USBIG
Discussion Paper No. 33, March 2002
Work in progress, do not cite or quote without author’s permission
Funding a Planet-Wide
Citizen's Income: Trial Calculations
Myron J. Frankman
myron.frankman@mcgill.ca
http://icesuite.com/myron.frankman/files/fpwci.html
1st
Conference USBIG Network, New York City
March 8,
2002
Abstract: The case for the early implementation of a global income guarantee (GIG) rather than programs that reinforce the privileged position of those living in the rich countries and (likely) widen the gaps between rich and poor countries is briefly stated. Also briefly stated is my view that can be summarized as "Global Democracy or No Democracy". I then go on to provide trial calculations showing the feasibility of a GIG at levels of taxation which may be moderate enough to convince those wishing to protect some measure of privilege that a GIG would be cheaper than the escalating costs of personal and collective security arrangements.
At the risk of not being invited back to the next round of this love-in for a US Basic Income Guarantee, I feel it appropriate to amplify the discordant note that is sounded in my abstract for this paper. There I summarized my perspective with the phrase "Global Democracy or No Democracy." For a post 9/11 World, the appropriate corollary is "Global Security or No Security." An approach which limits the sharing of wealth to within a single national community, particularly to that community which is most in the eye of the worldís public, can only be sustained in the short run by reinforcing the gates around that community. Indeed, as we are already seeing, the costs of security tend to quickly crowd out expenditures on basic services. To even speak about a US basic income guarantee when public expenditures on health and education services to Americans are being curtailed seems like dreaming in Technicolor.
George W. Bush explained terrorism as being an expression of jealousy. One expression of jealousy is to destroy, another is to seize what one cannot otherwise secure (a point which I first encountered in W. Arthur Lewis The Theory of Economic Growth (1955)) and a third is to seek inclusion through immigration, [1] either legal or illegal. The economic and democratic costs of trying to secure the United States against any or all of these expressions of jealousy is likely to be astronomical. The escalating costs of the responses to date is doubtless only a foretaste of what may yet be to come.
To speak principally of a generous Basic Income Guarantee for the United States is an anachronism. As Bill Clinton said in his inaugural address (Jan 20, 1993): "There is no longer a clear division between what is foreign and what is domestic. The world economy, the world environment, the world arms race -- they affect us all." To his list, I would add world poverty. The only true hope for security is through sharing of income by the wealthiest societies and individuals in the world.
Regressive Redistribution
The fact that income redistribution is no longer a topic of conversation in polite (read: elite) society, does not mean that it doesn't occur and isn't implicit in today's political agenda. Indeed, de facto, regressive redistribution of income is central to support for the neo-liberal agenda, whatever the public rhetoric may proclaim. It must remain implicit, however, because one can hardly affirm that one supports policies that have the effect of impoverishing most of the world's people.
While our income distribution data are the shakiest of our estimates, they paint a grim picture of widening gaps both between and within countries over at least the last two decades. I won't belabor the facts, the general trends of which are well known, but a few numbers are in order. Data from the Luxembourg Income Study show that the Gini coefficient for the US has gone from 0.301 in 1979 to 0.372 in 1997. (http://lisproject.org/keyfigures/ineqtable.htm). Moreover, the US is the outlier among the industrial county members of the OECD on all 6 of the income inequality measures highlighted on the Luxembourg Income Study web site.
For the global level, the UNDP's Human Development Report has been tracking regularly the rising world inequality as reflected by the growing gap between the 20 percent of the population living in the worldís richest countries and the 20 percent living in the worldís poorest countries. This ratio of the top fifth to the bottom fifth of the worldís countries has gone from 30:1 in 1960, to 61:1 in 1991 and to 86:1 by the late 1990s. These numbers are now complemented by what Branko Milanovic in his January 2002 article in The Economic Journal calls the 'True World Income Distribution'; that is, estimates of income inequality based on household surveys from 91 countries.[2] His numbers confirm not only that world inequality is rising, but that inequality between nations is far greater than the inequality within nations. Milanovic estimates that the World Gini coefficient, adjusted for differences in purchasing power, increased from 0.63 in 1988 to 0.66 in 1993. If purchasing power parity adjustments are not made, then the World Gini for 1993 jumps to 0.805.[3] Of the 100 of so countries for which Gini coefficients are reported in the Human Development Report 2001, only 2 countries (Nicaragua and Swaziland) have Ginis as high as 0.60 and none as high as 0.66.
