What you need to know
UBI promises more choice, but it doesn't allow people to change the terms on which choices are offered. Taken with the particularities of Taiwan's financial system, UBI may not be an idea well-suited for the country.
Universal Basic Income (UBI) is often considered a progressive policy proposal increasing well-being and strengthening democracy, so it may come as a surprise that it was proposed by the likes of Milton Friedman and Friedrich Hayek in the middle of the 20th century, economists who valued competition, self-reliance, and the supposed wisdom of the free market above all else.
But UBI is a perfectly rational complement to free-market fundamentalism, if we understand it as a type of universal voucher system, a seminal tool of free-market policy in the United States and elsewhere. In this case, UBI neither makes lives better nor bolsters democracy.
In education, vouchers are a way to maintain public funding while giving parents the freedom to decide which school to send their child to. Once decided, they hand the chosen school a voucher, and the government will pay the tuition fees directly to the school. In the U.S. states where this system is not implemented, kids go to either a public school according to where they live or a much more expensive private school.
According to Nobel Prize-winning economist James M. Buchanan, a voucher system introduces free-market motivations into the public sector. He believes the educational “product” improves when schools compete and parents have the opportunity to select a school for their kids.
Buchanan’s public choice theory, which understands politics as a collection of rational choices, introduces homo economicus, the ideal economic person who always seeks to maximize profits and minimize costs, into the political sphere. He sees people in essence as consumers choosing between various options presented to them by comparing benefits and costs.
Even though people can exercise choice, the set of options is always made available to them by someone else. Buchanan’s public choice is based on the perspective of the common people, who are only able to take evaluative, not constitutive, actions. They can choose, but they cannot create new options.
This is true in many situations. Without a massive amount of capital and organizational capacity, an average man or woman cannot build a highway, skyscraper, or smartphone, but they might have some capacity to choose if they want to live near the highway or in a big city, or to decide which smartphone to buy.
Absent any countervailing force, the government in particular, those who generate the material world and the topography of options and constraints, in which an average person is promised choice, will inevitably be those with the most wealth at their disposal.
What does this have to do with UBI?
UBI promises more choice, but people are still limited to certain sets of options. The budget discussed in most UBI proposals will not give people the power to change, in any meaningful way, their topography of choice.
UBI does not offer any possibility to alter the public’s everyday experience beyond whatever the market offers. If not bad schools, dirty water, and low air quality, the best that UBI can offer is no more than a private tutor, bottled water, and an upgraded heating, ventilation, and air conditioning system at home. What’s worse, UBI can prevent the government from addressing these public issues with its enormous cost.
Critics also argue Buchanan’s voucher system, which complements UBI, is used to oppose school desegregation in the wake of the Brown vs. Board of Education decision, a ruling that made separate schools for black and white students unconstitutional. If so, the system does not promote change, but reinforces existing inequalities.
UBI, touted as a way of strengthening democracy, in fact, directs money and, in turn, power away from the people and in effect makes the government smaller. No democracy is perfect. Their government can be resistant to change, corrupt, and feel fossilized to the average person. But it is delusional to think that having a little more money and spending it the way you want will make a meaningful difference. It is certainly easier than engaging in politics.
The government is the most powerful tool people have to resist the pressures of capitalism. It is the only entity building public goods and infrastructure that defy the logic of the market. It is also the government that can act in the public interest to deal with existential threats to humanity like climate change.
Problems with UBI in Taiwan
To implement any form of UBI, governments need to fine-tune the program to adapt to specific conditions of the country, from economic conditions to trade and financial positions.
In the case of Taiwan, there are two inter-related hurdles that policymakers have to overcome: sustainability and conservative consumer behavior.
The sustainability of UBI, associated with policy areas such as fiscal soundness, taxation, hinges upon whether the national budget is capable of financing it without running deficits.
A balanced budget is crucial for Taiwan for many reasons. For one, it reduces market risk (e.g. exchange-rate risks) and attracts foreign direct investments (FDI). Taiwan, without the competitive advantage of cheap labor costs over Southeast Asian countries, relies much on reducing risk to attract foreign investments.
Another reason for Taiwan to maintain a balanced budget is that it is not included in any international and regional safety net. If herding behavior takes place in Taiwan, the country will be left alone in the fight. Maintaining fiscal soundness on a consistent basis would, to a certain extent, deter the occurrence of capital flight.
In order not to put a balanced budget at risk, Taiwan has to increase tax revenue or cancel some existing means-tested benefits (e.g. child-support credit; unemployment benefits) before adopting UBI. Nevertheless, both methods might have unforeseeable effects on the consumption behaviors of residents in Taiwan.
As a solution to increasing tax revenue, it is possible to raise Value-Added Tax (VAT). It ensures corporations share the burden of contributing to the country’s tax revenues through every single transaction. Yet, it is important to clarify that the VAT does not tax the company per se. Instead, it is an indirect tax levied on consumers collected by firms on behalf of the government. The result is an increased price tag on taxable goods.
Taiwan’s VAT rate, at 5%, is significantly lower than that of European countries (e.g. 20% in the United Kingdom) and neighboring Asian countries (13% in China; 10% in South Korea). Theoretically, increasing the rate of VAT would allow Taiwan to increase its tax revenue and pay for a UBI, but the increased price tag levied on taxable goods may also discourage consumption and reduce sales tax revenue. This happened in Japan when the government raised the consumption tax from 5% to 8% in 2014 and then to 10% last year.
An alternative is to replace existing means-tested benefits with UBI, but it can come with a substantial cost.
According to statistics, the total social welfare expenditure was NT$490 billion and accounted for a quarter of the national budget in 2018. If we redistribute this sum to every single adult (above 18), everyone would be entitled to the amount of roughly NT$25,000, higher than NT$23,100, the minimum wage for the year.
However, Taiwanese people might not welcome the cancelation of existing insurance schemes, such as the much-beloved national health insurance program. In response, people may become risk-averse and start to spend less and save more.
UBI can be attractive, but there are various difficulties to overcome to implement it in Taiwan, given its specific conditions both externally and internally. It comes with substantial costs and often on the most vulnerable in society.
This essay is the second in a forum on basic income in Taiwan. The next essay to appear will be a defense of basic income from Tyler Prochazka of UBI Taiwan.
TNL Editor: Bryan Chou, Nicholas Haggerty (@thenewslensintl)
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