John Richards’s review of Paul Collier, Exodus: How Migration is Changing our World (New York: Oxford University Press, 2013) appeared in Inroads 35 (Summer/Fall 2014).

Paul Collier’s Exodus, which I reviewed in Inroads in 2014, is an economist’s assessment of the pros and cons of large-scale immigration. He began the book with a précis of his family history. Prior to World War I, his grandfather, Karl Hellenschmidt, migrated from an impoverished German village to Bradford, at the time a prosperous city in northern England. Come the war, a “gutter rag” newspaper labelled Hellenschmidt a traitor and a mob ransacked his shop. Paul’s grandfather was interned; his grandmother sank into terminal depression. His father, age 12, left school to run the shop. A quarter-century later, the threat of European war reemerged and Paul’s father decided to change his name and his identity and become English.

Given this family history, the reader might reasonably expect a vigorous denunciation of host-country nationalism and a defence of immigrants’ rights. That is not Collier’s conclusion. A strong national identity, he argues, is a necessary – although obviously not sufficient – condition for a society to have a successful set of social programs. Without a reasonably strong national identity, he argues, the rich will not agree to pay high taxes to fund programs that disproportionately benefit the poor. While the host country has an obligation to suppress violent anti-immigrant activities, immigrants have an obligation to integrate and accept core features of the host country’s national culture – such as expectations of group reciprocity on social programs. More on reciprocity below.

In 2014, I agreed with Collier’s conclusion. Immigration is a mixed blessing. As I wrote at the time,

Immigrants clearly benefit from immigration. The benefits to members of the host society are ambiguous and often unevenly distributed. Those left behind in the country of origin may benefit from emigration via several routes, starting with remittances … However, if the state of governance (in the home country) is very low, emigration of the most capable may well be at a level that serves to entrench dysfunction. Collier cites Haiti: most decently educated Haitians are living in New York and Montreal (I should have added Paris). Were they living in Port-au-Prince, they would be less prosperous but their political weight would improve prospects for decent governance.

In 2021, I essentially agree with what I wrote in 2014. Were I writing the review now, I would elaborate on the role of immigration to Canada in explaining the disruptive increase in housing prices over the last decade, particularly in Toronto and Vancouver. There are multiple causes for housing price increases, but among them is the high concentration of new immigrants, nearly half of whom opt for one of those two cities.

Collier reworked and expanded the arguments in Exodus in his 2018 book The Future of Capitalism.¹ This book is his attempt to summarize conclusions from a long career as a World Bank economist in Africa and as a senior professor at Oxford University. As in Exodus, he slips fragments of his family history into this book. The reader learns about his cousin: “Aged fourteen, my cousin and I were in tandem: born on the same day, the children of uneducated parents. (We) had won places in grammar schools (academically oriented government schools). Her life was derailed by the early death of her father; shorn of that authority figure, she became a teenage mother, with its attendant failings and humiliations.” A dramatic contrast with his own education and career.

Reciprocal obligations and the welfare state

Collier chose his title to honour Anthony Crosland, a prominent Labour Party MP and public intellectual in the quarter-century following World War II. In 1956, Crosland published The Future of Socialism, in which he made a sharp distinction between social democracy, a set of policies intended to equalize opportunity, and Marxist-inspired strategies that seek to contain corporate power via nationalization of major firms. Both Crosland and Collier conclude that the evidence of the last two centuries is unambiguous: strategies that accommodate private corporations and markets are the only institutional basis through which the majority in a country can escape poverty – whether it be the 19th-century U.K. or 21st-century China. While capitalism is the necessary basis for economic productivity, left to itself capitalism does not assure high-quality basic services for all – and on occasion, as occurred in 1929 and 2008, it derails.

Collier and Crosland emphasize that the realization of social democratic goals in the mid-20th century owes much to the distress arising from the Great Depression of the 1930s and the sacrifices of World War II. Ultimate victory over fascism and mass unemployment bequeathed to the U.K. and U.S. a strong national identity among their citizens. Collier’s summary:

Social democracy worked from 1945 until the 1970s because it lived off a huge, invisible and unquantifiable asset that had been accumulated during the Second World War: a shared identity forged through a supreme and successful national effort. As that asset eroded, the power wielded by the paternalistic state became increasingly resented.

An element of this asset was agreement (more or less) among the majority, including the rich, to pay much higher taxes to fund massively expanded postwar social programs – the most important being universal health insurance and good-quality kindergarten-to-college education. Collier makes passing reference to parallel developments in continental Europe, but he primarily discusses the New Deal in the United States and the postwar Labour government in the U.K. Funding social programs required that government capture about 40 per cent of GDP via taxes, at least twice the share captured in the 1920s. The Democrats created better education programs in the United States than did Labour in the U.K. (for example, the GI Bill catalyzed U.S. expansion of college education); Labour created better health care programs (the single-payer National Health Service providing universal medical, hospital and pharmaceutical insurance).