Crumbs from the Table
Sayre Schatz described in 1983 a process which he referred to as socializing adaptation [4] -- somewhat akin to John Kenneth Galbraith's notion of countervailing power. In Schatz's view this phenomenon of long-standing at the local and national levels, can now be observed in its manifold variations at the level of the global economy. A stereotyping of this concept, which is consistent with Schatz's presentation is that concessions to economic justice are introduced in the interests of keeping the world safe for capitalism:
To be successful socializing adaptations need not be generous or freely accorded or sufficient to meet minimal human needs. Changes can be grudging, mean-spririted and stingy responses to problems that have become too painful to ignore. However, if they suffice to mollify dissatisfaction that jeopardizes the viability of the system, they constitute successful socializing adaptation.[5]
One modest manifestation of socializing adaptation was the long standing goal of 0.7% of GNP for official development assistance (ODA), first enunciated over 30 years ago, we find this very modest objective reiterated once again in A Better World For All, a joint document issued by the OECD, the World Bank, the IMF and the United Nations in June 2000.[6] In 1998 the ratio of net ODA to GNP for the 21 country members of the OECD's Development Assistance Committee was only 0.24, with the ratio for the United States at a mere 0.10.[7] The goal has been regularly attained only by Denmark, the Netherlands, Norway, and Sweden. In fact, even if that goal had been reached in 1998 it would have amounted to only US$150 billion (in contrast to the actual amount of US$52 billion) and had the money been allocated as unconditional grants in its entirety to those countries identified in the World Development Report 2000-2001 as low income, it would have amounted to a mere $63 per capita for each of the 2.4 billion people living in those countries, a sum that would likely be insufficient to pay for an evening's dinner for one people, including wine and tip, in an upscale restaurant in any of the high income countries of the world.[8]
Depending on largesse from today's "dominant" countries with strings of conditionality attached seems hardly to be the manner in which to construct a planet-wide human partnership. That four institutions that function as would-be "masters-of-the-world" have nothing fresh to offer in the realm of global public finance than an obsolete formula for charity which is unequal to the tasks at hand belies their lack of serious commitment to building a peaceful and just democratic global order. A Better World for All only envisages reducing the share of those living on less than $1 a day from the current level of 20 percent of the world population to 15 percent by 2015. Given the projected world population growth, realization of the documentís goal would reduce the number living on less than $1 per day from 1.2 billion to 1.05 billion. This hardly suggests any sense of urgency even about the most extreme poverty.
A Planet-Wide Citizen's Income
There are countless compelling ethical, economic, sociological and political arguments for an income guarantee that have been made in a national context. Most, if not all, of these arguments can be extended to the global context. The logic of global markets requires that we extend our thinking about institutional arrangements to include the global. Paradoxically, I suggest that we need go far beyond merely dreaming in Technicolor (i.e., national income security schemes) and that we dream with the fullest possible palette of shades and hues, complemented by the full array of sounds known to us, including especially human voices, sometimes harmonious, sometimes cacophonic (i.e, planet-wide income security).
While social capital, like so many concepts, is generally spoken of in a national context, it can also be viewed from a global perspective. Nobel Prize winner Herbert Simon, in what was likely his last published paper prior to his death in February 2001, put the case most strongly:
I personally do not see any moral basis for an inalienable right to inherit resources, or to retain all the resources that one has acquired by means of economic or other activities. . . . When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe. On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners.[9]
To the extent that each of us is a common beneficiary of the cumulative global process of civilization, we are entitled to some reasonable monetary dividend and those who reap the greatest gain should be subject to charges for the use of the collective social capital of our increasingly globalized society.
Citizen's Income: An Example
The actual form
that the citizen's income takes is at this juncture not the issue,
it is the principle that needs to be accepted nationally and globally.
Nonetheless, a brief example can be instructive. One recent variation by
Patrice Spadoni suggested that the citizen's income
be set at no less than 50% of a country's per capita income.[10]
A phase-in arrangement for a planet-wide citizen's income intended to narrow
the global income gap might set the initial annual, unconditional stipend to
all at a fraction of the world per capita income. By this criterion every man,
woman and child on the planet, irrespective of status, would be entitled to
this stipend related to the world per capita income as a birthright. The
universal entitlement version of a guaranteed income that I have chosen here is
probably the most costly of the possible versions of the social dividend
schemes, although it may be the least expensive in terms of associated
administrative costs as there would be no conditions either for eligibility or
use to monitor. My choice in part reflects a wish to illustrate that embracing
the income redistribution implications of taking global solidarity seriously
will not "break the bank."
A citizen's income
equal to 20 percent of the world average per capita income (GDP at market
prices) in 1999 of $5179 [11] would
come to $1036, equivalent to about $2.84 per day, an amount which would more
than double the income of half the world's population.
