lax an interpretation they give to an insuffi-
cient-means condition). But with a counterpart-tested guaranteed income, they would not
have a similar incentive to disregard the failure to perform some socially useful activity (nor

168
Basic Income at the Heart of Social Europe?

therefore to compete with each other in terms of how lax an interpretation they give to a
participation condition).
15 Even if, as in all reasonable short-term variants, the universal basic income or negative
income tax is not a full substitute for social assistance, it always implies a significant reduction
in its level, whereas EITC does not, since by itself (unlike universal basic income and nega-
tive income tax) it grants no benefit whatever to non-workers.

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European Basic Income or the Race to the Bottom
Why Politicians Might Come to Think the Unthinkable

Steve Quilley

Introduction

Over the last fifteen years the debate around basic income has been organized around
abstract blueprints for wholesale reform of the fiscal-welfare system.This is reflected in
the radical-utopian discourse of the post-industrial and post-Keynesian left (e.g.
Fitzpatrick, 1996). But it is also evident in the self-consciously feasible scenarios mod-
elled by liberal economists (e.g. Parker, 1989). The latter work has involved close
scrutiny of the possible impact of institutional and administrative details of such mod-
els on incentives, labour participation rates, redistributive effects and the various pover-
ty traps associated with existing welfare regimes.Feasible here refers to technical-insti-
tutional changes centring on the integration of taxation and welfare, which though
radical could, with enough political will, be adopted and integrated as the public sector
platform for the wider market economy without major disruption and without neces-
sarily altering the fundamentals of this wider socio-economy. For this reason such
modelling invariably adopts the yardstick of revenue-neutrality, emphasizing the tech-
nical nature of proposed changes and distancing them from any intrinsic relationship
with wider political projects relating to social justice or environmental sustainability.
In consequence, basic income research within academia has produced a steady flow
of economic models and policy scenarios which re-shuffle parameters such as territo-
rial scale, unit of assessment and entitlement, generosity and conditionality, to useful
effect. Combined with the parallel discussion around the philosophical and ethical
implications of basic income (e.g.Van Parijs, 1992a), this debate has brought much
needed intellectual clarity and specificity.1 However, perhaps unsurprisingly, this grow-
ing conceptual sophistication has had little impact on politicians and the wider policy-
making community. Intellectual clarity does not flow naturally into a plausible political
project. Protagonists have been very good at envisioning arrivals and destinations.The
debate has offered few clues to the points of departure and the politics of transition.
How then can basic income be made relevant? How can the basic income paradigm
engage with contemporary socio-economic dynamics, and perhaps more importantly,
political perceptions of those dynamics? In what circumstances might basic income
become a common sense or at least a mainstream representation of both a set of
social problems and an orientation towards resolving them?
If basic income politics is to move forward, we need a more opportunistic and prag-
matic approach vis--vis important questions relating to funding, conditionality and the
political-institutional context. The basic income paradigm would shift the emphasis
away from means-testing, away from the normative commitment to labour market par-
ticipation (the work ethic) and away from the isolation and targeting of particular
groups of recipients and towards universal entitlements based on citizenship.

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European Basic Income or the Race to the Bottom

Unfortunately a combination of politics and labour market trends appears to be mov-


ing European taxation-welfare systems in the opposite direction. Sailing against the
wind must surely involve tacking. For advocates of basic income, tacking implies a
willingness to take opportunities, and make alliances as they arise even if that means
going temporarily off-course. In the language of Gramsci, such a trajectory could be
described as a long war of position, of institutional and political jockeying, rather than
the war of movement implied when basic income is invoked as a self-contained
panacea and a straightforward societal choice.
This contribution surveys the European political landscape with a view to elucidat-
ing any salient features that might offer such points of departure. The emphasis is on
political and social dynamics which derive from a Europe in the (re-)making. On this
basis it is argued that the immediate priority should be to position basic income at the
centre of both environmental politics and the need for sustainability, and as a useful
lever and policy response in relation to the democratic deficit and associated legitima-
tion problems which are likely to undermine progress towards European economic inte-
gration. At the same time we need to take seriously the continuing and pervasive
commitment to conditionality and the work ethic however perverse and irrational
such perspectives appear given the labour market realities of late capitalism. It is argued
that these factors point towards combining the idea for European eco-dividends fund-
ed from a range of hypothecated eco-taxes (Genet and Van Parijs, 1992) with the par-
ticipation income, which has been put forward by Atkinson (1993b).

A Trajectory for Basic Income Politics


In order for a basic income trajectory to gain any purchase on politics, it will be nec-
essary to put to one side any abstract models of a basic income society and to develop
a more opportunistic and pragmatic understanding of where the fruitful points of
engagement actually are or might be created. Firstly, a real opportunity for a social div-
idend will develop as a function of the tensions involved in European integration.The
institutional challenge of integrating welfare and taxation systems is such that
autonomous reform of embedded national systems, with all the associated inertia and
institutional resistance, is highly unlikely even in those few countries where basic
income has fleetingly crept onto the mainstream agenda. The new structures which
will need to be developed in order to further harmonization at a European level offer
a much more favourable landscape of political opportunity.2 This argument is likely to
be contentious, and will be elaborated below. Secondly, we need to be more open-
minded and flexible in relation to the defining parameters of basic income.Whilst con-
tinuing to oppose means-testing and targeting, the principle of conditionality should
be open to negotiation in so far as the notion of participation can be broadened away
from the narrow emphasis on insertion into the labour market towards more inclusive
civic concerns with involvement in the wider community.We should move away from
an exclusive emphasis on income taxes and consider alternative sources of funding,
such as eco-taxes also recognizing that this is not simply a matter of costs, tax burdens
and revenues, but relates to the symbolic value of certain kinds of hypothecated taxa-
tion which, by extension, can offer points of connection with different kinds of social
movements and political agendas. At the same time, it should also be noted that other
aspects of the basic income agenda should remain sacrosanct namely the commit-
ment towards universality and the individual unit of assessment.The notion of univer-

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Basic Income on the Agenda

sality is grounded in ideas of (European) citizenship, community and commonwealth,


which go to the heart of the re-awakened middle ground between liberalism and
socialism, of which the green parties are a part. The commitment to individualism in
assessment underlines the necessary recognition and embrace of irreversible social and
demographic shifts, which are a fundamental condition of late modernity.
In what follows I argue for a basic income trajectory which is unequivocally European
in scale, and linked to the economics and politics of sustainability. For tactical reasons the
priority attached to unconditionality (technically a sine qua non for basic income) is mod-
ified in order to take account of, whilst at the same time subverting, the culturally-
embedded preoccupation with labour participation and the work ethic.A modified sense
of participation draws upon the pervasive communitarian rhetoric of rights linked to
responsibilities. Clearly there is little original in this package as in many ways it simply
draws together social dividend ideas which have been in circulation for many years (and
in particular the Eurogrant proposed by Genet and Van Parijs (1992) on the one hand,
and the participation income advocated by Atkinson (1993b) and also Purdy (1997). My
intention in bringing these ideas together is to demarcate what I believe to be the real
opportunities and possible points of departure for a basic income trajectory in Europe.

Points of Departure and Opportunities


There are six factors that make a combination of eco-dividend and participation
income within a European framework the most convincing point of departure for a
basic income trajectory:

i. geo-political tensions which will inevitably accompany further European integra-


tion, particularly in relation to EMU and the consequent need for some harmoniza-
tion of social security.
ii. the legitimation crisis in relation to European institutions and the pressing need for
the development of a sense of European citizenship which might underwrite the
common destiny already pre-figured in the field of economic integration.
iii. the emphatic re-affirmation of conditionality as a principle governing welfare reform
and the importance of (labour market) participation and the work ethic whether in terms
of experiments with workfare or a commitment to the principles of social insur-
ance as the main plank of any future welfare regime.
iv. Generally: a growing appreciation that the left-right spectrum is increasingly insuffi-
cient to express the combinations of radical and conservative, ecological, redistrib-
utive, libertarian and interventionist perspectives which are available to underwrite
liberal, social democratic and green political projects; Specifically: rhetoric about
the possibilities of a third way underpinned by communitarian social philosophy.
v. a growing consensus around the notion of sustainability and the need to bring in
environmental (and social) costs as an integral dimension of economic calculus; the
growing acceptance of hypothecated eco-taxes as market drivers of this process.
vi. anxiety over instability in global financial markets and a growing recognition of the
dangers involved in unregulated capital mobility.

These can be discussed under three headings: European integration; the politics of
work and community; taxing social and environmental bads.

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European Basic Income or the Race to the Bottom

European Integration

Monetary union represents the near-completion of the economic project represented by


the idea of the single market. But the process of integration will not and cannot stop
there. There is some evidence that economic integration has already created a strong
momentum in the direction of further political and institutional fusion and the
Europeanization of social policy (Wessels, 1997). However, at present, European social
legislation remains restricted and the continuing diversity of welfare regimes would
imply the possibility of differing national responses to the related pressures of
European integration and global liberalization (Cochrane and Doogan, 1993; Daly,
1997;Taylor Gooby, 1997; although see Rhodes, 1995). For this reason a rapid and uni-
form process of convergence in the wake of EMU is unlikely.
These obstacles notwithstanding, the single market has forged ahead and overcome
a series of political hurdles, which have often looked insurmountable. In essence, the
economic project of the single market has been driven by a logic of competition.
However the spatial and functional re-organization of economic activity in this way
has profound implications for social and political cohesion (Quilley et al., 1996). For
instance, the logic of competition might enhance and consolidate functional divisions
of labour in terms of the distribution of different types of economic activity and labour
markets. The impacts of corporate relocation and rationalization go far beyond any
simple calculation of unemployment and job creation. It is not difficult to envisage a
situation in which high value-added, knowledge-intensive, control and co-ordinating
functions cluster around core locations in the wealthy Northern states, whilst lower
value-added, branch plant operations are distributed around the peripheral regions.
Does BMWs acquisition of Rover cast a shadow over the long-term viability of the
independent research, development and design functions in Britain? Clearly such spa-
tial divisions of labour and inequalities have always existed within nation states wit-
ness the North South divide in both Britain and Italy. However, the deconstruction of
national champions, and the acceptance of pan-European rationalization, raises the
uncomfortable probability of such hierarchies and inequalities emerging and being
consolidated between nation states.This is dangerous, and if uncontained such tensions
could fatally undermine the European project for the simple reason that as yet, unlike
nation-states, Europe does not have the social, cultural and political legitimacy to sus-
tain such inequalities. Enlargement can only exacerbate such problems, not least
because it increases the gulf between levels of regulation and social provision between
core and peripheral regions.
In this way, the politics of European integration will unfold between the polarities
of economic competition on the one hand, and the political necessity for at least some
degree of pan-European social cohesion, on the other.This will manifest itself in polit-
ical choices relating to:

i. state-building and the creation of new European institutions (or not),


ii. the emergence (or not) of a European political identity as the basis of new forms of
organic solidarity,
iii. the harmonization of fiscal and welfare arrangements across the Member States (or
not).

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Basic Income on the Agenda

In evaluating these problems, Fritz Scharpf (this volume) makes two explicit assump-
tions which are also accepted by the majority of commentators analyzing the dynam-
ics of European integration: (1) that, in accordance with the principle of subsidiarity,
social policy will remain entirely within the remit of national governments; (2) that the
nation-state represents the primary and overriding solidaristic community which
should be taken as an essential and unshakeable given.
If we accept these guiding premises, then the future for social Europe must surely be
as bleak as Scharpf s analysis would imply. Economic competition will engender social-
regulatory competition (the race to the bottom), with the result that national welfare
policy is increasingly constrained to reduce the scale and scope of social transfers.The
new mobility of both investment capital and firms in European economic space will
engender punitive sanctions against countries which seek to sustain more redistributive
regimes. Similarly welfare migration will further undermine political support for all re-
distributive programmes, particularly those which are means-tested and tax-financed.
As Scharpf makes plain, the logic of superimposing national social-regulatory units
onto a deregulated pan-European economic space, is likely to mitigate against any kind
of welfare project, particularly basic income. And if his two guiding assumptions hold
true, we might as well give up now and embrace a world of workfare and punitive de-
regulation as international competition forces national welfare regimes to transform
themselves into competitive welfare states.
Fortunately, although certainly a possibility, we dont have to accept this scenario as
a given.The premises, which Scharpf and others take for granted, are simply descrip-
tions of how the world is today. If we are thinking about the likely political develop-
ments over the next five years, then the negative appraisal is probably correct.The logic
of competition will undermine social cohesion both within and between Member
States. However, over the longer term it would be rash to dismiss any possibility of a
countervailing movement, because without new forms of political and social cohesion
the new economic architecture of the Union will become highly vulnerable. Over a 10
to 20 year time frame, this vulnerability is likely to transform the political landscape.
Specifically, it is not implausible to imagine a combination of progressive business and
political interests, seeking to find ways of elaborating and consolidating the
culturalpolitical, experiential dimensions of the Union: to underwrite a pan-
European sense of belonging and solidarity. In such circumstances, some variation
around the theme of a European basic income, or eco-dividend, might look both
attractive and pragmatic.
Faced with comparable regulatory dilemmas, 19th century nation-builders em-
barked on political projects which combined the creation of new national institutions
(e.g. Bismarcks pioneering programme of social insurance), the harmonization of
monetary, fiscal and welfare systems (e.g. the creation of national currencies and
national banks) with the construction and articulation of new (national) political iden-
tities.The fictional narratives which established the latter, elided the arbitrary member-
ship of an often newly-designated, territorial unit (a category-status Calhoun, 1999)
with an essentialist understanding of community (face to face, gemeinschaft, oral tra-
dition, originating in the mists of time etc.).This provided the basis for the national-
folk tradition that lies at the heart of national identity. In relation to our present
dilemma, the point is that it would be a mistake to accept emotionally salient national
identities as the only conceivable arbiters of solidarity (cf. Scharpf, 2000). Such identi-

174
European Basic Income or the Race to the Bottom

ties are indeed historically grounded which means they were and are actively and dis-
cursively constructed, within a particular time-frame and in response to identifiable
cultural, political and economic processes.Alternative and/or supplementary solidaris-
tic identities are at least conceivable.
The tacit assumption underlying modern constructions of identity, is that individu-
als ought to, and will naturally, gravitate to maximally-integrated identities, organized
around self-consistent, unitary life-worlds; i.e.) that the natural condition is for people
to speak one language; espouse one set of values; adhere to one polity. But why? As
Calhoun (1999: 19) points out, for much of human history, multilingualism was a
common condition:

We find people moved simultaneously by different visions of the world (not least science
and religion); we find people able to understand themselves as members of very different-
ly organized collectivities at local and more inclusive levels, or at different times or stages
of life Consider the extent to which nationalist visions of internally uniform and sharply
bounded cultural and political identities have had to be produced by struggle against a
richer, more diverse and more promiscuously cross cutting play of differences and similar-
ities.

The disjunction between European economic space and national regulatory regimes
may yet provide the motive force for a loosening up of the national-identity straitjack-
et. Scharpf gives an example in Germany, of the moral panic engendered by case of a
recently immigrated and now unemployed manual worker from Sicily, claiming social
assistance not only for himself, but for a large family. It is precisely such examples
which underline the irreconcilable tension between an essentialist, moral vision of
entitlements rooted in membership of a national community, and the reality of cross-
cutting identities and multiple memberships which follows in the wake of the single
currency. In the long run, if Europe fails to generate a multi-polar conception of iden-
tity and community, allowing for overlapping membership and in relation to Social
Europe multiple and cross-cutting points of entitlement, then it is difficult to see
how it can sustain as an economic unit.
In short, Scharpf poses the question of what is and is not possible from an immedi-
ate and short-term analytical point of departure, extrapolating the principle of sub-
sidiarity into the future, without any discussion of how Europe could, should and
probably must respond culturally and politically over the long term. Certainly, as an
immediate prospect social convergence looks unlikely, but no more so than monetary
union must have appeared in the early 1970s. Over the long term the tension between
the imperatives of cohesion and competition will necessitate regulation of European
economic space in a manner which, as critics have rightly argued, amounts to the
emergence of a federal state. Regulation will develop along overlapping social, eco-
nomic, political and environmental axes. Precisely because EMU undermines the pos-
sibility of autonomous national regulatory strategies, it represents the first step in the
long march towards harmonization and a federal social compact (Kosonen, 1994). In
addition, there is no reason why national and European scales of regulation should be
posed in terms of mutually incompatible alternatives. Existing national regimes could
clearly continue indefinitely under the rubric of subsidiarity. But this would not rule
out an additional, European tier of social redistribution. Nor would the initial ration-

175
Basic Income on the Agenda

alization and justification for such an innovation have to exhaust its potential for future
development. A small eco-dividend might start life as a token mechanism to under-
write at least a commitment to a sustainable developmental trajectory for the European
economy, whilst consolidating a pan-European sense of citizenship and co-solidarity.
But gradually, over time such a mechanism could be expanded to become genuine
plank in a European welfare regime.
The main point is that Europe is not a fait accompli. Integration is an open-ended
process.The very plausibility of the scenarios which emphasize the race to the bottom
or tax payer resistance, and the institutional/economic diversity which militates against
harmonization are exactly the political vistas which will (and are Delors, 1997 cited
in Vandenbroucke, 1999b) forcing politicians to think seriously and creatively as to how
political and social Europe can be consolidated to accommodate the single market. In
summary, this federal regulatory project is likely to have two immediate points of
departure.

Firstly, that European institutions will come under great pressures to intervene and
regulate the emerging pan-European space-economy in such a way as to ameliorate
such tensions and introduce an element of fairness and even-handedness into the
process of corporate restructuring and relocation.Whether any such quid pro quo will
be able to reconcile the imperatives of cohesion and competition remains to be seen.
Given the scale of the problem, such supra-national transfers will need to be consid-
erably greater than those which currently take place under the rubric of the struc-
tural funds.

Secondly, that the process of economic unification is likely to engender a political


project aimed at increasing and sustaining the legitimacy of Europe as a political and
cultural entity in its own right. Essentially this project revolves around the articula-
tion of a sense of shared belonging and common citizenship a European we
which is at least as strong and encompassing as the constituent national identities. A
sense of European citizenship will be an essential if the likely inter-regional/nation-
al inequalities are to be sustained and at least partially legitimated.

The latent tensions between competition and cohesion which threaten to undermine
the wider European project will inevitably require redistribution, between core and
peripheral nations, between regions and individuals. As one possible vehicle for the
harmonization of social security and the creation of an effective mechanism for redis-
tribution on a pan-European basis, a Euro-dividend funded through a battery of
hypothecated eco-taxes on a Europe-wide basis can be seen to have many advantages.
Kosonen (1994) emphasizes the likelihood of tax competition creating a strong down-
ward pressure on tax rates across Europe which in itself suggests that approaches
predicated on such hypothecated eco-taxes are likely to provide a level playing field
and a more stable revenue platform for European social expenditure than transfers from
nationally based general taxation. In addition the individual and universal basis of enti-
tlement could do a great deal to underwrite a sense of European citizenship, going
some way to mitigating the incipient legitimation crisis and so underpinning the eco-
nomic project with the consolidation of an embryonic European civil society. As a
point of departure, the Euro-dividend would not initially have to confront existing

176
European Basic Income or the Race to the Bottom

national welfare systems as an alternative. But once established, it would provide a con-
stant point of reference for the ongoing debate over harmonization, illuminating one
distinctive European welfare future which would be compatible with the basic income
trajectory.

The Politics of Work, Welfare and Community

There is a widespread appreciation that the world of full employment and Keynesian
demand management has disappeared and is unlikely to return. The new flexible
labour markets, exposed to regional and global markets, are marked by higher levels of
underlying structural unemployment, pervasive patterns of temporary and part-time
(and self ) employment, increasing female participation and the increasing likelihood
of disrupted work careers.The underlying sectoral shifts have been associated with the
shedding of relatively high-wage semi-skilled manual jobs in the manufacturing sec-
tors, which has given rise to particularly intense problems of male youth unemploy-
ment, in turn exacerbated by spatial concentration in the old industrial city-regions.
Likewise the new labour markets are associated with a sharp polarization in terms of
both income and the skills which determine employability. Such processes have been
associated with patterns of social exclusion and informalization affecting whole com-
munities, and often referred to in terms of the emergence of social underclasses.
The broad outlines of this picture are accepted by many mainstream academics and
commentators. The idea of turning the clock back and recreating the world of full
employment is a societal delusion (Macarov, 1996) shared by very few. But as Dore
(1994) argues, in the absence of the political will to deal with the underlying inequal-
ities, incurable unemployment affecting a sizeable minority of unskilled workers will
inevitably be seen as a progressive disease of modern societies. And yet in the current
climate, such political will seems an unlikely and distant dream. As we have seen in
Britain, the medicine offered by New Labour seems as unpalatable and unlikely an
antidote as anything offered by previous conservative administrations and, at least in
broad outline, not too dissimilar. As Jamie Peck (1998: 7) has argued the bitter pill of
mandatory participation under the Welfare to Work programme is premised on a shift
in the understanding of the problem away from the structural dynamics of unemploy-
ment and flexible labour markets and towards a discourse of dependency and benefit
culture. The employment problem has been recast in terms of full employability
(Gordon Brown, FT, 30th September 1997: 12 quoted in Peck, ibid.: 39).

the welfare policy problem is no longer framed in terms of a shortage of jobs, but
instead has been reformulated as a shortfall in job-readiness. Likewise the solution is
no longer seen to be about creating work but instead is concerned with recreating the
work ethic.

In summary, the crisis of welfare relates to the underlying social and spatial distribu-
tion of work (and different kinds of work) and a related polarization in the distribu-
tion of income. Whilst there is a pervasive common sense understanding that the
world has changed, there appears to be a deep-seated reluctance on the part of the
political class to face up to this problem and re-engineer the institutional platform

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Basic Income on the Agenda

through which these labour market and income inequalities are regulated. The sub-
stantial consensus over the broad contours of the problem suggests no self-evident
political project. Over the last decade, it has become a commonplace observation that
the left-right distinction no longer provides an obvious and unproblematic map of the
political landscape (Giddens, 1994: see also Bobbio, 1996). In a most egregious sense,
socialism no longer offers an alternative model of economic management. Political
choices are limited to the manner and extent of market regulation. Planning is no
longer the lingua franca of economic management, and in this sense we are all liberals
now (cf. Durbin, 1949: 41). As Giddens points out, there is no longer any automatic
affinity between progressive radicalism per se, and socialism.Where modern conserva-
tive forces now embrace a dynamic capitalist order with all that entails in terms of
creative destruction, the left has become synonymous with a conservative resistance
to change defending embattled welfare institutions from the encroachments of the
global market. Elsewhere, in the green movement an extreme conservatism in the
form of a root and branch critique of modernization, rubs shoulders with a new
incarnation of the progressive radicalism in the form of social environmentalism (eco-
logical modernization).
In this new political landscape, there is no given set of connections linking the pol-
itics of work and welfare with those of community and citizenship. Connections are,
however, being made. In the 1990s, communitarianism, given impetus by the work of
Etzioni (1988; 1994) and political currency in the Anglophone world by the Third Way
rhetoric of the Blair and Clinton administrations, has undoubtedly struck a chord.The
response of European social democrats to such ideas has been luke-warm. Sceptics,
focusing on an underlying supply-side orthodoxy and the abandonment of macro-eco-
nomic regulation, see the Third Way as a thinly veiled version of neo-liberalism. But at
the same time, there are clusters of dominant perceptions and preoccupations which
demarcate a common ground for the social democrats on either side of the channel.
Within the European debate, the emphasis on a wider (social-civic) definition of par-
ticipation within the context of a responsibility-sensitive social democracy
(Vandenbroucke, 1999a) echo core concerns within communitarianism. On this basis,
a basic income trajectory could be positioned to most effectively marry the rhetoric of
the Anglophone communitarian perspective with the flexible, intelligent welfarism
sought by European social democrats.