The Magna Carta of the U.K. welfare state is the Beveridge Report, tabled in Parliament in 1942. William Beveridge was an economist who devoted his career to social policy reform in the U.K. (Leonard Marsh participated in research under Beveridge. He subsequently emigrated to Canada and authored a Canadian equivalent, submitted to Ottawa’s Parliament in 1943.) Beveridge perceived the welfare state as a set of reciprocal obligations among citizens. His report contains many passages on the obligation of the rich to pay highly progressive income taxes and the obligation of the working classes not to abuse health insurance, unemployment insurance and other social insurance programs.²

As have others, Collier describes the post-1980 lowering of global trade barriers, rise of manufacturing capacity in East Asia and technological change favouring jobs that require education over those that require manual skills. With some justification, Margaret Thatcher and Ronald Reagan succeeded in portraying centre-left governments and unions of the 1970s as “special interest groups” hampering economic development. When they came to power in the 1980s, major U.K. and U.S. coastal cities thrived; however, many cities dependent on traditional sectors fell into prolonged decline (shipbuilding along the Clyde, car manufacturing in Detroit). Income inequality has risen throughout high-income countries, more prominently in the U.S. and U.K. than in most others. In statistical explanations of family income distribution, a variable that looms large is parents with a college degree relative to those without. Geographic distribution of college graduates correlates closely with prospering and declining regions. In terms of group identity, Collier follows David Goodhart’s characterization of well-educated “Anywheres,” who increasingly identify with cosmopolitan international communities and who are abandoning their earlier identification with domestic “Somewheres.” ³

Communalism

Cataloguing the factors that have worsened income distribution in high-income countries is hardly novel. The “big” idea that Collier pursues in this book is communalism: for better or worse, he insists, the human being is essentially a communal animal. Most of us identity with members of our extended family – albeit to varying degrees. Prior to settled agriculture 10,000 years ago, identity did not extend much beyond small villages. Among the changes brought on by industrialization, most of us now identify, at least to some extent, with our nation. Since the 19th century, we have extended our sense of identity from city to region to the country of which we are citizens. Collier makes references throughout to loyalties among working-class families in industrial cities (such as Bradford) in northern England.
Our portfolio of identities may extend beyond the nation-state but, as the travails of the European Union repeatedly reveal, most citizens of nation-states are loath to cede ultimate political authority to supranational bodies. Our identity with communities beyond our own country does exist – for example, in the form of foreign aid in times of natural or human-made crises – but this identity is weak relative to that accorded to citizens within our country. Depending what programs one counts, Canadian governments spend about 25 per cent of GDP on social programs for Canadians, and about 0.3 per cent on official foreign aid. Admittedly, new immigrants over the first and second generations usually maintain an identity with their country of origin far greater than most.

Collier relies heavily on Jonathan Haidt, champion of “moral foundations” theory.⁴ According to Haidt, human communities construct their moral conventions intuitively, with scant attention to complex implications and intellectual consistency. Dominant moral conventions are based on six fundamental values: loyalty to members of the community however defined; a sense of fairness among community members; extent of individual liberty; behavioural norms that define sanctity of community members; care or empathy for suffering among others; various concepts of equality. Different communities accord varying salience to each of these values. Haidt’s six intuitive human values are open to much debate. Here is how Collier interprets them.

Having staked out his belief that humans are fundamentally communal in both Exodus and The Future of Capitalism, Collier vigorously condemns academic economists for constructing elaborate models that envisage the economy as a series of market exchanges among individuals, each possessing a set of preferences and maximizing their utility (personal well-being) subject to their income and market prices. The idea is not wrong if the goal is maximizing national GDP. Deng Xiaoping understood the insights of The Wealth of Nations. Among his first accomplishments was to allow farmers, as opposed to government bureaucrats, to decide what crops to grow. Allowing farmers to choose crops yielding maximum expected income resulted in a doubling of wheat production from 1978 to 1985. By the end of the 1980s, Chinese production of grains and tubers was three times that of India.

Collier acknowledges that, post-1980, free trade “neoliberal” economic policies have increased world average per capita income and have modestly reduced worldwide income inequality – thanks to hundreds of millions of peasants in China and India moving to town and earning higher incomes in manufacturing jobs. But, he argues, this has been at the cost of increasingly polarized societies within high-income countries. Individual income maximization overemphasizes individual liberty and underemphasizes values of fairness.

Also, Collier has little good to say about Rawls. Rawls insists that we should make moral decisions as if each of us is behind a “veil of ignorance” as to our own future placement in the social hierarchy. Rawlsians will assent to a proposed policy that increases the sum of utility among those in a country if it offers benefits to those with the lowest utility. This reasoning, Collier argues, overemphasizes equality. It invites formation of minority identity groups defining new judicial rights. In reaction, populist demagogues (mostly conservative) and anticapitalist ideologues (mostly neo-Marxist) emerge in defence of the majority. Pragmatic policies of compromise may well become impossible.

Pragmatism, a nebulous philosophical trend that arose in late-19th-century America, rejects the search for philosophical and scientific certainty.⁵ It is associated with John Dewey and other liberal reformers of the first half of the 20th century, who argued for incremental progress and rejected ideological certainty. To give the flavour of Collier’s conclusions, I quote at some length a polemical passage:
In its origin (pragmatism) is communitarian, seeing the task of morality as doing our best to fit our actions to the values of our community and the specifics of the context … it rejects ideology, no one value is overarching, absolute and timeless. In real communities, the relative importance of values evolves; pragmatism asks “What, here and now, is more likely to work?”

