The COVD-19 pandemic has wreaked havoc across the globe. For many countries, there is not a single activity that we took for granted that hasn’t been changed – perhaps permanently. But one of the features of western society is the political obsession with ‘the economy’. The problem is, politicians have trained us to be so focussed on the health of the economy that we’re missing its true purpose. It’s not society’s role to support the economy. The economy needs to serve society. And the pandemic is a once in a generation opportunity to correct that imbalance.
One of the consequences of the pandemic has been the massive reduction in global productivity. Workplaces of all shapes and sizes, from abattoirs to zoos, have closed down. And every business that has closed or reduced output impacts dozens of others. When a hairdresser closes, they no longer require hair product, tools and equipment or staff. They can’t pay rent.
And each of those parties they no longer need has its own circle of partners and suppliers that are similarly impacted.
For the past decade or so, the unemployment rate in Australia has hovered between 5% and 5.5%. For a large swathe of the population, a period of high unemployment was something they read in a history book. We’d have to go back to the mid-1990s to see rates in excess of 8% and even further to see rates over 10%. (Source: https://www.indexmundi.com/australia/unemployment_rate.html).
As various restrictions start to be relaxed, we’ll see unemployment in Australia reach 10% despite assurances from the Australian Government that as many as 800,000 jobs could be restored by the end of the year. However, there are significant concerns that many of those restored jobs will not be replacements for the jobs lost over the pandemic. We could see a massive period of under-employment as businesses resume but in a limited way.
A good example of this could be a local restaurant. In order to manage physical distancing rules, which could remain for months or years depending on whether an easy and effective treatment and/or a vaccine are developed, mean that the number of patrons they serve could be reduced. That means fewer service staff, a reduction in ingredients and shorter operating hours. A restaurant operator could be faced with the choice of fully employing fewer people or under-employing more people.
Australia’s real-estate bubble, which has seen values increase significantly year-on-year mean that property owners will rely on rents that businesses operating at a reduced capacity are unlikely to be able to meet. Which means landlords wont be able to make loan repayments. And so it goes on.
The Australian Government rushed a number of economic measures into place to ease the economic impact. Almost everyone receiving a welfare or support payment received extra money in the form of an upfront lump sum as well as additional fortnightly payments. There have also been incentives such as JobKeeper – the closest we’ve come to a universal basic income and a loosening in the requirement for people to access JobSeeker payments.
But the government has also reinforced its messaging, saying the payments are temporary and are scheduled for review in the coming weeks.
Given the long-term impact of the pandemic – it has effectively brought a strong economy in Australia with solid support for people who have limited earning capacity and universal healthcare to its knees in a few weeks – the government should not be looking at returning to the old normal.
We are likely to be facing a period of extended unemployment and underemployment. Millions of people will be living from week to week hoping they make enough money to pay for basic requirements like food and shelter. A lot more people are going to learn about the importance of Maslow’s hierarchy and what it means to them. There is a way for this to be addressed.
The Finnish UBI Experiment
The Universal Basic Income (UBI) is something that governments around the world have been discussing for some time. Finland has conducted a large-scale experiment, offering a UBI to 100,000 randomly selected citizens.
The results of the experiment were interesting in that it made little difference to employment rates. But the cost of the program was offset to a degree as it was not means tested and there was no need for participants to report any income they received. That dealt with the bureaucracy often associated with government payments – something any Australian that has had to deal with Centrelink is all too aware of.
The UBI would simplify the social security bureaucracy. Instead of having to test, administer and manage multiple programs, each with its own rules and intricacies, the UBI would be a single system.
For much of the world, February seems like a distant memory. When we could talk to a stranger at a store, hug a friend we bump into, shake hands at a meeting – even go to school or work. While work and school will resume and can meet with friends and family again (in a limited way), we stand at the precipice of a once-in-a-generation opportunity to reform the economy so it better suits our changed society.
A UBI could incentivise people to study. It would incentivise the unemployed and underemployed to work without fear of losing benefits. It would reduce government red tape. It will help people who live from pay check to pay check feel more secure. It will take the pressure off landlords who have seen rental incomes decimated.
It will have a cost and will require the government to look at how it generates income. An untaxed UBI would, of course, need to be funded. About 80% of Australia’s population of about 26 million is over the age of 15. That’s roughly 21 million people.
If we paid all those people a UBI of $500 per week, the annual cost would be about $546B. That’s a little less than all the tax paid by Australians (source: https://www.abs.gov.au/ausstats/abs@.nsf/mf/5506.0) but more than double what the social welfare is paying now. But if we’re all getting an untaxed base payment, then tax revenue could be raised by removing the tax-free threshold on paid employment. Or maybe a complete review of the tax system?
I’m not an economist (clearly!) but society is undergoing a significant reset as a result of the pandemic. But to see the pandemic through a purely economic lens is myopic. It’s important for the government that it actually can’t do a lot when it comes to resuming whatever normal will look like in the post-pandemic world.
But government can create the conditions and stimulus for social changes. By providing a UBI, the government is creating an environment that ensures everyone has enough money to cover their basic needs.
It will help people who want to be more environmentally friendly afford things like solar energy systems, more energy efficient appliances or cars that emit lower emissions. It can assist entrepreneurs trying to start new businesses or invent new things.
The potential benefits of the UBI are huge. But are we courageous enough to go for it? Or at least really consider it.