The Communitarian Scripting of Participation


In a cogent and suggestive reflection on its relevance to radical agenda for social policy
Jordan and Jones (1998: 2) argue convincingly that the emergence of communitarian-
ism reflects the weakening of those forms of collective action and solidarity sponsored
by governments in the golden age of welfare states.3 As the expanding reach of global
market forces has undermined and disintegrated such forms of solidarity, the resulting
vacuum leaves a desperate desire and necessity to (re-)discover some cement for soci-
ety. A communitarian agenda of community and social responsibility might appear to
fit the bill. However, often such ideas have been imported into the social policy debate
in a quite inappropriate way, which lends itself to authoritarianism and coercion.As the
authors point out, notions of reciprocity and moral obligation belong to a sphere of
face to face relations and voluntary associations (ibid.: 3). Any attempt to re-moralize
society within the institutional frameworks of the existing welfare state will necessarily

178
European Basic Income or the Race to the Bottom

be coercive and punitive, reinforcing patriarchal relations in the domestic sphere and
relations of brutal economic compulsion in the economy.
This notwithstanding, communitarianism does hold out the possibility of a progres-
sive agenda. However, this depends critically upon the modification of liberal institu-
tions of welfare and taxation so as to leave a larger space for the reciprocal relations
and mutual obligations of community[an agenda whose intuitive appeal] is strongest
when we consider the welfare states most spectacular and universal failures those
neighbourhoods where the stability of family and communal life have collapsed, along
with the collectivised measures for providing secure employment and decent wages for
unskilled and semi-skilled workers and a healthy and convenient living environment
through modern housing schemes(ibid.: 9). A radical agenda for community develop-
ment could be built around facilitating organic links between income generation and
social support.The critical institutional barriers blocking such an agenda relate to the
nature of compulsion, the definition of work and the notion of being available for
work (ibid.: 12). The strictures of labour market conditionality require claimants to
restrict or conceal their informal activities and earnings on pain of losing benefit. In
order to sustain such organized informal co-operation, the rules would have to be
changed to recognize community development work as a legitimate economic activi-
ty, and to allow a higher level of informal earnings to be retained (ibid.: 13). At the
same time informal paid activity is more often than not embedded in wider reciproci-
ty, social interaction and mutual support. Of course, at this point we are back into the
familiar territory of basic income and tax/benefit reform. However, the communitari-
an scripting of community and participation as a point of departure for dealing with
problems of poverty and social exclusion do provide a point of connection with the
dominant agenda for welfare reform, particularly as it unfolds in the UK under the
auspices of welfare to work. Likewise, institutional innovations such as credit unions
and LETS schemes which have exercised the imaginations of those involved in com-
munity development could provide a bridge between welfare to work and the world
of social dividends and basic income.

Work,Welfare, Citizenship.The Discursive Space for Basic Income


In an era of competitive welfare states the political debate increasingly foregrounds
the relative cost of social transfers. One result of this is a shift in focus from poverty to
dependency. In line with this, the rationale for the welfare state is reconstructed: from a
concern with the creation of a social order in which resources are distributed differ-
ently, to one in which people behave differently.The welfare state can operate in three
ways in order to achieve such behavioural changes (see Deacon, 1998: 306). It can
operate as:

a channel for self-interest: incentives to make people act in ways that promote the
social well being;
an exercise in authority, looking primarily towards compulsion to make people act in
such ways;
a mechanism for moral regeneration, to persuade people to act in such ways.

These orientations are not necessarily mutually exclusive, even if they embody differ-
ent views of human nature and the relationship between welfare provision, individual

179
Basic Income on the Agenda

behaviour and personal character. In Britain, the New Deal is seen to embody a new
social contract in which labour market participation (incentives + coercion) is
wrapped up in a discourse of rights and responsibilities (moral regeneration).The new
contract for welfare rejects both the residual welfare state and the benefits-based
approach of the past (Deacon, op cit: 306), and invokes Tony Blairs vision of a Third
Way:

A modern form of welfare that believes in empowerment not dependency.We believe that
work is the best route out of poverty for those who can work.We believe in ensuring dig-
nity and security for those who are unable to work because of disability of because of car-
ing responsibilities, as well as those who have retired.This system is about combining pub-
lic and private provision in a new partnership for the age (A New Contract for Welfare, Cm.
London HMSO, 1998: 9; 71.)

Whilst the emphasis on labour market participation is clear, the third, communitarian
strand focusing on welfare as moral regeneration is open to re-scripting in the direc-
tions intimated by Jordan and Jones.The agenda of moral regeneration hints at the cre-
ation of a social order regulated by inclusive normative codes and a community based
system of moral authority, and rather less by recourse to economic incentives or coer-
cion. Such an agenda is ambitious not least because it depends on a shared sense of
commitment to a set of core values.
Differences notwithstanding, elements of the social democratic renewal both in
Britain and on the continent, seem to point unambiguously in the direction of a revi-
talized civic society rooted in community and bound by an inclusive social morality.
What is of course ambiguous is how this agenda for moral regeneration relates to the
more dominant discourse which focuses on authority and compulsion on the one
hand and economic incentives on the other. The key perhaps lies in redirecting and
softening the element of compulsion and tying it to an expanded understanding of
civic participation.Tony Atkinson has argued for a version of basic income which rec-
ognizes the political problems associated with an unconditional basic income.
However, he does not retreat into the cul-de-sac of workfare. In his Participation Income
suggestions for activities which could count as participation include:

work as employee or in self-employment (taxpayer);


absence from work due to sickness or injury;
unemployment but availability for work;
participation in approved forms of training or education;
caring;
approved forms of voluntary work.

This is a far cry from the mandatory participation in labour markets which provides the
premise for workfare. However it is compatible with the agenda for moral regeneration
underlying the rhetoric of a Third Way and it could provide the material underpinning
for a participatory civic society. A participation income constituted along these lines
could go some way towards reconstructing the liberal institutions of welfare and taxa-
tion which is a prerequisite for the radical agenda of community development outlined
by Jordan and Jones. Moreover, a political space for such an agenda might open up as

180
European Basic Income or the Race to the Bottom

tensions in the welfare-to-work programme become more apparent in a period of


economic recession. In the U.K. the New Deal is premised on mandatory active
involvement. For the young unemployed, there are four options.There will be no fifth
option to stay at home on full benefit. So when they sign on for benefit they will be
signing up for work. Benefits will be cut if young people refuse to take up the oppor-
tunities (Gordon Brown, Budget Speech quoted in Peck, 1998: 4).These options are
organized around a hierarchy of placements: subsidized private sector employment; full
time education and training for a much smaller group with basic skills needs; voluntary
sector work; and placements with an environmental task force.Together, these are con-
ceived in terms of a first step on the employment ladder. Of course, as the critics have
been quick to point out, this employment ladder does not necessarily lead anywhere
if there are no jobs. Private sector placements are likely to be fewest where unemploy-
ment, poverty and social exclusion are most severe. As a result, the New Deal is likely
to work best in buoyant local economies where it is least needed, and worst in areas
such as Liverpool where the combination of economic decline with an inappropriate
welfare and taxation system is most pronounced. In such areas, such placements as
there are, are likely to be concentrated on the latter two options: voluntary work and
the environmental task force. Because welfare-to-work focuses on a human resources
supply-side problematic of employability in a global market, and does not even
acknowledge the underlying problems relating to the distribution of work and
income, it is difficult to see how it can succeed in depressed areas. But at the same time,
if the definition of participation can be opened up and the institutional rules govern-
ing the relationship between the informal and formal economies can be changed, the
emphasis on an individual right to quality placements in the voluntary sector and the
community could provide the starting point for a serious political debate pointing in
the direction of universality, citizenship and community development. In this context,
there might well be a discursive space for Euro/eco-dividend, basic income and sus-
tainability.

Taxing Social and Environmental Bads

The Kyoto and Rio summits underlined the increasing importance of environmental
concerns as drivers of social and economic change.The dominant discourse of sustain-
ability reflects the fact that purist environmental agendas have become imbued with
social concerns. Environmentalists have recognized that in order for ecological con-
cerns to be carried forward politically they needed to reflect concomitant social prior-
ities as well. In this way, the notion of sustainability is seen to refer to an economic
trajectory which brings into the accounts, both social and environmental externalities.
The growing weight and political significance of sustainability as a criterion of eco-
nomic evaluation reflects a backdrop of growing social and cultural strength on the
part of the green parties and to a much greater extent, environmental campaigning
groups such as Greenpeace and Friends of the Earth. Over the last twenty years, these
social movements have managed to promulgate a common sense understanding of the
environmental-economic problem which makes the concepts like eco-taxation or an
environmentally friendly economic growth trajectory both understandable and even
uncontroversial as political goals.This is a very long way from the doom-laden prog-

181
Basic Income on the Agenda

noses of absolute resource-bound limits to growth.The pervasive rhetoric of sustain-


ability is more than a pre-millennial Zeitgeist. It could be argued that moving into the
21st century, the environment is becoming the pivotal mobilizing framework for any
kind of progressive agenda.The emergence of a space for a green and socially responsi-
ble capitalism, is perhaps the nearest thing to the big economic idea for the Left since
Keynesianism. It is in this vein that Hudson and Weaver (1997) have recently charted a
possible eco-Keynesian future for Europe involving a new regulatory trajectory based
around the idea of a sustainable mode of accumulation which simultaneously address-
es both job creation and environmental valorization. And within basic income circles,
James Robertson (1989) sketches a similar vision in which hypothecated eco-taxation
(including a Georgist tax on land) replaces income taxes becoming the driver, and
basic income the social pay-off .
As a result of these changes, eco-taxes have become almost mainstream, gaining seri-
ous consideration from across the political spectrum. A variety of such charges have
already been implemented, especially in Northern Europe (see OECD, 1995). Recently
a more comprehensive evaluation of ecological tax reform (ETR) for the UK mod-
elled the effect of a combined package of seven eco-taxes, including a carbon/nuclear
tax on industry, a higher road fuel escalator and taxes on car-parking and company cars
(Cambridge Econometrics/Elkins, 1998).The total additional revenue in 2010 came to
28bn, the largest share of which came from the road fuel escalator (14bn by 2010).
Adopting the yardstick of revenue neutrality, these revenues are recycled into reduc-
tions in employers contribution rates applied across the board, significantly reducing
the cost of labour.The package produces an overall drop in unemployment of 166,000
and a rise in employment of 400,000 by 2010.The largest absolute increase is in male
full-time employment. Studies of this sort have been repeated around Europe provid-
ing an increasing weight of evidence in favour of restructuring the fiscal system along
these lines. Where such measures are in place (e.g. the Swedish Nox charge), their
effects are generally beneficial. Such evidence as there is suggests that environmental
regulation has a negligible impact on competitiveness (OECD, 1996: 45).
Bearing this in mind, it is hardly surprising that the idea of funding a European basic
income through ETR has begun to get serious consideration. Genet and Van Parijs
(1992) suggested a basic income or Eurogrant of 100 ECUs financed by a uniform tax
on all types of energy.Whilst their model is largely illustrative it raised important points
in relation to the distributional impact of such measures in a European as opposed to
national context. Obviously the countries and regions standing to gain are those with
lower per capita energy usage. Whilst the net contributor and recipient countries
remained the same as under the present arrangements, the international transfers
increased by a factor of 14 leading the authors to conclude that even with a basic
income as low as 100 ECU per month, European solidarity would therefore be four-
teen times stronger than at present via the structural funds apart from the fact that
being individualized, the Eurogrant would be far more likely to reach the poorest peo-
ple in the poorest areas than current subsidies (ibid., 1992: 6).As they point out, such an
arrangement would transfer tax revenues and some public expenditure from the
national to the EU level since governments would presumably give up their own
energy taxes. However, there is certainly a degree of flexibility in how national govern-
ments can restructure other aspects of the fiscal system to accommodate the effects of
ETR and the social dividend. Clearly, in the interests of revenue neutrality there would

182
European Basic Income or the Race to the Bottom

be great pressure for government to reduce the private sector tax burden to balance
out the effects of the new taxes and taxes on labour would be an obvious target,
given the positive effects with respect to jobs. Individual tax allowances, pensions and
other welfare benefits would no doubt be top-sliced in order to pay for such tax cuts.
It can be seen that combining a social dividend with ETR in this way, whilst main-
taining revenue neutrality, involves an extended fiscal-welfare circuit.
One point which does not emerge so clearly from Genet and Van Parijs discussion
relates to the dynamic effects of these kinds of tax measures. The idea that eco-taxes
could be the drivers of a fundamental economic shift in the direction of sustainability
is predicated on such dynamic effects. But it should be recognized that in so far as
ETR changes behaviour on the part of individuals and firms and actually secures the
primary environmental objectives, the tax base, revenues and presumably the value of
any social dividend will fall (e.g. as energy efficiency increases, renewable resources
come online etc.). Any basic income trajectory based on ETR would necessarily
involve a constant process of refinement of the tax base and periodic shifts to new
sources of revenue.
One possibility, in line with the broader social understanding of sustainability, would
be to extend the hypothecated tax base to cover other kinds of negative externalities.
Given the rising panic over stock market instability, the possibility of contagion from
Russia or South East Asia and the Soros factor the idea of taxing speculative capital
transfers as a way of introducing a buffer into global capital markets is perhaps less
implausible than a few years ago (Haq, 1996;Tobin et al., 1995).4

Conclusion: European Eco-Dividend (Eureco) and Participation Income

The basic income debate has been organized around abstract blueprints for wholesale
reform of the fiscal-welfare system.The stream of both radical-utopian but also mod-
erate feasible (revenue neutral) basic income models which have been put up for dis-
cussion, have brought much needed intellectual clarity and specificity to the debate.
However, such intellectual clarity does not flow naturally into a plausible political pro-
ject. Protagonists have been very good at envisioning arrivals and destinations. But the
debate has offered few clues as to possible points of departure and the politics of tran-
sition.
This contribution has sought to outline salient features of the European political
landscape that might offer such points of departure.The emphasis is on political and
social dynamics which derive from a Europe in the (re)making. Rather than weigh-
ing up the merits of particular national or European models, proponents would be
better advised to think in terms of a basic income trajectory, i.e. the kind of politi-
cal engagements and policy innovations that might progressively consolidate and
enlarge the space for the principles of universalism, unconditionality and individual
assessment in (the European) welfare system(s). One possible point of entry relates to
the language of responsibility and participation which increasingly frames the
debates around the future of welfare both in relation to Anglo-American commu-
nitarianism and the Third Way but also debates on the future of European social
democracy.
For reasons of economic coherence, some degree of harmonization of European

183
Basic Income on the Agenda

social security arrangements must certainly become a priority in the wake of EMU. A
social dividend scheme operating at a flat rate across the whole of Europe is by far the
simplest option and the easiest to accommodate with existing national provisions with-
out distortions arising from different wages and levels of social protection between
countries. There are also strong political arguments which relate to the democratic
deficit and the potential for a legitimation crisis as economic rationalization inevitably
exacerbates tensions and inequalities between the different regions and Member States.
This is not simply a question of economics and the need for compensation. It is about
giving a material underpinning to the sense of European citizenship and common des-
tiny which are a prerequisite for the New Europe to stabilize and prosper.
Hypothecated eco-taxes are rapidly becoming standard items in the fiscal tool kit.
Many studies have demonstrated their potential to raise large revenues which could be
channelled through an eco-dividend scheme.The use of such taxes could provide the
basis for the kind of political coalition which is essential for any basic income trajecto-
ry. For environmentalists, linking eco-taxes with a social dividend could provide a use-
ful way of ensuring their popularity. From a basic income perspective, linking a small
dividend to green taxes and implicitly to the idea of an environmental commonwealth
might be useful in mitigating common sense objections to unearned handouts.At the
same time, there would be conflicts. From the environmentalist perspective one of the
rationales of the taxes would be to raise revenues which could provide the capital
investment necessary to overcome structural and technological barriers to the entry of
renewable sources of energy into the market. Clearly, diverting such revenues into eco-
dividends would reduce the funds available for such capital investment.
Like the advocates of basic income, green supporters of eco-taxes have drawn atten-
tion to the job creating possibilities of reducing taxes on labour. It is clearly possible to
stick with the assumption of revenue neutrality whilst introducing eco-dividends.
However, in extending the fiscal-welfare circuit through which this neutrality is
achieved, the national governments will be faced with important political choices as to
how they rebalance the tax burden on companies. Clearly there is potential for differ-
ent countries to recoup the cost of this re-balancing in different ways.
The continuing salience of the work ethic and the commitment of governments to
focus on labour market participation as the solution to social exclusion and poverty
make it very difficult to continue arguing in favour of a completely unconditional basic
income. In the light of this, a participation income has much to offer. A broader equa-
tion of participation with civic involvement and the duties of citizenship would in
effect subvert the logic of workfare and the narrow emphasis on paid work.At the same
time, an inclusive engagement with the voluntary sector, community development and
unpaid work could in effect rationalize how programmes like welfare-to-work are like-
ly to operate anyway, particularly in economically traumatized regions and in periods
of recession.Whilst the social transfers effected by an eco-dividend would be co-ordi-
nated through European institutions, the nature of conditionality and the definition of
what counts as participation could easily be decided at the level of the nation-state.
This would allow the dividend to be linked to national traditions, institutions and the
trajectory of particular welfare regimes in ways which made sense. In this way, a degree
of welfare harmonization could be made compatible with national diversity. A mini-
mum requirement for recipients could be voting in European elections. This would
firmly link the Eurogrant to an active sense of European citizenship.

184
European Basic Income or the Race to the Bottom

In general, the idea of a basic income trajectory helps to focus on the dynamics of
political process. Certainly basic income will get nowhere if we insist on conceptualiz-
ing political choices in terms of an either/or framework. The relevant questions are
not: European welfare harmonization or national sovereignty? Selectivity or univeral-
ism? Basic income or means-testing? If we pose the questions like this, politics will
always work against basic income.The either/or question invariably demands a leap of
faith and perception too great for the average politician. However there are windows
of opportunity. For example, a small Euro-dividend, introduced as an exercise in
European citizenship, could create the conditions for its own metamorphosis into a
more substantive redistributive mechanism. A dividend funded through eco-taxes
might play an important role in embedding a greater understanding of the benefits and
simplicity of unconditional dividend-style social transfers. Alternatively, a dividend
attached to the principle of civic participation could conceivably create a useful bridge
between the dominant (but anachronistic) common sense work ethic, the realities of
contemporary labour markets and the need for a rebuilding of links between individ-
uals and the communities in which they live (as opposed to the abstract community =
society). In the latter case, the principle of subsidiarity could be retained allowing
countries or city regions to define participation as they liked.The important point is
that basic income and social dividend innovations can be made relevant to a wide vari-
ety of political movements and interests.The significance of any one proposal or inno-
vation will depend to a great extent on the size of the payments envisaged, the rela-
tionship to existing welfare mechanisms (alternative, supplement, etc.), the political
scale of administration and entitlement and the wider political context. This signifi-
cance can of course change over time. The notion of a basic income trajectory is to
anticipate such dynamics and take advantage of them.

Notes

1 For instance, the critical distinction between basic income and negative income tax models
are now widely appreciated.
2 In Britain this can be compared with the politics of electoral reform. Advocates of
Proportional Representation have had almost no success in forcing reform past the monop-
olist instincts of an incumbent government of either party at least not as far as the
Westminster parliament is concerned. For the new and additional elections required by the
Scottish Parliament, the Welsh Assembly and European elections, however, PR has been
accepted almost without a dissenting voice.
3 I gratefully acknowledge that my own take on this debate draws heavily on discussions with
Bill Jordan.
4 However, there would be enormous obstacles not least the fact that it would need to be
introduced simultaneously in all of the worlds major markets with a large degree of harmo-
nization in terms of the rules and norms governing such markets (to prevent foreign
exchange trading shifting geographically).The tax would have to apply not only to standard
foreign exchange trading but also to various derivatives (as financial institutions have a long
history of responding creatively to such forms of regulation).

185
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Participation of Women, in: A.G. Dijkstra and J. Plantenga (eds.), Gender and Economics. A
European Perspective, London: Routledge, 17-35.
Zeckhauser, R. (1971), Optimal Mechanisms for Income Transfers, American Economic Review 61
(3), 324-34.
Zukunftskommission der Friedrich-Ebert-Stiftung (1998), Wirtschaftliche Leistungsfhigkeit,
sozialer Zusammenhalt, kologische Nachhaltigkeit. Drei Ziele ein Weg, Bonn.

194
Part Two Political Chances
Clues and Leads in the Debate on Basic Income
in the Netherlands
Loek Groot and Robert van der Veen

Introduction

This is an account of the political significance of twenty years worth of discussions


around the theme of unconditional basic income in the Netherlands. In the
Introduction, the question was raised of whether basic income has ever been on the
political agenda, and what the chances are of its eventual introduction.We start out by
briefly summarizing our findings. Basic income entered the arena of public debate as
an ethically inspired reform proposal, to make available the social minimum income
unconditionally to all Dutch citizens, for emancipatory reasons in a climate of relative
abundance. Political interest in the idea, however, has proved to have been largely
dependent on the rate of unemployment.The basic income idea gained a broad social
appeal as an alternative socio-economic strategy, when major unemployment hit the
country in the early eighties. But the literature we reviewed shows that the fate of basic
income has also been determined by a lack of acceptance of its most radical feature:
strict unconditionality with respect to work. Public discussions have always strongly
focused on this aspect (the decoupling of work and income). Thus, proposals for a
basic income openly defended in this radical form have never been able to mobilize
any lasting political support in the Netherlands. Less far reaching versions of partial
basic income (meant to replace only part of the social minimum in unconditional
form) have fared somewhat better in terms of political acceptance, but have been
rejected in the end as well, probably due to their association with the radical thesis of
decoupling.
After the Dutch economy began to pick up from 1987 onwards, and unemploy-
ment decreased just as spectacularly as it rose four years earlier, public discussions of
basic income underwent a major change of context. Instead of being put forward as
a full-fledged institutional alternative, basic income specifically came to address the
exclusion of marginalized people, where exclusion was understood as income
poverty and lack of employment chances. In this context, the argument for uncondi-
tional subsidies was mainly located in its inclusion effects, both by boosting employ-
ment at levels under the minimum wage, and by allowing precarious workers to
share at least minimally in the benefits of an affluent society.This change in empha-
sis meant that basic income was now discussed as an instrument for re-inserting the
lowly productive members of the labour force, rather than making everybody inde-
pendent from toil. The change followed the main tunes in the socio-economic
debate: firstly, during high unemployment, the scaling down of previously generous
Dutch benefits in the no-nonsense retrenchment of the eighties, and secondly, as the
employment situation drastically improved (the Dutch miracle of the nineties), the
recognition of long-term exclusion at the bottom end of the labour market, as a
result of the poverty trap.

197
198
Figure 1: Distribution of publications on basic income by type

120 14

12
100
Basic Income on the Agenda

10
80

8 Scientific
Press
60
Political
6 Unemployment

40
4

20
2

0 0
1965 1970 1975 1980 1985 1990 1995 2000 2005
Clues and Leads in the Debate on Basic Income in the Netherlands

What needs to be shown in our story, is how proponents of basic income have had
to adapt their arguments to changing circumstances and new climates of opinion.As a
first step, Figure 1 records the numbers of almost 900 publications from 1970 to 1994
onwards, distinguished in three categories: political, scientific and press documents.1

From Figure 1, it appears that the basic income theme is discussed since 1975. The
intensity of the debate reached its all-time high in 1985. At face value, the number of
press and political documents show a strong positive correlation with the development
of the unemployment rate, although both were at a rather low level in 1983-84, when
unemployment was at its peak level of almost 12 percent. However, the peak in 1985
in both series reflects the discussion following the publication of the WRR govern-
ment advisory report Safeguarding Social Security in 1985. Likewise, the second peak in
the series of press documents, in 1993, reflects the response to the launching of anoth-
er government advisory document by the Central Planning Bureau, Scanning the
Future, at the end of 1992.
Reviewing the large number of publications in these three categories, one can safe-
ly say that between 1985 and 1994, basic income has been prominently on the politi-
cal agenda in a broad sense. That is, the idea regularly figures in platforms, seminars,
journals and other fora and is regularly discussed. However, for basic income to be on
the political agenda in a narrow sense requires more than being an item of public dis-
cussion. It would require at least that basic income be included in the program of a
major political party, or that government advisory boards officially consider basic
income to be a possible avenue of reform. In such cases, being on the political agenda
means that other political actors are obliged to take a position on the issue. Using this
criterion, basic income has figured on the political agenda in the narrow sense only
three times: first, as mentioned above, in 1985, following Safeguarding Social Security;
secondly, in 1992, when the idea was taken up in one of the scenarios of Scanning the
Future; and finally, in 1999, basic income entered the political agenda as a component
of the Ministry of Finances Tax Reform 2001, without, however, being mentioned as
such. Nevertheless, hidden away in a major overhaul of the Dutch tax system, a refund-
able tax credit equivalent to a small partial basic income was proposed and passed by
parliament in February 2000. Pending the definitive stage in the Upper Chamber,
then, this small basic income will probably be implemented in 2001.The general tax
allowance will be substituted by an individualized negative income tax amounting to
one eighth of the net minimum wage, or one quarter of the assistance benefit of a sin-
gle person. As a result, every person who is eligible for tax (all adults except students)
is entitled to a refundable tax credit of 1507 annually.The lesson to be drawn from
this silent implementation will be discussed later on, after our chronicle of the main
lines of the Dutch debate.
Before presenting this chronicle, however, it is helpful to know what the introduc-
tion of a full basic income would require in the Dutch context. Basically, this is rather
less of a major operation than it might be in other countries. From the mid-seventies
onwards, the Dutch system of social security is two tiered.The first tier covers univer-
sal provisions of general assistance and flat-rate social insurance, up to a wage indexed
social minimum (defined as the income covering the basic needs of a family, exclusive
of child benefit, at the level of the net minimum wage). The second tier consists of
wage-related worker insurance against unemployment, sickness and disability.The old

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Basic Income on the Agenda

age pension, which is part of the first tier, is made available to every Dutch citizen, on
sole condition of residency, while child benefits are granted to all families with children
under 18 years of age, without means testing.The introduction of a full basic income
at social minimum level would thus involve replacing the provisions of general
assistance, social insurance and child benefit with a basic income. Given the uncondi-
tional nature of old age and childrens entitlements, this would not change very much
for the old, but it would raise child benefit. For adults before retirement age, it would
mean getting rid of the means- and work-tests in the law of general assistance. Even
though institutionally a full basic income could perhaps be fitted into the first tier of
Dutch social security rather easily, the economic cost and the political repercussions
would obviously be quite considerable.

