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With wage inequality at record highs and technology plundering jobs, a universal basic income is being championed. But how to foretell the problems, let alone possible solutions? By Mike Seccombe.

Changing employment trends and universal basic income

Elon Musk certainly doesn’t fit the standard definition of a Luddite. He’s been exploring and profiting from technological innovation since he developed and sold his first computer game in the early ’80s at age 12. 

In 2002, when eBay bought PayPal, he made $US165 million from his stake in the company. Since then, he has focused on more ambitious plans – among them Tesla electric cars; building the world’s biggest factory powered entirely by renewable energy, in which he will make batteries to store such energy; and SpaceX, the world’s largest private builder of rocket engines and spacecraft. He wants to have a colony on Mars by 2040.

Musk is a man who has gambled big on his technological vision, and so far it has paid off. His net worth is reportedly $11.5 billion.

In one respect, though, Elon Musk is a lot like Ned Ludd and the other artisan textile workers who smashed power looms in early 19th-century Britain. He believes machines are coming to take our jobs.

By the middle of this century, Musk estimates, so many jobs will have gone to robots and computer algorithms that society will face the prospect of having to provide for millions of people who have no paid work.

Mass unemployment, though, is not necessarily a bad thing in his eyes and those of other techno-optimists. While there might not be enough jobs to go around, those machines will produce vast wealth. The only problem will be distributing it.

To them, the answer is obvious if radical: just give everybody money, regardless of whether they have work, as traditionally defined, or not.

Within a couple of decades, Musk told an interviewer on the CNBC network last month, “there’s a pretty good chance we end up with a universal basic income, or something like that, due to automation”.

This was not part of a suite of possibilities in his mind; it was the only one. “I’m not sure what else one would do. That’s what I think would happen.”

Money for all

The issue of the universal basic income has become hot over the past few years, as a consequence of a crisis in the global economy – high unemployment, even higher underemployment, stagnant or declining real wages, and growing inequality in income and wealth. How do you maintain a market economy, an increasing number of people ask, when the bulk of people have ever less market power? Capitalism needs consumers, and it falls over when people can’t afford the goods and services it produces.

Other methods of stimulating demand have been tried – low or negative interest rates, so-called quantitative easing, and debt-fuelled government spending – but none of these have been particularly successful. So why not just give people money?

The idea is now very fashionable among the tech entrepreneurs of Silicon Valley, who, it is fair to say, know a great deal about where technology is taking us, though not much about social policy. But it is also being considered more widely.

Only six months ago the Swiss voted in a referendum that included a question about implementing a universal basic income. The official question did not specify the amount of the payment, but those who campaigned for it proposed 2500 francs (about $A3200) a month per adult and a quarter as much per child.

Only 23 per cent voted for it, but one should bear in mind this happened in a wealthy, relatively equal society that has largely been immune to the economic malaise afflicting most of the developed world. Swiss unemployment at the time was just a tick above 3 per cent.

Across much of the rest of Europe, unemployment is at crisis levels. In the United States, notes former economics professor and Labor’s shadow assistant treasurer Andrew Leigh, employment has been maintained at the cost of falling wages.

“US male earnings in the middle have barely budged over the past 40 years and at the bottom they have actually gone backwards,” he says. “The income share of the top 0.1 per cent is now higher than the income share of the bottom 90 per cent. The level of inequality is remarkable.”

Worrying trends

Things are not so bad in Australia, but the trends in inequality, wages and employment are worrying. The current government shares Donald Trump’s view that the solution lies in cutting corporate taxes.

Even so, the idea of a universal basic income is gaining some traction in this country. Just last month the parliamentary library produced a report acknowledging that even though there was “little prospect of a UBI being introduced in the near future”, debate about the idea would “continue to draw out and clarify the differences in values and vision that shape social and economic policy”. The report’s title was “Basic income: a radical idea enters the mainstream”.

At least one political party, the Greens, is looking seriously at it. Its affiliated think tank, the Green Institute, produced a detailed discussion paper last week entitled “Can less work be more fair?”, which explored the idea that a UBI might give us all a shorter working week and greater income security.

According to the optimistic view of the future, people would be freed of the need to do routine, repetitive, sometimes dangerous tasks. 

