Tuesday, January 08, 2008

CBI

At the risk of giving the impression I'm argumentative, I am thinking of starting a regular series of posts in which I disagree with people I agree with.

An example of this phenomenon is the Citizen's Basic Income, something that saner, wiser and far more reputable commentators than I advocate strongly.

The idea of the CBI is that:

This would replace the tax allowance for those in work, and IB [Incapacity Benefit] or JSA [Job Seekers' Allowance] for those out of work.
One virtue of this scheme is that it recognizes that the state just cannot know enough about every individual to judge whether they should be on IB or JSA or neither.
Also, because it's paid to all, it not only gives everyone an incentive to work but also makes it impossible for politicians to look tough by bullying the vulnerable.
There is, then, a policy that's economically rational and humane. And which, therefore, has zero chance of being implemented.
For one thing, it would give everyone an equal incentive not to work; if it were at a level where those out of work could subsist, then those in work could also subsist on it if they chose, unlike tax allowances.

But there's no denying we have a problem. Chris is right about everything he says in the quote above. It's the omissions I'm worried about.

Because the CBI is essentially a sort of watered-down form of communism: from each according to their ability if they happen to feel like working, to each a basic income sufficient for survival. Given the propensity of governments to project-creep, I can't see things staying at that level for very long. Indeed, I have seen arguments that things like the cost of a child's education should be added to the CBI. That way, people would be able to choose how to spend this educational budget, on the school of their choice or on home schooling. That's a similar idea to education vouchers, but in the form of cash. If people didn't spend the cash on their children's education, then I guess it would suck for the children involved. But it's not a bad idea in principle.

There is a possible different approach, and just like the CBI it stands absolutely no chance of being implemented. That is to leave people's money with the people themselves, to a far greater extent than now (the abolition of income tax would simply be fulfilling the promise of an earlier government that introduced said tax as a temporary wartime measure) and remove barriers to economic entry. People don't deal drugs in deprived areas because it's more profitable than legal trade - for most of them it isn't. Selling small amounts of drugs does not lead to opulence. If someone handling ounces of grass, or quarter ounces of cocaine, stood on the street selling fruit and veg instead they'd make more money. And most of them would be happy to, even prefer it. The problem is, they can't.

What I know, having lived in some of the worst parts of Britain with the highest unemployment rates, is that while they'll take a pound if it's on offer, most ordinary people want to be able to stand on their own damned feet. Entrepreneurial spirit is highest among just the sorts of people often considered to be the biggest problem in society. People are on the dole often not because they don't want to work legally, but because they are being prevented from doing so.

Case 1 - selling drugs. You gain the confidence of a bigger dealer. He lays on an ounce of grass. You sell it, give the cost to the bigger dealer, get another ounce. Maybe after a while you've built up enough cash to buy an ounce outright or to take a larger quantity. To build up this capital, maybe £120, could take months. Yet people do just that. Their Victorian grandparents would have been proud: thrift, independence and long hours for little pay.

Case 2 - selling fruit and veg
. You have no money, so you're screwed. OK, say you can borrow £120 and buy some stock. Where are you going to sell it? Do you have a licence to sell on the street? Nope. You'll get arrested and it won't help if you get some kids under the age of criminal responsibility to hold the fruit. OK, in a market. Ah... the most closed of all closed shops. How are you going to get a stall? Maybe if you apply to the council you can go on a waiting list. But markets are controlled by invisible, or semi-visible, mafia. It's almost like the Trade Guilds of the Middle Ages: everything is organised to create a closed, semi-hereditary shop.

But say you can get a pitch on the street or in a market. You've bought £120 worth of stock and you need to get it to the pitch. You have a van? Ah... maybe not. And anyway you would need, as a young adult, to get a driving licence. That's about to cost £3,000.

OK, so you get a lift from someone who has a van. Let's hope they're not going to get bored with ferrying you, or change their supplier or sales outlet. But we're OK for the moment. You get to the pitch and... now you need scales that have been stamped by the local weights and measures people. OK, you manage to borrow some. You sell your fruit (and make more cash than you would have if it had been £120 worth of grass). Brilliant. Now all you need to do is keep proper books of record, complete your year's accounts, fill in a tax return, store your records for six years, maybe pay an accountant, maybe get audited by the Inland Revenue (who sent someone marching up the driveway of a man I know to check he was accounting properly for the dozen eggs he sold every week from his doorstep).