1975-1985. Emergence of the Debate: from Utopia to Piecemeal


Engineering

Although the idea of a state-financed income guarantee had been sporadically dis-
cussed in socio-economic circles during the post-war reconstruction, the major
impulse for the Dutch debate can be ascribed to J.P. Kuiper, a professor of social medi-
cine at the protestant Free University of Amsterdam. Kuipers studies of re-validation
and the humanization of work led him to consider the merits of disconnecting pro-
ductive labour and income.After reading Robert Theobalds Free Man and Free Market
(1963), Kuiper developed a morally inspired argument for an entirely unconditional
income, in a series of lectures and articles which attracted wide attention from 1975
onwards.2 From his protestant vantage point, Kuiper presented a clear picture of the
emancipatory advantages of unconditional grants, without bothering to discuss its cost-
ing or implementation. Kuipers ideas were endorsed only by intellectuals within the
Christian radical Left, in connection with the zero-growth perspective, in which basic
income was considered to be a stimulus for alternative forms of production and work
in an ecologically sustainable society. More reservedly, religious organizations such as
the Council of Churches were prepared to accept a selective version, combined with
forms of social conscription a possibility tentatively raised by Kuiper. However,
reviewing the catalogue of reactions between 1975 and 1980 to these ideas on the rad-
ical Left, one sees unions and employers representatives dismissing the idea as utopian,
social-democrats rejecting it as a far too radical departure from the labour contribution
principle, and feminists preferring a direct attack on the male role of family provider,
through an enforced reduction of the working week. So in this first stage, basic income
figured as a utopian symbol of social criticism, directed against the reality of produc-
tivist market society, rather than as a concrete proposal.
It was only under the pressure of a severe recession that the idea took shape as a
strategy of social policy. Basic income now entered into the realm of institutional alter-
natives, though still being strongly inspired by Kuipers emancipatory viewpoint. The
economic crisis was becoming the dominant framework of discussion. Between 1981
and 1983, with unemployment rising from 6 to almost 12 percent (see Figure 1), the
radical union of food workers (Voedingsbond FNV) launched the universal grant in
the socio-economic arena. Echoing Kuipers moral slogan: A guaranteed income is a
basic right and sounding the unemployment alarm The robots are coming, the

200
Clues and Leads in the Debate on Basic Income in the Netherlands

Voedingsbond proposed a basic income system, financed at source, and designed to


replace major parts of the existing social security laws. This was presented as a long-
term working class strategy for the re-distribution of paid work between men and
women. In addition, small parties on the Left of the political spectrum spoke out: the
evangelical radicals and liberal-democrats D66 were in favour, but did not really
believe in the argument that a basic income would automatically bring about a sub-
stantive redistribution of paid labour. Most of the Dutch basic income proponents thus
insisted on combining unconditional income guarantees with separate legislative pro-
grams for labour-time reduction.3
The political response to these new moves in the early eighties was detailed, and
stated at important occasions.The central labour unions (FNV and CNV) reacted with
a considered, but firm rejection of the Voedingsbond proposal, on ethical and econom-
ic grounds, while expressing extreme scepticism about the alleged improvements for
organized labour and the bargaining position of women on the labour market. After
intensive discussions in the Labour Party (PvdA), the position of its allied union (FNV)
was adopted by the party congress in April 1983, together with a resolution to aim at
reducing the 40-hour working week to 25 hours, within one decade.The specific rea-
sons for rejecting basic income can be summarized as follows: it would be incapable of
reducing unemployment, and amount to buying off the right to work with a right to
free income, which, moreover, would have to be so low in comparison to current
social insurance payments that the hard-won rights of unemployed and disabled work-
ers would be unjustly eroded in favour of groups not in need of additional transfers.As
the party chairman summed up the position:With a basic income, youll end up at the
Right. Moreover, social-democratic and trade union economists expected a basic
income to produce economic disaster.This fear was also voiced in a 1981 report by the
government-sponsored Scientific Council for Government Policy (WRR).4 In a sep-
arate chapter devoted to basic income, the WRR predicted negative effects on exports
and employment, because the additional tax burdens to finance basic income would be
passed on into wages and prices. It concluded that even a modest basic income would
remain unfeasible for the Dutch economy, except, possibly, if continued increases in
labour productivity were to usher in a long period of jobless growth, and so cause per-
sistent unemployment. Consequently, two years later, in its 1983 overview of socio-
economic trends after the unemployment rate had almost doubled the WRR
upgraded its plausibility estimate, now regarding a basic income, or a negative income
tax system, as a key ingredient of a liberal anti-etatist scenario.
Although this gradual progress of basic income to the status of a serious policy alter-
native was hardly remarked on in the press, the proponents did not fail to notice.The
scientific publications show that they redoubled their energy to question the privi-
leged treatment of wage labour, and criticize the unjust insistence on the reciprocal
duties of welfare recipients in the face of insufficient opportunities to fulfil them. A
theme also much discussed was the need to simplify the complex and overburdened
social security system, with its widespread feelings of insecurity, and its tendency to
generate a large black informal sector in the economy. In contrast to the social demo-
cratic and trade union stance, proponents argued that compared to paid work, unpaid
domestic work and voluntary activities in associations are equally valuable means of
individual self-realization and support of others.Thus, an unconditional income for all
would not be a buy-off, but actively uphold the right to labour of a decent quality,

201
Basic Income on the Agenda

while at the same time providing security for performing valuable services outside the
labour market, without the stigma and administrative humiliation of means-testing.
Meanwhile, the ruling coalition of Christian democrats (CDA) and Liberals (VVD)
remained outside of this debate.The Liberals entirely ignored the issue.The Christian
democrats at least showed some recognition of unconditional income as a stimulus for
voluntary work, but opposed it as being incompatible with the contribution principle
and the Christian family ethic, explicitly rejecting the ideal of economic independence
for individuals. With the ruling coalition, the major opposition party and the central
trade unions firmly against, the political chances of basic income in the mid eighties
seemed to be bleak indeed.

Safeguarding Social Security


Yet, and quite unexpectedly, the WRR once more addressed the issue of basic income,
in October 1985, this time in the form of a concrete reform proposal designed to
ensure the continuity of social security in times where one has to count on long peri-
ods of unemployment.The status of the WRR, an advisory board nominated every five
years by the government, is to formulate long-term recommendations, which require
an official response in Parliament.The central element of Safeguarding Social Security is
an unconditional partial basic income, coupled to two other institutional innovations.
The basic income was to be financed by a special tax on production value. Moreover, it
would be accompanied by the abolition of the minimum wage, and the indexing of the
social minimum to changes in average income. As Figure 1 shows, the report attracted
huge attention. It had a profound, though not wholly positive, influence on the terms
of the basic income debate in the next decade.To see why this might be, we shall dis-
cuss it in some detail.
In order to simultaneously lower labour costs, flexibilize the labour market and sim-
plify the welfare system5 the WRR proposed an ingenious package of four measures:

1. A tax-financed universal partial basic income;


2. A compulsory general insurance scheme, providing insurance up to the prevailing
social minimum for all kinds of contingencies (disability, unemployment, sickness,
etc.). These benefits are not means-tested and have a maximum duration of six
years, depending on labour market history;6
3. A tax-financed and means-tested social assistance scheme as a provision of last
resort;
4. Privatization of all wage-related benefits above the social minimum, under regula-
tions requiring a general duty of acceptance for insurance companies, and non-dif-
ferentiated flat rate contributions.

The reduction of labour costs was to be achieved in two ways. Firstly, the abolition of
the minimum wage would make it possible to hire people at lower wages. The argu-
ment was that partial basic income would take over the protective function of the min-
imum wage in a modernized form, which would no longer be tied to the basic needs
of a nuclear breadwinner family, and thus reflect the increased diversity in household
earning patterns. Secondly, labour costs would be reduced because under the new tax
system, employers would have to pay the partial basic income to their workers, in
return for which they could deduct the costs of providing the partial basic income

202
Clues and Leads in the Debate on Basic Income in the Netherlands

from their tax liabilities. Apart from the beneficial effect of this method on the black
economy,7 the reduction of direct labour costs would be equal to the gross wage
equivalence of the partial basic income, which is to say that the latter would act as a
wage subsidy. Moreover, the WRR expected that the rise in wage inequality due to
removing the minimum wage would be compensated by the effect of the partial basic
income. For, with a partial basic income, pre-tax wage inequalities (both among full-
time workers and between full-time and part-time workers) have a smaller effect on
their total net income.To finance the partial basic income and to compensate for lower
tax revenues on wage income, tax exemptions and capital subsidies were to be skipped,
and new taxes on production and environmental pollution would be introduced.
However, the WRR was reluctant to undertake detailed calculations of costing. This
proved to be a mistake, as we shall presently see.
Before discussing how the proposal was evaluated by public opinion, it is instruc-
tive to review the other problems that the WRR wanted to solve by means of this
new method of safeguarding social security, and in particular the crucial role of par-
tial basic income. First of all, means-testing. In this respect, as was widely admitted,
the Dutch system of the eighties had become very complex. In order to check the
many entitlement conditions, the rules of general assistance and related laws required
extensive monitoring of claimants.As we noted above, this was perceived to be inva-
sive of the private sphere, and humiliating as well, under conditions of high unem-
ployment. The complicated procedures also created incentives of benefit fraud and
administrative shortcuts. Partial basic income was expressly designed to address that
situation. The WRR had three main reasons to think that this would be effective.
Firstly, far less people would need to claim social benefits, because a part-time job
could be sufficient to lift them above the social minimum.This would mean cutting
down on expenditure, and on administrative cost. Secondly, the level of partial basic
income was chosen so as to equal the difference between the existing benefit of a
family and a single person.This would considerably simplify the means-tested part of
the social minimum. Both single person and family-claimants would now receive
their personal partial basic income, plus the same means-tested amount per house-
hold, thus removing the need to differentiate means-tested benefits according to
household size.8 An additional advantage of this particular level of partial basic
income, according to the WRR, was that it remained considerably below the social
minimum of a single person, thus maintaining the incentive to work among low
earners who are in work. But at the same time, the level of partial basic income
would still be high enough to give the unemployed with low earning potential the
incentive to acquire jobs with earnings above the social minimum, since in accepting
such jobs, they would only be losing the means-tested part of the social minimum.
This argument later came to be widely recognized as addressing the problem of the
unemployment trap. Thirdly, a partial basic income would give the small self-
employed in retail greater scope to compete with large-scale business (e.g. supermar-
kets). It would also replace special tax exemptions and subsidies covering the start-up
period for the small- and medium-sized business sector.
With Safeguarding Social Security, the WRR performed a remarkable piece of social
engineering. Addressing the major weaknesses of the Dutch welfare state in the mid-
eighties, and taking into account trends such as persistent unemployment at the low
end of the labour market, the demise of the traditional breadwinner family, the gloomy

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Basic Income on the Agenda

prospects of the poverty trap, and the growing informal economy, it came up with an
adequate and logically structured new system.

Massive Rejection
Within 24 hours of the official presentation, however, the report was unanimously shot
down. Even those who had staunchly advocated a basic income, such as the PPR and
the food workers union, found reasons to object to one or more features of the plan,
and therefore to reject it pars pro toto. Headlines in the press were 14 million welfare
recipients,9 and An armchair proposal.10 In what follows, we briefly review the criti-
cisms of government, of political parties, and of the unions and employer associations.
The government coalition of Christian-Democrats (CDA) and Liberals (VVD) had
originally requested the WRR to report on the reform of social security. But, faced
with this result, it was not in a position to respond positively to the proposed radical
innovations. For in the meantime, the government had politically committed itself to
passing an expenditure-cutting reform of existing social security.This reform basically
relied on keeping intact the two-tiered Dutch system, but with more selectivity, lower
benefit levels and shorter durations of entitlement in the social insurance and universal
benefits. Because of this, the government could not think of abolishing the minimum
wage, which was, after all, the linchpin of the existing system. Still less could it entertain
any idea of replacing the minimum wage with a partial basic income, given that it
would increase social expenditures, instead of paring them down.11 So the last thing the
government wanted to promote was a parallel discussion about the fundamentals of
social security. In its response, therefore, it politely postponed consideration of the
WRR plan to the year 2000. The CDA Minister of Social Affairs voiced the general
feeling that a partial basic income, as long as it is below the social minimum, is unat-
tractive because it is too low for those who need it and superfluous for those who do
not.The coalition party VVD regretted the choice for a partial basic income instead of
a negative income tax, and that tax progression was not reduced.
The Labour Party, on the other hand, used the report to brush up its opposition
image as the real defender of social solidarity. It argued that indexing benefits to wages
is essential for solidarity. If benefits were to be linked to average income, as the WRR
wanted, then welfare recipients would have to carry the full burden of adjusting to
negative economic shocks, while with wage indexation they would at least be protect-
ed by the actions of organized labour for preserving wages in an economic downturn.
The Labour Party also objected to the WRRs proposal for making social insurance
above the social minimum a privatized option, on the grounds that wage related
income security would then become a prerogative of financially well-off workers.And
instead of providing a partial basic income, which they thought would give incentives
to withdraw from the labour market, or work only part-time, the social-democrats
were in favour of facilitating a right to work, if need be by means of collective work-
ing week reduction and large scale job creation.Thus the Labour Party confirmed the
stance which it had taken earlier, in response to the more radical proposals for a basic
income by the food workers union. Only the Centre-Left party D66 was sympathetic
to the main features of the WRR plan. But it opposed partial basic income, at least in
the absence of a solid financial account of its feasibility. Finally, the radical Left party
PPR, the only one that had been unambiguously endorsing a full basic income, held
that a partial basic income would be totally insufficient for making unpaid work a true

204
Clues and Leads in the Debate on Basic Income in the Netherlands

alternative to paid work. In this, it sided with the emancipatory movement, which
condemned partial basic income as a disguised form of hush money to keep women at
home, without giving them the economic independence that would offer a genuine
choice between the home and the labour market.
Predictably also, the unions fiercely opposed the plan. Elimination of the minimum
wage, they said, would hurt the least productive workers.12 Also, privatizing the collec-
tive provisions of wage-related social insurance would endanger what the unions had
been successfully fighting for since 1945, with the help of successive governments.The
unions saw very clearly that if the government were made to retreat from wage-relat-
ed social insurance, then they would have to negotiate directly with employers and
insurance companies about income provisions over and above the social minimum.
This could prove highly disadvantageous for the unions, in weak sectors of the econo-
my. Moreover, both unions and employers disliked the fact that they would lose their
control over unemployment and disability benefits at the social minimum level, which
would become entirely state-administered. Both of these features of the WRR plan
(listed under points 2 and 4 above), in short, posed clear threats to the corporatist bar-
gaining model of the Dutch welfare state. Finally, and equally predictably, employer
associations objected that paid work would no longer be the primary source of
income, but would become supplementary to the partial basic income.The only posi-
tive element, in the view of employers, was the removal of the minimum wage.
Although they welcomed a reduction in wage costs, they preferred specific measures
targeted at the low end of the labour market, instead of the generic measures to lower
labour costs proposed by the WRR.

Several bridges too far


Even though partial basic income was the central element of Safeguarding Social
Security, its rationale was entirely pragmatic. For the WRR, partial basic income was a
way of introducing a new orientation on basic questions of social security (uncondi-
tional vs. conditional, universal vs. selective, permanent vs. temporary, individualized
vs. family-based). However, what the WRR may have overlooked, in retrospect, is that
in view of its unconditional entitlement, even a partial basic income needs to be given
a principled justification, especially if it stands out as the central element in a funda-
mental plan of reform.Another problem was bad political timing. For one thing, there
was considerable consensus among the social partners to reduce the working week
across the board, as a response to rising unemployment.13 This consensus was ignored
by the WRR, and, in fact, its advocacy of a liberalized labour market offered no room
for a collective shortening of the working week. In this stance it proved to be right
later on, given the increase of part-time jobs in the Netherlands, but at the time this
was not yet apparent.Also, since almost everybody perceived the high cost of the social
security system as the major problem, it was no surprise that a plan proposing to raise
social expenditures even moderately would be ruled out of court on that ground
alone. Finally, as we noted, the plan came too late to change the welfare reform which
was already in the stage of being passed through parliament. Unfortunately, it also came
far too early to serve as a realistic stepping stone for a second reform, in the more dis-
tant future.
By and large, the WRR-proposal was too ambitious. It wanted to accomplish too
much in one time. The simplicity and consistency of the plan, and its style of logical

205
Basic Income on the Agenda

argumentation from problems to solutions, are typical virtues of a social engineering


perspective. These virtues do not necessarily count for much in a political process.
Again, in retrospect, it was perhaps nave not to present detailed modelling calculations
concerning the effects of introducing partial basic income on household income, tax
requirements, employment, prices, and so on.14 The WRR believed, quite rightly, that
such exercises would be impossible to perform with any precision, given the complex-
ity of the proposed institutional changes. But in its scientific honesty, it overlooked the
point that economic model calculations play a huge symbolic role in Dutch political
culture, when it comes to discussing the effects of any proposed reform.
In sum, the proposal of a basic income, even if it is only a partial one, does not seem
to have much of a chance, if it is accompanied with too many other structural changes,
such as a shift from direct to indirect taxation and green taxes, the abolition of mini-
mum wages, a radical change in the role of actors who have a large stake in providing
social security, and so on. Safeguarding Social Security, in fact, was not a single reform
proposal. It was an integrated package of multiple reform components, which were
combined in a way that might be easily appreciated by a disinterested social scientist,
but difficult to grasp for political actors. As a result, none of the political actors could
fully accept it, while each actor could find ample grounds for rejecting the components
that cut closest to the bone of its particular vested interests. Moreover, since the basic
income component stood out as a central element of the whole package, without,
however, being supported on independent grounds, it served as the lightning-rod of
popular indignation.
A final lesson of this episode is that an accurate examination of the detailed effects of
a partial basic income on the distribution of income among different households and
on employment, prices and output, seems to be absolutely essential for obtaining seri-
ous attention for the proposal.

1986-1992. Seven Lean Years

Even though the massive rejection of Safeguarding Social Security quickly removed basic
income from the political agenda in the narrow sense, the idea remained on the broad-
er agenda of public debate, though in a subdued manner, since most trade unions and
political parties now participated only with lukewarm interest, at best. Basic income,
one might say, was confined to insistent whispers at the sidelines of the debate on wel-
fare reform. As one can see from Figure 1, after 1985 there is a sharp drop in the fre-
quency of political and press documents on basic income. However, the scientific
debate continued, and even more intensely than in the periods before 1985 and after
1992, reaching a much more mature state compared to the debate in the pre-1985
period.
In the wake of the first Basic Income European Network Congress (1986), in
October 1987, fourteen organizations, including some trade union sections, political
parties, claimants unions, and voluntary organizations, set up the Workshop on Basic
Income (renamed Society of Basic Income in 1992) to stimulate and co-ordinate activities
concerning the debate about basic income. It issued a newsletter three times a year, in
which a small number of activists showed a remarkable dedication to keep the idea
alive.The Workshop also organized some important seminars on the economic feasibil-

206
Clues and Leads in the Debate on Basic Income in the Netherlands

ity of a partial basic income reform, on the economic effects of basic income under
several financing methods, as well as on questions of ethics and citizenship.This stimu-
lated the elaboration of concrete proposals such as de Beers (1988) costed proposal for
a basic income of Dfl. 1000.The Workshop provided a stable platform to discuss issues
on basic income in detail, more or less outside the attention of public opinion.
In speaking about a more mature state of discussion, it serves to note that, follow-
ing the example of the WRR, the proponents of a full basic income were motivated to
engage in detailed considerations of the advantages and disadvantages of basic income
and negative income tax, compared to a variety of other alternatives to the existing
system of Dutch social security.Two studies in particular need to be mentioned. Firstly,
sponsored by the research centre of the Dutch Labour Party, Paul de Beers Being
Jobless.Three Scenarios for the Labour Market (1988) systematically compares the labour
market effects of (1) the continuation of the current governments strategy (wage
moderation, reduction of the public sector, forms of workfare); (2) the Labour Partys
official alternative policy (collective reduction of the working week to 25 hours over a
period of ten years); and (3) the introduction of a basic income at the level of the cur-
rent guaranteed minimum income, along with a slower collective reduction in the
working week and the fostering of individual working time reduction. On De Beers
calculations, the second scenario barely performs better than the first one in terms of
unemployment, and only the third scenario has a chance of achieving nearly full (vol-
untary) employment. Secondly, a comprehensive study, commissioned by the Ministry
of Social Affairs, was undertaken by Joop Roebroek and Erik Hogenboom in 1990
under the title Basic Income:Alternative Benefit or New Paradigm. It contained an updated
and balanced account of the discussion so far, systematically outlining the major vari-
ants of basic income, and clearly presenting the arguments for and against each. The
study also gave a detailed survey of the international debate, including a section on the
negative income tax-experiments in the USA, during the 1960s and 1970s.According
to Roebroek and Hoogenboom, the fundamental fact prompting basic income pro-
posals ranging from right-wing, market oriented, selectivist alternative benefit sys-
tems ( la Milton Friedman) to typically left-wing, collectivist, universalist new para-
digms ( la Robert Theobald) is the increasingly manifest failure of social insurance
systems to provide adequate income support.They identified three major trends: a dra-
matic increase in the number of long-term unemployed (who are no longer covered
by such systems), a dramatic increase in the number of young unemployed (who have
never had the opportunity to enter the social insurance system) and a dramatic reduc-
tion in the stability of households (which accounts for a growing number of house-
holds with no one earning or socially insured). New challenges of a technological,
social, political and cultural nature keep coming up. The times of transition are not
over yet, the authors concluded. This high-quality report anticipated the theme of
social exclusion, which was to become prominent in the mid 1990s.

1993-1996. Basic Income and Social Exclusion

At the end of 1992, the Central Planning Bureau, the major forecasting agency of the
Dutch government, published a large scenario study entitled Scanning the Future. The
object of this ambitious exercise was to trace the fate of the Dutch economy in three

207
Basic Income on the Agenda

possible scenarios of economic development during the next 25 years.The study gen-
erally assumed that each of these scenarios would be accompanied by a distinct set of
labour market and social security policies. In the Global Shift scenario, the focus of the
world economy shifts to the US and Pacific Basin.The Netherlands shares in the mea-
gre fruits of a general Eurosclerosis, in which the generous Dutch welfare system, and
its rigid labour markets, are not changed.The unhappy consequence is a near-collapse
of the welfare state around 2015. Almost the opposite occurs in European Renaissance,
the scenario that has the United States lagging behind, and Western Europe locked into
a dynamic process of integration. In the Netherlands, a revitalized corporatism pro-
duces the consensus that enables the welfare state to maintain its high levels of benefit,
but with a tightened regime of eligibility conditions, and Swedish-type active labour
market measures.This scenario was especially welcomed by the Labour Party, since it
coincided with the optimistic hopes of the Partys official Welfare Commissions report
No one excluded (1992) to restore full employment, and increase the participation rate of
the labour force.
Surprisingly, the third scenario had a basic income as its centrepiece, in the form of
a negative income tax that was to replace all social minimum benefits, and was envis-
aged to grow at a slower level than average income, thus lowering the ratio of social
minimum to average living standards over time, while at the same time staying ahead of
inflation. Of the three scenarios, this one, Balanced Growth, was the most successful in
terms of growth and employment, and it was set against an international background,
which has the wealth of all nations developing favourably. The assumptions behind
Balanced Growth are an enlightened mix of liberal market economics and ecological
restraint, notably a heavy worldwide tax on energy consumption.With the welfare state
much leaner and simpler to administrate, the poverty trap much reduced, and means-
testing finally eliminated, the Central Planning Bureau reinstated a familiar picture of
basic income, as a pivotal device of liberal social engineering, even though it hardly
referred to the other major exercise in this perspective: Safeguarding Social Security.
Considering how far basic income was removed from the political agenda in the nar-
row sense since the dramatic failure of the WRR plan seven years earlier this part
of the CPB-report contributed significantly to re-establishing its respectability within
the community of economic advisers in the country, as well as among the political par-
ties, in particular the liberals. But the mild recession in the years 1993 and 1994,
accompanied by rising unemployment rates (see Figure 1) may have also been helpful
in putting back basic income on the political agenda. For this recession focused atten-
tion on a theme which was by now becoming prominent in the political debate: the
persistence of social exclusion and poverty, despite the improved trend of employment
growth in the Netherlands.

High hopes for basic income


After a social-liberal coalition came into power in September 1994, hopes of a serious
role for basic income on the agenda of social security reform were raised high.15 The
coalition was formed, following four months of tough negotiation, on a compromise
platform of drastic cuts in government expenditure, priority for satisfying the criteria
for membership of the European Monetary Union, boosting labour participation, and
a much-publicized announcement to discuss the future of the social security system in
the summer of 1996 in Parliament.

