IS THE PRESENT IS THE PRESENT CRISIS AN CRISIS AN

UNPRECEDENTED UNPRECEDENTED OPPORTUNITY FOR OPPORTUNITY FOR

BASIC INCOME?BASIC INCOME? Robert Boyer

Plenary session 2 Plenary session 2 – Reforming social – Reforming social protection system and basic incomeprotection system and basic income

13th International Conference – BIEN 13th International Conference – BIEN 2010 Brazil.2010 Brazil.

INTRODUCTIONINTRODUCTIONThe three objectives of this The three objectives of this

presentationpresentation Present the origins of the crisis and its Present the origins of the crisis and its

structural naturestructural nature In this context assess the new In this context assess the new

opportunities and constraints upon the opportunities and constraints upon the implementation of Basic Income programsimplementation of Basic Income programs

Embed the issue of basic income into the Embed the issue of basic income into the specificity of modern societies, both specificity of modern societies, both capitalist and democratic capitalist and democratic

I. A STRUCTURAL, I. A STRUCTURAL, SYSTEMIC AND SYSTEMIC AND GLOBAL CRISISGLOBAL CRISIS

1.1. The crisis of the asymmetric The crisis of the asymmetric power of financepower of finance

2.2. Financialization as a reaction to Financialization as a reaction to widening inequalitieswidening inequalities

3.3. The structural unbalanced the The structural unbalanced the world economy and the diffusion world economy and the diffusion of the crisisof the crisis

1.1.The crisis of the The crisis of the asymmetric power of asymmetric power of

financefinance

At the core of the crisis: the At the core of the crisis: the erosion of the directerosion of the direct responsibilityresponsibility of credit decisionof credit decision

Figure 1 – The Figure 1 – The hidden origin of hidden origin of

subprime crisis: a subprime crisis: a perverse division of perverse division of labor within financelabor within finance

Various financial

entities buy these

derivatives

Risk transfer Need of hedging

Swaps against credit default

AIG

Securitisation by investment

banksLehman

Brothers Externalizati

on of the risk

Real estate buyer

s

Mortgage

financial instituti

on

Credit contrac

t Deepening of the gap between

financing and risk taking Incentive to take more risk

Collapse of the joint

responsibility of contract

Systemic crisis

1. At the 1. At the core of the core of the crisis: the crisis: the erosion of erosion of the direct the direct responsibiresponsibi

lity of lity of credit credit

decision….decision….

… … This deterioration of quality is This deterioration of quality is permanent of MBS from 2003 to 2007permanent of MBS from 2003 to 2007

Source : Yuliya Demyanyk, Otto Van Hemert (2008), p. 1

Graph 1

TheThe spilloverspillover of all the of all the destabilizing mechanisms not destabilizing mechanisms not corrected during the previous corrected during the previous crises…crises…

TheThe end end of a finance-led growth of a finance-led growth regime…regime…

An unprecedented crisis generated An unprecedented crisis generated by financial laissez-faire…thatby financial laissez-faire…that diffusesdiffuses to the rest of the world to the rest of the world

The end of a credit led household The end of a credit led household consumption boom consumption boom

Graph 2 – A very low household saving

rate

Graph 3 –A cumulative debt of

households

Source : Artus Patrick (2008), « Plaidoyer pour la création « d’acheteurs d’actifs risqués en dernier ressort », Flash économie, n° 416, 23

septembre, Natixis, Paris, p. 6 et « La finance peut-elle seule conduire à une crise grave ? », Flash économie, n° 429, 2 Octobre, Natixis, Paris, p. 3.

2.2.Financialization as a Financialization as a reaction to widening reaction to widening

inequalitiesinequalities The crisis of the asymmetric The crisis of the asymmetric

power of financepower of finance

Stagnating median income, Stagnating median income, but explosion of CEOs but explosion of CEOs

remunerationsremunerations

Source: Piketty, Saez (2003), QJE, p. 33, figure 11.

