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Adam Zivo: Universal Basic Income won't turn us all into entrepreneurs — removing risk is a bad thing

National Post logo National Post 2021-04-26 Special to National Post
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Public interest in a universal basic income (UBI) has exploded since the COVID-19 pandemic shifted paradigms on government spending . At the recent Liberal policy convention, an overwhelming majority of delegates endorsed a resolution calling for the establishment of UBI. The party’s leadership is not obligated to listen to this resolution and, being lukewarm about the whole thing, unsurprisingly snubbed it in its recent budget . Nonetheless, this vote of confidence by the Liberals’ grassroots was a historic development in Canadian politics and potentially a sign of things to come.

The premise of UBI is simple: have the government provide unconditional, regular payments to every citizen, regardless of their socioeconomic status. What good would you see if everyone had an extra $1,000 a month, for example?

Its main supporters argue that it could drastically reduce poverty , often seeing it as an add-on to existing social supports. Conservative supporters exist, too, though more quietly. They consider UBI to be an efficient alternative (rather than add-on) to convoluted social welfare programs, cutting costs by reducing bureaucracy, putting the program in the same conceptual space as school vouchers .

Research on UBI is notably thin. Some case studies and pilot projects exist, but not nearly enough to make strong conclusions. For many, policymakers especially, this is a brave new world. Looking to broaden their base of support, some proponents have claimed that, in addition to poverty reduction, UBI would have positive business impacts through fostering entrepreneurship and innovation .

The general idea is that when you provide people with a financial safety net, you take away their fear of failure , unlocking the untapped potential of would-be entrepreneurs. Andrew Yang, who ran in the Democratic presidential primary, is one of UBI’s most visible champions and has argued that “[Universal Basic Income] increases entrepreneurship because it provides for basic needs in the early lean days of a company and acts as a safety net if the business fails.”

In Canada, UBI Works is a prominent non-profit which, backed by an alliance of business leaders, also argues that a guaranteed income would benefit entrepreneurship. In addition to appealing to the value of risk-reduction, they estimate UBI would lead to private capital investments that far outstrip current venture capital flows . They’ve been pushing Ontario’s Progressive Conservatives to restart the province’s cancelled UBI pilot project and lobbying for policy changes, with the Liberal National Convention being a recent priority.

Unfortunately, UBI proponents fail to realize that removing risk, though beneficial to a small number of entrepreneurs, would encourage a deluge of low-quality ventures, distorting markets and leaving the majority worse off.

Since UBI would mostly cover labour costs, it is fair to assume that, with respect to improving entrepreneurial accessibility, its benefits would be concentrated in service-based industries with low capital costs. An income subsidy can free up your time, but it can’t lease you an industrial kitchen or buy you much inventory. It would also mostly foster micro-businesses. Larger teams would be difficult to sustain because doing so would require everyone to agree to subsisting on poverty-level incomes for an undetermined length of time. The larger the team, the less sense of ownership each member has of the overall project, reducing its attractiveness relative to a more traditional, better-paying job.

Considering these constraints, you can further break ventures down into two camps. In the first are those that are just another iteration of an already-proven business model. Here you’ll mostly find self-employed freelancers, and smaller businesses — think web designers, digital marketers, fitness coaches, copywriters, and so on. In the second camp, you have the innovators — tech entrepreneurs and similar dreamers. In either camp, removing financial risk is a bad thing.

For freelancers, the typical route to success is to build your business on the side, however long that takes, until it warrants quitting your day job. UBI, as an income subsidy, would encourage people to prematurely quit their day jobs to try their hand at full-time freelancing despite not yet building enough work to warrant doing so. Risk is a natural way of attenuating the supply of labour to market demand — the more oversupplied a market, the riskier it is to enter it. By removing that restraint, UBI would artificially balloon the supply of freelance labour in the name of fostering entrepreneurship.

This would encourage freelancers to discount their prices to compete for limited demand — not just the new “entrepreneurs” entering the market, but also the established freelancers who’d have to compete against them, directly or indirectly. Undoubtedly a few people would benefit from UBI through expediting their business growth, but only at the cost of crippling the freelancer market with chronic supply problems. It’s hard enough to thrive in the market without having to compete against an army of zombie businesses kept alive by UBI.

What about innovative businesses, the tech founders and dreamers? Risk is important there, too. It is incredibly difficult to create something new and genuinely useful. Over 90 per cent of startups fail , after all. The job of the entrepreneur is to gamble on that slim chance of success, to nurture it through immense self-sacrifice and unrelenting self-criticism. It’s masochistic but the pay-off, when it happens, is dizzying.

What UBI does, at least in this case, is indiscriminately cover the costs of gamblers. Society pays his bills, and, in the off chance that he wins, his riches are his alone, private bounty he gets to enjoy at everyone else’s expense. Worse than that, buoyed by subsidies, he has less reason to place thoughtful bets. Venture capitalists know this — that it’s better to invest in a gambler who needs to win to eat, rather than someone playing for fun.

Ultimately, thinking of UBI through the lens of entrepreneurship means treating it like an unconditional business grant, funding risky or unnecessary ventures without real accountability and with little social payoff. If you want to make a nation of entrepreneurs, don’t turn to UBI. Look instead to expanding business grants that reward applicants based on merit. Encourage more public investment that capitalizes startups because of their talent and grit, rather than the dubious accomplishment of simply existing. Ensure that equity is taken in exchange for funding, so society is paid back for what it lends out. Want more social justice? Prioritize the marginalized in these programs. Whatever the specifics, you get more done with less when you avoid wantonly subsidizing everything.

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