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Clues and Leads in the Debate on Basic Income in the Netherlands

In December 1994, Hans Wijers, Minister of Economic Affairs and member of


D66, said in an interview that we are inevitably moving towards something like a basic
income because this is a rational way of combining the dynamism and flexibility of the
labour market with the kind of minimum income security which is considered a sign
of civilized society by many in the Netherlands. Emboldened by this unmistakable
political cue, D66 held a well-prepared consultative conference on the feasibility and
desirability of basic income in March 1995.16 At the conference,Wijers firmly restated
his opinion, adding, however, that a basic income could be introduced only during a
long-term process, in which the Dutch labour force would have to become more
entrepreneurially oriented, and less disposed to educating workers into lifetime
employees: We should try to see how we can use the system of basic income to pro-
mote the creativity of people.The current system does not stimulate this, on the con-
trary, the benefits of social assistance tend to put a brake on creativity.17 These com-
ments sparked off a rather intense media debate during the first half of 1995.Though
Wijers declined to participate any further in it, another prominent coalition member
Gerrit Zalm, Minister of Finance and former Director of the Central Planning Bureau
reiterated his sympathy for basic income as a privacy-friendly and low-cost way of
overhauling the elaborate Dutch social security system, as shown above in the scenario
of Balanced Growth, which Zalm authored.
To be sure, the social liberal coalition also had its determined opponents. In partic-
ular Ad Melkert, the social-democratic Minister of Social Affairs and Employment, was
quick to register his disagreement in no uncertain terms. Melkert, whose name nowa-
days graces no less than four newly created types of subsidized jobs wrote:the freedom
that basic income seems to offer amounts to a definitive separation of outsiders from
insiders in the labour market.18 To contain an all too heated public debate within the
coalition, Prime Minister Kok had to calm things down. In a press conference, he stat-
ed that the policy option of basic income could not be ruled out in advance, but that
it was to be seen as one of several possible alternatives in a future discussion (though
not necessarily in 1996, under the responsibility of the present government).
Nonetheless, the ensuing months had the media speculating on the probable shape
of the 1996 agenda.19 According to most commentators, any viable system of social
security would at least have to combine the following three objectives: it should
induce increased participation of the low-paid and relatively unproductive part of the
labour force; it should be compatible with the rapidly growing variety of employment
modes, in particular short-term flexible labour contracts; and it should effectively pre-
vent poverty, by durably providing a social minimum to those out of work.Three poli-
cy alternatives were identified:

1. a refurbished version of the present system: leaner on benefits, meaner on work


requirements and more generous on job subsidies, but holding on to the existing
two-tiered structure of minimum-wage-linked universalistic social assistance bene-
fits and collective insurance for workers.
2. a so-called mini-system, especially promoted by the VVD, which is a uniform
means-tested safety net at a sharply reduced social minimum, and privatization of
collective worker insurance.
3. gradual build-up of a basic income in the income tax system for all adults, at 50
percent of the social minimum for families, with a gradual phasing out of the min-

209
Basic Income on the Agenda

imum wage, and indexing to per capita income instead.This basic income would
have to be supplemented to safeguard the social minimum for certain groups, such
as single old-age pensioners.20

In this anticipation of a debate to come, and with the backing of two prominent
Ministers, it seemed plausible that the basic income alternative would stand some
chance of becoming a serious candidate for reform. With its drawback of high cost
mitigated by a gradual introduction, the proposal could claim to combine the three
above-mentioned objectives in the most simple and effective way. Despite the vehe-
ment objections of Melkert, the Christian-Democratic opposition, and VVD-leader
Bolkestein, the basic income proposal was indeed considered to be the most realistic
one in early 1995 by leading Dutch newspapers, its radical features needed to be appre-
ciated against a background of unstable employment in the long run.As an editorial in
NRC Handelsblad (23-12-1994) remarked, after stressing the participatory advantages
of unconditional income, the idea of basic income erases the conventional thought
that social benefits are merely temporary, in anticipation of ones next stable job. This
message is a difficult one to accept, and politically difficult to get across. It touches the
ethical core of our welfare state.

1996: Back to work!


However, by the time of the annual review of the budget in September 1995, it became
apparent that the social-liberal coalition had no intention of starting to prepare for a
fundamental reform discussion in the summer of 1996. In retrospect, it seems to have
made its choice for the refurbished version of the existing system well in advance. It is
most likely that this was due to the fact that employment growth was rapidly reducing
the unemployment figures, and that the need to increase the rate of labour participa-
tion became more evident within the coalition. It was time to get back to work, and to
stop speculating about reforms.This could be read most clearly in the official publica-
tion on employment and social policy (Sociale Nota, 1996).The tenor of this influential
document is aptly summed up by chapter titles such as:Work,Work,Work,Searching
for Employment and A Working Social Security.21
As mentioned above, Minister Melkert had become the undisputed champion of
subsidized jobs. He initiated an elaborate plan to create 40.000 public sector jobs for
long-term unemployed (estimated cost: 1.6 billion guilders), provide legal opportuni-
ties for employers to hire long-term unemployed below the statutory minimum wage,
and conduct experiments with different forms of workfare.22 Though even Melkert
himself admitted that these schemes are quite costly, and tend to run into serious
implementation problems, the political climate of response was prepared to grant him
the benefit of the doubt. With Melkerts jobs of last resort, workfare-type measures
were introduced into the Law of General Assistance in January 1996.These concerned
the imposition of sanctions by local benefit centres on those unwilling to take part in a
schooling or job trajectory. This new law considerably tightens work requirements.
Categories previously exempt, such as single mothers with children over five years of
age were now required to search for a job or accept some form of public employ-
ment.23 Also, the income norm for single persons was scaled down from 70 percent to
50 percent of the family social minimum, with discretionary powers for local centres to
provide supplements for the needy.24 Finally, other parts of social security were tight-

210
Clues and Leads in the Debate on Basic Income in the Netherlands

ened by building in additional means-testing (provisions for widows and next of kin),
or were scrutinized for further cost-cutting and work incentives (wage-related insur-
ances for sickness and disability).25
It could no longer be denied that the social-liberal coalition government was
involved in an extensive reconstruction job on the existing system, and that it was
wasting little time. The promised reform discussion swiftly receded into the back-
ground. Frank de Grave, the newly appointed liberal State Secretary of Social Affairs,
officially stated his willingness to drop the idea of a mini-system despite protests in his
party.26 Also, the annual party conference of D66, held in March 1996, withdrew its
previous support for the basic income reform strategy, retaining only the promise not
to close the door on the idea for good.This was reminiscent of the 1994 PvdA elec-
tion programs stance of keeping open the basic income option, as a future possibility
of a more relaxed organization of labour (we shall comment on this below).Thus, in
this episode, the more serious consideration given to basic income proposals, after the
idea had gained a new infusion of respectability (following Scanning the Future),
revealed a simple bottom line: on the ruling political view, the Dutch electorate was
held to be in favour of retaining the features of the existing system, and considered to
support the ethic of paid work.27 In a way, as we shall show later on, it may have been
salutary for the prospects of basic income that the reform discussion of 1996 was post-
poned.The idea would not have survived political scrutiny as a major policy alterna-
tive.

The pragmatic turn of basic income


Despite the continuance of a principled debate on the moral desirability of uncondi-
tional income guarantees,28 the state of the discussion in the Netherlands during the
second half of the 1990s had a resolutely pragmatic orientation. It focused on empiri-
cal questions that bear directly on the political chances of introducing (some kind of)
basic income (within some time span). These qualifiers in parentheses are important,
given the proliferation of forms and transitional scenarios, only some of which have
been discussed, up to now.
With respect to the long-term impact of a basic income on behaviour, an interest-
ing discussion took place between professional economists in the fortnightly journal
Economisch Statistische Berichten, in early 1995. Following an admirably clear exposition
of basic incomes potential advantages, professors Lans Bovenberg and Rick van der
Ploeg (who also figured as the financial spokesman of the PvdA in Parliament) took a
firm position against the proposal with a sophisticated form of the dilemma of cost
versus protection.Their most provocative thesis is that over time, the introduction of a
substantial unconditional income in the form of a negative income tax which would
offer adequate social protection but imply high marginal tax rates would undermine
the incentives of young people to invest in skill and education, leading them to take up
undemanding and often undeclared small jobs during their formative years.According
to the authors, these developments threaten the most important capital good in a
knowledge-intensive society: human capital and the work discipline of future genera-
tions. In the long run, therefore, basic income would tend to undermine its own
financing base.
The thesis is not entirely new,29 and it was swiftly attacked by economists De Beer
(1995), and Nelissen and Polk (1995), who stressed the need to take account of the

211
Basic Income on the Agenda

empirical evidence on schooling and skill formation, and argued that two counteract-
ing forces work to lower the cost of acquiring human capital: (1) students would
receive a basic income which covers the subsistence cost of studying, whereas most of
them now have to incur large debts to finance their education; (2) with lower net wage
rates due to higher tax rates, the foregone earnings of full-time schooling would
decrease.This exchange of views is politically significant, because it shows that the state
of the discussion on basic income among economists has been shifting from the famil-
iar short-term effects on labour supply to more qualitative (and necessarily speculative)
long-term effects. Given the influence of economists on political debate in the
Netherlands, this means that the debate on the more conventional issues has been
waged with some success by those who have promoted basic income over the years,
and is able to address more difficult issues which would not have arisen at all, failing
this success.
The new wave of pragmatism can be also illustrated with reference to another form
of the dilemma of cost versus protection, in the context of more directly political
debates on partial versus full basic income that were conducted since the concept of
partial basic income was introduced in Safeguarding Social Security. The dilemma is
expressed as the impossibility theorem. It says that a basic income is either too low to be
socially acceptable, or too high to be economically feasible.This is a favourite debating
point of social democrats such as Melkert (who became the parliamentary leader of the
Labour Party in the second social-liberal government, headed by Wim Kok, in 1998).
The response of basic income advocates to this putative dilemma raises complicated
issues, which will have to be sorted out in the coming years.30 First of all, a partial basic
income (whether it is seen as permanently partial as the WRR envisaged, or as a stage
on the way to a full basic income) does not stand on its own. Rather, it is to be regard-
ed as the unconditional component of a new system, which offers social protection up
to an agreed level of social minimum, and which is more in line with the diverse real-
ities of a modern labour market. However, the difficulty of this response is that the ben-
eficial effects of the unconditional component, as well as the total cost of the new sys-
tem including its supplementary conditional part will ultimately depend on a
fundamental question.This question concerns the desired level of the social minimum over
time, relative to average income. It is this issue which decides what a full basic income
would ultimately amount to, and thus what it would cost to maintain it, in time.31
Secondly, as was made clear once again at the Conference A Future Welfare State
with Basic Income, the behavioural impact, and therefore, the economic feasibility, of
any given basic income level crucially depends on the method of its financing, in partic-
ular the impact on labour cost.32 This point is usually overlooked by those who put for-
ward the cost versus protection dilemma. However, this second response again reveals a
problem for the basic income movement: the existence of a strategic trade-off. Either
one tries to finance an unconditional grant by the traditional means of income taxation,
implying acceptance of the adverse effects on labour supply occasioned by higher mar-
ginal rates of tax, hence a lower sustainable level of the grant or one goes along the
ambitious route of trying to introduce basic income along with a radical change of tax-
ation and financing of social security, implying better prospects of sustaining a high level
of basic income, but at the cost of having to provide independent arguments for two
fundamental reforms at the same time. The dangers of this second route have been
amply illustrated by the fate of Safeguarding Social Security, as we have shown earlier.

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Clues and Leads in the Debate on Basic Income in the Netherlands

Thirdly, and once more concerning the impossibility theorem, some long-term
trends make it easier to introduce a basic income, or make its introduction more
urgent. Since World War II, most Western countries have experienced continuous
growth in GDP per capita, a decrease in the average number of hours worked, a grad-
ual improvement of the conditions of employment, an increase in the female partici-
pation rate, and an increase in the number of disabled and early retired. All these fac-
tors facilitate the implementation of a basic income. High unemployment exerts
pressure on working hours, reducing them, so as to distribute the total amount of
employment over more people. Thus, as time goes by, the norm of full employment
itself becomes set at a lower standard of annual working time.This trend motivates the
use of a basic income of an appropriate level because basic income increases the num-
ber of persons that are looking for smaller-sized jobs, and can therefore help achieve
full employment at the lower standard. Furthermore, the gradual improvement of the
conditions of employment, combined with the shortening of the working week,
makes it all the more feasible to reduce wage income as a necessary compensation of
the disutility of working. And finally, what makes the introduction of a basic income
so expensive, under current conditions, is the large number of women who do not
perform paid work, and are not entitled to a social security benefit under present
arrangements. If the female participation rate continues to rise in the future, then it
will become less expensive to finance a basic income by replacing conditional entitle-
ments, provided that a basic income does not deter women from entering the labour
market. Conversely, if the proportion of disabled and early retiring persons in the pop-
ulation grows, then the collective financing cost of this is reduced by a basic income
floor, in the same way that the capital cost of pension financing in the Netherlands is
reduced by the state pension, (which effectively is a basic income over age 65, as we
have noted before).33 As we shall see below, these trends have been appreciated to some
extent by forces on the political Left, despite the commitment of the social-democrats
in the coalition to the conventional notions of full employment and raising participa-
tion in paid work.

The non-governmental Left: tax credits and basic benefits.


On the non-governmental Left (the Green party GroenLinks, and the Trade Unions),
the period under consideration was marked by a reticence to take active part in the
media confrontation between ideal type models of basic security, such as depicted in
Figure 1 of the Introduction to this volume. However, new proposals were developed,
which might be seen as first steps towards a genuine basic income. In its platform for
the 1994 election, GroenLinks announced a plan to turn the personal income tax
exemption into a small refundable tax credit (Dfl. 280 per month for each adult). In
November 1995, its Executive Committee decided to re-label this as foot income,
and raise the amount to Dfl. 500 per month, to be financed additionally from environ-
mental taxes. Then, in its June 1996 Congress, the party proposed to raise the foot
income another hundred guilders, so as to reach about two-thirds of the current min-
imum income for a single person.The party seems to be currently undecided whether
it wants to proceed along the route of gradual introduction of a full basic income at
social minimum level, or stop at some kind of updated form of the 1985 WRR plan
for a partial basic income. But whatever the case may be, it seems that the Green Left
party has moved to a position which is far more favourable to basic income than might

213
Basic Income on the Agenda

have been expected. In view of the partys increasing popularity, and its wish to take
part in a future social-liberal coalition, this is not unimportant, even though it remains
to be seen what would happen if these governmental aspirations were to be realized.
The union approach to basic income has always been strongly concerned with the
issue of labour participation. In a discussion paper launched at the end of 1995, the
Trade Union Federation (FNV) critically reviewed the social-liberal governments per-
formance on social policy, as an introduction to a new proposal of its own. In the form
of a refundable tax credit, their so-called basic benefit (basisuitkering) would again
start by replacing the income tax exemption, and then rise gradually up to 50 percent
of the minimum wage in 2010. Like a basic income, it would be an individualized enti-
tlement, whose size does not depend on family earnings. But unlike basic income, this
benefit would be restricted to people who either have a job, actively seek paid work, or
are engaged in care work within the family. The basic benefit plan was favourably
reviewed by the Central Planning Bureau, which praised its effects in creating jobs in
lower segments of the labour market.34 Within trade union circles, the plan may well
represent a compromise between long-standing opponents and advocates of a pure
basic income. In fact, the plan closely resembles the UK proposal for a participation
income, developed by Tony Atkinson in the early nineties (Atkinson, 1993). Seen from
a strategic perspective, such proposals may constitute a different route to a full basic
income. Instead of starting with a small unconditional income, which is then raised to
cover basic needs, this strategy starts by making a basic needs-covering income accessi-
ble, subject only to the most entrenched of all conditionalities, the reciprocity require-
ment of willingness to do (un)paid work.

The governmental Left: towards a relaxed labour market


In the same period, two publications (1994; 1997) by the governmental Left (the
Labour Party) expressed the need to relax the organization of work. The normative
position is that what makes participation in work a strategic good for individual well-
being and agency is not paid work as such, but rather a flexible mix of paid work and
unpaid activities, which persons should be able to vary over the course of their life-
time.35 The empirical premise behind the call for a more relaxed organization of work
was expounded in the Labour Partys election programme of 1994: the prospects for
full employment in the long run are uncertain, but in any case, the demand for the
work of the lesser talented and lower skilled will in all probability continue to present
employment problems at the low end of the labour market. From these normative and
empirical premises, it follows that it is both prudent and ethically defensible to broad-
en the concept of lifetime work by admitting that all paid and unpaid activities actual-
ly contribute to participation and integration. In other words, the concept of a relaxed
organization of work holds that the intrinsic good of labour participation must be
taken to include the value of unpaid activities in voluntary work, the upbringing of
children, and neighbourhood care.36
The desire to achieve a more relaxed labour market qualifies the conventional full-
employment policy goal. Full employment is now seen as a matter of providing life-
time access to paid work, while at the same time ensuring that people will be able to
leave the labour market for longer periods, and be able to work shorter hours, even in
a full-time job.This means that the corresponding objectives of social security need to
be adapted in the direction of a flexible system of benefit entitlements, in both tiers of

214
Clues and Leads in the Debate on Basic Income in the Netherlands

the Dutch system. As the 1997 party document Time for Participation shows, the ideas
that the Labour Party has been discussing internally reflect a keen awareness of adapt-
ing social security to this relaxed conception of full employment. In the sphere of
social insurance, this is to be accomplished by building in contribution-financed peri-
ods of home or study leave into the insurance package. In universal social minimum
provisions, the document goes a long way in the direction of the unions proposed
basic benefit system, which was just mentioned. In some ways, this development runs
counter to the Partys governmental stance in the reform debate, which is of course
much more oriented to the uptight position of maximizing peoples lifetime participa-
tion in paid work, for men and women alike. But given the stridency of the drive for
Work, Work, Work, one might expect that if these tensions in social democratic
thinking are to be resolved in the long run, then it is likely that the relaxed position
will have to become more influential. If so, the climate for basic income will become
that much more hospitable.

1997-2001. Basic Income: Implementation by Stealth?

Due to the success of the Lowlands-Economy notably its employment growth, its
steadily decreasing budget deficit, and its combination of rising profits with the main-
tenance of still generous social security standards public discussion of basic income in
the Netherlands has subsided. In so far as there has been any discussion at all recently,
it is a repeat performance. But mainly, to return to our distinction of the political agen-
da in the broad and the narrow sense, basic income is strictly off the agenda in the
broad sense, as one can see from the curvature of Figure 1.
Yet, paradoxically, basic income is on the political agenda in the narrowest possible
sense, though admittedly in a small way. How can this be? The answer is the recent
decision (as mentioned at the beginning of this chronicle) to introduce a tiny basic
income in the tax system, without one moment mentioning it as such. In February
2000, Parliament agreed to introduce a personal refundable tax credit of 1,507 (Dfl.
3,321) per year for all adult residents, except students, which is to take effect as of
2001. Over and above that, those earning 130 percent of the minimum wage are given
an additional variable tax credit of up to 803 (Dfl. 1,847) per year.These measures
are part of a total package to reform the tax system (see Tax Reform 2001 by the
Ministry of Finance, 1999).
The tax reform is quite wide ranging, and it was launched by the second social-lib-
eral coalition under the slogan Broadening, Greening and Shifting. Broadening refers
to the strengthening of the tax base by reducing the number of tax-deductible items
(e.g., mortgages on the second house, interest on loans, annuities, etc.). Greening means
that environmental taxes are doubled, although they still remain quite modest. Shifting
refers to two things: first, direct tax rates (on all earned income) are reduced, while
indirect tax rates (VAT) are raised; and secondly, related to the broadening objectives,
income from labour and income from capital are henceforth subject to different rates
of tax, with capital income treated very favourably.
The introduction of the personal tax credit is part of the reform that deals with wages
and salaries. It replaces the current general tax allowance, which has always been trans-
ferable from non-earning partners to the breadwinner within the household.Actually,

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Basic Income on the Agenda

Table 1:1Tax
Table Tax Reform 2001

Present tax system Tax reform proposal

Tax allowance 3,900 Tax credit (refundable) 1,507 (+ 803 if working)


(transferable)
1st tax bracket + tax rate [3,900; 21,350] Two lower income tax [0; 14,027; 23,529] at
at 37% brackets 32% and 36%
2nd tax bracket + tax [21,350; 46,957] Middle income tax [23,529; 48,869]
rate at 50% bracket at 42%
3rd tax bracket + tax rate [46,957; ] Higher income tax [48,869; ]
at 60% bracket at 52%
VAT 17.5% VAT 19%

*
All expressed in Euro.

the level of the tax credit corresponds to the tax advantage of the general allowance for
low income earners (which is equal to the tax allowance times the tax rate of 37.5 per-
cent, in the first income bracket). For single-earning families in the higher brackets,
who face a marginal tax rate of 50 percent or 60 percent, this replacement would con-
stitute a significant loss of net income. Income neutrality of the tax reform is however
attained by reducing the marginal tax rates across the board (see Table 1).
The micro-economic reasons for introducing the refundable tax credit are twofold.
Firstly, in the present system dependent partners of breadwinners have only a small
financial incentive to perform paid work, due to the above-mentioned transferability of
the tax allowance.This makes the implicit marginal tax rate on income earned by the
dependent partner equal to the marginal tax rate of the breadwinner. Introducing an
individualized tax credit removes this adverse effect on labour supply. Secondly, the
replacement of transferable tax allowances by tax credits generates considerable addi-
tional tax receipts (approximately Dfl. 2.3 billion), which can be used to lower tax rates
on wages and salaries. As noted above, the reduction of tax rates is such that the nega-
tive income effects of the middle and high income earners are more or less compensat-
ed. For this reason, the cutback in marginal tax rates is much higher in the middle and
higher income brackets, as Table 1 shows.
Despite the lack of support for a basic income among political parties (excepting the
Green Left party, which is in favour of a partial basic income, as we have seen), the tax
reform outlined above is a major step towards the implementation of a substantial basic
income. Why? First, the instalment of a nearly universal and refundable tax credit
means that some fundamental objections against basic income have been waived. For,
in the new system, individuals (again, except students, who receive a small universal
study grant) receive an unconditional income entitlement through the tax system, which
is characteristic of a basic income. Secondly, the tax reform is a definite step towards a
tax system in which the unit of taxation is the individual, not the household.This can
also be considered as an important prerequisite of a basic income scheme, when it takes
the form of a negative income tax.
So, even though the motives behind the proposed tax reform have little to do with
the principled emancipatory or justice-oriented motivations that advocates of basic
income usually deploy, the government is well on the way to conceding that a basic

216
Clues and Leads in the Debate on Basic Income in the Netherlands

income type scheme is at least part of a rational method for attaining fiscal individual-
ization, a flexible and dynamic labour market, and a decent minimum income security
for all. However, this concession is entirely implicit, since in defending the tax credit,
the social-liberal coalition has kept studiously silent about the fact that the measure
entails an unconditional income. Given the political preference for the overt produc-
tivism of the Lowlands-Economy, and given a Zeitgeist which strictly favours tighten-
ing rather than relaxing work requirements on benefit recipients, it cannot be openly
admitted that a basic income constitutes part of the new taxation package.The present
mood among policymakers, and among the political parties who voted for the tax
reform, is that one is allowed to name the tax credit as one wishes, as long as it is not
called a basic income.