In contrast, ideologies each lay claim to supremacy, derived from reason, over those who disagree with them. The custodians of the supreme ideology are a vanguard of the cognoscenti. Religious fundamentalists invoke a unique divine being as the ultimate authority; Marxists invoke the dictatorship of the “proletariat” guided by a hierarchy. Utilitarians invoke the sum of individual utilities and Rawlsians invoke “justice,” as defined by themselves. Just as pragmatism stands in contrast to ideology, it also stands in opposition to populism.
Collier acknowledges that “pragmatism has its dangers. The freedom to deduce moral actions situation-by-situation has to be bounded by our inherent limitations … Worse, we are tempted to fit reasons to our values. Worst, our judgements are no better than our knowledge.” At this point, an example helps us understand Collier’s over-the-top critique of utilitarian and Rawlsian moral theory.

Given Collier’s extensive work on African development, he not surprisingly has much to say about ethical responses among high-income countries to the increase over the last three decades in refugees from Africa and the Middle East – not to mention Afghanistan. The proximate cause of rising refugee numbers has been civil wars in, for example, Algeria, Ethiopia, Mali, Mozambique, Niger, Nigeria, Côte d’Ivoire, Chad, Iraq, Syria and Yemen. A second proximate explanation is religion: in all these cases, conflicting interpretations of Islam are implicated. In some cases, all participants are Muslim, one side moderate and the other committed to various Salafist perspectives. In Syria and Iraq, the conflict has pitted Sunni against Shi’a – exacerbated by unsuccessful U.S. and NATO interventions. In Algeria and West Africa, conflict has erupted between educated urban elites whose incomes have risen dramatically in the half-century since independence and a rural population whose incomes have not risen. In rural areas, Salafist imams define morality and jihadist extremists attack schools as institutions leading to apostasy.

Rawlsian moral policy, combined with economists’ emphasis on global utilitarianism and the responsibility of care for those faced with war and natural disasters, implies large-scale immigration of refugees as the appropriate response to civil wars. Not surprisingly, Collier disagrees: we have plenty of evidence, he argues, that large-scale immigration of refugees with values profoundly different from those of the potential high-income host country is a catalyst for populist anti-immigrant demagoguery (Donald Trump in the U.S., Nigel Farage in the U.K., Marine Le Pen and gilets jaunes in France, Viktor Orbán in Hungary, Matteo Salvini in Italy).

The clash between the “moral foundations” of immigrants from developing countries and citizens of high-income countries readily leads to a breakdown of pragmatic policy. As I write in mid-October, U.K. leaders are mourning the assassination by the son of a Muslim immigrant of a highly respected MP as he met with constituents. The recently elected Labour leader, Keir Starmer, spends most of his energy attempting to shift the public view of Labour from Jeremy Corbyn’s neo-Marxist tiers mondisme to some version of social democracy.

Among European countries, France has been the most dramatically afflicted by a Huntington-style clash of civilization between well-educated citoyens de souche and Muslim immigrants who have been in France for three generations at most. To some extent, the French have themselves to blame. Their social policies are overly generous and contain few reciprocal obligations (such as transfers conditional on employment) designed to accelerate integration.

In 2015, jihadists assassinated the editors of Charlie Hebdo, a high-profile satirical weekly. In 2020, a radicalized Chechen immigrant assassinated Samuel Paty, a secondary school teacher who, in conducting the required curriculum lecture about laïcité and free speech, displayed caricatures of Muhammad. Between these two high-profile events, Islamist jihadis killed some 250 people in targeted attacks throughout the country.

Emmanuel Macron is a pragmatist, but the chattering classes in Paris are not currently talking about pragmatic policy innovations to hasten integration. They are discussing the rising public profile of Éric Zemmour, an articulate Jewish journalist born in France to Algerian immigrant parents. Zemmour is convinced that the key policy innovation needed to preserve French secular values is a halt to Muslim immigration and deportation of those found guilty of serious crimes. Zemmour may, or may not, enter the 2022 presidential election. His latest poll result (mid-October) is 17 per cent, second only to Macron at 24 per cent for the first round of the election.

If not large-scale immigration, what? Collier does not discuss a Canadian point system designed to keep out those with low education levels and unable to speak English or French. His response turns around a responsibility of high-income host countries to finance employment opportunities in countries abutting the source of conflict. A good idea, but international support for such major interventions is, at present, marginal.

Anywheres versus Somewheres in developing countries

Collier’s thesis is that social democracy tamed capitalism and afforded a “good life” to the great majority of residents in high-income countries. It took two centuries after Adam Smith for countries in Europe and North America to abandon revolution and 19th-century Manchester liberalism. If the post-1980 lowering of global trade barriers, rise of manufacturing capacity in East Asia and technological change have polarized income and political identities in high-income countries, should we not expect a somewhat similar dynamic in developing countries? This is a question that Collier does not pose.

