A response to "A
Basic Income for All"by Philippe van Parijs.
Edmund S. Phelps
Several economists over the past couple of decades have been calling
for a universal employment subsidya subsidy to firms for each
low-wage person they employ without regard to parental or marital status.
Self-support (vs. dependency), personal growth (vs. disengagement),
integration (vs. marginalization)these are our rallying cries.
Now there come efforts to gain instead a reconsideration of a universal
basic income, or demogranta periodic transfer payment to each
resident with no conditions on working and earning. These two proposed
innovations in social policy differ importantly, I will argue, in what
they suppose a society is for. And they also rest on quite different
assessments of the practical consequences they would have, if adopted.
In several ways I find the idea of a demogrant attractive, as I did
when, in the 1960s, I was a young economist just beginning to think
about economic and social policy. A demogrant would help to level the
playing field by counteracting the ability of familiesunder market
socialism and market capitalismto bequeath their children advantages
(such as individual freedom) over other children, their childrens
children, etc. A demogrant would permit low-wage workers to reject as
inadequate the pay differentials offered by unsafe or unhealthy jobs.
It would also bring an efficiency gain in giving people more of their
total social benefit in the form of fungible cash to use as they prefer,
and less in the form of free services whose amounts are chosen by the
state. One can therefore understand the support that proposals for a
demogrant usually find.
The idea of a universal minimum income seems to enjoy especially wide
appeal among the many Europeans who have an almost religious (and, in
many cases, literally religious) sense of nation and community. To them
it will appear to be further progress in the development of a society
that feels the near-sacred value of each persons life and autonomy.
Most of Western Europe, particularly the Continent, has already gone
a long way toward providing universalthat is, unconditionalbenefits
to its citizens (and in most cases other residents): subsidized housing,
free medical care, and free education services, among other services.
Now Philippe Van Parijs makes the strongest imaginable case for going
the rest of the way by means of a universal basic income. But I remain
opposed. For me, there are two sticking points. One of them, which I
will take up later, has to do with consequences. The demogrant device
has no monopoly on the beneficial effects that make us like it, whatever
the balance of its total benefits and total cost. The alternative to
ita subsidy to employers for every low-wage worker in their full-time
employwould have some of those effects and some other benefits
as well. The subsidy, in pulling up paychecks and the number employed
at the low-wage end of the labor market, would mitigate serious disadvantages
of talent and background; it would expand the jobs that low earners
could afford to reject; and it would widen low earners latitude
in meeting their needs.
The other sticking point is that the demogrant idea seems in an important
respect to go against the grain of the traditional American conception
of a liberal republic. This conception, I will argue, would cause many
Americans to hesitate to embrace a universal basic income while being
willing, at least in principle, to contemplate low-wage employment subsidies.
Lets consider these two points, starting with the second.
1. Where can we look for the American conception of the liberal society?
I suggest we need look no farther than John Rawls, widely regarded to
be the leading moral philosopher of the twentieth century. His A
Theory of Justice is seen by my many as the sourcebook of most of
the new ideas of importance on how to think about matters of justice
in economic and social policy, even if we dont always want to
follow him to the letter. Since Rawls is an American writing against
the background of American social history, the conception of society
he expresses in that book is at least an important sample of American
The conception of liberal society
there is in refreshing contrast to the more European one. It excludes
religious states having a public purpose. It also excludes aggregations
of persons engaged in solitary pursuits who might cooperate only for
their mutual protection. For Rawls, a society (the sort of society he
wants to consider, at any rate) is a cooperative enterprise in which
individuals come together to participate in its interactive economy
for the purpose of mutual private gainlargely, individual achievement
and personal growth from career and family life. Accordingly, economic
justice is about the distribution of those mutual gains among the individuals
participating. It is wrongheaded to ask what this economic justice requires
in the way of support for individuals who choose to opt out and live
in isolation off the land or sects that choose to break off from the
larger society. Rawlss kind of justice is owed only to those who,
being able and willing, participate and contribute at least something
to the economys pie.1
These views on the nature and
function of society trace far back in American thought. Thomas Jefferson
wrote that the early settlers came to the American continent for "the
acquisition & free possession of property"and for the
"pursuit of happiness" in the process, as he was to say later.
Calvin Coolidge encapsulated the cooperative-enterprise conception of
society with his great apothegm, "the business of America is business."
It came to be understood in the Progressive Era that the possibility
of mutual gain, which Rawls built on, arose from the "social surplus"
generated by the interaction of peoples diverse talents and skills
within societys central institution, the business economy. In
his economics textbook, which was dominant for nearly the second half
of the last century, Paul Samuelson never failed to bring up this social
surplus, always citing the eloquent statement of the idea by the social
theorist L. T. Hobhouse in his 1922 book The Elements of Social Justice.
It is implicit, I think, that the social surplus is a flow of income
that can be legitimately redistributed, since the way a free market
would distribute it is morally arbitrary and a free market is an impossibility
in any case.2
It is also implicit in all these expressions, I believe, that the social
surplus is to be made available for redistribution to the contributors,
not to non-contributors. It would be incoherent to say that the contributors
to societys enterprise, in generating a social surplus, haveas
defenders of a UBI suggestthe obligation to share it with those
who have not contributed. What do the latter have to do with it? If
they can be shown somehow to have a claim, is there a claim of animals
and other sentient creatures? If we earth people should discover Martians
unwilling to trade or collaborate with us, do they nonetheless have
a claim too?
2. The argument for UBI set out by Van Parijs appears to be substantially
pragmatic. He appears to believe that, although it might go against
the ideology of some to hand out the basic income unconditionally,
the practical effect of doing so will be to encourage participation,
hard work, self-support, achievement, and all the other desiderata dear
to those with that perspective.
