Friedrich Hayek

A moral case for Universal Basic Income

A neoliberal argument for UBI based on individual freedom and property rights

Features

This is part of series on UBI, see the case against it here and the history of UBI here.

Fans of free markets and limited government would seem to have little to love in the idea of a Universal Basic Income (UBI). After all, what could be more anathema to these ideals than a big government programme that doles out free money to everyone, regardless of whether they’re working or, for that matter, even trying to work?

The suspicion that a UBI is fundamentally incompatible with what one might call neoliberal principles is strengthened by the fact that many of the most vocal proponents of a UBI come from the political left, and often tout the policy as a radical departure from the values and norms of a capitalist society.

But the radicalism of a UBI is often overstated. One doesn’t have to believe that capitalism is dead, or that the robots are going to take all our jobs, to think that the social safety net needs a serious overhaul. In particular, one doesn’t have to be a political radical to think that welfare systems ought to a) focus more on cash transfers than in-kind benefits, and b) help the unemployed, as well as those who work. But those two ideas together are really all there is to a UBI. It is just Milton Friedman’s idea of a Negative Income Tax. Or, to put it another way, it is simply the US’s Earned Income Tax Credit or Britain’s Universal Credit without the requirement that recipients be working, or actively searching for work.

One could, therefore, make a sound neoliberal argument for a UBI on purely pragmatic grounds. If we’re going to have a welfare state, then it’s best that we have one that is as effective and efficient as possible. By that criterion, cash payments are generally better than in-kind transfers because they are more flexible to fit the variety of needs that different individuals and families might have. And universal, non-means-tested payments are often better than more targeted payments as they minimise administrative and compliance costs, as well as the risk that those truly in need will be mistakenly denied payment. It’s true that a UBI will transfer cash to some people who don’t need it. But payments issued to people whose income exceeds some specified threshold can easily be recouped through the income tax system.

The best neoliberal case for a UBI, however, is not merely pragmatic. It is moral. It follows from two of the most central political commitments of neoliberalism: individual freedom and property rights. The freedom-based argument for a UBI finds its best expression in the work of Friedrich Hayek, who, despite his reputation as a strict opponent of all state intervention in the economy, nevertheless championed the ideal of an “equal minimum income for all”. The key to understanding this paradox is to recognise that, for Hayek, both of these seemingly contradictory ideas flowed from the same source. Hayek feared the growth of government because he believed that discretionary power was a threat to individual freedom. Markets are generally more conducive to freedom than government because the former, unlike the latter, affords individuals the opportunity to say “no”. The essence of markets is competition; the essence of government is coercion.

But while there is much to be said on behalf of the freedom-enhancing role of markets, markets are by no means perfect guarantors of freedom. Sometimes markets are non-competitive. And sometimes individuals within a market are, perhaps because of physical disability or perhaps because of sheer bad luck, not in a position where they can afford to say “no” to the next offer that crosses their path.

Government cash can give the employee in a tight labour market the ability to say “no” to an unjust boss

In cases like these, cash assistance from government can mean the difference between freedom and compulsion. Cash can give the employee in a tight labour market the ability to say “no” to a boss who demands he work overtime or else be fired. Cash can give the wife who is dependent on her husband’s paycheque the ability to say “no” to his abusive behaviour.

Cash can provide freedom. And freedom not in any controversial philosophical sense, but in precisely the sense championed by liberals for centuries — freedom from dependence on the arbitrary will of others.

Of course, there’s no such thing as a free lunch. Whatever benefits a UBI provides will have to be paid for by taxpayers, and neoliberals rightly see taxation as potentially worrisome infringement on the liberty and property of citizens. Hayek’s response to this concern is to note that the ideal of perfect and unfettered freedom is impossible for individuals living in society together. We should try to minimise coercion, but minimising coercion means reconciling ourselves to trade-offs.

We permit taxation, which limits our freedom, in order to fund a system of police and courts, which protect and enhance our freedom. The case for using taxation to fund a UBI rests on precisely the same uncontroversial philosophical ground.

But there is more than this to be said about the relationship between taxation and property rights according to neoliberalism. The argument above accepts unchallenged the idea that taxation necessarily involves some infringement of human freedom, even if that infringement turns out to be justifiable, all things considered. But not all taxation is created equal, according to the best neoliberal view. In particular, there is a sharp distinction to be made between taxation of earnings from labour, and taxation of the rent generated by land and other natural resources.

John Locke

Most neoliberals trace their views on property rights back to John Locke, who argued in the seventeenth century that the human right to own property derives from our more basic ownership of our selves. Because we own our own bodies and our own labour, we own that with which we “mix” our labour: the crops we sow, the axe we craft, the house we construct.

But as several of Locke’s sympathetic followers such as Herbert Spencer and Henry George pointed out, and as I have explored in more detail elsewhere, there is a limit to what can be justified by this line of argument. Locke showed that we own what we create. But land and other natural resources such as oil and minerals were not created by anyone.

Henry George

We might therefore be entitled to the value that we add to these resources through our labour. But we have no such entitlement to the raw value of the unimproved natural resources themselves. This value, thought Spencer and George, is best regarded as the common property of humanity as a whole. But here is where things get interesting. Neither Spencer nor George thought that this meant private property in natural resources ought to be abolished altogether. After all, they realised, private property in land and other natural resources is extraordinarily useful insofar as it creates incentives for the efficient use of those resources. Therefore, they concluded, natural resources should be allowed to remain in private hands. But the raw value of those resources should be taxed at a rate of 100 per cent. In other words, people’s entitlement to the fruit of their labour should be absolute; but no individual has exclusive claim to the value of resources that belong to humanity as a whole.

This line of reasoning formed the basis of George’s famous “Single Tax” proposal. And that proposal provides one of the most plausible and intriguing neoliberal justifications for a UBI. After all, if the Single Tax is simply the rent that individuals and firms must pay for the private use of what belongs to humanity as a whole, doesn’t it make perfect sense that the proceeds of that rent should be distributed directly to the real owners, for them to use as they see fit?

Thus we have two different arguments, each based in a core philosophical commitment of neoliberalism, that lend support to the idea of a UBI. But there are some important differences between these two arguments. They are, first of all, different in terms of their basic moral structure.

The freedom-based argument is teleological or consequentialist in nature. A UBI, on this argument, is justified because of the outcome it produces — an increase in freedom for those whom market competition alone fails to protect. The property-based argument, in contrast, is deontological. Here the UBI is justified not because of the outcome it produces but because it gives people what they are owed as a matter of right.

The arguments differ not merely in how they justify a UBI, but in the kind of UBI they justify. The Georgist argument tells in favour of a truly universal income. The earth belongs to everyone, and so everyone has an equal claim to their share of its value, however large or small that value works out to be. The freedom-based argument, on the other hand, doesn’t give us any reason to write a cheque to the wealthy. Their freedom is already protected by their economic power. This argument thus seems to justify the UBI that is less universal, but possibly larger, than that justified by the Georgist argument.

Precisely how large a UBI should be, who exactly should be eligible to receive it, and how it should be financed and distributed are, of course, important questions that political philosophy alone cannot answer. But for most of us, these questions of policy design, important as they are, are secondary to matters of principle. If a UBI is fundamentally incompatible with the requirements of justice, then the details of its design do not matter. It should be rejected as a matter of principle.

But if, as I have argued, neoliberal principles of justice permit or even require a UBI, then we should think carefully about how it might be implemented in an efficient and politically stable way. There are already a variety of excellent models out there for how this might be done. It’s time we take those models seriously.

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