In the mid-20th century, a national identity on behalf of sovereignty accorded legitimacy to the first generation of postcolonial elites. It is an understatement to note that the governing elites of most newly sovereign countries emerging from European empires did not pursue social democratic goals consistent with Collier’s expectations. They did not prioritize good-quality health clinics and hospitals, good-quality primary and secondary education or adequate employment opportunities beyond the major cities. Many countries (e.g. India and Pakistan) copied the Soviet obsession with centralized investment in heavy industry; many collapsed into deeply corrupt dynastic regimes (e.g. Uganda under Museveni, Iraq under Saddam, Syria under the Assad family, Libya under Gaddafi, Algeria under geriatric FLN leaders, Zimbabwe under Mugabe, Pakistan – intermittently – under the Bhuttos).

With many national differences, the post-1980 factors that have fractured national identities in high-income countries have done the same in low-income countries. Over the decades, urban elites in the rapidly growing megacities of developing countries have identified with the lifestyles of high-income countries. Many young adults living in villages have migrated to urban slums in hope of gaining access to higher-income employment. Some succeed in gaining a formal-sector job, either in the public sector or in a labour-intensive sector such as construction or garment manufacturing; most remain in the informal sector earning not much more than they would have if they had stayed in their village.

Admittedly, per capita GDP has risen in the developing world post-1980, even in the poorest regions, sub-Saharan Africa and South Asia. But averages tell us nothing about income inequality, which is very high. Over half the South Asian population lives below the World Bank’s lower-middle-income threshold of US$3.20 per person per day.

These observations are not new. They have motivated international bodies such as the World Bank and various UN agencies to “nudge” the governments of developing countries into adoption of social democracy. The highest-profile initiatives have been the UN’s 2000–2015 Millennium Development Goals (MDG) campaign followed by the 2016–30 Sustainable Development Goals (SDG) campaign. These campaigns have realized some success, but public sector corruption and underfunding remain pervasive and most SDG goals are unlikely to be met.

In South Asia, the urban elites have long since abandoned public education and health services. Among the near-poor (those with some discretionary income), an increasing share have abandoned government schools and health clinics in favour of low-fee private schools and mediocre private health care.

European and North American countries took two centuries before they decided that “tamed capitalism” was the best of many imperfect options. I wish the SDG campaign well in attempting to make the transition in 15 years.

Continue reading “If Not Immigration, Then What?” →

The following article is a response to Elaine Power and Jamie Swift Respond.

Power and Swift conclude that the B.C. Expert Panel report “gives no indication that the (panel members) themselves met with or spoke to anyone living on low incomes … Nor does it appear that Professor Richards spoke with any of the low-income people, often with complicated lives, who might benefit from basic income.” The expert panel did meet with many on low incomes, but maybe fewer than Power and Swift. The same applies to me. The basic income debate should not turn on counting the number of poor that we have met.

Power, Swift and I all agree that people living on low incomes “with complicated lives … might benefit from basic income.” I think more would benefit from the B.C. Expert Panel’s agenda of incremental reforms. Maybe I am wrong; maybe the B.C. panel is wrong. However, Power and Swift might have devoted a passage in their response to assessing the tradeoffs.

Central to my critique of basic income proposals is an argument, admittedly controversial, that communities in which transfer income becomes the major income source are prone in the long term to serious social dysfunction. In the early 1990s, the share of the Canadian population in receipt of social assistance exceeded 10 per cent, and long-term seasonal reliance on unemployment insurance (“lotto 10/42” – 10 weeks work, 42 weeks UI) was prevalent. These realities underlay work-oriented reforms to social assistance and unemployment insurance. In the United States, similar unintended consequences of intergenerational social assistance prompted President Clinton to accept work-oriented reforms to social assistance programming.

Power and Swift dismiss these issues as a “trope.” They make no mention of William Julius Wilson’s analysis of ghetto life in American cities, Case and Deaton’s “deaths of despair” analysis of opioid addiction, alcoholism and suicide among White working-class communities in the United States or exceptionally high suicide and homicide rates among Canadian First Nation communities in low employment regions.

Click to read the original article on the case for Basic Income, Work, Idleness and Basic Income, and the case against in Basic Income Provides Dubious Benefit at a High Cost. And while you’re here, check out the rest of the Basic Income Section in this issue of Inroads Journal!

Pictured: Doug Ford, whose government cancelled the Liberal government of Ontario’s basic income pilot in 2018. Photo by DickieBuckShot via Flickr.

The following article is part of a larger debate in our Basic Income section of this issue of Inroads Journal. To read the other side of the debate, check out Work, Idleness and Basic Income.

Employment is a key determinant of social outcomes

This century, the compounding of disruptive events has generated animated debates about reconfiguring the welfare state – among them, the pros and cons of a basic income.

The first major disruption to the social policy status quo was the financial collapse of 2008 and ensuing recession. Prior to 2008, an important social policy, pursued most aggressively in the United States and United Kingdom, was aid to low-income families wanting to buy a house. As long as house prices continued to rise, as they did from the early 1990s to 2007, the policy more or less worked as intended. When prices stopped rising, the fragile portfolios of many large banks and many working-class families led to cascading bankruptcies. The political fallout was collapse of confidence in centre-left and centre-right governments. While some of the ensuing populist upheaval occurred on the left (e.g. Jeremy Corbyn’s takeover of the UK Labour Party), most was on the right (e.g. “tea party” Republicans, Trump’s election, Brexit referendum).