Conclusions

With this overview of the Dutch discussion on basic income from the early 1970s to
the turn of the century in mind, we briefly relate the different episodes to different
strategies for bringing basic income onto the political agenda, and assess which of
them has been most successful for squeezing basic income into the realm of political
possibilities. Looking back, three strategies can be distinguished in the Dutch debate:
(1) the royal way: arguing for a full and avowedly unconditional basic income, by a care-
ful exposition of the critical power of the notion of decoupling of income from
work, and then going on to point out the attractions of concrete proposals for a
emancipatory and redistributive reform policy; (2) arguing for a partial basic income, as
the linchpin of a problem-solving social engineering strategy; finally, (3) the strategy of
bringing in basic income by the support of measures that are not associated with the
notion of unconditionality, but in practice serve to loosen the link between income
and paid work.This strategy we call implementation by stealth.
It may be argued that these strategies have been applied sequentially, in the order we
just presented them. Everything started with the strategy of the royal way, following
professor Kuipers ethical appeals in the mid-1970s.The strategy was the dominant one
until 1985. Predictably, because of the novelty of the idea it tried to promote, it had lit-
tle real impact, apart from triggering an important discussion on the fundamentals of
the welfare state.The achievement of the royal way was to place basic income firmly
on the agenda of public discussion. But it soon became apparent that the royal way was
not suitable for getting basic income even close to the legislative agenda, because
unconditionality, and decoupling, are highly controversial in a society with a strong
work ethic, and invoke extremely strong gut feelings of opposition. As we have sug-
gested, however, the sudden rise of unemployment in the early 1980s created a climate
of urgency, which motivated governmental advisors to explore the problem-solving
potential of the idea. Governmental advisors have been largely responsible for turning
basic income into an instrument of practical policy in the Netherlands, within a social
engineering perspective. But there again, the open advocacy of unconditional entitle-
ments proved to be a bridge too far, this time perhaps for opposite reasons, to wit, that
the controversial nature of basic income was now underestimated by its advocates, and
thus remained undefended against moral opposition.When the Scientific Council for
Government Policy (WRR) made partial basic income a prominent element in its

217
Basic Income on the Agenda

grand design of reorganizing the social security system, it probably did not fully realize
what the response would be. The direct success of this strategy has thus been strictly
limited as well, even though the problem-solving potential of a partial basic income
was explored far more successfully, though also more loosely, in the 1992 scenario study
Scanning the Future of the Central Planning Bureau. However, indirectly, the very failure
of the social engineering approach may well have made it possible to achieve the mod-
est, but real, breakthrough of partial basic income in 2000, by including a genuine ele-
ment of negative income tax in the tax reform. It made policymakers realize that while
unconditional grants can be useful if they are not too large, one should not emphasize
the element of giving away something for nothing.
It is rather difficult to judge whether implementation by stealth, the third strategy
which we identified above, will play any further role in Dutch politics.The reason for
this is that it is hard to tell whether the strategy is a proper strategy in the first place,
that is to say, a publicly accountable way of choosing policy means to achieve given
political ends. From a Machiavellian point of view, it may of course be eminently
rational to try to bring in a reform by the back door, if the front door happens to be
closed. But the problem is that the back door, so to speak, may either be too small to
allow the whole package to pass through, or it may be that once part of it is inside, it
can easily be thrown out through the same door again, without anyone caring much,
or even noticing. Outside observers of the Dutch scenery of social policy may wonder
what the fuss is about, given that the popularly supported state pension in the
Netherlands is already granted independently of whether one has worked or not dur-
ing ones lifetime. But the point is that this pension scheme (which was extremely con-
troversial at the time) could be introduced precisely because everyone was assumed to
have worked between age 16 and 65 as a matter of course.To exempt the age group of
able-bodied even partly of the duty to work is a quite different matter.Thus, for the
proponents of basic income at least, an alternative mode of looking at the modest result
of twenty years of agonizing and campaigning is perhaps to admit that things often do
not happen in the way one expects, but that it is important to cash in on them, if and
when they do happen. From this more patient point of view, there may be reasons to
be moderately optimistic, despite the dominance of the productivist attitude to social
policy at present.
In the near future, social security, in both tiers of the Dutch system, is meant to be
implemented by means of compulsory instatement contracts.37 This approach will
involve a high degree of tailoring individual duties to accept work, retraining or job
search, in which peoples needs and capabilities are to be taken into account.This sys-
tem may be very costly to administrate fairly and efficiently, however, in the cases of less
employable persons who have reason to assume that the instatement contract holds no
real prospect of improving their lives.Their needs and capabilities, then, might benefit
more from exemptions from paid work, or from a more substantial refundable tax cred-
it. Some experience with the contractual approach will no doubt offer administrators
and policymakers ways of finding out, by trial and error.
As remarked in the Introduction to this book, the wish to move towards a more
relaxed labour market, with more scope for combining paid and unpaid work over
the life cycle, is starting to be realized only in social insurance, in the form of paid
parental leaves, or collective agreements to save for going on sabbatical leave.As we also
noted earlier, such developments are highly compatible with the logic of a participa-

218
Clues and Leads in the Debate on Basic Income in the Netherlands

tion income. However, as yet, they still remain to be introduced into the domain of
basic social security.This may take some time. At present, it seems that those who are
far removed from the labour market are perceived as people who must be disciplined,
whereas those holding proper jobs are apparently assumed to possess the right kind of
work-ethic. This makes them eligible for a more relaxed regime of discipline, which
includes organized exemptions from paid work. But it may well be that running viable
contracts of instatement will ultimately necessitate similar arrangements in basic secu-
rity as well, slowly at first, as exceptions to the rule, or perhaps concealed as income
legitimized by the promise of some kind of useful activity. Perhaps, after the trick of
the tax reform has been repeated in several other fields, the Netherlands will after all be
having something like a basic income, though by then, no one may remember what
the term was supposed to mean.

References

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Beer, P. de (1988), Werkloos toezien? Drie scenarios van de arbeidsmarkt (Being Jobless.Three
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CPB (Centraal Planbureau) (1992), Nederland in drievoud; een scenariostudie van de Nederlandse
economie 1990-2015 (Scanning the Future),The Hague: SdU.
CDA (Christen-Democratisch Appel) (1995), Nieuwe wegen, vaste waarden; aanzet tot een
strategisch beraad binnen het CDA, Report,Amsterdam: CDA.
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stadsstaat, Oss: DIS.
FNV (Federation of Netherlands Trade Unions) (1995), Tijd voor nieuwe zekerheid,
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Heij, J.J. et al. (1993), Basisinkomen in drievoud,Amsterdam: Het Spinhuis.
Kuiper, J.P. (1975),Volwaardige arbeid, ook voor mindervaliden, AVO, December, 2-9.
(1976), Arbeid en inkomen: twee rechten en twee plichten, Sociaal Maandblad Arbeid,
503-12.
(1977), Samenhang verbreken tussen arbeid en levensonderhoud, Bouw 19, 507-11.
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Nelissen, J. and S. Polk (1995), Ervaringen elders, Economisch Statistische Berichten 80 (4003),
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Basic Income on the Agenda

Pels, D. and R.J. van der Veen (1995), Het basisinkomen: Sluitstuk van de verzorgingsstaat?,
in: R.J. van der Veen and D. Pels (eds.), Het basisinkomen: Sluitstuk van de verzorgingsstaat?,
Amsterdam:Van Gennep, 7-52.
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Commission, prepared for the Congress of March 1992,Amsterdam.
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(1997), Sociale zekerheid bij de tijd (Time for Participation), Discussion note, prepared for
the Congress of February 1997,Amsterdam: PvdA.
Roebroek, J.H. and E. Hogenboom (1990), Basisinkomen alternatieve uitkering of nieuw para-
digma?,The Hague: Ministerie van Sociale Zaken en Werkgelegenheid.
Smakman, S. (1996), Op weg naar de heilsstaat, Haarlems Dagblad, 26/31-3-1996.
SCP (Sociaal en Cultureel Planbureau) (1994; 1996), Sociaal en Cultureel Rapport 1994;
1996, Rijswijk: SCP.
SWB D66 (Stichting Wetenschapelijk Bureau D66) (1994), Een zorg meer of minder, De
Democraat 27: 8, 10-31.
Theobald, R., Gewaarborgd inkomen in een vrije maatschappij: economische en sociale gevolgen van
de automatisering (Dutch Translation of Free Man and Free Market (1963) and The
Guaranteed Income: Next Step in the Economic Evolution (1966)), Amersfoort:
Stichting Werkgroep 2000.
Van der Veen, R.J. (1995), Morele weerstanden blokkeren basisinkomen, NRC Handelsblad,
10-1-1995.
(1999), Participate or Sink:Threshold Equality Behind the Dykes, Acta Politica 34, 351-
81.
Van Parijs, Ph. (1995), Real Freedom for All, Oxford: Oxford University Press.
Varkevisser,A. (ed.) (1996), In de basis voorzien,The Hague: SWB D66.
Vereniging Basisinkomen (Netherlands Society for Basic Income) (1995). Hoe?
Basisinkomen Zo,Amsterdam:Vereniging Basisinkomen.
Voedingsbond FNV (1981), Met zn allen roe en in de woestijn: een tussenrapport over het losser
maken van de band tussen arbeid en inkomen, Utrecht.
Vrijhoef,W. (1995), Basisinkomen op Congres Nieuwe Stijl, De Democraat 28: 1, 3.
WRR (Wetenschappelijke Raad voor het Regeringsbeleid) (1981), Vernieuwingen in het
arbeidsbestel, Report no. 21,The Hague: Staatsuitgeverij.
(1983), Beleidsgerichte toekomstverkenning, deel 2: een verruiming van perspectief, Report no.
25, Den Haag: Staatsuitgeverij.
(1985), Waarborgen voor zekerheid: een nieuw stelsel van sociale zekerheid in hoofdlijnen
(Safeguarding Social Security), Report no. 26,The Hague: SdU.
(1997), Van verdelen naar verdienen.Afwegingen voor de sociale zekerheid in de 21e eeuw,
(From Sharing to Earning), Report no. 51,The Hague: SdU.

Notes

1 Political documents are classed as government publications (ministries, standing advisory


organizations) and publications issued by political parties, unions and employer organiza-
tions. Scientific documents, besides books and journals, include papers presented at seminars,
and specialized newsletters. Press documents are mainly national newspapers and periodicals

220
Clues and Leads in the Debate on Basic Income in the Netherlands

items, and in some cases transcriptions of items on radio or telex.


2 Kuiper (1975; 1976; 1977; 1978; 1980; 1982).
3 The pacifist socialists opted for a non-means tested social minimum, conditional on the
willingness to seek employment after redistribution of labour would have been achieved by
a 25-hour working week.This proposal thus accepted a (de facto) unconditional income only
as an emergency measure, during a short transition towards a state of full employment for
men and women alike.
4 The status of the WRR as an independent think tank of the government is to provide sci-
entific information about the long-term developments that may have a serious impact on
society, and to formulate the major bottlenecks and problems in order to give a timely
overview of the major policy issues and policy alternatives.As a matter of fact, the studies of
this body are of high standing and have had a considerable influence on the policy measures
that have actually been implemented in the past, following the advice of the WRR.
5 The Council asserted that everyone able to understand the results of the soccer league is also
able to understand the new system.
6 For every year that levies are paid, one is entitled to half a year of insurance.
7 Employers would forfeit the partial basic income tax credit if they employ workers infor-
mally, and for labour intensive work only wage cost additional to partial basic income would
have to be paid to make it worthwhile.
8 Partial basic income (PBI) is the difference of the social minimum for a two person house-
hold (SM2) and a single person household (SM1). SM1 is 70 percent of SM2, so the PBI is
set equal to 30 percent of SM2.The means-tested general assistance benefit, which has to be
paid out to top up the PBI, is GI. It is equal to 40 percent of SM2. For a single person
household on welfare, total income is PBI + GI = 70 percent of SM2. For a two person
household on welfare total income is 2 PBI + GI = 100 percent of SM2. Whatever the
household composition, only one GI-benefit is provided per household.Thus by choosing
the level of PBI in this way, paying out differentiated levels of means-tested income has
become unnecessary, while the required differentiation in social minimum entitlements
between households is preserved.
9 NRC Handelsblad 25-6-1985.
10 The plan is a construct of the study room, with no connection to reality, financially com-
pletely infeasible, now and in the future (De Telegraaf 21-6-1985)
11 Partial basic income would increase social expenditures, mainly because large groups
(housewives, the self-employed, workers), who would otherwise not be entitled to any ben-
efit, would now be receiving the partial basic income.The savings that the WRR plan might
as a whole have in the long run could not be calculated easily, while these increases in cost
stood out quite visibly.
12 The move of the WRR to combine partial basic income with the abolition of the minimum
wage was new and ingenious.Without a minimum wage, full-time workers with an earning
capacity below the social minimum would have to claim supplementary general assistance,
which is considered to be socially unacceptable in the Netherlands. Partial basic income pre-
cludes this, and is thus a stepping stone (a non-earmarked wage subsidy) for the least pro-
ductive workers. However, what the unions pointed out was that the least productive work-
ers would be insufficiently protected by a partial basic income of the proposed size, given
that wage rates might decrease significantly across the board. From this point of view, it
would be more justifiable to lower the minimum wage correspondingly, rather than abolish
it completely.

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Basic Income on the Agenda

13 This consensus emerged despite the fact that working week reduction in order to distribute
the available jobs over more people has the disadvantage that the more productive workers
are forced to work less to provide less productive workers jobs. Besides this efficiency loss,
there is the serious danger that employers react with further rationalization of the production
process (more machines and computers) instead of hiring more workers.
14 Although the report clearly expounded the direction of the effects, no estimates were given
for the magnitudes of the changes on economic variables.
15 This coalition, which is in its second term of government now, consists of the liberal party
VVD and the Social-Democratic PvdA (to which Prime Minister Wim Kok belongs), with
the smaller left-liberals D66 wedged in between.The left-liberals have been especially instru-
mental in forging the coalition, and thus removing the Christian-Democrats from their
habitual place at the centre of power in Holland. Currently, however, they are having large
difficulties in maintaining their political identity.
16 See the main conference document in SWB D66, 1994, and see Vrijhoef, 1995. The main
contributions have been published in Varkevisser (ed.), 1996.
17 Quoted in Trouw, 6-3-95.
18 Quoted from the Volkskrant, 24-12-1994
19 See for a detailed review Pels and Van der Veen, 1995: 7- 40.
20 This is the most current, but less ambitious, of the two variants of a basic income system set
out in the new information brochure of the Dutch Basic Income Society, see Vereniging
Basisinkomen, 1995. The other variant aims at a basic income of 100 percent of the social
minimum for a single person.
21 This may be compared to the coalitions social battle cry, often repeated by Wim Kok in
1996:Werk, werk en nog eens werk (Work, work, and work once more)
22 Sociale Nota 1996, Ch. 5.
23 The present government proposes to extend this measure to single parent families with chil-
dren under five years of age: they are expected to work 24 hours a week, provided that child
care is available.
24 A lively inventory of the changes is given in Kroon and Vinckx in De ambtenaren blijven
praten totdat de bijstandsmoeders aan het werk willen (case-workers will keep talking
until the single mothers go and look for a job), NRC Handelsblad, 21-12-1995: 7.
25 Not all of these developments can be placed unambiguously in the first category of policy
alternatives mentioned under High hopes for basic income. Stricter means-testing and
exemptions of the minimum wage law fit into the mini-system strategy as well, whereas
replacement of contributions by income taxes to finance state pensions, another measure
announced by government in response to demographic pressures, is compatible with a basic
income strategy. It should be noted, moreover, that some leading proponents of basic income
took up a more relaxed position with regard to (non-coercive forms of) workfare, which
they were willing to envisage as a means of easing the transition to a basic income system. See
in particular DIS, 1995: 72-75.
26 According to an interview in Algemeen Dagblad, 13-8-96. It should be noted, however, that
VVD-leader Bolkestein has not endorsed de Graves statements. The liberal party probably
remains in favour of the mini-system option, which it has been consistently promoting since
1984.
27 A public opinion survey conducted by the Social and Cultural Planning Bureau in 1993
showed that 41 percent of the Dutch population would support a mini-system, only 19 per-
cent a partial basic income (along the lines of the 1985 WRR-proposal), and no less than 59

222
Clues and Leads in the Debate on Basic Income in the Netherlands

percent would be in favour of a workfare system. See SCP, 1994, Ch. 6, and the recent analy-
sis of these three alternatives in Vrooman and De Kemp, 1995. The survey was repeated in
1995, with closely similar results (see SCP, 1996).
28 See De Beer, 1993; Heij et al., 1993; and Van der Veen and Pels, 1995. These works have
attracted little attention in the Netherlands. Despite their close attention to policy issues,
they may be perhaps said to fit better into the international philosophical debates on the
ethics of basic income, which have been intensified after the publication of Van Parijs, 1995.
29 It was raised earlier, and discussed in depth, by Erik-Jan van Kempen in Heij et al., 1993,
Chs. 7 and 9.
30 A highly readable journalistic overview of these various issues for the general public is found
in Smakman, 1996.
31 The importance of this point is particularly clear from comparing the scenarios European
Renaissance (a conditional and permanently high social minimum over time) and Balanced
Growth (an unconditional and decreasing social minimum over time), in Centraal
Planbureau, 1992.The point is extensively discussed in Heij et al., 1993, Ch. 12.
32 This conference was organized by the Dutch Society for Basic Income in February 1996. It
dealt with several other issues, such as the link between basic income and the Green move-
ment, and improving the communication between the basic income movement and the
entrepreneurial world.
33 Of course, this last argument only holds as long as the society in question remains commit-
ted to collective, rather than privatized, provisions for disability and early retirement.At pres-
ent, this holds for disability social insurance, but with respect to early retirement, the gov-
ernment has decided to abolish collective provisions. Early retirement is now part of a
persons more flexible options of capital-funded pension.
34 See NRC Handelsblad, 7-2-1996.
35 See PvdA, 1994: 31
36 See PvdA, 1994: 10. This particular position is also stressed by the Christian Democratic
Party, see CDA, 1995.
37 The WRR has been quite influential in getting this mode of implementation accepted, see
its most recent report on social security (WRR 1997). For an analysis, see Van der Veen,
1999.

223
The History of an Idea
Why did Basic Income Thrill the Finns, but not the Swedes?

Jan-Otto Andersson

Introduction

In two of the Scandinavian countries Denmark and Finland the idea of an uncon-
ditional basic income has received much attention. However, in Sweden and Norway it
has been almost a non-issue.The differences can be seen in the intellectual debates as
well as in the activities of the political parties. At the BIEN conferences the participa-
tion from Denmark and Finland has been regular, whereas Swedish and Norwegian
interest has been curiously low. In this book there is an article devoted to the Danish
case. Here I shall look at the fate of the idea in Sweden and Finland. Why did basic
income appeal to the Finns more than to the Swedes?
The first part of the article presents the debate in Sweden.The focus is on the most
important proponents and on the stands of the political parties.The second part deals
with Finland. Who were the proponents? Who were sceptics or outright opponents?
How have the political parties reacted? In the third part I discuss the differences and
some possible reasons why the idea of a basic income has had a stronger political
impact in Finland.

The Swedish Proponents of a Basic Income

Three authors have proposed some version of a basic income in Sweden: Gunnar
Adler-Karlsson at the end of the 1970s, Thomas Ehrenberg 10 years later, and Lars
Ekstrand in the 1990s. All three wrote as if the idea had never been introduced in
Sweden before.1 Although writing independently of each other, they had a common
critical stand towards the social democratic principles of full employment and the
work principle (arbetslinjen). According to these principles everybody should have
the right to a job, but also a duty to work. Adler-Karlssons book appeared in Danish
with the title Nej til fuld beskeftigelse. Ja til materiel grundtryghed (No to full employ-
ment.Yes to a material basic security), but his Swedish publisher made him change the title
into the less offensive Tankar om den fulla sysselsttningen (Thoughts on full employ-
ment). Ehrenberg who published Fr en frihetlig socialism (For a libertarian socialism)
himself contrasted the politics of free time to the politics of full employment.
Ekstrands works focused on a critique of the quest for full employment, instead of
which he proposed a Project for the liberation of labour (arbetsfrihetsprojekt).The titles of
his books, which were published by an alternative publisher, are telling: Den befriade
tiden. Om arbete och medborgarln (Liberated time. On work and citizens wage) and
Arbetets dd och medborgarln (The death of labour and citizens wage).
The term used by both Ehrenberg and Ekstrand is medborgarln citizens wage
but both wanted to have a full and unconditional basic income, which would liberate

224
The History of an Idea

the individual from the obligation to do wage labour. The term derives from the
Danish pamphlet Revolt from the Center (1978), which was a bestseller in Denmark and
received some attention also in Sweden.
In Adler-Karlssons case, however, the term citizens wage (henceforth CW) is more
appropriate although he did not use it in his 1977 pamphlet. He explicitly rejected
the idea of an unconditional basic income, because he feared that too many people
would exploit this possibility and that the tax payers would therefore not go on paying
for such a right. He felt that the right to receive a basic material security should be
balanced by an obligation to do ones share of work. Despite heavy criticism, he insist-
ed on this: everyone should, for some limited time, take part in ordinary necessary
work. He spoke of an obligation to work (arbetsplikt) and even of work as military
service (arbetsvrnplikt).
All three proposals were put forward in a futuristic and utopian manner.They saw a
CW as a means to radically transform society, but were relatively short in the analysis
of which trends and forces would actually work in favour of their visions. Adler-
Karlssons and Ekstrands ideas received some attention, but were generally dismissed. I
have found no response to Ehrenbergs book.
Ekstrand actively tried to bring about a political discussion, and his books were
reviewed in some newspapers.As headlines such as He dreams of a citizens wage and
The apostle of laziness provokes indicate, the reception was not enthusiastic. In
Moderna Tider a political monthly he was supported by the freelance journalist Eva
F. Dahlgren, who wrote from the perspective of concrete individuals. However, in the
same issue his views were severely criticized by a leading authority on social policy,
Gunnar Wetterberg, head of the powerful Kommunfrbundet (the central organiza-
tion for the municipalities).Wetterberg called the claim that work is becoming scarce
the triumph of resignation. In a more recent article in the leading Swedish newspa-
per Dagens Nyheter, Wetterberg repeated his critique under the ominous heading
Medborgarln gder undre vrlden (A citizens wage feeds the underworld).2

A few lesser attempts to introduce a basic income discussion in Sweden should be


mentioned. In 1986, when BIEN was founded in Louvain-la-Neuve, the only Swedish
participant except Adler-Karlsson was a journalist, Gunnar Lindstedt, from the
metal workers union. Inspired by the meeting he wrote an article in the union journal
under the heading Give us a citizens wage!This article was probably the first to pro-
pose an unconditional basic income in Sweden, but it did not lead to any noticeable
follow-ups.Two years later, the same fate befell the ILO-economist and BIEN-activist,
Guy Standing, when he discreetly set out, in a report on the Swedish labour market,
the idea of an unconditional basic income.
In 1996 the social democratic theoretical journal Tiden published a short article
written by Hans-Erik Persson, working in the administration for children and youth in
rebro. After observing that the production of goods requires less workers, and that
the production of services tends to become too costly, he asked for an unprejudiced
discussion of a model which would include both an unconditional citizens income
(henceforth CI) and a conditional CW.
One idea which has received a fair amount of attention in Sweden is the citizens
account. It was introduced and promoted by Stefan Flster, a researcher at IUI (a
research centre maintained by Swedish industry). Flster built his model on a recent

225
Basic Income on the Agenda

reform of the Swedish pension system.This new system is constructed in the form of
individual lifetime accounts the more you earn during your active life, the more you
receive as a pensioner. Flster further elaborated these individual accounts by including
insurance for unemployment, sickness and parenthood, as well as social assistance.The
main purpose was to construct a system which would give good working incentives
and smaller tax wedges. It would be possible to remodel the citizens accounts so that
they would include not only a minimum pension, but also a minimum basic income,
but Flster has not discussed this possibility, because it would imply more redistribution
and higher marginal tax effects, than he advocates.

The Swedish Political Parties and Basic Income

The Swedish political parties have not with one exception been interested in the
basic income idea. The Social Democratic Party has been the main defender of the
existing system, which is based on the idea of full employment and a general system of
income-related social security (inkomstbortfallsprincipen). The interest for the CW-
idea has, therefore, been minimal inside the party.The main document prepared for the
party congress in 1997 did not hint at anything like a basic income, and among the
almost 100 motions under the heading General welfare, only one put forward the idea
of a social wage, which should as far as possible be general. However, the motion was
not supported even by the authors own association. Neither did it receive any atten-
tion by the party executive. On the other hand, there were no less than six motions
proposing that the child benefit now the main universal benefit not related to
income should be means-tested.The party executive rejected them using arguments
that are typical among supporters of a basic income (see http://www.sap.se).
The conservatives, Moderaterna, have worked out a large document called Land fr
hoppfulla (A country for the hopeful) in which they state that Sweden has three options.
The first is to continue making marginal adjustments to the old system. This would
lead to growing tax burdens for middle-class people, unless public services and transfers
were gradually reduced. In the second option, the state takes a very small responsibility
for everyone,a kind of citizens wage, but then there would be constant demands for
improvements.The third possibility, favoured by the party, is a general and individual
system, which is based on a clear correspondence between contributions and benefits
a kind of citizens accounts plus strict means-testing for those with special problems.
As to child benefits, the party would prefer tax allowances to direct support.
The three parties of the centre Folkpartiet, Centerpartiet and Kristdemokraterna
have all stressed the need for a basic security (grundtrygghet), but have not accepted
deviations from means-testing. However, some of the arguments put forward could be
read as support for a basic income. At a recent congress the Folkpartiet discussed a
motion on basic security and a citizens allowance,3 but did not support any significant
changes in the existing systems. It rejected one motion asking for citizens accounts, on
the grounds that obligatory personal savings do not allow enough insurance (see
http://www.folkpartiet.se).
The Left Party, Vnsterpartiet, has discussed a CW casually, but the idea has not been
accepted. It has been regarded as tantamount to condoning unemployment. Instead, the
party has for a long time asked for a six-hour working day and strongly supports the

226
The History of an Idea

existing Swedish income-related social security system (see http://www.vansterparti-


et.se).
The Green Party, Miljpartiet, is the only one which has flirted with the idea of a
CW. However, it has not been able to accept it on a programmatic level or to make a
concrete proposal. Like the other parties of the centre, it has stressed the importance of
a decent basic security (see http://www.mp.se). In a recent book, Birger Schlaug, the
spokesman of the party on economic and social issues, writes on CW in enthusiastic
but utopian terms:4

Maybe a citizens wage, paid from our birth until we die, could liberate the individual,
breed creativity, give us the courage to build social, economic and cultural networks, trust
people as human beings instead of as role-playing ombudsmen and salesmen, who fill their
time as their roles require. Maybe a citizens wage is a way to humanize society, bring it
back to people and reduce the stage, so that we could take further steps outside that stage
each day. Maybe it could give us the courage to be ourselves maybe it could deliver
unforeseen powers. Maybe it could be the greatest emancipatory reform we have carried
through. From the left they say that it is a right-wing idea. From the right they say it is a
left-wing idea.This is perhaps the best sign that it is a good idea.