An example involving the largest European country, the Russian Federation, might be instructive. The per capita income of Russia is reported to have been $2270 in 1998. The transfer to each of the Russian people of $1036 per year would, if this had been in place at the time, have come to $143.8 billion, which can be contrasted to receipt by Russia of official development assistance in 1998 of $1.0 billion ($7 per capita) in 1998 and net private capital flows of $19.3 billion. In fact, the unconditional hypothetical transfers would have amounted to 78% of Russia's total outstanding external debt of $183.6 billion, the management of which carries with it countless externally imposed conditions.
At a level for a planet-wide citizen's income of 20% of world per capita income, the total bill for a universal program would have been US$6.1 trillion out of a world income of US$30.4 trillion. To put this into perspective, let us refer again to Milanovic's figures on the true world income distribution. He found that the top 25 percent of world's persons accounted for 77.7 percent of the world's income.[12] If, for the sake of illustration, we assume that the financing were to fall exclusively on the top 25 percent of the world distribution, then the cost of a universal global program set at 20 percent of the per capita income of the world would require a tax burden of an additional 26% percent of income of the world's wealthiest. If one considers that the wealthy would also receive the income guarantee, the net additional burden on them falls to 19%. This estimate of the tax burden required for an introductory level universal citizen's income are well below either Herbert Simon's 90% social capital estimate or the 70% flat tax level that he believed would fund all of the US governments existing expenditures in addition to basic income of $8,000 per year for all Americans.[13]
We are not talking here about confiscatory levels of taxation. This is the kind of effort that is required, if we are seriously concerned about poverty, equity and inclusion and we generalize that commitment to the global level. Recall the ODA in 1998 had come to only $52 billion, less than one-hundredth of the amount required for a universal stipend set at 20% of the value of average per capita world income. In 1978 Robert S. McNamara, then President of the World Bank, wrote in his Foreword to the first World Development Report that despite a "quarter century . . . of unprecedented change and progress in the developing word" 800 million people continued to be trapped in absolute poverty. His remedy was substantial acceleration of growth in the developing countries, without which, given population increase, "numbers of the absolutely poor will remain unacceptably high even at the end of the century." As we start the new millennium, those number are as unacceptably high as McNamara feared they would be. Unless our rhetoric is matched by actions equal to the global challenge, there will be neither peace nor security in the coming decades.
To return to Spadoni's proposal for an income guarantee equal to 50% of
per capita income. Using the same assumption as in the prior trial calculation,
the gross tax burden on the wealthiest 25% would come to 64%, while the net
burden, taking into account their income guarantee would come to 48%. Again, well below Simon's 70% tax.
|
Global Income Guarantee
(GIG) |
Income(Y) |
GIG |
GIG/Y |
GIGnet/Y |
|
0.20 |
23.58 |
6.1 |
0.257 |
0.193 |
|
0.25 |
23.58 |
7.6 |
0.322 |
0.241 |
|
0.50 |
23.58 |
15.2 |
0.644 |
0.483 |
The intent here is not to minimize the effort that would be required to implement any such scheme, but rather to illustrate that the magnitudes involved are not unrealistic. The far more difficult roadblocks are our preconceptions that first lead us to insist that individuals and countries must earn their living and then lead us to blame the victims when their earnest efforts fall short.
NOTES
1.
See Myron J. Frankman "Planet-Wide Citizen's
Income: Antidote to Global Apartheid," LABOUR,
Capital and Society, 31 (nos. 1 & 2,
1998), 166-78. Special issue on "Workers and Borders in
the Context of Regional Blocs." Also available at: http://vm1.mcgill.ca/~inmf/http/mf/pwci.html
2. Branko Milanovic (2002)
"True World Income Distribution, 1988 and 1993: First Calculations Based
on Household Surveys Alone," The Economic Journal 112 (January),
51-92.
3. Milanovic, p. 72.
4.
Sayre Schatz, "Socializing Adaptation: A Perspective on World Capitalism,"
World Development, 11 (January 1983), 1-10.
5.
Schatz, p. 4
6. International Monetary Fund, Organization for Economic Cooperation
and Development, United Nations and World Bank. 2000. A Better World
for All http://www.paris21.org/betterworld/
7. UNDP, Human Development Report 2000, p. 218.
8. If
one were to change the dividing line between the low and middle income
countries from $755 to $800, then China and Honduras would shift to the low
income category. The average aid per capita in my hypothetical scenario would
fall to $42 for each of the 3.7 billion people.
9.
Herbert Simon (2000) "UBI and the Flat Tax," Boston Review (Oct.-Nov) http://bostonreview.mit.edu/BR25.5/simon.html
10.
Basic Income European Network News Flash no. 8, March 2001. http://www.etes.ucl.ac.be/BIEN/Flashes/flash8.htm
11. UNDP, Human Development Report
2001, pp. 157, 181
12. Milankovic.
13.
Simon.