A UBI, Van Parijs writes, "makes it easier to take a break between
two jobs, reduce working time, make room for more training, take up
self-employment, or to join a cooperative. And with a UBI, workers will
only take a job if they find it suitably attractive, while employer
subsidies make unattractive, low-productivity jobs more economically
One can see that a UBI would open up some new job options to many people,
just as inheriting a substantial sum of money would make it possible
to try ones hand at composing music or writing a book. But financing
it will entail lower after-tax wages and lower private saving until
private wealth (defined to exclude the present discounted value of the
expected stream of UBI) has reached a sufficiently reduced level; to
a rough approximation, private wealth would fall by as much as social
wealth (defined as the present value of the UBI stream) rose.
So there is no alchemy here by which a net increase of wealth is achieved
and costlessly at that. At some point in middle age, the average
worker-saver will have a lower total wealth, private plus social,
than he or she would otherwise have had, since wealth per head (which
I am taking to be unchanged) is an average of the wealth per head of
the young, who now get their social wealth right off the bat, and the
wealth per head of the old. The contention that there is a social gain
from "moving up" peoples wealth to the first year of
adulthood, since the increased liquidity serves to increase freedom,
depends on the assumption that the social benefit from the added liquidity
is sufficiently large to overcome the social cost resulting from the
reduction of after-tax rewards to working.
Of course the main part of the argument is redistributive: the increased
wealth would occur among those with little, the reduction of wealth
would occur among those with much. But a low-wage employment subsidy
scheme also would be redistributive in the same direction. So we must
weigh the practical balance of benefits and costs posed by the UBI against
the corresponding balance offered by low-wage employment subsidies.
I see some serious drawbacks of a UBI; these drawbacks mirror the merits
of low-wage employment subsidies.
Ill emphasize four drawbacks. First, the pay rates available
to low-wage workers are already so low as to be demoralizing. A large
UBI would seem towering to a low-wage worker, and would further depreciate
his or her earning power; moreover, the UBI, in requiring higher taxation
to finance it, would tend to reduce their net pay rates further. Worsened
employee performance would follow and, since firms wont create
jobs for workers who will quit or shirk or are absent at the drop of
a hat, a large number of jobs held by low-wage workers in private business
would become extinct.
Second, we are in dire straits
to begin with in this regard. Work, career, and achievement are already
threatened by a whole array of competitorscrime, unemployment,
and the underground economy.3
This is no time to launch a new scheme that would create further disincentives
to work in the legitimate business economy. Marginalization must be
reduced, not increased. Introducing a UBI would make that task
Third, what matters to people is not just their total receipts; it
is the self- support from earning their own way. No amount of
UBI would substitute for the satisfaction of having earned ones
way without help from parents, friends and the stateas valued
as they are. I would note that, if the UBI were adopted in the United
States, it would continue to rankle low-wage earners that their pay
was less than half the median wage. The reason it would, I suggest,
is that low-wage workers would view such low relative pay rates as bluntly
showing that they cannot hope to earn their own way in the sense of
gaining access to most of the median earners way of life through
their own earning; they can only gain access through the demogrant,
which they may see as demeaning.
Finally, what about Parijss image of the workplace with its exhausted
women and tyrannical bosses? I feel that many academics and others reared
in relatively privileged circumstances cannot see how those working
in a factory for forty hours a week could value it as a means to mix
and interact with others, to gain a sense of belonging in the community,
and to have a sense of contributing something to the countrys
collective project, which is business. If I am right on these matters,
we should feel sorry, not envious, about Van Parijss surfer who
feels lucky to be able to drop out of the world of work thanks to his
UBI; he doesnt know what he is missing. And we shouldnt
feel sorry about women "subjected to the dictates of a boss for
forty hours a week." They have the self-knowledge to know something
that Van Parijs appears not to know about them: the sociability, the
challenges, and the sense of contribution and belonging that those jobs
provide are an important part of their lives, as they are of the lives
The problem is that the low-end pay rates are much too low, so low
that some low-end workers must take the least "liberating"
jobs to make ends meet. The solution is not to endow workers with a
UBI, so that they move to somewhat better jobs at a reduction in pay
or else just drop out. That way lies dependency, unfulfillment, depression,
and marginalization. The solution is to institute a low-wage employment
subsidy, so that all pay rates facing low-wage workers would be pulled
up to levels better reflecting the social productivity of their employment,
their support of themselves, and their development. Then low-wage men
and women could afford to avoid dangerous, unhealthy, or oppressive
jobs and opt instead for more rewarding work. And many more people would
be able to know the satisfactions of self-support, development, participation,
Edmund S. Phelps
is McVikar Professor of Political Economy at Columbia University. He
is author of Rewarding
Work: How to Restore Participation to Free Enterprise.
for other New Democracy Forum articles.
1 In conversation and correspondence I could never get him to endorse
this interpretation. But he never protested it either. In a 1985 letter
he commented that the presentation of his system on pp. 144-49 of my
textbook Political Economy: An Introductory Text (New York: W.
W. Norton, 1985) accurately presented his position. That exposition
makes explicit the premise that society is a cooperative enterprise
for the contributors mutual gain.
2 Some argue that this flow is the largest that can be legitimately
redistributed. Aspects of the matter are taken up in Robert Nozick,
Anarchy, State, Utopia (New York, Basic Books, 1974).
3 Europeans call the underground the "informal" economy and
see as it as a charming zone of idyllic exchange rather than a parasitic
sector that lives off the legitimate economy through tax evasion and
other covert practices that subvert respect for the law.