These maybe sentences in a way summarize the Swedish debate.The idea of a basic
income or CW is fascinating to some, but is assigned to a utopian future.Anyone who
tries to introduce it today is ignored or else attacked for relinquishing full employment
and the general system of income-related social security. In an article focusing on
recent tendencies in the Swedish social security system,Ann-Charlotte Sthlberg came
to the conclusion that despite a tendency towards an increasing dependency on basic
security (grundskydd) the main goal has been to secure the existing income-related
social security system (standardskydd).

Proponents of Basic Income Schemes in Finland

The first to suggest a basic income in Finland was the writer Samuli Paronen.The idea
first appeared in 1971, and was later repeated in several of his works. He recommend-
ed an independence grant (riippumattomuusraha) or living grant (elmisraha),
which would guarantee a minimum income to everybody.The only condition for the
grant was to be a human being (Paasilinna, 1990: 23).
The term citizens wage was introduced in 1980 by Osmo Lampinen and Osmo
Soininvaara in their book Suomi 1980-luvulla (Finland in the 1980s).The subtitle was
The road of soft development and the book contained an all-embracing analysis of Finnish
society from an ecological and humanistic point of view.The young authors predicted
a decade of declining economic growth and increasing unemployment, and they out-
lined a future with growing family and local activities, and with more free time and
mental peace. The book was written at a time when the Finnish economy had been
hurt by a deep recession with a record high rate of unemployment.
Lampinen and Soininvaara criticized the efforts to create employment at all costs,
and suggested that the strict relation between work and income should be relaxed.
They proposed that all who were unemployed or deliberately chose not to work

227
Basic Income on the Agenda

should receive a B-wage, which would correspond to the lowest unemployment ben-
efit.This B-wage would make it possible to leave the ordinary labour market (the hard
sector) to study, to care for children, to make art, to participate in social activities etc.
(in the soft sector). For those who wanted to, there would then be better chances to
receive an ordinary job and an A-wage. People would in particular want to leave jobs
that were low-paid and menial, and this would only be for the good, since income dif-
ferences would tend to be reduced (Lampinen and Soininvaara, 1980: 153-4).
After discussing the difficulties associated with a B-wage, the authors came to the
conclusion that the best solution technically would be to introduce a CW which
would be given unconditionally to everybody. By taxing those receiving an A-wage so
that their net income would remain the same, a CW although appearing to be very
costly would correspond to a B-wage. The income tax above the CW could be a
simple flat rate tax, and it would be complemented with indirect taxes.These, in turn,
could be used as instruments to influence production and consumption along more
ecological lines. The authors also suggested a freeing of working-time, so that every-
body could choose how many hours they wanted to work.This might lead to a short-
age of labour, but, again, the effects could be positive, encouraging firms to locate in a
more decentralized way.
Osmo Soininvaara, who became the most influential thinker of the Green Party, con-
tinued to develop these ideas in several books and reports. In Ratkaiseva aika (Decisive
times) from 1986, which is a very broad discussion of the global problems, he clarified his
views on a CW. CW can be seen either as a part of the national income being divided
equally between all its members, or as an extension of the progressive income tax, so that
you receive a transfer below a certain level of income (a negative income tax).
Soininvaara invited those who had difficulties in understanding how a CW could be
financed, to think in terms of a negative income tax.The main argument for the CW
was to change the incentives of the poor and unemployed, and to make it possible to live
on a low wage. Soinivaara suggested a level which was so low that it would be quite dif-
ficult to live on it, but high enough to give support to those who had a low-paid job.
Therefore, it would have to be supplemented with other types of social security.

In 1984, professors Jaakko Uotila and Paavo Uusitalo published a book with the title
Tyttmyys, laki ja talous (Unemployment, the law and the economy). One chapter of the
book was called Kansalaispalkka (citizens wage).They defined CW as a basic right, for
every citizen, to at least a minimum income regardless of whether he or she participates
in wage-labour or not. One justification for a CW was that an automated economy
could not use the working capacity of all citizens.
Uotila and Uusitalo presented their CW-model with the explicit purpose of reduc-
ing the supply of wage-labour. They discussed the possibility of a means-tested CW,
according to which those with special needs would receive a CW in exchange for
some kind of activity in the informal economy. However, they discarded this idea in
favour of a system in which those who wanted to could get a CW. They suggested a
fairly generous CW, and thought that five per cent of the adults would be on CW for
half a year at a time. The CW would be taxed and would be payed for by savings in
unemployment benefits, student allowances and social assistance. Thus their CW pro-
posal was actually more akin to a paid sabbatical, which would mainly be used by peo-
ple with low earning capability.

228
The History of an Idea

In 1985 Osmo Kuusi, a social democratic young futurologist, published in the lead-
ing party newspaper two long articles relating to a CW. He discussed the future of
work and the existing methods to achieve full employment. He proposed a modest and
gradually implemented negative income tax, which would be complemented with
shorter and more flexible working time, as well as with measures to activate people in
different ways. The articles also showed the results of an inquiry regarding peoples
readiness to leave their current work to do other things or nothing in exchange for a
fraction of their current earnings.

At the end of the 1980s, during a time of rapid economic growth, the interest in basic-
income ideas spread rapidly. It was presented in a positive spirit in writings by myself (a
radical economist), as well as by Simo Aho (labour sociologist), Markku Ruohonen
(director of the Social Security National Association), Matti Virtanen (editor-in-chief
of The journal on alcohol politics), Kysti Pekonen (political scientist), Jorma Kalela (eco-
nomic historian), and Pekka Korpinen (economist and a prominent social democratic
politician). Jouni Srkijrvi, a conservative MP, recommended a negative income tax. I
introduced the term citizens income. In the book Vnsterframtid (Left future), I used
the term both in a utopian red-green context and in discussing possible outcomes of
the crisis of the Fordist mode of development. I also studied the probable effects of a
CI reform from the point of view of different persons, depending on their economic
situation and aspirations. Gradually I came to favour a combination of a low uncondi-
tional CI and a conditional CW, targeted towards activities in the third sector.
Aho studied wage labour as the foundation of society and problems, which followed
from the undermining of full employment and the polarization of the possibilities to
receive a rewarding job. For him, a basic income would not by itself solve the problem
of giving everyone a sense of doing something socially valuable, but it would open
new alternatives for living a satisfying life.
Ruohonen, although sympathetic to the idea, did not believe that the time was ripe
for an implementation of a full basic income scheme. It would be too costly in terms
of rising marginal income taxes, and people would not in general accept that one
could receive money without any means- or willingness-to-work test. In the short
run, he wanted to stress everybodys right to a decent income, and favoured reforms
along the lines suggested by an official report on a subsistence income guarantee
(Perustoimeentulotyryhmn muistio).
Virtanen saw basic income in the context of a large transformation of society, which
he summed up in the phrase from the factory to the studio.To him, a basic income
was essential for the realization of the new studio-culture. Furthermore, it would be a
just way to distribute the proceeds stemming from a highly automated production of
goods.To contribute to the financing of a basic income he proposed a tax on materi-
als.
To Pekonen a CW would be a means to improve the vitality of civil society and
peoples participation in politics. To Kalela, who had made a profound study of the
treatment of the unemployed during the 20th century, a CI could prove to be a solu-
tion to several contradictions which had emerged and which were worsening in the
traditional system of securing income for the unemployed. The most utopian basic
income scheme was outlined by Korpinen. He pondered the possibility of a withering
away of the state and a kind of revisionist anarchist process of emancipation. For the

229
Basic Income on the Agenda

next century, he conceived of a society with a high CI and a complementary citizens


insurance, but with all public services being paid for by the recipients.

Two Finnish researchers, Reija Lilja and Tuire Santamki-Vuori, together with Guy
Standing, wrote an extensive report on the Finnish labour market. Standing was prob-
ably responsible for a section on CI in the report. A CI was seen as a natural means to
achieve labour market flexibility, meaningful employment and more adult education.
In 1988 Olli Rehn (from the Center party) and David Pemberton (from the Green
party) took the initiative in creating a group which would discuss and promote the idea
of a basic income.The group was chaired by Eeva Kuuskoski-Vikatmaa, a leading per-
sonality in the Center party and a long-time minister of Social and Health Affairs.The
group included representatives from most political parties. Its secreteray, Ilpo Lahtinen,
wrote a book which reflected the ideas discussed in the group. He proposed the intro-
duction of a partial basic income along lines suggested by Hermione Parker from the
UK. However, the book appeared at a most unfortunate time; the Finnish economy
was in the midst of a depressionary spiral, and there was little interest for large reforms
or costly improvements. The basic income idea was buried for some years as the
depression took its toll.

In Hyvinvointivaltion eloonjmisoppi (A survival doctrine for the welfare state), which


was awarded a price as the best economics book of the year and received much atten-
tion, Soininvaara in 1994 continued the discussion of basic income in a concrete and
detailed way.5 It was based on two reports written by the author for the Ministry of
Social and Health Affairs.6 The base of his scheme was a basic income (perustulo) dif-
ferentiated for household composition.The income tax rate would be 53 percent.The
author proposed two types of conditional extra allowances (listuki) to supplement
the basic income for special contingencies. Soininvaara tried to assess who would gain
and who would loose, and what differences there would actually be in relation to the
existing systems. Soininvaaras arguments had changed: he was now interested in creat-
ing a system that would induce everyone to contribute as much as possible to the
national economy, and he criticized those who wanted a CW in order to make work
voluntary (ibid., 194).
Soininvaara discussed three different ways of introducing a basic income. The first
was to extend the existing housing benefit into a general income support of a negative
income tax type.The second would let people choose whether they wanted to join a
basic income scheme instead of the existing system.The third one (proposed by the
French economist Malinvaud) consisted of eliminating payroll and income taxes from
people receiving only a minimum wage.This third way would not, however, lead to a
general basic income, yet Soininvaara still saw several advantages attached to it.

Other concrete proposals followed suit. Jouko Yl-Liedenpohja, a professor of econom-


ics, designed a system that would encourage work. He proposed a basic income of 2000
FIM a month, financed by a tax on other incomes of 50 percent. He presented the
same proposal in terms of a negative income tax. There have been new demands for
some kind of CW for work in civil society or the third sector, especially from the rep-
resentatives of the organized unemployed (e.g. Oittinen, 1996; Rannikko, 1997). I elab-
orated my own vision of a combination of low unconditional CI and conditional CW,

230
The History of an Idea

taking into consideration both libertarian and communitarian arguments (Andersson,


1997; Stenlund, 1997: chapter 5.13).

The Finnish Society for Futures Studies has made a public appeal in favour of a basic
income, stressing the impact of automation and technological changes on work
requirements (Malaska et al., 1997). As the last, but hardly as the least, proponent the
(now retired) Archbishop of Finland should be mentioned. In a speech to the unem-
ployed he suggested strongly an unconditional basic income:

I look at the question from the point of view of human dignity. A basic income paid to
everyone would be less humiliating than the present benefit system can sometimes
become.A basic income would send every citizen the following encouraging and motivat-
ing message:You are important.You are not a burden, but a resource.You are important by
being a human being for others.Whatever work you do, in whatever situations, whether or
not you are paid to do it, you still contribute to building our society.

Finnish Sceptics and Opponents

One group that has tended either to ignore or to be sceptical towards the idea of a
basic income are the social-policy researchers.7 They have stressed the problems of
working society and the Nordic-type welfare states, but they have been very cautious
in discussing any basic income-type proposals. In an anthology, edited by Ilpo Lahtinen
in order to popularize the idea of a CW, Risto Ersaari (1988: 181-2) the only
Finnish social policy researcher who participated brushed aside the idea in one sar-
castic sentence.
The most explicit critics of a basic income have been the employers organization
(STK, later TT) and the national trade union organization (SAK). Both were critical
towards the report of the Urponen-working group in 1986. STK interpreteted the
suggested income guarantee as a citizens wage, since it was not conditional on will-
ingness to work. The organization ridiculed the idea that there would be any mass
unemployment in the future and expressed a fear that it would become difficult to get
people willing to work. It asked for a more selective social policy. According to SAK
the report had to be redone from completely different premisses. Social security should
encourage people to work and should thus promote full employment (Paasilinna,
1990: 50-51).
In a large book (Riihinen, 1992) which looks at the future of social policies in
Finland in a 25-year futuristic perspective, and which includes most of the leading
researchers in the field, the idea of CW is practically ignored. Keijo Rahkonen (1992:
248-9), who writes about the social political utopias and anti-utopias, does not even
mention the Finnish basic income discussion. He takes a realistic position, according
to which group interests will prevail and there does not exist a positive conception of
what could come after the existing welfare state.There is only the negative utopia of a
reduced welfare state. In the same volume professors Kysti Urponen and Olavi
Riihinen write about the different principles for guaranteeing social security and pres-
ent general scenarios for the future. In both presentations there seems to be no room
for a renewal of the welfare state along more universalistic and emancipatory lines.

231
Basic Income on the Agenda

In February 1992, Briitta Hiltunen from the municipal workers union (KTV)
asked the Finnish SAK to study the advantages and disadvantages of a basic income.
She was inspired by the report written for the Ministry of Social Affairs by Osmo
Soininvaara. A working group, consisting of four persons from the SAK staff, was
given the task of writing a report on basic income. The title of the report is almost
untranslatable, but it reflects a curious and disapproving attitude towards the idea.8
The report compared three different types of social security systems: income-related,
needs-based (or targeted) and with equal-size benefits. It held up income-related
benefits as the best from a trade-union perspective, and recalled the past disputes, in
which equal-size benefits had been pushed forward by agricultural interests against
the trade-union position. It argued that wage earners were already paying dispropor-
tionally much, either as fees or as taxes, even for the income-related systems. The
study recognized substantial poverty traps due to three types of needs-based benefits
social assistance, housing support and day-care fees. It wanted to reduce these traps,
not through a basic income, but through incremental adjustments in the existing sys-
tems. According to the report, full employment could be restored through rapid and
sustained economic growth, through reductions in working time and work sharing,
and through better education and training. If a basic income scheme were introduced
society would develop towards a low wage, low skill society, a boot-cleaner society.
It would threaten the existing income-related benefits, and contribute to the creation
of a divided and fragmented society.

Shortly after the SAK-report, TT published a report on the incentive traps of social
security and taxation and proposals to overcome the problems. It was entitled Work or
citizens wage. Actually the report treated basic income/CW/negative income tax pro-
posals on one page only. However, it set two principal lines against each other: the
emphasizing of the priority of work and earned income and the development of the
basic subsistence income towards a citizens wage.According to the TT report, income
should generally be based on work, and society cannot afford a system based on a CW.
Furthermore, it stressed that means-testing should be increased in order to save costs.
The dilemma between, on the one hand, asking for a system where disposable incomes
always grows when doing some kind of work, and on the other, stressing more means-
testing is never raised in the report.
The critical attitude of SAK towards the basic income idea was confirmed in a pam-
phlet on the future of welfare policies Valoa tunnelin pss (Light at the end of the
tunnel). Two authors discussed basic income. Janne Metsmki (SAK, 1997: 32) stated
that CW models were expensive and vague: it was not possible to assess their effects,
but surely they would cost more. Sinikka Ntsaari (ibid.: 93) found the idea of a par-
ticipation income (as proposed by Atkinson) interesting, but feared that it would be dif-
ficult to distinguish between ordinary wage labour and work made for a CW. She
found a pure basic income model too costly and thought that it could only be realized
at the expense of public services; Finland would change from a service state to a redis-
tributive state.

232
The History of an Idea

The Finnish Political Parties and Basic Income

Four of the political parties have been very interested in some form of basic income:
the Centre Party, the Left-Wing Alliance, the Green Party and the Young Finns.
The Centre Party, which is the main representative of the farming population, has
all the time supported universal welfare schemes, which give a basic security to all
inhabitants. Therefore, the party, especially its youth section, has for a long time sup-
ported the idea of a CW or a basic income. In a recent document, Finland needs a work
reform, the party declared that the goal is a uniform basic income. It calls for an elimi-
nation of the incentive traps and for an effort to implement a negative income tax
model. The partys youth organization takes the view that a basic income, which
encourages work and enterprise, should be the new social security model It joins
social security and flexible labour markets to each other.Thus a basic income creates
not only employment but also freedom (Mik on Nuoren Keskustan Liitto eli NKL).
The party programme of the Finnish Communist Party from 1987 saw a CI as a
basis for a future communist society. The CI idea was even more pronounced in the
declarations made at the start of the Left-Wing Alliance LWA in 1990. It was seen as a
means to liberate and decommodify work. In the programme that was approved in
1995, CI is described as a means to increase real freedom for all, a fundamental value
of the third left. However, the LWA has had difficulties in formulating concrete pro-
posals, and it has not wanted to substitute the income-related security which has been
built up by the labour movement.
The Green Party has been a supporter of a basic income since its foundation in the
beginning of the 1980s.To each a basic income is one of the slogans in a poem out-
lining the principles of the Greens. Osmo Soininvaara, who has had a decisive influ-
ence on the standpoints of the party, and who has been the leading figure in the whole
Finnish basic income debate, became Minister of Social Affairs in April 2000.
The Young Finns, a small liberal party, adopted basic income as one of its leading
themes. In the elections of 1999 it put forward a detailed proposal to a large extent
inspired by Jouko Yl-Liedenpohja, and by an intensive discussion on internet but
the party lost its two seats, and then decided to dissolve itself.
The Social Democratic Party has never accepted proposals close to a basic income
scheme. At the party congress in 1996 two motions proposed a CW.The party execu-
tive answered the motions by stressing the costs and the danger of dividing people into
two categories: those in work and those living on a CI. The party strongly defended
the existing welfare system (see http://www.sdp.fi/pk96/e144.htm).
The conservatives the National Coalition Party have shown some interest in the
idea of a negative income tax. However, the party has taken a negative stance. The
Swedish Peoples Party has also been against a basic income, although its youth section
has toyed with the idea.

Why did Basic Income Thrill the Finns, but not the Swedes?

There are two fairly obvious reasons why the interest for basic income has differed
between Finland and Sweden.The first relates to the hegemony of the Swedish Social
Democratic Party and the second to the relative success of the Swedish welfare state.

233
Basic Income on the Agenda

The party most consistently averse to any basic income proposal both in Finland and
in Sweden has been the Social Democrats. Both the SAP in Sweden and the SDP in
Finland have seen basic income as a break with two fundamental principles: the work
principle and the income-maintenance principle. According to the work principle
(arbetslinjen), one should either work, be looking for work, or study.The central goal
of economic policy has been full employment in a traditional sense. Introducing a basic
income would mean surrender in front of the difficulties to maintain or achieve what is
regarded as full employment. The income-maintenance principle (inkomstbortfall-
sprincipen) means that the right to social security is closely related to earlier incomes
from work. Unemployment and sickness benefits, as well as pensions, should be related
to incomes, and those few who have not been gainfully employed but are willing to
work should only have the right to a low daily allowance.The last resort should be a
strictly means-tested income-maintenance scheme for people who are unable to sup-
port themselves. The only basic income type elements supported by the Social
Democrats are childrens allowances, housing benefits and the peoples pension scheme.
The electoral support of the Finnish SDP has been only about half that of its Swedish
counterpart SAP. SDP has therefore always been compelled to form coalition govern-
ments, whereas SAP has been able to govern alone for most of the time since the 1930s.
In Finland the Centre Party has been as strong as the Social Democrats, and the Left-
Wing Alliance has competed on a more equal footing. Both the Centre Party and the
LWA have traditionally tended to support universal benefits.
In Sweden both the blue- and white-collar trade-union movement have been close-
ly related to the party, and even when the bourgeois parties occasionally have been able
to form a government, they have not tried to change the main principles of the social
policy model. In Finland the blue-collar trade unions have also been influenced by the
LWA.The white-collar unions, again, have had a strong non-socialist membership and
leadership.Although the Finnish Social Democrats have participated in the government
with only a few exceptions, the parliament has in general had a bourgeois majority.

The other obvious reason for the different receptions of the basic income idea is that
the Swedish welfare state is older and more sacrosanct than the Finnish, and that
Sweden until recently has not been plagued by mass unemployment.The levels of ben-
efits are generally higher in Sweden.They are also more strongly related to the income-
maintenance principle the standard social security.The income-related unemploy-
ment benefits administered by the trade unions have covered about 85 percent of
the earlier gross incomes. In Finland the corresponding figure is 60 percent.The daily
allowance for the uninsured has also been more generous in Sweden. It would, there-
fore, be relatively more costly to change the Swedish system into a pure basic income
system.
Sweden was able to avoid mass unemployment until the beginning of the 1990s.
This was achieved by careful macroeconomic policies, by active labour-market policies
and by a rapid growth of the public-service sector. In Finland mass unemployment
appeared in 1976. It was gradually reduced towards the end of the 1980s, but from
1991 onwards has been the principal scourge of the Finnish economy. Despite six years
of rapid economic growth, the rate of unemployment is still more than 10 percent.
Unemployment in Sweden, while not subdued, is only about half that of Finland.
One curious reason why basic income has been more thrilling in Finland can relate to

234
The History of an Idea

a difference in national character. According to experts on culture, there is a clear dif-


ference. In Sweden it is necessary to be part of and receive moral support from a group.
No decisions are taken without long discussions and an emerging consensus. In
Finland leadership styles are more individualistic. It is permitted to be somewhat idio-
syncratic and to change ones opinions without engaging in long discussions. Finns are
thrilled by new technical solutions and they are not much afraid of sudden changes.
The Swedes seem to be more pragmatic and cautious.
Basic income is probably most welcomed in a society which is individualistic and
solidaristic at the same time. There must be a special combination of values, which
allows citizens to make unconventional choices at the same time as their basic eco-
nomic security is guaranteed by the state. The Lutheran Nordic welfare states differ
slightly from each other Denmark probably being the most liberal one but even in
Denmark and Finland the readiness to accept a left libertarian solution has not been
quite strong enough to bring basic income onto the political agenda.

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manaajana?, in: I. Lahtinen (toim), Kansalaispalkka. Ken el sen symnkin pit.
Haataja, A. (1998), Tasaetu, tarveharkinta vai ansioperiaate? Sosiaalipolitiikkamallit, mikrosimulaatiot ja
tyttmien taloudellinen asema, Annales Universitatis Turkuensis (with English summary, Means-
tested, flat-rate or earnings-related benefits?).
Kalela, J. (1990), Mik kysymys tyttmyysturva/kansalaistulo on?, Kansantaloudellinen aikakau-
skirja 3.
Korpinen, P. (1989), Valtio ja vapauden kasvu, Hanki ja J.
Kuusi, O. (1985), Nyt on aika keskustella kansalaispalkasta and Kansalaispalkasta helpotusta,
Suomen Sosialidemokraatti 22.2.1985 and 1.3.1985.
Lahtinen, I. (toim) (1988), Kansalaispalkka. Ken el sen symnkin pit, Ylioppilaspalvelu r.y:n
julkaisusarja, (With articles by I. Lahtinen, K. Pekonen, S. Aho, J.O. Andersson, U. Mcken-
berger, C. Offe, I. Ostner, M. Ruohonen, R. Ersaari, and M.Virtanen).
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Arajrvi, P. Pakarinen, O. Soininvaara, and M. Stenius-Kaukonen).
Lampinen, O. and O. Soininvaara (1980), Suomi 1980-luvulla. Pehmen kehityksen tie, WSOY.
Lilja, R.,T. Santamki-Vuori, and G. Standing (1990), Unemployment and Labour Market Flexibility,
Finland, ILO.
Malaska, P., J. Nurmela, and M.-L.Viher (1997), On kansalaispalkan aika?, Helsingin Sanomat
2.9.1997.
Oittinen, H. (1996), Kansalaistoiminnasta palkka, Helsingin Sanomat 5.8.1996.
Paasilinna, M. (1990), Kohti kansalaispalkkaa? Perustulo- ja perusturvakysymykset politiikan piv-
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politiikka 2017. Nkkulmia suomalaisen yhteiskunnan kehitykseen ja tulevaisuuteen, WSOY.
Rannikko, P. (1997), Kansalaisty kokeiluuun maaseudulla, Helsingin Sanomat 9.4.1997.
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(1986), Ratkaiseva aika, WSOY.
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236
The History of an Idea

(1994), Hyvinvointivaltion eloonjmisoppi, WSOY.


(1999), Tystyllisyyteen ilman kyhyytt, Art House.
Stenlund, H. (toim.) (1997), Tyn tulevaisuus.Tyskenaariohankkeen loppuraportti, Euroopan sosi-
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Tyt vai kansalaispalkkaa. Teollisuus ja Tynantajat, 1995.
Uotila, J. and P. Uusitalo (1984), Tyttmyys, laki ja talous, Tammi.
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by a working group chaired by K. Urponen).
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Virtanen, M. (1987), Tehtaasta studioon, Hanki ja J.
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Taloustiede tnn, Lillett Oy, 1993.

