Mother Pelican
A Journal of Solidarity and Sustainability

Vol. 8, No. 11, November 2012
Luis T. Gutiérrez, Editor
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Capitalism, Socialism and Basic Income

Richard A. Pengelly
Basic Income Earth Network

Originally published in Basic Income News, 22 October 2012, under a Creative Commons License
Reprinted with Permission

Courtesy of BIEN

A Basic Income (BI) is an income unconditionally granted to all on an individual basis, without means test or work requirement. Basic Income News contains news about BI provided by the Basic Income Earth Network (BIEN) and its affiliates. The 14th BIEN Congress took place in Munich (Germany), 14-16 September, 2012.

It is always interesting to read detailed arguments for a Citizen’s Income, but might I invite your readers to consider a broader reform programme which would entail a long-term foundation for the Citizen’s Income we all want to see? A reform programme which would reconcile socialism and capitalism? Of course a claim such as this cannot  be fully argued in the space of a letter, but the principles  can be simply stated.

The most important element in a new framework for the economy would be the evaluation of the social costs and benefits of each kind of enterprise and, through a system of levies and grants, their introduction into market prices. Other demands on industry and commerce, most notably taxation of profits, would cease. Taxation would be confined to individual participants in the economy, but in their capacity as citizens or residents paying for the benefits society brings them. The Citizen’s Income should not be paid for out of a levy on economic enterprise.

Society, for its part, should recognise  its capital value as an instrument which makes enterprise possible. And it should translate this value into a practical tool by the creation of a sovereign wealth fund which would invest in stocks and shares at home and abroad in parallel with other funds. Income from the fund would  be dedicated to the citizens, thus providing a funding base for  a true citizen’s income, though the fund could also be used for collective initiatives. The model would be Alaska’s Permanent Fund. I leave on one side the priority support needed by those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past working; and people who suffer chronic sickness or disability.

The size of the fund ultimately required to make it worthwhile should not be underestimated. As to practicalities, nations such as China already have sovereign wealth funds. The way forward will become clearer once the principles and implications are widely understood.  Even if one doesn’t want to go the whole way in redesigning the framework of the economy, the creation of a sovereign wealth fund surely provides a way forward by translating the value of society into a practical reality for the benefit of all its members without imposing a levy on the economy. At the same time, the fund would help to reduce the serious inequality in the ownership of our capital.

The way to pursue the objectives of a basic income needs to be looked at in the light of a reconciliation of socialism and capitalism, which has been the great unsolved problem of the last 100 years. The advent of globalisation has pointed up a way to do this.

The starting point is the recognition that it is no longer satisfactory to treat the economy as if it were simply society at work, the way in which its members make their living. Globalisation has made it as clear as can be that society needs to clarify and redefine the framework within which it allows the economy to operate.

Here are the principal elements of a new framework:

  1. Capitalism must be required to operate in its most competitive forms, subject only to the laws of the land and effective constraints on monopoly ( whilst recognising that some monopolies are an indispensable adjunct of privately owned initiatives ).
  2. Market prices of products and services must reflect social as well as private costs and benefits. These costs would include such things as the use of public communications systems, the consequences of pollution and effects on health of products sold.
  3. The most instructive example of this is the labour market. Employers provide the indispensable benefit to society of gainful work by its members. On the other hand they receive the benefit from  society of a readily available labour force. Recognising their joint interest society and industry and commerce should jointly meet the cost of maintaining the supply of readily available labour. A great advantage of this approach is that  employers of all kinds would immediately apply their minds to the invention and support of all kinds of scheme for reducing and even eliminating unemployment.
  4. Alongside this would be a requirement that all those participating in the economy must insure themselves against the risk of unemployment – through ill health or redundancy for example -  under a system of mandatory minimum cover and optional higher levels. Society would no longer pay benefit to unemployed people capable of working.
  5. Profits as such would no longer be subject to tax, for which there would no longer be any justification. Taxation would be confined to individuals as citizens or visitors.
  6. Society would, of course, continue to play its own direct part in the economy through social enterprises such as health services, and education and, increasingly it seems, local and national collective initiatives.

We turn now to the changes in society itself which will secure the objectives of socialism alongside its wholehearted commitment to capitalism as the best way of maximising the national product. Society’s financial support for its members should be concentrated in the first place on those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past it; and those who are chronically sick or disabled. The funds for this support should be provided by the collective ownership of productive capital. The amount of capital required to generate the necessary income should not be underestimated. But support will gather as taxpayers realise that the  demands on them will fall as the capital increases.

Beneficiaries would receive their income as of right but expenditure would be administered in a three-way partnership  with a  family carer, if any, and the state, normally represented by a dedicated social worker. The  capital funds would be managed by professional investment managers alongside their commercial analogues.

Once we have provided for those who  cannot  operate in the economy  income from the sovereign funds can be used to introduce a basic income for all. It is entirely right that this, rather than the income of working taxpayers, should be the source of the basic income.

Richard Anthony Pengelly was born and brought up in Plymouth, Devon, UK. After learning how not to be too scared during the bombing of Plymouth in 1941 he learned how to be really scared as an infantryman in Normandy 1944. After graduating at The London School of Economics in 1950 he became an administrative civil servant working mainly on aeronautical procurement ( including the Concorde and Airbus projects ) but concluding with 7 years advising on policy and finance in health and personal social services in Wales. Apart from his family his main activities today are poor golf and modest skiing.

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