Basic income builds social capital

To understand the full potential of basic income, we need new measures of social capital

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Discussion of basic income most often centres around its impact on the individual — preventing household poverty and expanding personal life choices. Yet individuals and families can only really thrive when they live in connected local communities that support advanced levels of social cooperation. This shared ‘social capital’ is not some utopian concept, but reflects the mutual trust, specialised skills, and local interaction networks that every community needs to prosper.

Strong mutual bonds between family, friends and neighbours (bonding social capital), and open attitudes to strangers and communities outside our own (bridging social capital) have always been key to human progress. Studies repeatedly show that countries which make long term investments in building social capital, will reap outsized economic rewards. However, these fundamental ingredients of a healthy society are actively undermined by our current economic model. Poverty and financial insecurity is rising in low income households, while the worst examples set by the wealthy, seem only to reward selfish and aggressive behaviours towards others.

These highly destructive trends are further reinforced by a welfare system which marginalises too many citizens living in poverty, including single mothers, the unemployed, the disabled, and workers in low-paid or insecure employment. Indeed, every academic study of social capital finds that means tested benefits actively undermine social inclusion, because they are deeply damaging to personal trust, self-confidence, and respect for others.

Social capital is key to wealth creation

The most important gateway to economic wealth in the 21st century is no longer the possession of land, which drove our nations to wars of occupation in the past. Neither is it “ownership of the means of production”, which advanced the great industrial economies of the 20th century. Today the fundamental key to prosperity is social capital. It is the unique glue that holds advanced communities together, enabling complex, technology driven enterprises that span the globe. Whether we talk of revolutionary AI applications in Silicon Valley, blockbuster movie production in Hollywood, semi-conductor manufacture in Singapore or financial services in London, today’s leading creators of Global wealth only succeed where they can cooperate closely with others, in highly skilled social networks.

Ryan Avent in his insightful book “The Wealth of Humans” explains how this new era is creating unprecedented opportunities for humanity, but also describes some of the very negative outcomes it could lead to. Without bold political interventions, disruptive technology will accelerate the concentration of wealth and power in the hands of just a few exclusive communities of Global excellence. Already 85% of Global GDP is created in the World’s major cities, and this percentage is still rising. Ever increasing economies of scale are creating unprecedented wealth for a small elite, but leaving far too many others behind in The Global Race.

Economic success is no longer being shared

The problem declining towns and communities now face, including many that voted for Trump or Brexit, is almost existential. An economic model focused almost entirely on labour cost has led to severe downward pressure on pay and opportunities for semi-skilled workers. To make matters worse, most of what we now take for granted as paid “work” may simply disappear in the next ten years, as upto a third of all jobs will be vulnerable to automation by 2030. Rapid advances in technology mean big corporations will soon be able to deliver most of their operations using lean automated systems, that don’t need large numbers of local factory, shop or office workers of the past.

In this new age of disruptive technology, many of the jobs we have come to rely on in our local communities are simply going to disappear. High-street banks are going online, while factories are increasingly automated or outsourced. Many retail outlets are rapidly being replaced by internet vendors, and even the local shops that remain are being automated using self-checkout. Local radio stations and newspapers have been completely eradicated by internet advertising, and even local food production is undercut by imports, because shipping products half way round the World is now cheaper than growing local food for local consumption.

Restoring local economies

We urgently need a way to adapt to these trends, if they are not to further hollow out our local communities. We must start to invest in all our people, and empower every community, by redesigning our economy around a basic income. The three essential pillars of this approach are to:

Provide a universal basic income to every citizen wherever they live. This automatically ensures that every community has a stable economic income, directly proportional to the number of it’s residents. The stabilising effect of this change is critical, as it will provide an essential floor to household spending in every town, village or community affected by job losses.

Reduce the marginal cost of labour for local businesses and community enterprise. This point is controversial, as many critics fear a future where basic income will subsidise employers to pay lower wages. However, what really matters to workers is not the hourly rate they receive for paid work, but how this combines with other sources of income to generate financial prosperity.

In an increasingly open Global labour market, it will be essential to reduce the marginal cost of labour for local business start-ups, if they are to compete both with lower Global wage rates, and against the huge scale and automation of corporations. Indeed it is the only way in which we will be able to maintain household incomes at a reasonable level, and still unlock the huge untapped potential of local enterprise. Reducing marginal labour cost (what it costs to employ someone over and above their state provided basic income) will slow the loss of jobs to both Global competition, and to automation.

The best part about this “market solution” to managing automation, is that it becomes steered by workers’ individual choices. Once employees on a basic income can choose to turn down a job, the marginal wages needed to employ someone to do unpleasant, or insecure work will rise from current levels, increasing the incentive to automate it. Meanwhile, the labour cost for jobs that people most want to do, including potentially in worker cooperatives, social businesses, or self-employment, may fall. This reduction in marginal labour cost, achieved through the national subsidy of a universal basic income, is key to the regeneration of local communities.

Evolving towards a truly local circular economy also means trying to meet as many essential needs of households as possible from local resources. The benefits of having basic incomes flowing into a community will be undermined if that money is immediately paid back to highly centralised national or Global suppliers of goods and services.

The key to a sustainable local economy is circular supply, so that one person’s spending becomes another’s income. This is where a low marginal cost of labour becomes important, because it makes it possible for local distributed enterprise to compete with highly centralised supply chains for goods and services.

The power of “levelling” the local economic playing field will be even more effective when combined with new open-source technologies for local-scale production such as 3D printing, and carbon taxes that reflect the true environmental cost of shipping goods around the World. An example that combines all of these advances might be a community farm co-operative, working part-time on marginal labour rates, to grow unpackaged fresh fruit and vegetables in a high-tech farming unit, mounted on top of the local supermarket. Interestingly this kind of roof-top experiment is actually being trialled at a supermarket in Canada, but it will still take basic income, plus carbon and waste taxes, to make this kind of local circular supply economically competitive.

The kind of changes described above amount to nothing less than a complete re-design of our economic system that decouples our household income from paid work, and focuses businesses far more on driving innovations that achieve the most efficient local use of energy and materials. Unless we can achieve this transformation within the next decade, we are certain to face growing levels of social dislocation, far beyond what any existing welfare safety nets can cope with. Yet, there are even more persuasive reasons to go down this route than simply to avoid social chaos, or to prop up the contribution of household spending to GDP.

Investing in Social Capital

Basic Income gives us the chance for the first time to re-build our local enterprise in an entirely new Global context. By investing in our own people and skills we can grow the kind of local social capital which is necessary to succeed in today’s Global economy. In doing so we will at last create more connected communities, which are not only more sustainable, but are also places where all citizens are empowered to achieve their full potential. This is not only essential for local economic revival, but more importantly, because it creates a new sense of place where diversity and creativity are valued, and where all citizens can live happier, healthier lives, by connecting to others around them in positive ways.

Today we are too quick to argue for Basic Income, simply as a reaction to automation, or a response to local economic decline. This will be a mistake, if it leads us to measure the success of UBI based only on economic growth or measures of household poverty. If we are to understand the full potential of a basic income we need new measures of social capital, which should be woven into all long term trial programs. The ultimate power of a Basic Income is not as an economic tool to provide financial security, but as an investment in social capital that empowers local communities to be more sustainable, more innovative, and more socially connected than ever before.

Robert Bruce, Author of ‘The Global Race’.