Will a basic income boost entrepreneurship, or discourage it?
“What would you do with $1,000 a month on top of whatever you now make?” asks presidential candidate Andrew Yang in a plea for voters. “Let’s find out.”
It’s a question nearly everyone has considered – what they’d do with some extra cash, no strings attached. Now that universal basic income has become a legitimate policy proposal, however, it’s a question with actual economic implications – such as what it means for innovation.
Proponents say it could be a boon for entrepreneurial activity. Critics say it’s a boon for laziness.
“The problem with most political assertions about universal basic income is that they are being made ‘ceteris paribus,’ which means ‘all else remaining equal,'” said Peter C. Earle, economist at the American Institute for Economic Research. In other words, predicting the effects of UBI is not as simple as adding $12,000 to the median American income.
What remains unclear is how UBI would affect institutional investors, consumer demand or the veracity of current economic predictions, Earle said. “The effect of essentially dropping $4 trillion into the U.S. economy and financing it with vastly increased taxes on certain small groups is essentially impossible to predict.”
Futile or not, we spoke with several entrepreneurs on how basic income could fuel – or stifle – economic innovation.
What is universal basic income?
Universal (or unconditional) basic income is a periodic stipend paid to every member of a society, regardless of means and situation. In the case of Yang’s “Freedom Dividend” proposal, that’s $1,000 a month to every U.S. citizen over the age of 18. “Yes, that means you and everyone you know would get $1,000 a month every month from the government, no questions asked,” his campaign states.
According to the Citizen’s Basic Income Trust, UBI is defined by the following conditions:
- Unconditional: Other than age, there are no conditions to receiving payments, like income level or employment status. Bill Gates would get UBI.
- Automatic: UBI is paid automatically each pay period – even the smallest amount of red tape defeats its purpose.
- Non-withdrawable: As a recipient’s economic circumstances change, UBI remains constant (see “unconditional”).
- Individual: UBI is per person, not per household.
- As a right of citizenship: UBI is guaranteed with citizenship (which, Yang admits, would raise the demand for U.S. citizenship).
There are some programs, like a negative income tax or guaranteed minimum income, that come close to UBI without satisfying every condition. The Alaska Permanent Fund and Norway’s Oil Fund – both social dividends funded from oil revenues – come close to UBI, except that payments vary in amount and are not enough to meet basic living standards.
In 2017, Finland launched a basic income experiment, in which 2,000 unemployed Finns were randomly selected to receive 560 euros ($635) per month. Preliminary results released in 2019 suggested that, while happiness levels increased, recipients were no more likely to find employment than the rest of the population (though some consider it a victory that they were no more likely to give up). Once again, however, the program does not fit the exact definition of UBI, as it was only given to unemployed citizens. There’s no telling how it could affect employed people.
Support for UBI
Supporters of UBI are difficult to categorize. While income redistribution tends to be a left-wing agenda, UBI has historically drawn support from figures across the political spectrum, from Martin Luther King Jr. to non-interventionist economist Milton Friedman, who supported the idea as a more efficient alternative to what he saw as convoluted welfare programs.
It’s also made for some odd bedfellows among the Yang Gang, which has united progressives and free-market tech moguls (most recently Elon Musk), and even garnered some unwanted support from white nationalists.
While Yang may be the unofficial face of the UBI movement in the United States, the idea is not new. In 1797, inspired by the Iroquois’ lack of private property, Thomas Paine proposed that all land be “the common property of the human race,” meaning any landowners would have to pay “ground rent” into a community trust. Much like with UBI, the dividends from the trust would be doled out automatically in “payment” to the non-landowning majority. The U.S. even came close to UBI in the 1970s when Richard Nixon proposed a negative income tax, only for it to be shot down by Congress.
Innovation under a universal basic income
The concept may be an old one, but UBI has become timely once again, thanks in large part to the impending threat of a “robot revolution” – a survey of artificial intelligence experts conducted by the BBC estimated a 50% chance that all jobs would be replaced by AI in 120 years.
One readily apparent example of this technological unemployment is that caused by self-driving trucks, something Yang often invokes to draw urgency to the issue. Driverless technology already exists in a safer form than human-powered vehicles. By some estimates, driverless trucks will dominate the roadways by 2027. Truck driving is still the most common occupation in 29 U.S. states, and demand will only grow before that cliff is reached, leaving millions of middle-class Americans suddenly unemployed. This is where UBI comes in – something supporters view not as a frivolity, but a necessity.