Sometimes drugs are the answer. But we have made that so. We could try to unmake it, or we could introduce communism-lite. But if we choose the latter course, it will still make more sense to sell drugs than fruit and veg, if you're living in Easterhouse.

8 comments:

Super-Electro said...

The fruit-and-veg thing reminds me of the Falafel Stand Index, a measure of economic freedom:

Achmed immigrates from Syria. How long will it take for him to set up a legal falafel stand, and what will it cost him over and above the actual costs of setting up and running the business?

By the way, though, if drugs were legal, there would then be no opportunities for the underclass entrepreneur at all. Selling an ounce of weed would become as much of a bureaucratized misery as selling a pound of potatoes. The underclass would promptly find something else illegal to sell each other.

It's funny. Laugh.

wildgoose said...

Excellent post - and I'm speaking as a supporter of a CBI. You're not alone in worrying that the CBI may become good enough that too many people "opt out" of earning their own living, but at the end of the day we already have that right now under the current system.

(Incidentally, one of my favourite SF works is "Beggars in Spain" and its sequels, written by Nancy Kress. She also envisages the creation of a CBI set up and the resulting indolent voter farms - although that is not what the books are about).

I suppose at the end of the day though we just have to trust to the innate self-interest of human nature - and that there will always be more people wanting to improve their status in the social picking order by working than those willing to accept the basic lot allocated by the CBI.

But that will mean, as you point out, that the dead hand of regulators will have to step back from those trying to earn a better living. (A case in point being the infamous prosecution of a greengrocer for selling pensioners bananas by the pound rather than by the kilogram).

wildgoose said...

s/picking order/pecking order/

Peter Risdon said...

if drugs were legal, there would then be no opportunities for the underclass entrepreneur at all

The experience of the Netherlands suggests this isn't the case. People involved in cannabis went mainstream, but the same localised, atomised social structures persisted. If restriction on other forms of trade were lifted, such structures would develop in other areas, like fruit and veg.

Peter Risdon said...

at the end of the day we already have that right now under the current system

That's true. I'm worried about the CBI in principle. I'd prefer to see people move out of the institutions of the State, rather than move everyone into them in an unprecedented way.

TDK said...

You make a good point about the entrepreneurial nature of people at the bottom of society. Drugs are not the only illegal activity where this is exhibited. Bags and booze trips followed by selling out the van have become common.

I worked briefly in the building trade and noted that many of the casual workers had sidelines in buying and selling. Not always stolen car radios and videos, I might add. The scenes in the Royle family where the friend offers discounted goods like jeans were very familiar to me.

The point of the CBI is to avoid the poverty trap. People on benefit who attempt to start work often still pay tax even though they are unlikely to earn a lot. Meanwhile, their benefits are reduced, which results in an effective tax rate for low earners of far higher than 40%. A CBI effectively caps this tax and hence removes the disincentive to coming off benefit. It will be impossible to say, "I'm better off on the dole".

In theory therefore, your entrepreneurs would be better off than today and given the inherent motivation would do some work rather than nothing.

An identified problem with the welfare state is that once the number of welfare recipients reaches a critical mass they are able to continue voting for parties that increase benefits. This is because those parties recognise that such a system is heavily dependent upon an army of bureaucrats, who also vote for the welfare party, if only to improve or protect their own jobs. Of course this can't go on forever so ultimately the social compact collapses and the welfare state falls.

In this view the complexity of welfare is actually a benefit to the bureaucratic classes and motivates them to protect the current system even though it creates and maintains a poverty gap.

Therefore another benefit of a CBI is that to work the system must be simple. It therefore severely reduces the army of welfare bureaucrats. This leaves a tension between those who desire the CBI to be increased and those who desire it to be reduced. Since everyone receives it, it seems to follow that everyone would push for an increase, but this would have to be paid for by an increase in the tax rate. This would penalise all who worked. The logic would be that a position of equilibrium would be reached.

Of course your point about the "project-creep" is probably right. A CBI is an attempt to remove the government role as the arbiter determining who deserves the goodies. Since some people will inevitably remain out of work (whether through choice or not), some of these will have plausible hard luck stories. Logically, under such a system, Poly Toynbee would either (a) argue for a increase in the CBI or (b) start a charity to assist deserving people. I don't see Polly doing this. It is in such people's nature to demand an increase in the state's power. They would seek to reintroduce the moral element to the system.

TDK said...

Bags and booze

Bugger. More often Fags and booze!!!

Anonymous said...

Whilst all that you have said about barriers to business is true, reflect that in most countries of the World - and especially the Third World - the situation is far, far worse.