Haters are wrong – no immediate capital flight, revenue doesn’t dry up, and plan increases worker autonomy – creating the conditions for the ideal transition to a socialist economy

A separate set of critiques from the Left concerns the unintended consequences of basic income on the labor market, employer behavior, and capitalism more broadly. These arguments are often framed in terms of the apparent limits of capitalism and the subterranean economic forces that compromise progressive social transformation. As a general rule, arguments taking the form “a decent basic income is impossible under capitalism” should be treated with the same suspicion we have for claims about capitalism’s fundamental incompatibility with a decent welfare state. History has shown capitalism to be a highly flexible system; what was once said to be impossible under capitalism is later said to be an essential feature of its legitimation. In such arguments it is pro forma to allude to some deep and unmovable economic (rather than political) impasse, but the idea that a decent basic income is impossible under capitalism boils down to the claim that real reform of capitalism is impossible.

However, one very real feasibility constraint concerns labor market participation: if basic income pulls most of the workforce out of the labor market, the scheme’s ultimate revenue source will dry up. Yet, as noted above, experimental evidence suggests that basic income payments hovering at half of median family income induce some labor market withdrawal, but not catastrophic levels. To my mind, this result is more or less desirable: no work reduction would mean no expansion of freedom and no lessening of toil, but extreme work reduction in the short-run risks unraveling the program. Contrary to common opinion, basic income should not be understood by itself as a post-work utopia: indeed, if most everyone dropped out of work, there would be no revenue to fund the scheme. The wager is that even though work would be a choice rather than an economic necessity, people would for the most part continue to find work attractive, albeit less so; poorly remunerated jobs would be bid up (itself a process that makes work more appealing, partially compensating for exits elsewhere), and workplaces characterized by the worst forms of domination would be less sustainable.

A further prediction made by David Purdy is that workers who reduce labor hours or exit from the labor market will make it easier for underemployed or unemployed workers to find work.21 If it is indeed the case that employers require replacement hires for exiting workers — and it should be said that there exists no evidence for or against this hypothesis because of data limitations — this particular mechanism predicts not so much an increase or decrease, but rather a redistribution of available work. There are reasons, therefore, to expect increases in labor market participation in some cases, even if the scheme generates net declines.

Nevertheless, despite evidence to the contrary, it may be the case that basic income does drain most workers out of the labor market. Or perhaps these perverse effects would eventually materialize with a massive basic income. If so, the non-sustainability argument has force, and it means that there is some Goldilocks level of basic income, above which people drop out in droves. My own estimation is that if some such level exists, it is considerably higher than the figures posed above: none of the evidence from a wide range of benefit levels in the various experiments comes close to inducing a collapse in the labor market. Because of the benefits of added income, the inherent appeal of work, and its potentially growing attractiveness due to changing power relations, it seems to me that an increasingly generous basic income will face other sustainability problems long before some mass exodus of labor buckles the economy.

This brings us to a second feasibility constraint: a decent basic income might be impossible under capitalism due to capital flight. In this story, high taxes or high wages will lead capitalists to disinvest, thereby undermining the revenues required to fund an expensive basic income. How narrow are the bounds of a progressive welfare state within the context of capitalism? Would basic income provoke debilitating levels of capital flight, thereby depleting the tax base necessary to fund the scheme?22 Although UBI is undeniably expensive, this criticism is overstated. One way to think about the problem is as follows: At the highest level of abstraction it is clear that a country like the United States is far from the threshold where tax revenue as a percentage of GDP reaches its theoretical limit inside a more or less capitalist economy. If the lower bound for this theoretical upper limit is the Danish level of about 51 percent, the United States, at about 26 percent, can afford to double its spending. On abstract feasibility grounds, there is plenty of room to grow the portion of resources that we devote to public purposes before the Marxist theory of the state kicks in to insist on a hard limit to left policymaking within capitalism.23 This counterargument obscures many important details — for example, the types of tax instruments used can significantly impact the likelihood of capital flight — but it is worth recalling that the threat of capital flight is often just that: a threat.24 If higher social spending is forcibly imposed on them, there is good reason to believe most capitalists would accept it, albeit unhappily, rather than abandon their firms.

Even if there is good reason to believe that the threat of paralyzing capital flight is itself far off, it may still be ultimately fatal at some threshold. At this point, however, it is likely that social and political conditions also begin to change. Indeed, as basic income grows — because of rising expectations, the program’s rising popularity, and an increasingly empowered populace — there will be a greater need to find new funding by directly taxing capital through a range of mechanisms. Perhaps funding schemes that heavily tax capital are avoided at first because of the sensitivity of investment, but eventually it becomes an unavoidable revenue stream, thereby exacerbating the capital flight threat. One solution that may become viable for political leaders is — in fits and starts, and in specific industries — a program to socialize various means of production. The initial hazard posed by capital flight may thus become an opportunity. This will help solve the underlying economic problem of abating private capital’s need for profits, while also serving as a fresh source of funding. For example, John Roemer’s coupon socialism model is essentially a basic-income-like dividend funded by the universal ownership of all capital assets.25 This story is of course highly speculative, but as a sketch of the transition to socialism it seems about as plausible a way to surmount the capital flight problem as any. Call it the basic income road to socialism.

To conclude this section, it is worth making note of a final, more pointed economic critique of basic income; namely, that the policy is nothing more than an employer subsidy. One version of the argument goes like this: there is a subsistence wage out in the world that is historically determined, but more or less fixed, and if the state can be made to cover some of that wage, employers will happily pay less of it.26 Apart from resting on an unsustainably functionalist argument about wage setting, the inner logic is absent. Wage declines do not happen magically — they have to be imposed. But when workers have an exit option, a bargaining chip, wages are likely to go up rather than down.27 Indeed, in the case of Mincome, we can observe this very effect: relative to businesses in control towns, basic income forced Dauphin businesses to raise wage offers in order to better attract workers who now had a decent alternative.28

The argument goes further. Even a small but unconditional basic income would not be an employer subsidy. To clarify, take a seemingly similar case: The US Earned Income Tax Credit is an employer subsidy, but not because of some functionalist mechanism about subsistence wages; it is an employer subsidy because it is an income transfer that is conditional on work and therefore increases the labor supply, which pulls wages down.29 In contrast, a small unconditional basic income would, in a small way, raise the reservation wage of labor, just as food stamps, in a small way, raise the reservation wage of labor and lower work hours — they allow people to be just a bit pickier.30Provided a basic income policy is not conditional on work, even a modest version added to the current welfare state would make it marginally easier to say no to bosses because it offers a modicum of an alternative.

It is important to put the employer subsidy position — a truly classic case of Albert O. Hirschman’s perversity thesis — to bed because, first, there is no evidence to support it, and second, it forecloses on the otherwise reasonable strategy that views a small basic income as a way station to a large one.