The second disruption has been the massive shift of basic manufacturing from high- to middle-income countries, China in particular. With the post-1989 demise of traditional Communist conventions of five-year central planning as a viable development strategy, pragmatic elites in east and southeast Asia enabled private and state-owned firms to operate free of many previously entrenched corrupt practices – practices still prevalent in much of South Asia and sub-Saharan Africa. They also assured decent primary and secondary education for all. A reasonably well-educated population is a prerequisite for creating a large labour force able to “go to town” and become productive workers in export-oriented manufacturing. Consumers in Europe and North America have enjoyed the low prices at Walmart; the working class has not enjoyed the loss of well-paying manufacturing and resource-sector jobs, replaced by low-paying service jobs. In the West, income polarization has worsened.

The third disruption is the COVID pandemic, which has led governments in high-income countries to protect lives over jobs. Instead of a job, millions of laid-off workers have received income via ad hoc transfers.

Not surprisingly, many on the left and on the right now argue to cut the Gordian knot implicit in our complex set of conditional social programs and convert the new ad hoc transfers into an unconditional basic income for all adults. Conservative advocates of a basic income – Milton Friedman is the iconic example – envision a basic income that substitutes for many conditional social programs and leads to a net reduction in government transfers. Progressive advocates envision a basic income as a more solid foundation to reduce poverty.

Elaine Power and Jamie Swift present a well-argued version of the left-wing case. In brutal summary, they make three arguments:

• The ethical component: Poverty is a miserable state of affairs, and a basic income could more or less eliminate it.
• Minimal adverse consequences: Incorporation of a basic income in the social contract would not generate reduced employment or family dysfunction.
• Manageable financial implications: Financing a basic income does not require major, politically unacceptable changes to Canadian taxation conventions.

I am not persuaded. Let’s take each argument in turn.

The ethical argument

Our communal identities begin with the family. Over millennia, the scope of human identities has extended to our village, our tribe and, in the last two centuries, our respective nation-states. Identification as citizens of a nation, with accompanying benefits and obligations, came to prominence in the 19th century. In most high-income democratic countries, national identity is sufficiently meaningful that citizens elect governments intending to impose taxes equivalent to 40 per cent or more of GDP, a third of which is redistributed via provision of core services (basic education and health care) and cash transfers.¹ At present, cash transfers are provided to the old, the poor and the disabled. In Canada, since the 1990s, a new category of conditional transfers is large-scale transfers to low-income families with children. This was a quid pro quo for simultaneous tightening of access to social assistance.

At the current stage of human evolution, meaningful identity with the old, the poor and the disabled beyond the nation-state exists, but it is a marginal concern. Some high-income countries adhere to the UN admonition to spend 0.7 per cent of GDP on international development, but most countries, including Canada, spend less than half of 0.7 per cent on development.

The major disruptions that predated public support for the present welfare state were the Great Depression of the 1930s and the horror of World War II. For the UK and Canada, the “Magna Carta” of the welfare state is the Beveridge Report, tabled in the UK Parliament in 1942. Born in India, William Beveridge was an economist who devoted his career to social policy reform in the UK. Leonard Marsh, who participated in research under Beveridge, subsequently emigrated to Canada and authored a Canadian equivalent, submitted to Ottawa’s Parliament in 1943.²

Both reports called on governments, following World War II, to create a new social contract, with a dramatic expansion of expenditures on social insurance programs, education and pensions for the old. In 1945, the uncharismatic Labour leader Clement Attlee defeated Winston Churchill, the war hero. The postwar Labour government’s most important innovation was universal health insurance (the National Health Service). By the late 1960s, Canada achieved a similar set of expanded social programs.

Beveridge perceived the welfare state as a set of mutual obligations among citizens in a democratic society. His report is filled with passages on the “citizen’s obligation,”of which this one, on the obligations implicit in provision of unemployment insurance, is typical:

The correlative of the State’s undertaking to ensure adequate benefit for unavoidable interruption of earnings, however long, is enforcement of the citizen’s obligation to seek and accept all reasonable opportunities of work, to co-operate in measures designed to save him from habituation to idleness, and to take all proper measures to be well. The higher the benefits provided out of a common fund for unmerited misfortune, the higher must be the citizen’s sense of obligation not to draw upon that fund unnecessarily.³

Assar Lindbeck, one of the most important Scandinavian economists to have analyzed the welfare state, reached the same conclusion as Beveridge.⁴ For Lindbeck, the welfare state is a “triumph of western civilization … (However,) the day the ‘Lutheran ethic’ subsides in the population, and ‘Prussian discipline’ ceases to be exercised by the controlling administrators, the welfare state is in trouble.”⁵

A recent contribution to analysis of the postpandemic welfare state is the 500-page report issued by British Columbia’s Expert Panel on Basic Income in December 2020.⁶ The panel outlines many incremental reforms to improve and enlarge transfers to the poor; however, the authors reject a basic income on several grounds, the first being that it ignores Beveridge’s “citizen’s obligation” or Lindbeck’s “Lutheran ethic”:

The basic income philosophy is conceptually consistent with our stated goal of moving to a more just society … However, there are two major differences between the (principles espoused by basic income advocates) and our broader social justice–based framework … (We emphasize) two elements of public trust that are sometimes overlooked by basic income advocates: policy stability and reciprocity. Specifically, (policy stability) relates to the cost of a program, how it would be financed, how those costs would be distributed, and the overall economic effects. Reciprocity refers to mutual respect between those who are beneficiaries and those who are mainly paying to fund the supports … By emphasizing (individual freedom from poverty) and downplaying the collective interest, important considerations related to public trust – cost, economic implications, and reciprocity – are downplayed in the basic income principles.⁷

Opinion surveys are snapshots of opinion at a point in time. They are not the final word, but if we are concerned with mutual respect between those paying for social services and those receiving them, surveys should not be ignored. In mid-2020, the Angus Reid Institute released a national survey on support for a basic income (see table 1). The headline of the release (“Majorities Support Idea of Basic Income”) sins by omission. The majority (59 per cent) support the idea of a basic income, but only a third (36 per cent) are prepared to pay more in taxes to finance it. This statistic is similar to the willingness to pay (34 per cent) in a 2016 Angus Reid survey posing the same question. Admittedly, there are important differences in willingness to pay based on region, age, income, education and preferred political party.

Adverse consequences

Advocates of a basic income point to several large-scale pilot projects that indicate no dire employment consequences over the length of the pilot. The B.C. report agrees that, over the length of typical pilots (three years or under), changes in employment are minor.⁸ However, the authors of the B.C. panel report do not find this evidence convincing:

We do not believe that basic income pilots provide information that accurately reveals the effects that a permanent, ongoing, fully implemented basic income would have on people’s behaviour … people will not respond in the same way as they would to a permanent basic income available to all eligible persons, rather than a sample.⁹

The implication is that adverse long-term consequences emerge slowly and randomized control pilot studies (assessing “treatment” samples versus “control” samples) are not able to answer misgivings about long-term consequences. For basic income advocates to be convincing, they need to discuss some long-term “success stories” – examples of communities, formerly poor, faring better thanks to some unconditional intergenerational income transfer available to all members of the community at low or poverty-level incomes. To my knowledge, no such cases exist.

On the other hand, there are many potential counterexamples: low-income urban neighbourhoods in which intergenerational reliance on social assistance is the norm; rust-belt American cities that have suffered significant loss of stable manufacturing jobs and are reliant on social assistance; remote indigenous communities in high-income countries, from First Nations in Canada to the Sami in Scandinavia and Aborigines in rural Australia; native-born citizens of petromonarchies in the Gulf.¹⁰

In each of these counterexamples, basic income advocates can argue that factors other than reliance on transfer income are to blame for adverse social conditions. Admittedly, racism features in any analysis of urban poverty in U.S. ghettos; low education levels are associated with dysfunction in the American rust belt; disruption by European settlers of tribal societies is a lingering problem; dependence of industrial societies on Middle East oil extensively distorted political and economic incentives in the Gulf. All these qualifications matter, but nonetheless a common feature among these cases is serious social dysfunction arising from unemployed men.

Advocates of a “traditional” welfare state – I include here Beveridge, Marsh, Lindbeck and the B.C. Expert Panel – want high-quality universal social programs, in education and health in particular. They support generous in-work benefits to those with low earnings and generous transfers to the elderly, disabled and dependent children in lower-income households – categories that most citizens do not expect to be employed. However, they also want employment earnings to remain the major source of income for most households with adult members able to work. Not surprisingly, the B.C. Expert Panel’s report contains recommendations to supplement low earnings as well as to improve labour standards and pay for lower-skill jobs.

There is a long tradition in social policy that emphasizes the role of employment – young adult male employment in particular – as a key determinant of social outcomes in a community. There are several motivations behind this emphasis:

In general, two-parent families realize better outcomes for children and for themselves than do one-parent alternatives. In any community, women, when choosing marriage partners, use employment as a proxy for men’s suitability as fathers. In marginalized communities, where many young men experience a low employment rate, young women often seek second-best alternatives (such as grandmothers as prime caregivers) for raising children.¹¹

Adverse employment conditions are particularly damaging for men with low education levels relative to the norm. Over the last quarter century in the United States and most other high-income countries, men with high school or less have disproportionately experienced employment and income declines and above-average prevalence of many pathologies.¹²

Adults typically form unions and begin families while in their 20s. Those in their 20s who are not in education, employment or training – NEET, as they are called – are less likely to form stable unions than the non-NEET. The NEET group is less likely to participate actively in raising children that arise from a union and is prone to depression and abuse of alcohol and drugs.¹³

As summarized in the above bullets, the emphasis on employment may appear excessive. There is, nonetheless, extensive evidence that unstable and poorly paid employment is central to any understanding of intergenerational poverty in high-income countries. William Julius Wilson, a prominent American sociologist, developed his ideas on the role of employment in family formation primarily in the context of American inner-city ghettos. Writing in 1996, he summarized:

The disappearance of work and the consequences of that disappearance for both social and cultural life are the central problems in the inner-city ghetto. To acknowledge that the ghetto still includes working people and that nearly all ghetto residents, whether employed or not, support the norms of the work ethic … should not lead one to overlook the fact that a majority of adults in many inner-city neighborhoods are jobless at any given point in time.¹⁴