Notes

1 However, even before Adler-Karlsson, the conservative student organization had started a
discussion in terms of a negative-income-tax proposal.They dropped the idea in the mid-
dle of 1970s, and according to Johan Westrin, information secretary of Moderaterna, it is
completely dead in Sweden today.
2 It is fascinating to ponder that basic income has been proposed in Italy as a means to
weaken the hold of the mafia.
3 The proposal made by Bengt Held was not a basic income scheme. He wanted a citizens
allowance paid by the state to unemployed persons without other incomes.
4 Extract from e-mail sent by BS, translated by JOA.
5 Vihre markkinatalous (A green market economy) appeared in 1990. His latest book
Tystyllisyyteen ilman kyhyytt (Full employment without poverty) was published in 1999.
6 One (The welfare state and the crisis of the economy) treated several aspects of the system of taxes
and transfers.The other (An outline of a basic income model) was a detailed calculation of how
a basic income scheme could be conceived within the financial limits of the existing social
security and tax system.
7 There are, of course, exceptions. Hannu Uusitalo wrote a relatively positive memo concern-
ing Osmo Soininvaaras partial basic income calculations. Kari Vhtalo, who has studied the
situation of the unemployed, has been favourable to the basic income idea.Anita Haataja has
used a micro-simulation model to calculate the effects of a hypothetical negative income tax
and a CI.
8 Mik ihmeen perustulo? is perhaps best translated as What (a) queer basic income?

237
From Concept to Green Paper
Putting Basic Income on the Agenda in Ireland

Sean Healy and Brigid Reynolds*

A Recognized Failure?

The Irish social welfare system was designed to operate in a world which is no longer
relevant today.This Beveridge system can work well when:

full employment (for men) is the norm


womens labour force participation is low
unemployment, when it occurs, is of short duration
social welfare payments act simply as a transition mechanism to support people
during short-term illness or unemployment
employment is usually full-time at relatively good pay rates
jobs are permanent.

These were the basic assumptions which underpinned the social welfare system when
it was originally designed.The end result is a complex and inadequate system which is
now failing to meet the needs of the people trapped within it. Today, society is less
homogenous than heretofore.We experience rapid technology change, increasing self-
employment, atypical work and fluctuating incomes.There is increasing complexity in
household responsibilities and relationships.These need to be catered for by our sys-
tem of taxation and income distribution. However, the existing tax and social welfare
systems suffer from many disadvantages, which have been widely recognized, includ-
ing:

Unemployment traps: where net income when unemployed is higher or almost as high
as net household income in work. Moreover, we have seen, over the past two
decades, the ridiculous situation where unemployed people must do nothing and
always keep themselves available for non-existent jobs, if they are to receive their
social welfare payments.
Poverty traps: where an individual at work receives a pay increase, net household
income either declines or rises by only a small amount.
Its heavy emphasis on conditionality has contributed in large measure to the down-
grading of areas of work for which payment is not made or received (e.g. work in
the community, in the voluntary sector, in the home, etc.).
Complexity: where citizens are unsure of the effects on household income of deci-
sions regarding work, marriage, family size, etc.

* The authors wish to acknowledge especially the work of Sean Ward on which they have
drawn, as referenced, in this paper.

238
From Concept to Green Paper

Policy inflexibility: it is difficult to modify the existing systems to increase the


incomes of the poorest households (who do not have proper jobs), without simul-
taneously decreasing work incentives.

These disadvantages are unintended consequences of the current tax and welfare sys-
tem. Several changes were introduced over the years with a view to addressing partic-
ular difficulties. Frequently, the outcomes have been unsatisfactory, in that new anom-
alies have arisen and old problems have remained largely unresolved. For example,
Family Income Supplement (FIS) was introduced so that families would be better off
if a parent on unemployment assistance or benefit took up low-paid employment.
However, FIS suffers from low take-up and if the employee on FIS achieves a wage
increase he or she may be no better off as a result, due to tax and the withdrawal of
FIS.

Basic income is a simple idea designed to overcome the disadvantages of the current
systems. It is worthwhile to reflect on what is involved in basic income. At its core, it
involves a redistribution of earned income by a different mechanism than the existing
systems. All of the benefits of basic income vis--vis existing systems (such as greater
equity, elimination of financial barriers to work and simplicity) derive from this redis-
tributive mechanism. However, it might be objected: Why bother evaluating basic
income? Indeed, why bother with tax reform at all? Such an argument might run as
follows: The best antidote for inequity, unemployment and exclusion is employment
growth. From 1990-1997, employment in Ireland grew by 17.4 percent (Gray, 1997).
Surely this employment growth (and earnings growth) is more important than tax
reform? Surely the existing tax and welfare systems are more conducive to employment
growth than basic income? Several points may be made in response to this objection:

Recent impressive employment growth may not endure. For example, in the peri-
od 1980-1989, employment fell by 0.4 percent (Gray, 1997).
Most employment growth is accounted for by labour force growth. Even in a buoy-
ant job market, those with poor education and low skill levels find it difficult to
escape from long-term unemployment and into a job (Duffy et al., 1997).The tax-
welfare system should cater for these people.
While unemployment is a very important cause of poverty, many poor households
do not have an unemployed household head. In 1994, one-third of poor households
had an unemployed head; the remainder were self-employed, farmers, employees,
retired, ill or on home duties (Callan et al.,1996). The tax-welfare system should
include these people also.
Trends in earnings can exacerbate inequity. From 1987 to 1994, the ratio of the
hourly earnings of the top decile to the bottom decile grew from 4.2 to 4.9 (Gray,
1997).The tax-welfare system should promote equity in the presence of widening
wage dispersion.
The employment effect of basic income is not certain. Basic income should not
simply be assumed to have a negative effect on employment. Indeed, the only analy-
sis available (Clark and Kavanagh, 1995) suggests that it would have a small positive
effect. Neither should basic income be introduced without the employment effect
being thoroughly analyzed.

239
Basic Income on the Agenda

In recent years, a considerable amount of analysis has been carried out on basic
income. This analysis has confirmed the proposal developed by the Conference of
Religious of Ireland (CORI) as a serious contender for implementation. Further com-
prehensive and rigorous analysis is now required before deciding whether the system
should be introduced. CORI has sought successfully to put basic income on the polit-
ical agenda. Ireland now has two major government-funded studies under way exam-
ining the viability of basic income.The Irish government has also made a commitment
to publish a Green Paper on basic income. In the remainder of this paper we outline
the debate on basic income from the late 1970s onwards. We pay special attention to
the approach CORI followed to put basic income on the political agenda and con-
clude with some remarks for the road ahead.

From Initial Scepticism to Pathways of Basic Income

In the late 1970s, the National Economic and Social Council commissioned Brendan
Dowling to report on how personal income tax and transfers might be integrated.This
report (Dowling, 1977) examined three broad options, one of which was basic income,
but initiated little debate about basic income. However, a wide-ranging debate about
tax reform ensued which culminated in the establishment of the Commission on
Taxation.The First Report of the Commission on Taxation (1982) contained a curso-
ry examination of basic income which it rejected, mainly on cost grounds. Similarly,
the Commission on Social Welfare (1986), quoting the Report of the Commission on
Taxation, rejected basic income on cost grounds, but also because basic income might
represent a detour from the priority objective of increasing social welfare rates to ade-
quate levels.

Since then, two approaches to basic income have been developed in Ireland.The first
approach (Honohan, 1987; Callan et al., 1994) preserved key elements of the existing
tax and welfare systems.Ward (1998: 242-3) has summarized the Honohan and Callan
approach succinctly as follows:

The models developed by Honohan and Callan were quite similar. Each adult of working
age would receive an untaxed payment equivalent to that paid as unemployment assistance:
this is a full basic income. Elderly people would receive somewhat higher payments and
children would receive smaller amounts. All social welfare payments would be discontin-
ued. Existing discretionary tax reliefs (such as mortgage interest, employee pension contri-
butions, etc.) would be retained. All government spending programmes would also be
retained.

Both authors found that a very high tax rate would be required to fund this type of pro-
posal. Tax rates in excess of 65 pence in the pound would be required on all personal
incomes. It was mooted that such a high tax rate could act as a disincentive to work. In
addition, Callan found that the income distribution effect of his proposal was not advanta-
geous for significant numbers of low-income households. Honohan and Callan concluded
that these models of basic income should be rejected. Some official reports in 1996
reviewed the findings of Callan, notably the Department of Enterprise, Trade and

240
From Concept to Green Paper

Employment (1996), Forfas (1996) and the Expert Group on the Integration of the Tax
and Social Welfare Systems (1996). These reports endorsed Callans conclusion that this
model of basic income was not viable.

This conclusion coincided with CORIs view and underpinned CORIs alternative
approach which drew on the work of Ward (1994). He illustrated how the present tax
and welfare systems could be replaced, a basic income system introduced and the tax
rate kept below the current top tax rate. CORI adopted and developed this approach.
The main changes in the CORI approach compared with Honohan/Callan were the
following:

While full basic income would be paid to the elderly and children, adults of work-
ing age would receive a partial basic income; for those who were unemployed this
would be topped up to the minimum income recommended by the Commission
on Social Welfare (1986).
All discretionary tax reliefs would be abolished.
A range of public expenditures (e.g. headage payments, community employment
payments, etc.) would no longer be required.

However, the general public was not clear about these different approaches. At that
time all basic income proposals were seen as more or less the same. Consequently,
CORI was faced with the bizarre situation that a conclusion with which it agreed
(Honohan/Callan) was being used to dismiss CORIs own proposals which were fun-
damentally different.

CORIs Approach: Developing the Analysis, the Vision and the Means

This was the framework from which the CORI Justice Commission approached the
task of putting basic income on the political agenda. CORI responded by commis-
sioning the Pathways to a Basic Income (1997) study, by producing a video to outline its
proposal and by producing Surfing the Income Net (1997) which was a simple, user-
friendly outline of basic income aimed at a mass audience.This was a good example of
the need to be able to respond to crises which threatened to undermine the whole
proposal.The general public and the policymaking community eventually grasped the
fact that there were substantial differences between the Honohan/Callan studies and
the CORI approach. They also came to realize that CORI accepted the
Honohan/Callan conclusions. Consequently, government commissioned studies are
now focusing solely on the CORI proposal.

CORIs analysis of the present tax and social welfare system and of alternative options
led them to the conclusion that basic income offered the best solution to the major
problems arising from the present structure. They held public conferences, targeted
most of the arenas already involved in policymaking, used both electronic and print
media to engage in public discourse, held many meetings, briefings, discussions, etc.To
underpin this work CORI produced a number of publications.These include:
Towards an Adequate Income For All (1994): This publication presents one
paper which argues the case for change in Ireland written by the Secretary of the

241
Basic Income on the Agenda

Commission on Taxation which was established by the Irish government during the
1980s.The second paper presents an argument in favour of an adequate income guar-
antee written by Healy and Reynolds.The third paper entitled Evaluating Basic Income
Options was written by a team from the Economic and Social Research Institute
(ESRI), headed by Callan. It contains the results of a study they had done in 1994.
Finally, and most importantly, the fourth paper outlines what is possible in terms of
introducing a basic income system for Ireland. In this ground breaking paper Sean
Ward, an independent economist, looked very closely at the whole Irish Budgetary sit-
uation and presented detailed figures which showed what could be done in terms of
introducing a partial basic income system for Ireland in 1994.
An Adequate Income Guarantee For All Desirability,Viability, Impact (1995):
The papers contained in this study take forward the debate contained in the previous
publication of 1994.The basic costings are looked at by an independent economist and
the impact on the labour market is looked at by two other economists. In the second
part of the book, updated costings are provided for a partial basic income system and
written responses from the six political parties represented in Irelands parliament are
published.
Planning for Progress (1996): This was CORIs annual Socio-Economic Review.
It included the full costings of CORIs basic income proposal at that stage. It also ana-
lyzed the impact of basic income in other sectors and presented a range of budget pro-
posals consistent with introducing a basic income system.
Pathways to a Basic Income (1997):This study was commissioned by CORI and
conducted by two economists, Professor Charles Clark and John Healy. It looked at the
financing as proposed by CORI (1996) and had this checked by the Irish tax authori-
ties (The Revenue Commissioners). Further, the study goes on to look at the whole issue
of efficiency and the impact on the labour market.
Pathways to a Basic Income A Summary (1997):This document is a short sum-
mary of Pathways to a Basic Income and focuses in particular on the values underpinning
it and the basic questions addressed in the larger study. It does not go into the detailed
numbers contained in the major study.
Surfing the Income Net (1997):This publication is a simple question and answer
outline for those who know little or nothing of basic income. It concludes with a ready
reckoner to show how people would be better off under CORIs basic income pro-
posals in Ireland.

Pathways to a Basic Income found, and the Revenue Commissioners confirmed, that pre-
vious CORI proposals for a basic income had substantially underestimated the income
that would be available to fund the basic income and that, in fact, a full basic income
could be implemented in Ireland within a three-year time frame.The threeyear imple-
mentation option, when associated with increasing revenue buoyancy, would allow min-
imum pain to be experienced by some, mainly better-off, tax payers during the transi-
tion period. These tax payers would gain more from a continuation of conventional
government tax strategies than from the introduction of basic income. However, the
gradual implementation of basic income would minimize or eliminate their losses with
respect to their present circumstances and channel the benefits of revenue buoyancy
mainly towards the less well-off. In addition, the pace of implementation could be
adjusted to minimize any perceived risk to the economy or the Exchequer.

242
From Concept to Green Paper

Table 1: Summary of Merits, Demerits and Unknowns


of Basic Income vs existing Systems

Merits Demerits

Would provide financial incentives to work for Would increase the marginal tax rate for
those currently without much incentive those now below the exemption limit or
paying tax at the standard rate
Would facilitate some to withdraw from the (In some versions) loss of discretionary
labour force to pursue other ends tax reliefs in the existing system would
make some people on middle/high
incomes worse off
Would ensure that no households income fell (In some versions) loss of existing farm
below the basic income level income supports

Would promote retraining and further educa- For those aged under 21 and at work,
tion, with greater freedom of choice many would be worse off

Would promote vertical and horizontal equity Unknowns

Would facilitate self-employment, atypical and Would labour force participation rise or
part-time working fall? Would this be good or bad?

As a policy tool would facilitate direct imple-


mentation of chosen trade-offs between the Would employment increase or
level of basic income and the tax rate decrease?

Would promote financial independence of Would people save more or less?


women

Would promote dignity Would wages rise or fall?

Would eliminate take-up problems Would there be increased tax evasion or


better tax compliance?
Would promote living in rural Ireland Would there be increased immigration
from other EU states?
Would be simpler and cheaper to administer Would overall competitiveness improve
or worsen?

To date, no concrete proposal for tax and welfare reform has been developed which
can compete with the CORI basic income proposal. Basically, CORIS approach is
that basic income deserves serious consideration on the grounds of equity, efficiency
and freedom to participate in work and society. Notwithstanding the analyses issued by
CORI, much more in-depth analysis needs to be done to assess how basic income
would measure up to these principles in order to justify its introduction.

Summarizing, both approaches (Honohan/Callans and CORIs) have expanded the


state of knowledge about basic income in Ireland.Table 1 attempts to summarize the
(de)merits and unknowns.The reader should be aware that the classifications used are
subjective. In particular, what may be counted as a merit or demerit by some may be
classified differently by others.

243
Basic Income on the Agenda

Into the Governments Programme: Towards a Green Paper

In Ireland, for the past ten years, government has negotiated with employers, trade
unions and farmers organizations to develop three-year national plans. In 1996 an
additional pillar was added to this partnership representing the voluntary and commu-
nity sector. CORI is one of the organizations which is now recognized as a full social
partner as part of this new pillar. In the course of the negotiations for the new pro-
gramme called Partnership 2000 (covering 1997-1999), CORI was successful in getting
agreement from the other social partners to include a section on basic income which
reads as follows:

Further independent appraisal of the concept of introducing a Basic Income for all citizens
will be undertaken, taking into account the work of the ESRI, CORI and the Expert
Group on the Integration of Tax and Social Welfare and international research. A broadly
based steering group will oversee the study.

Work is proceeding on implementing this commitment and CORI is part of the steer-
ing group ensuring that this commitment is implemented. The steering group also
includes representatives of employers, trade unions, farming organizations, the commu-
nity and voluntary sector as well as senior civil servants from key government depart-
ments.The steering group decided to divide its study into two phases. Phase one entails
an examination of the economic and budgetary aspects of introducing a basic income
system into Ireland. It will also identify the winners and losers in such an approach.
Phase two entails an examination of the immediate and long-term dynamic effects of a
basic income system on factors such as labour supply and demand responsiveness, wage
rates, competitiveness, etc.

In the build-up to the 1997 General Election CORI approached each political party
seeking a commitment that if elected to Government, they would support the publica-
tion of a Green Paper on Basic Income.After the General Election the negotiators who
were finalising the new coalition governments programme were approached with the
same request.When the new government was finally voted into office by the Dail and
published its programme, this contained a commitment to produce a Green Paper by
June 1999.The Taoiseach (Prime Minister) Mr. Bertie Ahern has on several occasions
renewed his commitment to publishing this Green Paper.

The Latest Developments: Is there a Window of Opportunity for Basic


Income?

For many years, debate on the annual Budget has focused on whether general tax
reductions should be implemented by reducing tax rates or increasing tax-free
allowances. Each year, CORI has produced an analysis of the impact of the Budget.
These analyses have shown that neither approach is of much assistance to the least well
off, while reductions in the tax rate are worse from an equity perspective than increas-
ing allowances.

244
From Concept to Green Paper

Budget 1999 introduced to Ireland for the first time a significant move towards tax
credits. Traditionally, tax credits had been regarded as very complex and difficult to
administer (Report of the Working Group on the Integration of the Tax and Social
Welfare Systems, 1996).While the tax credit that was introduced was non-refundable,
it could be developed into a refundable tax credit.According to a recent report (1999)
agreed by the National Economic and Social Council (a think tank comprising gov-
ernment and social partners):

A further step would be to move to refundable tax credits; if a persons tax liability is less
than the tax credit, this difference is paid to the tax payer. This means that all tax payers
would receive equal benefit from an increase in tax credits.

In addition, it would make sense to increase the value of the tax credit and align it with
the value of payments made to the unemployed via the social welfare system, so that
nobody would have a net income below an agreed poverty line.

In the new national programme negotiated between the Social Partners and the
Government (entitled Programme for Prosperity and Fairness, February 2000) there is
agreement that the role which refundable tax credits can play in the tax and welfare
system should be actively examined. A working group will be established, including
representatives of social partners, government departments and the tax authorities, to
conduct this examination and a progress report will be prepared by the end of 2000.

Fully developed, refundable tax credits and basic income can be regarded as two sides
of the same coin. Suitably specified, refundable tax credits could deliver the same net
income to every citizen as a basic income. Of course, basic income is far simpler to
understand and administer than refundable tax credits. However, the onset of tax cred-
its in Ireland can provide an opportunity to substantially improve the net incomes of
the less well-off, by substantially increasing the value of tax credits and making them
refundable. When that happens, the switch to basic income will be justifiable on
grounds of simplicity, administrative efficiency and quality of service provided by the
state to all citizens.

References

Callan, T., C. ODonoghue, and C. ONeill (1994), Analysis of Basic Income Schemes for Ireland,
Dublin: ESRI.
, B. Nolan, B.J.Whelan, C.T.Whelan, and J.Williams (1996), Poverty in the 1990s: Evidence from
the 1994 Living in Ireland Survey, Dublin: Oak Tree Press.
Clark, C.M.A. and C. Kavanagh (1995), Basic Income and the Irish Worker, in: B. Reynolds and
S. Healy (eds.),An Adequate Income Guarantee for All, Dublin: CORI.
and S. Healy (1997), Pathways to a Basic Income, Dublin: CORI.
Conference of Religious of Ireland (CORI) (1994),Tackling Poverty, Unemployment and Exclusion:
A Moment of Great Opportunity, Dublin: CORI.
(1995), Ireland for All, Dublin: CORI.

245
Basic Income on the Agenda

(1996), Planning for Progress, Dublin: CORI.


Department of Enterprise,Trade and Employment (1996), Growing and Sharing our Employment:
Strategy Paper on the Labour Market, Dublin: Stationery Office.
Dowling, B. (1977), Integrated Approaches to Personal Income Taxes and Transfers, Dublin: National
Economic and Social Council.
Duffy, D., J. FitzGerald, I. Kearney, and F. Shortall (1997), Medium-Term Review: 1997-2003,
Dublin: ESRI.
Forfas (1996), Shaping our Future, Dublin: Forfas.
Gray,A. (1997), Foreword: Irish Economic Challenges and International Perspectives, in:A. Gray,
International Perspectives on the Irish Economy, Dublin: Indecon.
Healy, S. and B. Reynolds (1994), Arguing for an Adequate Income Guarantee, in: B. Reynolds
and S. Healy (eds.), Towards an Adequate Income for All, Dublin: CORI.
and B. Reynolds (1995),An Adequate Income Guarantee for All, in: B. Reynolds and S. Healy
(eds.), An Adequate Income Guarantee for All, Dublin: CORI.
Honohan, P. (1987), A Radical Reform of Social Welfare and Income Tax Evaluated,
Administration 35 (1).
Partnership 2000 for Inclusion, Employment and Competitiveness (1996), Dublin: Stationery Office.
Report of the Commission on Social Welfare (1986), Dublin: Stationery Office.
Report of the Working Group on the Integration of the Tax and Social Welfare Systems (1996), Dublin:
Stationery Office.
Reynolds, B. and S. Healy (eds.) (1994), Towards an Adequate Income for All, Dublin: CORI.
and S. Healy (eds.) (1995), An Adequate Income Guarantee for All: Desirability,Viability, Impact,
Dublin: CORI.
Ward, S. (1994), A Basic Income System for Ireland, in: B. Reynolds and S. Healy (eds.), Towards
an Adequate Income for All, Dublin: CORI.
(1998), Basic Income, in: S. Healy and B. Reynolds (eds.), Social Policy in Ireland, Dublin: Oak
Tree Press.

246
Short Cuts and Wrong Tracks
on the Long March to Basic Income
Debating Social Policy Reform in Germany

Stephan Lessenich

It has become a certainly useful ritual on BIENs Congresses to recapitulate pub-


licly, in the form of short country surveys, the path taken in each nation on the long
march to basic income. Having myself been involved twice up to now in this proce-
dure, I dare to remark that an uninvolved and somewhat malicious observer of these
sessions, listening to the succession of country reports, might well feel as if he or she
were attending a lets say, Chinese peoples congress, with its hand-picked speakers
unwaveringly presenting somewhat strained success stories concerning the supposedly
smooth achievement of official output targets. Now, as we all know (and may or may
not regret), even Chinese peoples congresses were better in the old days. To be sure,
the message of the following national report, of my admittedly and inevitably sub-
jective remarks on the peculiarities and new directions in the recent German debate
on social policy reform, is utterly sobering for any orthodox apologist of basic income
in its puristic sense. To cut a long story short: there is no good news from Germany
concerning the basic income matter.
But that is the short story only. The long version roughly goes as follows: there
indeed has been a broad intellectual debate on different concepts and variants of state-
run minimum income provisions in Germany over the last years: debates on publicly
rewarded civic work (Brgerarbeit), on a negative income tax-like citizens income
(Brgergeld) or on public subsidies for low-paid jobs (Kombilohn and other mod-
els); I will briefly sketch these debates in what follows. But the point to be made here
is that exactly those proposals that resemble most the idea of an unconditional and
non-work-related basic income did not make it to the public, political debate.
Inversely, the concepts that actually did reach a wider public did so only because they
fit perfectly well into the revival of work ideology that German politics and society are
currently experiencing (as a matter of fact, one might say that these concepts have even
boosted this revival). The recent and rather unexpected wave of fierce propaganda
against all forms of a jobless income and, accordingly, against social policy concepts
advocating any sort of de-commodification (that is, the exemption of individuals or
certain groups of individuals from the compulsion to offer their labour for sale on the
market) has led to a situation where questioning the sacred employment nexus and
arguing for a real basic income is tantamount to the self-exclusion of the social policy
community.Thus, the argument put forward here is that those concepts figuring most
prominently in the current debate on social policy reform in Germany concepts
pleading for a state-subsidized upgrading of low market incomes are far from being
something like a first step towards anything only slightly resembling a basic income. In
this sense, for the time being, and at least as far as the political discussion is concerned,

247
Basic Income on the Agenda

there seem to be no short cuts but only wrong tracks on the way to putting basic
income on the agenda of German politics.