A general widening of income A general widening of income inequalityinequalityThe share of the top deciles income share, US The share of the top deciles income share, US 1917-19981917-1998

Source: Piketty, Saez (2003), figure 1, p. 11

A clear correlation between financial A clear correlation between financial bubbles and wealth concentrationbubbles and wealth concentration

Source: Phillips Kevin (2002), p.

79.

3.3. The structural The structural unbalanced the unbalanced the

world economy and world economy and the diffusion of the the diffusion of the

crisiscrisis

•The 2000s: new unbalances of the world economy

The de facto but paradoxical and The de facto but paradoxical and conflict prone interdependence conflict prone interdependence between the United States and Asia, between the United States and Asia, especially Chinaespecially China

The emergence of rentier economies The emergence of rentier economies as key actorsas key actors

The impact of Chinese strategy upon The impact of Chinese strategy upon developing and emerging economies developing and emerging economies

Towards a duopoly at the world level?

United StatesConsumer of last

resortCenter of financial

intermediation

Trade surplus China

As the engine of growth in Asia,

saver of the world

Financing of external / public deficit

Raw materials The rest of the World Raw materials

THIRD WORLD: boom of raw materials

EMERGING ECONOMIES: desindustrialization

DEVELOPED COUNTRIES: financialization and desindustrialization

II.II. THE THE CONSEQUENCES OF CONSEQUENCES OF

THE CRISIS: THE CRISIS: OPPORTUNITIES OPPORTUNITIES

AND CONSTRAINTS AND CONSTRAINTS UPON BASIC UPON BASIC

INCOMEINCOME

1.1.The more immediate The more immediate consequences of this consequences of this highly specific crisis highly specific crisis

Disciplining financeDisciplining finance: a matter of efficiency in reducing the : a matter of efficiency in reducing the frequency of crises and an issue concerning social justicefrequency of crises and an issue concerning social justice

Taxing financeTaxing finance : is it a method for financing Basic : is it a method for financing Basic IncomeIncome ? ?

Priority to Priority to domestic led growthdomestic led growth via Basic Income: an via Basic Income: an alternative to laisser-faire globalization.alternative to laisser-faire globalization.

2.2.A response to a new A response to a new wave of pauperization wave of pauperization

in developed and in developed and developing countriesdeveloping countries

Tableau 1 – The mixed consequences of the crisis

IMPACT

POSITIVE NEGATIVE

1. A convenient response to the threat of a wave of pauperization

1. Low participation to the political process by underprivileged groups

2. Likelihood of a job less way of the crisis 2. A structural public deficit calls for slimming down social benefits

3. New forms of poverty not covered by the present welfare systems

3. Defence of existing welfare sectoral regimes by various social groups

4. Public opinion against the asymmetry bailing out of banks and finance compared with the support to wage-earners and households suffering for closures

4. The large public debt stock constrains social expenditure. The impatience of international finance

5. Search for alternative socioeconomic regimes

From finance to innovation led (the US)

From export to domestic led (China)

5. The short tension of finance against the maturation of new institutions

Still the domination of finance

Absence of political power of the underprivileged

6. A reconsideration of the conceptions of justice 6. The basic a-morality of capitalism, still more of financial capitalism

7. Growing perception of the limits of capitalism 7. Absence of a clear model as an alternative to financial capitalism

III.III. IS BASIC IS BASIC INCOME INCOME

COMPATIBLE WITH COMPATIBLE WITH EXISTING OR EXISTING OR

EMERGING FORMS EMERGING FORMS OF CAPITALISM?OF CAPITALISM?

1.1. Not a single form of Not a single form of capitalismcapitalism

Table 2 – A taxonomy of capitalisms

MARKET RELATION

Competitive Oligopolistic

Competitive C. C. CAPITAL / LABOR

RELATIONS Administered O.C.