In several studies, American economists David Autor, David Dorn and Gordon Hanson have analyzed the impact of the decline in stable manufacturing employment over the last quarter century. In a recent study, in 2018, they analyzed change in manufacturing employment and social outcomes using detailed U.S. census data at the local level between 1990 and 2014. They concluded,

On average, trade shocks differentially reduce employment and earnings of young adult males, compared to young women, and shocks to male relative earnings reduce marriage and fertility. Consistent with prominent sociological accounts, these shocks heighten male idleness and premature mortality, and raise the share of mothers who are unwed and the share of children living in below-poverty single-headed households.¹⁵

Over the last decade, Princeton economists Anne Case and Angus Deaton have analyzed cohorts of Americans born since 1940 in detail. They focused on the prevalence trends of numerous morbidities and sources of distress – suicide, chronic joint pain, difficulty in socializing, heavy drinking, mental distress, sciatic pain, drug/alcohol mortality – and paid special attention to those who were not married or had never married and those who were not in the labour force. Adjusted for age, these symptoms of community distress were more prevalent among those born more recently. Not only has prevalence risen among younger cohorts, but the increase in prevalence rates has also accelerated among cohorts born since 1980.

Case and Deaton make no claim to have the definitive explanation for these trends. However, they introduce evidence on the importance of declines in wages and in labour force participation among White working-class Americans with education levels below a college degree. Among younger cohorts of men with low education levels, the accelerating prevalence of these pathologies is more pronounced among White than among African and Hispanic Americans.

There have been no studies in Canada as rigorous as those studying social problems in low-employment U.S. communities, but there is abundant cross-section evidence – fragmentary and some of it dated – to the effect that First Nation communities with low employment rates experience high social dysfunction. Statistics Canada publishes descriptive studies on homicide statistics in Canada, disaggregated in terms of Indigenous/non-Indigenous identity, gender and province. Averaging results over three years, 2016 to 2018, the Indigenous homicide victim rate outside the Prairies was four times the national non-Indigenous rate. In the Prairie provinces, the Indigenous homicide victim rate was 12 times the national non-Indigenous rate. Three quarters of Indigenous victims of homicide are men. A disproportionately large share of Indigenous homicides (two thirds of both Indigenous victims and Indigenous perpetrators) take place in the Prairie provinces, where the Indigenous employment rate is lowest. A similar tragic story can be told about Indigenous suicide rates.¹⁶

Financing a basic income

In 2017, the Liberal government of Ontario launched a basic income pilot, which was cancelled by the incoming Conservative government the next year.¹⁷ The basic income was set at $17,000 for a single individual and $24,000 for a couple. These amounts were 75 per cent of the relevant Low Income Measure, one of the poverty thresholds calculated by Statistics Canada. The federal Parliamentary Budget Office (PBO) has estimated the annual gross cost of a national basic income, based on parameters of the Ontario pilot. Canada-wide, the lowest gross cost of the basic income was estimated at $92 billion and the highest at $196 billion,¹⁸ depending on variation in the rate at which the basic income is reduced as earned income rises (benefit recovery rate or BRR, illustrated in box 1). To give some perspective, total estimated federal tax revenue for the 2019–20 fiscal year (prepandemic) was $286 billion. Depending on the BRR, the basic income would cost between one third and two thirds of total federal tax revenue.

The PBO offset gross costs by eliminating numerous federal and provincial tax credits and other programs targeting low-income households. Including these offsets, the net annual cost ranges from $46 billion to $150 billion. Note that some of these offsets imply sizable tax increases for all Canadian taxpayers. The “basic pesonal amount” is a nonrefundable tax credit that implies no federal income tax is payable on the first $13,200 of taxable income in the 2020 tax year. The provinces offer a similar tax credit, which varies by province; in B.C., it implies no provincial income tax on the first $11,000 of taxable income. These tax credits are available to all taxpayers, but are of greatest relative benefit to those with low taxable incomes. Elimination of these credits would raise the annual income tax liability of each B.C. tax filer by $2,500.¹⁹

Simulating the impact of a basic income

The B.C. Expert Panel undertook many simulations of the impact on poverty to be expected from a basic income, varying two key parameters: the value of the basic income transfer to those with no earnings and the rate at which the basic income is reduced as earned income rises (benefit recovery rate or BRR). In one case, which is discussed in detail, the estimated decline in poverty rate is from 8.6 to 2.7 per cent (in terms of the Market Basket Measure, a poverty threshold calculated by Statistics Canada):

• the basic income for an individual is $18,000 annually;
• the BRR is set at 50 per cent;
• the break-even earnings level beyond which no basic income transfer is disbursed is $36,000.^*

We need to introduce one more concept, the marginal effective tax rate (METR). The METR is simply the sum of the relevant BRR and relevant tax rates (personal income tax, Employment Insurance and Canada/Quebec Pension Plan) based on earned income.