According to Yang, however, the positive economic reverberations of UBI will go beyond meeting our basic needs.
“UBI would be the greatest catalyst for new jobs, entrepreneurship, and creativity we have ever seen,” his campaign claimed in a statement. Opponents, meanwhile, argue that UBI will only serve to stifle innovation. At the root of the debate is a conflicting narrative on what exactly motivates entrepreneurs.
The case for UBI stifling innovation
According to opponents, the fatal flaw of UBI is the fatal flaw in all big-government proposals: It will lead to complacency. If there’s free money going around, there’s no incentive to create your own job or start your own business, let alone pioneer some innovation.
Innovators are those with “the grit to bang down doors that are often banging in your face,” said Radha Agrawal, serial entrepreneur behind Daybreaker, an events company for morning dance parties, and Thinx, the period-proof underwear. “[It’s] always having an endlessly curious mind that doesn’t accept the status quo.”
What prevents people from innovating is not so much a lack of resources as poor time management, Agrawal said. “People are not efficient with their time, and they don’t have the mental grit to say, ‘No, I’m going to be disciplined and spend an hour each night chipping away at this project.'”
She also said that, based on her experience, some government-supported social programs don’t create motivated communities and instead can lead to entitlement.
Others go on to argue it’s the very lack of a safety net that motivates entrepreneurs, or “knowing that it is do or die, being all in, 100% or nothing,” said Amy Finlay, co-founder of Edinburgh IFA. “I think the idea of having a ‘safety net’ there would take away that hunger and determination that entrepreneurs must have to keep pushing forward.”
There is some evidence for the complacency argument in Norway’s Oil Fund. While it has brought the country great economic prosperity, Norway lags behind its Scandinavian neighbors in innovation and startup development, and some blame the country’s dependency on oil wealth.
The case for UBI fueling innovation
Proponents of UBI, meanwhile, see it as a way to tap into the potential of those who would not otherwise have the opportunity to be entrepreneurs.
“UBI will only increase innovation – it is a total privilege to have the cushion of enough to live on, such that someone can pursue a great idea they have,” said Britta Schell, who runs her own market research consultancy. “I was only able to start my own business because I was fortunate to have health benefits and income from my husband’s full-time job … [I] couldn’t have built my business without this support.”
For Schell, it’s also a generational issue. “Millennials and Gen Z are absolutely drowning in education debt, and I think daily about how many fantastic business ideas just aren’t coming to life because young people have to keep up with debt payments and just don’t have the luxury to pursue them.”
As for the do-or-die argument, Schell disagrees. “The determination to succeed comes from feeling so strongly in your idea, not a fear of failure. And I just can’t relate to that argument … Most are already living their lives that way, but the ‘no turning back’ is on their day-to-day job, because they are on such a debt precipice.”
Yang’s campaign shares this view. As its website states, “UBI increases entrepreneurship because it provides for basic needs in the early lean days of the company and acts as a safety net if the business fails.”
According to Yang, UBI will also fuel innovation from the demand side by creating more consumers with disposable incomes to sell to.
Is entrepreneurship beside the point?
Whether UBI will fuel or stifle entrepreneurship, there are supporters who argue this outcome is irrelevant to its actual purpose.
“I would frame basic income as a way to sustain, rather than boost, consumption,” said Alex Howlett, host of Boston Basic Income and founder of Project Greshm. “I would not frame it as a way to boost employment. And I would question whether boosting employment for employment’s sake is a reasonable goal in the first place … creating employment for people is too circuitous of a route for supplying consumer income.”
Besides, the main priority of UBI was never to reinvigorate business per se, but to offset the effects of automation – at least for the Yang Gang. If automation is replacing work and UBI is covering basic needs, does it even matter whether recipients find employment – through entrepreneurship, re-education or otherwise?
As Howlett explained it, UBI would negate the need to create pointless jobs for those displaced by technology.
“If we give people more freedom, some of those people will still choose to be unproductive, but at least it will be a choice,” he said.
Howlett disagrees that innovation can only occur out of desperation.
“As far as entrepreneurs being motivated by scarcity, that may be partly true,” he said. “But what we tend to see in the real world is that successful entrepreneurs are people who had the resources to take risk.”