2.2. The relation of The relation of citizens to State: a citizens to State: a

specific domainspecific domainTable 3 – A taxonomy of welfare state

RELATION OF CITIZENS TO STATE

Let the market provide income

State organized

but delivered by the market

State organized and supplied welfare

RELATION TO

MARKETS

US Denmark NHS (UK)

AUTHOR De Soto Flexicurity model

Statist model

Commodification Decommodification

3.3.A multiplicity of A multiplicity of interactions between interactions between

capitalism and capitalism and citizenshipcitizenship

Alternative Alternative configurations for capitalism configurations for capitalism and citizenshipand citizenship

Purely competitive

A form of market relation

Inexisting

Minimalist

Significant

Organic

Citizen/State relation

Organized Institutionalized

Capital/ labor

relation

Market relation

Monopolistic

Administered

Oligopolistic

I.

IV.

II.

III.

Van Parijsian capitalism

Society wide, solidarity Basic

Income

Bismarkian capitalisms

Solidarity among wage earners :

social contribution

Beveridgian capitalisms segmented solidarity:

general taxation

4.4. A possible virtuous A possible virtuous circle between Basic circle between Basic

Income and some Income and some forms of capitalismforms of capitalism

Figure 5 – Capitalism and citizenship: a Figure 5 – Capitalism and citizenship: a possible synergypossible synergy

CITIZENSHIP

More egalitarian

income distribution

Efficiency

Taxation to finance Basic

Income

More aggregate demand

Increased productivity

Legacy

Economic dynamism

CAPITALISM

IV.IV.SOME DILEMMA SOME DILEMMA AND TENSIONS IN AND TENSIONS IN

THE THE IMPLEMENTATION IMPLEMENTATION OF BASIC INCOMEOF BASIC INCOME

1.1. A general overviewA general overviewTable 4 – Practicalities and political conditions in the implementation of Basic Income

MERITS LIMITS

1. Participate in society with human dignity 1. Destroys the incentive to work at the core of capitalist ethos and systems

2. A parcimonious system of social security 2. Does not necessarily replace all social benefits (healthcare, education) related to life/ social risks

3. A response to the scarcity of employment (developed world)

3. Uncertain impact upon the whole society

4. A solution to poverty trap (developing countries)

4. At what level should Basic Income be set in very low productivity economies ?

5. Universality should help acceptance by citizens

5. Contradict targeted social welfare and progressive personal income tax

A costly measure if decent level for Basic Income

2.2.An optimist vision: a An optimist vision: a minor variant for minor variant for

income negative taxincome negative taxFigure 6 – A schematic representation

Net income

1

θ

• Basic

Income

I*

Gross Income

3.3.A pessimistic A pessimistic appraisal: a core appraisal: a core

contradiction in work contradiction in work discipline and discipline and

capitalist ethoscapitalist ethos

Table 5 – The arguments against Basic Income…and some replies

DOMAIN AGAINST PRO

Ethics Immoral violation of the general principle of reciprocity

Human dignity is a higher order principle

Economics Reduction of employment and production

Possibly more employment for low skilled workers

The end of work morale No! Free choice for all individuals

Less work intensity Less stress is socially desirable

Social Who would accept to work in order to finance the leisure of others?

A new society wide foundation

A life cycle profile for each individual

Organization A dilemma: a too high or too low Basic Income?

A matter of empirical analysis…and political innovation and will

V.V. A POLITICAL A POLITICAL ECONOMY TO BASIC ECONOMY TO BASIC

INCOMEINCOME

1.1.How to build viable How to build viable compromises among compromises among balkanized workers balkanized workers

and citizens?and citizens?

2.2.How to finance Basic How to finance Basic Income?Income?

Table 5 – As many financing scheme as socio-political compromise

TYPE OF TAX IMPLICIT COMPROMISE

IMPACT ON ECONOMIC ACTIVITY

POLITICAL FEASIBILITY

1. Value Added Tax Citizens/ Consumers Preserve competiveness

Unequal across countries

2. Contribution of wage-earners

Solidarity among workers

Negative upon employment

No need for capital/ labor compromise

3. Personal Income Taxation

A pure citizenship accord

Likely increase on aggregate demand

In a fully democratic regime

4. On profit Socialization of profit Pro consumption bias Dubious in the era of financial capital

5. On capital flows Pro real production accord

More productive investment and consumption

A solidaristic sovereign configuration

6. Natural resources rents

Sharing equally a common wealth

A contribution to the alleviation of the Deutsch disease

Easy within a fully democratic regime

CONCLUSIONCONCLUSION

C1 – C1 – Any analysis about the future Any analysis about the future of basic Income has to take of basic Income has to take into account the novelty of the into account the novelty of the present crisispresent crisis. It means that . It means that the globalization without regulation, the globalization without regulation, the excess of financialization the excess of financialization and the lack of social and and the lack of social and

environmental sustainabilityenvironmental sustainability

have come to have come to an endan end..