“People will have time to do other things and more complex things, more interesting things,” Musk said. “[They will] certainly have more leisure time.”

Such utopian imaginings are far from new. They have long competed with the dystopian alternative views of the Luddites.

In 1930 the great economist John Maynard Keynes predicted that by 2030 people would be working only 15 hours a week. In at least one aspect, Keynes’s prediction came true. A hundred years ago, the work of keeping house, according to studies, consumed about 60 hours each week. Now it takes 15 hours, thanks to technological change – refrigerators, washing machines, vacuum cleaners and a host of other domestic labour savers.

This removed a big obstacle to participation in the paid workforce. 

Technology’s impact

But the story of this emancipation from domestic drudgery also serves to underline a point frequently made by those who question the notion that technological change will lead to widespread job destruction.

Such claims have been made many times before, says Professor Jeff Borland, of Melbourne University, and they have not come true. 

“When people say to me that there are changes afoot the like of which we’ve never seen, I say, ‘What about the industrial revolution?’

“I teach world economic history and I haven’t seen any convincing argument that what we are seeing is more dramatic than someone would have seen in the 1780s or 1790s.”

Borland sends me an analysis of 40 years of labour market statistics he compiled last year, in response to the claims that technology was costing jobs.

The data show that from 1965-66 to 2014-15, “the aggregate amount of work available to the Australian population on a per capita basis has remained stable”. 

Borland says: “The main variation over time in hours per capita appears to have been due to the business cycle – a decline that coincides with the recessions from the mid-1970s to early 1980s, a general upward trend in the hours worked from the early 1980s to late 2000s, and then a small reduction since the late 2000s due to the recent slower growth in economic activity. Certainly there is no evidence of a long-run decline in the aggregate amount of work that matches the timing of the progressive introduction of computers to the workplace since the early 1990s.”

That is not to say that technological change has not caused some jobs to disappear. Routine tasks have declined in relative terms as a result of computers, but there has been a counterbalancing increase in the demand for labour to perform “abstract” tasks. The pace of that change, however, is rapid and accelerating.

A report last year by the committee for economic development of Australia found “almost five million Australian jobs – about 40 per cent of the workforce – face the high probability of being replaced by computers in the next 10 to 15 years”. 

A CSIRO study earlier this year came to a similar conclusion.

Education and innovation

The standard prescription for dealing with such change is that more should be invested in education and innovation. Politicians often tell us the service economy will take up the slack as jobs in areas such as manufacturing disappear.

But analysis of the way the job market is changing suggests this is a somewhat simplistic view.

A lot of highly educated people and a lot of service economy jobs will go, says Hugh Durrant-Whyte, professor of data science at Sydney University, who worked on the CEDA report.

The jobs of the future, he says, “will be extraordinarily highly polarised. There will be jobs at the high end and at the low end – cleaning, waitressing, cutting my lawn – but jobs in the middle, like being a lawyer or a journalist, won’t be there.

“Anything that’s routine will go. Things that require creativity or human dexterity or human engagement – like aged care, for example – are very hard to automate.”

The tendency, when people think of technologically redundant jobs, is to think about blue-collar work in areas such as mining or manufacturing. But actually it’s white-collar jobs that are most under threat now. Some media companies already use computers to produce routine but readable journalism in areas such as sports scores or company reports. One recent study found that during the past decade there has been a 40 per cent decline in the staff numbers of accounts departments at major US companies. Paralegals are losing their jobs to algorithms that can carry out routine legal research. The list goes on: doctors, lawyers, even computer programmers are among those whose routine work might be done by computers or robots.

But, says Durrant-Whyte, new jobs will emerge to replace those being lost. “Forty per cent of jobs will change in the next 20 years, just as 40 per cent of jobs changed in the past 20 years.”

If that is the case, then those who advocate a universal basic income are proposing a solution to a problem that doesn’t exist.

But a lot of people think otherwise. There is a clear dichotomy between the economists and social scientists who look at past experience, and the technologists who look to the future.

Opinion divided

An American survey of technology experts last year by the Pew Research Centre found opinion pretty evenly divided between those who thought new jobs would appear and those who thought technological change would leave “masses of people who are effectively unemployable”.