The Fall and Rise of Social Policy Reform

Looking at the German social policy debate in the 1990s, two distinct discourses may
be distinguished, each of them characterizing roughly one of the halfs of the decade. It
was in the late 1980s that almost every political party with parliamentary representation
in Germany had discovered, under different headings, the idea of basic income to be an
exceedingly decorative and, for that purpose at least, harmless ornament to their
respective party programmes.The call for a citizens income (Brgergeld) or for some
kind of a guaranteed minimum built into the social security and income transfer sys-
tems (Soziale Grundsicherung) gradually found its way into the programmatic state-
ments of Liberals (FDP), Social Democrats (SPD), Greens (Die Grnen), and, after
1990, Post-Communists (PDS), with only the Christian Democrats (CDU) still resist-
ing to give way to the pressures that part of its rank and file (mainly its labourist wing)
was exerting in that direction. In basic income we trust: that seemed to be the collective
creed of pre-1989 party conventions and electoral platforms. It was the fall of the
Berlin wall and ensuing German re-unification that suddenly rendered these unani-
mous but, as it were, non-committing testimonies completely anachronistic and politi-
cally insignificant. During the first years of the re-unification decade, the unprecedent-
ed transfer of resources and institutions from triumphant Western to wrecked Eastern
Germany effectively silenced even the most half-hearted attempts to make political ref-
erence to a possible need of reforms for instance of the institutional foundations of
German social policy be it biased towards the strengthening of minimum income
elements or not. Comprehensibly or not, the intellectual and administrative energy of
German politics was totally absorbed by the restoration of what chancellor Helmut
Kohl, in a remarkable and famous (but, at the end of the day, fatal) flash of inspiration,
called a blooming landscape (blhende Landschaften) in the East German lnder.
As is well-known, the East German industrial landscape did not bloom but steadily
faded away over the course of the years, and if the social scenery did not deteriorate to
the same extent it was only because of the gigantic tax and social security transfers that
flowed and continue to flow into the public maintenance of masses of formerly unpro-
ductive employment, which, after the end of state socialism, the East German economy
was forced (or allowed) to get rid of almost overnight. It was exactly the so-called costs
of unification (Kosten der Einheit), maybe the most popular stereotype of German
political discussions of the last years, that brought social policy reform back to the polit-
ical agenda. In the second half of the 1990s, a series of controversies about issues of social
policy reform entered the political arena just like shooting stars: they unexpectedly
appeared on the political agenda, only to silently disappear again after a short time, their
destiny being at best to be debated further in the splendid isolation of the scientific
community. In the following sections, I will shortly review what I think were the most
important issues at stake in these discussions, trying to discern in each case their sub-
stance and significance in regard to the political claim for a (real) basic income.

248
Short Cuts and Wrong Tracks on the Long March to Basic Income

The Race to the Bottom in Tax Reform

To begin with, a recurrent feature of German social policy debate throughout the last
years has been the rearrangement of the income and payroll tax system. On the whole,
there is much evidence that the problems of the welfare state, seen as a complex mech-
anism of incentives and constraints, and their solution are increasingly being debated in
Germany as a matter of tax reform. For some time in the middle of the decade, the
governing coalition of conservatives and liberals and the social-democrats in opposi-
tion vied with each other in presenting, indeed, revolutionary proposals aiming at a
sweeping simplification of the system and radical tax cuts, alternatively at the lower
end of the income spectrum (the social-democratic variant) or for those better-off
and, therefore, supposedly most prone to engage in productive investment (the liberal
option). In this fiscal race to the bottom, the main contender for a hypothetical
Milton Friedman award in German politics was (and continues to be) Christian-
democratic MP Gunnar Uldall whose proposal is based on only three tax rates (of 8,
18, and 28 percent), progression ending at the very modest income of 30 thousand
DM per year. Similar concepts are advocated not only by the liberal party, but also by
the present leader of the social-democrats in the federal parliament (Bundestag), Peter
Struck, or by influential MPs of the Green party such as Christine Scheel and Oswald
Metzger, adding to a potential big coalition for a neoliberal tax reform that would
constitute the first step towards a simple negative income tax model (Uldall et al.,
1996). For the time being, it seems rather implausible that things could go so far. But,
even if tax cuts were of a much more modest scale the most radical reforms estimate
them at some 115 billion DM tax reforms always entail a huge redistribution of
income and wealth. A welfare state that renounces to keep up the tax burden of its
hard working citizens (and its easy-earning capital owners) is obliged to cut its
expenses correspondingly and experience teaches us that the recipients of public
transfers at the lower edge of society to suffer the most from shrinking state budgets
(the current consolidation programme put forward by the newly elected leftist gov-
ernment being the latest confirmation of that golden rule of fiscal policy).

Green Social Policy Going Astray

Of all the social policy initiatives started during these last years, the one that came clos-
est to the guiding ideas of a basic income was the basic protection scheme driven for-
ward by Germanys Green party, and by Green MP Andrea Fischer in particular. The
project of a Grne Grundsicherung, proposed only a few months before Greens and
social-democrats won the federal elections of September 1998, aims at integrating the
existing transfers to the low-earning, the long-term unemployed and to asylum-seek-
ers into one single benefit (Bndnis 90/Die Grnen-Bundestagsfraktion, 1998). This
transfer would be paid on a household basis, but then be evenly distributed among
every single household member, thus breaking with the notorious notion of the head
of the household that has pervaded German social policy since its very beginnings. By
providing lump-sum payments slightly above the level of todays social assistance
(Sozialhilfe), however, this programme would in no way abolish the existing practice
of means-testing, allowing at the same time for somewhat larger possibilities to com-

249
Basic Income on the Agenda

bine minimum transfer and earned income. Its additional cost of some 12 billion DM
(compared to the currently existing social assistance scheme) was originally supposed
to be reimbursed by imposing higher taxes on assets, but today, the partys mainstream
is very reluctant to raise the tax burden of the well-to-do beyond the existing levels.
On the whole, however, these are all minor details considering the fact that the
Grundsicherung project, formerly (and for quite a long time) an affaire de cur for
Green party members and supporters, was inexplicably removed from the Green agen-
da once they made it to government in late 1998.While Ms. Fischer, now head of the
health department, is getting lost in the impenetrable undergrowth of the health
reform jungle, the social-democratic Minister of Social Affairs, former union leader
Walter Riester, is hopelessly devoted to save the public pension scheme from the dark
menace of financial collapse. Incidentally, his plans for a pension reform, fiercely criti-
cized and resisted by the Christian democratic and liberal opposition, include the
introduction of a minimum pension within the social insurance system, the most mea-
gre pensions being lifted up to the social assistance level, thus preventing long-standing
contributors to the system from having to end their days in misery.

New Visions (1): Beck to the Future Commission

Interestingly enough, apart from the Green Grundsicherung initiative gently having
fallen asleep, the most important reform debates in terms of basic income took place in
a politico-scientific border area that actually only emerged in the last few years. The
second half of the 1990s was characterized by an intellectual climate of deep pessimism
concerning the competitiveness of German industry in an age of globalization (the so-
called Standortdebatte) as well as of generalized criticism of the alleged immobilism of
German politics. Quite consistently, the term Reformstau, referring to the accumula-
tion of postponed or unfinished, in any case pending, major political projects, was pro-
claimed word of the year 1997 by the semi-public association for the German lan-
guage. In this situation, it comes as no surprise that both the Christian democrats and
the social-democratic party resorted to the idea of setting up their respective future
commissions (Zukunftskommissionen), mobilizing more or less well-known social
scientists more or less inclined to one side or the other to collectively think of possible
solutions to the social problems of our time.
The ambitious Prime Ministers of the traditionally conservative lnder Bavaria and
Saxony, Edmund Stoiber and Kurt Biedenkopf, were the first to take the initiative and
to bring together a group of experts that elaborated a voluminous report on the future
of employment and labour markets in Germany. In the section of the report that was
probably debated the most after its publication, the commission pleads for the public
encouragement of so-called civic work (Brgerarbeit) as a promising alternative
sphere of activity for discouraged unemployed people.The concept, developed for the
commission by Ulrich Beck, possibly Germanys best-known sociologist (and some-
thing of a Greenish submarine within the group of commissioners), consists of chan-
nelling the jobless into a sector of voluntary, public interest engagement which, in prin-
ciple, is not to be paid but to be immaterially rewarded (through so-called favour
credits). People engaged in this sector may claim, in case of need, for a citizens
income, a public transfer identical with the conventional social assistance being paid

250
Short Cuts and Wrong Tracks on the Long March to Basic Income

up to now except for one aspect: its amount (which, according to the commissions
proposal, should lie well below the level of todays Sozialhilfe). Apart from the fact
that, under these circumstances, the programme would simply amount to a hidden act
of welfare state retrenchment, it is highly debatable whether civic work can plausibly
represent a substitute for productive employment and, more importantly, a realistic
option for those apparently constituting the main target group of the proposal: the
long-term unemployed.To be sure, the existing empirical evidence on volunteer and
honorary work clearly shows that it is not the desperate job seeker but rather the full-
time employed who engages in unpaid, only intrinsically motivating and rewarding
activities.

New Visions (2): The Ebert Empire Strikes Back

The Biedenkopf/Stoiber initiative was immediately followed by an even more


demanding project. The social-democratic party foundation (Friedrich-Ebert-
Stiftung) retaliated by gathering together its own think tank, asking the experts to
identify the structural reasons for the apparent exhaustion of the German Model and
to figure out possible solutions to the dilemma of simultaneously achieving, in a radi-
cally changed international context, economic growth, social cohesion and environ-
mental sustainability. Confronted with this almost superhuman task, the commission
concentrated on outlining four selected, strategically relevant reform projects, one of
them being structural changes in the welfare state leading to the improvement of
employment opportunities for the low-skilled. Starting from the diagnosis that it is the
institutional idiosyncrasy of German social policy (among other things, the welfare
states guarantee of a jobless subsistence-level income) that hampers or even prevents
the creation of new jobs for the low-qualified, two competing proposals for the open-
ing of a socially acceptable low-wage job market were put forward (cf. The Future
Commission, 1998: 22-25; as to the broader debate, see the literature listed in the
annex).
One option presented in the final report is the citizens income or Brgergeld
model developed by the economist Joachim Mitschke, by the way one of the members
of the commission. Mitschke has a long-standing record, including the highly combat-
ive involvement in a commission on the reform of the German tax system set up by
the Ministry of Finance in the early 1990s, of advocating the integration of most of the
tax-funded and income-related benefits into one single, needs-related and household-
based cash payment (see his contribution to this volume). Due to the proposed nega-
tive income tax-mechanism (with a supposed standard tax rate of 50 percent), so the
argument goes, the incentive for transfer recipients to take up a job would be incom-
parably greater than under the present system where social assistance is paid only
below a rigidly fixed income threshold, additional earnings almost entirely being con-
fiscated. On the other hand, employers would find themselves in a happy situation
where wages and thus labour costs could be significantly reduced without their
employees real incomes falling below subsistence levels. But unfortunately, only too
frequently the best solutions are not really the most pragmatic ones (and vice versa) a
rather trivial fact that obviously even future commissioners have to recognize and pay
tribute to. As a consequence, the commission fairly mercilessly dismissed the

251
Basic Income on the Agenda

Brgergeld option, not (or at least not primarily) because of the proposals financial
imponderabilities, but, remarkably enough, due to the expected political costs the
simultaneous changes in tax law, social legislation and collective wage agreements
would entail.Thus, it seems that gaining the future (die Zukunft gewinnen), recent-
ly one of the favourite sayings of German politicians, is reasonably popular only as long
as it is not too demanding politically and intellectually.
Given this situation, the commission report finally opted for the alternative, less
ambitious reform project of subsidizing low-paid jobs, adopting the model elaborated
by the renowned political scientist Fritz Scharpf, another of the expert groups mem-
bers. For the commission, the striking argument in favour of this proposal is that it
involves no major reform of social legislation and that, by concentrating subsidies
strictly on low-income earners, its effectiveness would be significantly higher as com-
pared to a broader citizens income approach. Instead of taking into account real
incomes and fictitious needs of a household unit, the only relevant aspect for the
Scharpf transfer model is the market wage paid by the employer: the wage subsidy
would progressively be reduced as wages come closer to the upper threshold (the
report starts from the assumption of a potential lower and upper limit of DM 10 and
DM 18 per hour).Again, the guiding idea is that the cost reduction made possible by a
public supplement on market wages would be sufficiently substantial to make it prof-
itable for companies (and for job seekers) to engage in the only slightly productive (and
thus low-paying) sector of so-called simple services and to create there large numbers
of additional jobs (The Future Commission, 1998: 25).

Fatal Attraction: Making the Unemployed Work

As a matter of fact, making not only the unemployed work but also significant parts of
the hitherto non-active population in the supposedly underdeveloped service sector
thus imitating what is reverently called the American job miracle (or job machine)
has become something of an obsession in German politics. Backbenchers of every
shade publicly wonder how to avoid the unemployment trap putatively resulting from
excessively generous income replacement rates of unemployment insurance or from
overly restrictive regulations concerning the possibility of combining earned incomes
and welfare benefits.The, for some time, quite popular concept of a mixed salary (or
Kombilohn) was another product of this generalized labourist or productivist mood.
The idea, presented first by the peak organization of German employers associations
(BDA) and supported by the Christian democratic party, consists of a tax-financed
increase of social insurance replacement ratios for the long-term unemployed (by 20
points, compared to todays 57 percent or 53 percent for recipients without children
of the former net income) in case they accept a low-paid job offered to them.The
possible occupation effect of the programme was estimated at some 150,000 (out of
1.35 million) people currently being entitled to long-term unemployment benefits
(the so-called Arbeitslosenhilfe). Nevertheless, both the German unions and the liber-
al party, which formerly held the Ministry of Economy, opposed the project, although
for different reasons: while union representatives did not want to have the state subsi-
dizing dumping wages, liberal ideologists feared a potential dynamic irreversibly lead-
ing to the institutionalization of a statutory minimum wage.Things being as they are,

252
Short Cuts and Wrong Tracks on the Long March to Basic Income

the political interest in this project has dwindled, with only some pilot programmes on
the local level being debated seriously for the time being.
Despite the rather poor performance of the employers Kombilohn-campaign, the
public promotion of low-wage employment continues to hold a fatal attraction for
political actors, no matter which party they belong to or sympathize with.The politi-
cal initiatives developed within the context of the so-called employment alliance
(Bndnis fr Arbeit) a half-hearted attempt to resuscitate former neo-corporatist
bargaining practices, initiated by metal union leader Klaus Zwickel some years ago and
adopted later by the Schrder government as part of its political agenda corroborate
the low-paying jobs irresistible appeal to German political decision-makers and their
advisors. It was the so-called benchmarking group of the Bndnis, headed by well-
known (and SPD-prone) sociologists Wolfgang Streeck and Rolf Heinze, that popular-
ized the idea of subsidizing social security contributions instead of wages a proposal
already to be found in the social-democratic Future Commissions report. According
to this concept, the contributional burden would be progressively reduced for low-
earning workers, wages below a certain level (again, the report suggests DM 10 per
hour to be the lower limit) being exempted completely from contributions of any
kind.
Apart from the serious doubts one might have as to the potential net employment
effect of such a measure, what really gives cause for concern is the new and obviously
consensual philosophy underlying the different policy proposals presented so far:social
policy can no longer be limited to providing those excluded with a non-work-based
income above subsistence level (The Future Commission, 1998: 25).And in a provoca-
tive article for Germanys leading news magazine Der Spiegel, Streeck and Heinze go
even one step further, holding traditional social policy responsible for the fact that
German citizens obviously and mistakenly consider a jobless income to be a legal
right granted to them. The times, they are a changing: according to Streeck and Heinze,
there is no such thing as a right to de-commodification, and de-commodifying people
releasing them from market pressures is far from constituting a favour for the ben-
eficiaries (or, seen from that perspective, the victims) of such policies.Any job is better
than no job so goes the simple slogan (cf. Streeck and Heinze, 1999: 44).

Towards a Productivist Consensus in Social Policy Reform

To summarize and put it simply: in the current debate on social policy and social pol-
icy reform, the central issue at stake is definitely not poverty (or how to guarantee a
decent standard of living to everybody: young or old, able or disabled, German or not),
but employment (or how to make them all work). As a consequence, whenever basic
income or some sort of social minimum to be covered by the state is mentioned in this
debate, it is referred to not as a means of combatting or at least alleviating poverty in an
extremely prosperous society, but as a functionally necessary complement to a low-
skill/low-income employment strategy in a globally competing economy. In the con-
text of this strategic scenario, it is not poverty or a low income, but unemployment
being without a job which leads to social exclusion; employment, no matter under
which conditions, is regarded per se as an act of social integration; and social justice
eventually is being redefined, referring not to some kind of income equity (or even

253
Basic Income on the Agenda

equality), but to the overall goal of equal employability, the political meta-value to
which each individual and every social institution inevitably has to submit and sub-
scribe (cf. Lessenich, 1999; Ostner, 1999).
It seems, then, that current political debates in Germany are extremely far away from
the vision of a jobless income for everybody.The strong ideology of paid work pervad-
ing German social policy from its very beginnings, and its distinct bias towards achieve-
ment and work performance criteria, constitute rather unfavourable institutional con-
ditions for the implementation of a basic income. However, this institutional legacy
could be overcome, in principle and in the long run at least, if there was an emerging
consensus to do so. Unfortunately, just the opposite seems to be true.The spreading talk
of the German welfare state as a social hammock (soziale Hngematte) a verdict
quite popular lately, not only on the front-pages of journals and magazines, but also
among leftist social scientists like Streeck and Heinze cannot properly be said to con-
stitute a good omen for basic income and its proponents. For the time being, reform
proposals have to pay homage to the income-employment (or work-welfare) nexus if
they want to gain a place on the agenda of German politics. In this sense, establishing
social minima within the different social insurance schemes or promoting decent
employment opportunities in innovative fields of activity certainly do represent sensi-
ble social policy initiatives. However, they cannot be seen as being the heralds of a
coming basic income.To be sure, the idea of a basic income is diametrically opposed to
any of the workfare strategies en vogue these days, in Germany and elsewhere. Basic
Income against the Workfare State that will have to be the gauge of social policy propos-
als in times to come. As things are, on the eve of the 21st century and BIENs eighth
Congress, it does not seem that Germany has made any progress (indeed, it seems to
have fallen back) on the long march to basic income. But who knows maybe there is
good news instead from China?

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254
Short Cuts and Wrong Tracks on the Long March to Basic Income

Annex: Basic Income/Negative Income Tax


The German Discussion. A Selected Bibliography (1994-99)

Synopses of Basic Income Concepts:

Arbeitsgemeinschaft sozialpolitischer Arbeitskreise (AG SPAK) (1995), Soziale Grundsicherung:


Dokumentation des Sozialpolitischen Forum 1994, Mnchen:AG SPAK.
Hanesch, W. (1995), Optionen der Armutspolitik im Umbau des Sozialstaats, in: W. Hanesch
(ed.), Sozialpolitische Strategien gegen Armut, Opladen:Westdeutscher Verlag, 141-75.
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Kress, U. (1994), Die negative Einkommensteuer: Arbeitsmarktwirkungen und sozialpolitische
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Mckenberger, U. et al. (1996),A Basic Income Guaranteed by the State:A Need of the Moment
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(4), 209-26.

Negative Income Tax/Citizens Income (Brgergeld):

Bcker, G. and J. Steffen (1995), Die Negativsteuer Aussteigerprmie oder Lohn-


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Becker, I. (1995), Das Brgergeld als alternatives Grundsicherungssystem: Darstellung und kriti-
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Basic Income on the Agenda

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256
Ups and Downs of Basic Income in Denmark
Erik Christensen and Jrn Loftager

Basic income has never seriously been on the Danish agenda of practical politics. On
the contrary, in recent years the idea has been outright rejected, and political leaders
have been careful to dissociate themselves from it. However, the very fact of the explic-
it statements against basic income in itself indicates that it has become a recurring issue
in the Danish debate concerning social and labour market problems.And this is by no
means accidental; for several reasons, basic income is an obvious theme in a Danish
context. Both regarding the model to which the Danish welfare state belongs and the
way in which social structures and welfare policies have developed, there are several
aspects with striking affinities to a guaranteed, unconditional income to all citizens.
The most intensive and widespread discussions on basic income took place at the
beginning of the 1990s, no doubt as a reflection of the preceding period, which to a
considerable extent indicated a creeping basic income or a basic income through the
back door. However, a labour market reform in 1993 signalled a new departure in
Danish welfare politics. A new philosophy of activation or workfare was introduced,
replacing the passive line of the previous cash-benefit schemes. Since then, the labour
market as well as social policies have developed within this new framework of activa-
tion, and the actual set-up of the Danish public transfers has definitely moved away
from the basic income trajectory of the early 1990s. In that perspective, a Danish basic
income reform, even a creeping one, looks much less likely today than five or six years
ago. Nonetheless, a valid assessment of the potential of and prospects for a basic income
scheme in Denmark should also consider the development in popular values and pref-
erences. In regard to that, there seem to be tendencies and inclinations which are more
in accordance with the ideals of basic income than with the philosophy of workfare.
In the following, we shall offer an overview of the history of basic income from the
perspective of the Danish welfare model, briefly characterized as an example of the
Scandinavian universalisist model.After discussing the way in which the income main-
tenance system has developed during the last two decades or so, we portray the debate
on basic income and conclude with the future chances for schemes like basic income
in Denmark.

Two Opposing Trends: Decommodification versus Activation

The Danish welfare state conforms to the Scandinavian model, characterized by rela-
tively strong universality and financed by general taxes (Esping-Andersen, 1990).
Accordingly, services as well as income transfers have to a substantial degree been
offered to citizens as rights rather than being based on contributions, means testing and
bureaucratic discretion.To a great extent the Danish welfare state has reflected the ideal
and principle of equal democratic citizenship in the sense and tradition of Marshall
(Marshall, 1950; cf. Loftager, 1996). The essential aspiration is to secure equal dignity

257
Basic Income on the Agenda

and status for everyone in spite of different market resources and social conditions.This
is often interpreted as a characteristic of a social democratic welfare state because of its
decommodifying consequences.At the same time, however, it must be stressed that the
(former) Danish passive system of transfers also had basic liberal qualities in the sense
that it remained morally neutral with respect to how individuals define the good for
themselves (Cox, 1998). Precisely on this point recent years ideas of welfare present
profound changes.The new paradigm of activation has moved far away from any liber-
al notion of the autonomous self, in favour of a conception according to which identi-
ty is constituted by specific behaviour in general and participation in gainful employ-
ment in particular. Inclusion has been transformed from a question of equal status of
citizenship by means of social rights to a question of accomplishing duties of activation.
The policies of activation manifest a shift from a liberal to a communitarian conception
of community, according to which the essential substance of community is shared
norms and values and doing (paid) work is the invariable top norm par excellence.
Without fulfilling that, it is impossible to be part of the community. In the following,
we sketch the schemes of public support, and the changes due to the shift towards acti-
vation.

Unemployment benefit is conditioned by (voluntary) membership of an unemployment


insurance fund. However, unemployment benefits are largely financed by general taxes
rather than contributions. Especially for low wage groups, the level of compensation is
high, i.e. 90 percent of the former wage, but with a relatively low ceiling (about 11,000
DKr per month before tax).Actually, the average compensation level has declined from
75 percent to 65 percent from 1975 to 1994 (Pedersen, Pedersen and Smith, 1995: 41).
Consequently, the system is almost flat-rate in favour of the low income groups.
Also for other reasons, the unemployment benefit system as it was organized up to
1994/95 showed significant similarities to a basic income system. Firstly, it was easy to
get access to it. The requirements were one years membership of an unemployment
insurance fund and 26 weeks of employment. Secondly, the period of support was
rather long: seven or nine years, depending on circumstances, and entitlement to a new
period ordinarily required normal employment for 26 weeks. In practice, only few per-
sons were expelled from the system. Thirdly, because of the high level of unemploy-
ment, the obligation to be available to the labour market was rather formal.The unem-
ployed were required to be actively job-seeking, but due to the employment situation,
the control could not be effective. Fourthly, there was a steady increase in the number
of people who insured themselves. From 1982 to 1992, the share of the total labour
force covered by the union insurance system rose from 67 to 76 percent (Statistisk
Tirsoversigt, 1996).
In recent years, several changes have modified and weakened the universalist quali-
ties of the unemployment benefit system. It has become more difficult to gain access to
it: the requirement of previous ordinary employment has been extended from 26
weeks to one year.The unemployment benefit period has been reduced to a maximum
of four years, of which the last three involve compulsory activation. In addition, since
1995, the maximum period of unemployment benefit for people under 25 has been
restricted to only six months before they are obliged to accept 18 months of education
on notably reduced benefits. The obligations of activation differ decisively from the
obligations in the previous,passive system. In the latter, unemployed persons had to be

258
Ups and Downs of Basic Income in Denmark

available for jobs on normal conditions, i.e. the same conditions that apply for every-
one else on the labour market.According to the new activation principles, people have
to accept work on conditions decided by the authorities, which means no right to
wage negotiations, no renewed access to the unemployment insurance system, and no
right to take an extra job. Similarly, according to the new system each unemployed
person must have a so-called action plan, specifying educational and job-training
activities.Thus, the actual duties to be performed are not known in advance, because
they do not appear from general rules, but are decided concretely for each unemployed
individual.

This same tendency towards activation applies to the means-tested social assistance bene-
fits, which were previously based on the income-disappearance principle (the idea that
a temporary loss of income should not l