C2 – One observes C2 – One observes a society wide a society wide backlash backlash against capitalist logicagainst capitalist logic and its destructive and its destructive nature. Citizenship has to discipline it and nature. Citizenship has to discipline it and basic needsbasic needs about education, health have about education, health have to be satisfied and put a stop to the legacy to be satisfied and put a stop to the legacy of consumerism.of consumerism.

C3 – C3 – Basic IncomeBasic Income might be a relevant might be a relevant response to contemporary most urgent response to contemporary most urgent problems: the jobless recovery, the problems: the jobless recovery, the expansion of the working poor, the expansion of the working poor, the continuing excesses of financial continuing excesses of financial remunerations, whereas many workers are remunerations, whereas many workers are loosing their job, house and health loosing their job, house and health insurance.insurance.

C4 –C4 –Basic Income schemes appear as an Basic Income schemes appear as an emerging and promising emerging and promising paradigmparadigm for for many developing countries:many developing countries:

Quite effective in fighting Quite effective in fighting extreme povertyextreme poverty, , and some programs with moderate costs and some programs with moderate costs have been promoting employmenthave been promoting employment

A wave of A wave of social inclusionsocial inclusion, i.e. a rupture , i.e. a rupture with respect to the trends typically observed with respect to the trends typically observed in Latin-America.in Latin-America.

A stimulation of the domestic market, A stimulation of the domestic market, Clear Clear political dividendspolitical dividends for the for the

governmentsgovernments A vibrant A vibrant epistemic communityepistemic community..

C5 – C5 – Do not reiterate “The same size for Do not reiterate “The same size for all” error. International comparisons all” error. International comparisons display a variety of national strategies display a variety of national strategies along quite specific along quite specific domestic political domestic political compromisescompromises when comparing Brazil, when comparing Brazil, India or AlaskaIndia or Alaska..

C6 –C6 –The societies with already a well The societies with already a well developed welfare Statedeveloped welfare State experience experience major major difficultiesdifficulties in designing and in designing and implementing this strategy:implementing this strategy: The inertia of segmented social allowances The inertia of segmented social allowances A threat concerning the dismantling of A threat concerning the dismantling of

past compromises, past compromises, The diversity of welfare components, built The diversity of welfare components, built

upon different risks. upon different risks. A basic dilemma: should its level be low A basic dilemma: should its level be low

and/or a variant of a negative income tax and/or a variant of a negative income tax ……

……or should it be high and initiate the or should it be high and initiate the transition towards a radically new form of transition towards a radically new form of society?society?

C7 –C7 –More researchMore research on Basic Income is on Basic Income is needed: needed: How general and universal are its How general and universal are its ethical ethical

foundations? foundations? Can one prove logically its Can one prove logically its economic economic

coherencecoherence with the typical social relations with the typical social relations of capitalism? of capitalism?

Can one explore the nature of the Can one explore the nature of the political political alliancesalliances that could trigger its that could trigger its emergence?emergence?

Practically, how to design such a system Practically, how to design such a system and how to promote and how to promote the transitionthe transition towards such a new socioeconomic towards such a new socioeconomic regime?regime?

Many thanks for your Many thanks for your attentionattention

Robert BOYERCEPREMAP (Paris) – GREDEG (Sophia

Antipolis)140, rue du Chevaleret 75013 PARIS,

FranceTél. : (33-1) 40 77 84 12

e-mail : robert.boyer@ens.fr

web site : http://www.jourdan.ens.fr/~boyer/