In figure 1, the blue line illustrates the METR at different earnings levels arising from the federal plus provincial personal income tax, with no benefits provided. At earnings below approximately $13,200, the METR is zero or negative. Why zero? The “basic personal amount” is a nonrefundable tax credit that implies no federal income tax is payable on the first $13,200 of taxable income; a similar B.C. credit implies no provincial income tax is payable on the first $11,000 of taxable income. Why negative? Canadian social policy also includes an earnings supplement for those with earnings above a lower threshold and below an upper threshold. Increases in earnings within this range increase the size of the supplement. Above the upper threshold, the supplement remains in place. At a somewhat higher earnings level, the supplement is subject to a BRR. The effect of the earnings supplement BRR, added to personal income tax rates, is a METR between $15,000 and $20,000 of close to 40 per cent. Once the break-even earnings level for the earnings supplement has been reached, the METR declines until earnings place the taxpayer into a range with a higher marginal tax rate.

The orange line applies to those receiving temporary assistance in British Columbia. It illustrates the “welfare wall,” a major disincentive for anyone “on welfare” to seek employment to get “off welfare.” Beyond a $400 per month exemption in B.C. (now raised to $500), the welfare BRR is 100 per cent. Once earnings exceed the break-even temporary assistance level, the METR falls to the blue line.

The purple line assumes a basic income of $18,000 for an individual, subject to the 50 per cent BRR associated with the basic income. Until the basic income break-even income, the purple line lies 50 percentage points above the blue line. Tax credits and the earnings supplement keep the METR below 50 per cent until approximately $11,000. Thereafter, the METR rises to 80 per cent until the $36,000 basic income break-even earnings level. The METR associated with this basic income model entails a “wall” lower than in the case of temporary assistance, but sufficiently high that the BRR over the $15,000–$36,000 earnings range is 80 per cent.

The choice of parameters for this illustration was based on minimizing the program cost while reducing the provincial poverty rate below 3 per cent. A lower BRR reduces the METR and hence the employment disincentive, but it increases program cost because the break-even earnings threshold at which recipients no longer receive any basic income rises. If, all else constant, the BRR was lowered to 30 per cent from 50 per cent, the METR “wall” would decline to 60 per cent over much of the range between $15,000 and the break-even earnings level of $60,000. The estimated cost of implementing this revised model in B.C. rises from $9 billion to $15 billion. To give perspective, the basic income cost with a 50 per cent BRR is nearly twice the province’s preK–12 education budget, and with a 30 per cent BRR nearly three times the preK–12 budget.

^* British Columbia Expert Panel on Basic Income, Covering All the Basics: Reforms for a More Just Society, p. 363.

Instead of a basic income

If we ignore potential long-term unintended consequences, the basic income undeniably generates benefits to the poor in B.C. (the Expert Panel assessed a B.C. basic income, not a national program). For example, the panel estimated that the model discussed in the box will reduce the province’s poverty rate from over 8 per cent to below 3 per cent.

The Expert Panel’s final argument is that the opportunity cost of a basic income is too high. At an annual budgetary cost between $3 and $5 billion, the panel concluded that many poverty-related problems, more urgent than a basic income, could be addressed. Among many other changes, the report’s 65 recommendations included:

• reforming disability assistance programming, including an increase in the monetary benefit for those on disability assistance to the Market Basket Measure poverty threshold (at a cost of approximately $900 million);
• increasing temporary assistance benefits and reducing the associated BRR to 70 per cent (over $300 million);
• increasing the earnings supplement for adults without children ($400 million);
• extending targeted health benefits currently available only to social assistance beneficiaries, including dentistry, to low-income families not receiving social assistance (about $800 million);
• increasing services and financial support for young adults transitioning out of care (under $200 million);
• providing rent assistance (about $900 million).

My one major criticism of the Expert Panel is that it said little about the potential for high-quality preK–12 education to reduce intergenerational poverty. Admittedly, among the 65 recommendations are school bonds and funds for training social assistance recipients. One of the proximate goals for poverty reduction should be to reduce the incomplete secondary school rate among young adults aged 20 to 24. (Currently, this rate is about 9 per cent nationally.) Among those not achieving secondary certification by age 25, the most important group is the Indigenous population. On the basis of 2016 census data, among those on-reserve, fewer than half (48 per cent) have achieved secondary certification. The ability of those lacking such certification to find permanent employment at decent wages, whether living on- or off-reserve, is severely restricted. Among those who identify as First Nation but live off-reserve, secondary completion is higher (75 per cent). Among Métis, the share is 84 per cent, and among the non-Indigenous it is 92 per cent.²⁰

Reducing incomplete secondary rates is feasible – but it is expensive. Among the most successful programs is Pathways to Education, a program of intense secondary-level mentoring and tutoring in low-income neighbourhoods. Its first pilot was in a public housing project in Toronto; Pathways has slowly expanded to inner-city neighbourhoods across Canada. The annual cost per student is about $5,000. The program has undergone several rigorous evaluations, which indicate its efficacy.²¹ Had I been on the Expert Panel, I would have argued for the array of services provided instead of a basic income to include several hundred million dollars spent on programs such as Pathways.

While you’re here, why not check out the other side of the debate in Work, Idleness and Basic Income, and the rest of our Basic Income section of this issue of Inroads Journal?

And for the rebuttal to the case against basic income, click to read Elaine Power and Jamie Swift Respond.

Continue reading “Basic Income Provides Dubious Benefits at a High Cost” →