Another survey of leading academic economists, conducted by the Chicago-based Initiative on Global Markets, found 88 per cent agreement with the statement that “advancing automation has not historically reduced employment in the United States”. 

Martin Ford, a futurist, software developer and author, is prominent among those who think this wave of technological advancements may be different from changes in the past. He collated the evidence for it in a New York Times bestseller a couple of years ago, titled Rise of the Robots.

Three things set the new wave of technology apart, he argues. First is the exponential increase in computing power, from which arises the second – the new ability of machines to learn and adapt. The third is the ubiquity of this technology.

“There really isn’t any safe haven,” Ford told an audience at last year’s Festival of Dangerous Ideas at the Sydney Opera House.

The conventional solution to technological redundancy – retraining workers for new jobs – was increasingly not an option, he said, for machines were becoming “ever more adept at climbing that skills ladder”.

And while there would be new types of jobs, their number would not be sufficient to prevent mass unemployment. He compared the workforces of a US corporate giant of yore, General Motors, with an even bigger current one, Google. At its peak in 1979, General Motors employed 840,000 people. Google employs just 5 per cent that number of staff – 38,000 people.

Job creation declining

The problem wasn’t the technology, per se, but the way the fruits of that technology were distributed. Where once it made workers more valuable, it now replaced them. He noted the rate of new job creation was declining, that the return on education was declining, that productivity gains had long since decoupled from growth in wages, and that more recently – since the global financial crisis – corporate profits had decoupled from growth in consumption.

The fact that almost all the benefits of growth in recent years had flowed to a tiny group of people at the top of income distribution was not just a problem for the poorly paid or unemployed workers, but for the whole economic system.

“Bill Gates is not going to buy 1000 automobiles. He’s certainly not going sit down and eat 1000 restaurant meals,” Ford said.

“As this ongoing process of inequality takes purchasing power from 1000 average people and concentrates it into the hands of one very wealthy person that takes demand out of the economy.”

On that point, at least, there is broad agreement. Somehow, we have to get demand back into the economy.

But do we need a universal basic income to do it? 

“It’s bullshit,” says one very credible welfare policy expert. “I just don’t believe this notion that we’ve entered some new universe, where the rules are completely different, that requires such a radical solution.”

He also doesn’t believe the political will could be mustered for such a thing.

For one thing, it would require a massive restructuring of the tax and welfare system, involving punitively high marginal rates on some people to fund the payments. For another, the idea of giving people money for nothing would not go down well with those who still had jobs.

Then there is the fact that even proponents of such a system have no agreed model of how it might be done. Some would give money to all and some would impose a means test of some kind; some would require some form of mutual obligation and some would not.

The idea had bobbed up repeatedly over decades, championed at different times by both left and right.

In the early 1960s Milton Friedman, the pro-market, small government neoliberal economist, saw a universal payment as a neat alternative to the welfare state. Just give everyone money, cut bureaucratic red tape, and let them buy social services from the private sector. Friedrich Hayek, likewise, considered it compatible with libertarian principles about individual freedom to choose.

At the other end of the political spectrum, the argument is that in a prosperous society everyone should have a minimum standard of living by right of citizenship, instead of by right of what they can sell to the market.

Former US president Richard Nixon tried to introduce a version of it in 1972 and outgoing president Barack Obama mused about a universal basic income in a conversation with Wired magazine just last week.

The concept is easier to sell in countries such as the US, which don’t have a well-developed welfare system. In this country, with one of the world’s best-targeted welfare systems, it is widely seen by experts as an inferior safety net. Andrew Leigh calls the concept “un-Australian” for that reason.

But technology marches on, and even in this relatively egalitarian country, the wages of the top 10 per cent of income earners continue to grow at three times the rate of those at the bottom.

Pretty clearly we’ll be hearing a lot more about the idea so long as our economy, the world economy, continues to wax even more unequal. Equally clearly, though, the proponents will have a lot of persuading to do.

This article was first published in the print edition of The Saturday Paper on Dec 17, 2016 as "Wage of consent". Subscribe here.

Mike Seccombe
is The Saturday Paper's national correspondent.