Does this Canadian province have the solution to the world’s problem of unemployment?

Supporters of basic income say it could radically reduce poverty and inequality while providing stability in an increasingly uncertain labour market

Charlie Young
Saturday 08 July 2017 12:55
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Canadian PM Justin Trudeau’s ratings at home are falling as parts of the nation struggle, but his Liberal Party thinks it has an answer
Canadian PM Justin Trudeau’s ratings at home are falling as parts of the nation struggle, but his Liberal Party thinks it has an answer

Unlike its neighbour the United States, Canada projects an image of peace, plenty and progressive policies. But there’s a quiet rumble across the North American country. While the rest of the world is in love with Prime Minister Justin Trudeau, his popularity ratings at home are down 9 per cent on last year. Income inequality is acute and unemployment is still stubbornly high. What new work that is being created in Canada’s economy is precarious and part-time. Wage rises are being eaten away at by inflation since the financial crisis and millions of jobs are at risk from automation.

A recent report by Unicef ranked Canada 37th out of 41 rich countries in terms of child poverty, with more than a fifth of the country’s children living below the poverty line. Tried and trusted methods like the state’s many welfare payments are failing to make much impact in a time of constrained funding. Politicians and the public are looking for new solutions.

One such possibility has reared its head in recent years, a radical idea: that of basic income. This seems at first glance a simple notion: the state paying all citizens, whether they’re working or not, a basic wage on a regular basis and without the complexities of conventional welfare programmes. Supporters of basic income say it could radically reduce poverty and inequality while providing stability in an increasingly uncertain labour market. As an added bonus, it lacks the stigma associated with most means-tested benefits.

In 2015 a policy paper from the women’s wing of the ruling Liberal Party called for a basic income pilot. A Dignified Approach to Income Security argued it was time to stop talking about the theory – which had been around for a while – and get on with trying it out in the real world.

A series of policy documents followed and then it happened, with the government’s announcement last year of an experiment in Canada’s largest province, Ontario. Josephine Grey of Low Income Families Together, an advocate of basic income, says the green light is tantamount to the state “openly politically confessing that the current system is inadequate”. And Hugh Segal, the pilot’s project adviser and a former Senator, concurs. In a recent report, he described the scheme as an attempt to address the failures of “the patchwork system of uncoordinated solutions” to poverty.

While this is a major earthquake in the way Canada provides for the poor, some supporters of basic income will see this pilot as incomplete. In a perfect world, the payments would go to everyone, but this summer the Ontario government is giving out payments to randomly selected individuals and families in need. In a mixture of rural and urban locations – Hamilton, Thunder Bay and Lindsay – recipients will get C$16,989 (£10,129) a year, with C$24,027 (£14,325) for couples and those with disabilities will receive an additional C$6,000 (£3,577). The trial is set to run for three years and aims to reach 4,000 people aged between 18 and 64.

These are sizable sums but have broad support amongst Ontarians and in the country at large. Fifty-three per cent of Canadians back Ontario's basic income plan, of whom almost 40 per cent think that yearly payments should be more generous. The individual payments are set at 75 per cent of the Low Income Measure, one of the government’s benchmarks for poverty.

Kathleen Wynne, the Premier of Ontario, said in a speech in April that the pilot is the first step in a long programme. “We want to find out whether a basic income makes a positive impact in people’s lives ... and whether it’s an approach that can be adopted across our province as a whole.” The Ontario government is also in the process of developing a parallel pilot with First Nations indigenous communities. Recent discussions in British Columbia, Quebec and Prince Edward Island suggest other provinces could follow Ontario’s lead.

Opposition MP Guy Caron, currently running for leadership of the New Democratic Party, is hopeful about the implications for the rest of the country. “We’re seeing a renewal of the idea because of an exhaustion of attempts to fight economic inequality. There are grassroots movements that are very lively and dynamic and they’re growing all across Canada.”

Mr Caron’s platform for the NDP leadership includes a proposal for a targeted national basic income for those near the poverty line.

Ontario premier Kathleen Wynne with Prime Minister Justin Trudeau in Vancouver in 2016. Wynne rolled out the basic income pilot as the first step of a long programme

But will it work in its stated aim of reducing poverty and inequality? Clearly it’s too soon to know, as payments will only start this summer. A common worry is that people would simply stop working, but the jury is out and we are yet to see how people in Ontario will actually respond. There are other pilot projects going on around the world, including in Finland, Kenya, and India – Hawaii announced a plan last week – each have their own idiosyncrasies and all of which are in their early stages.

However, Canada has its own rich history of dabbling in basic income experiments, from William Aberhart’s Social Credit Party of the 1930s to large-scale basic income experiments in the 1970s. The Manitoba Basic Guaranteed Annual Income Experiment, or “Mincome”, ran from 1974 to 1979 and paid out millions of Canadian dollars to thousands of citizens. The experiment was a collaboration between the federal and provincial governments as part of the Social Security Review, with the former footing 75 per cent of the bill. The payments were made in the areas of Winnipeg and Dauphin.

In Winnipeg the scheme tested paying out three different rates. For families of two adults and two children these were (in 2017 Canadian dollars) C$18,800, C$23,735 and C$28,650. For every dollar earned over a certain threshold, different families had their payments reduced at rates of 35 per cent, 50 per cent and 75 per cent.

In Dauphin, by contrast, the experiment had a fundamentally different architecture, primarily its “saturation point”. This meant that every family in the town of people and surrounding rural municipality people was offered the opportunity to participate. This was in order to better assess a basic income in a real-world context, giving insight into effects on things like the supply of goods, prices and work habits. What the saturation point allowed for was to see how people in the community, companies and employers responded to the scheme.

This hadn’t been done in a rich country before and hasn’t since. Government officials were tasked with knocking on the door of every Dauphin household and over the course of the experiment at least 18 per cent of the population received annual payments of around C$21,150 (in 2017 dollars). Every additional dollar of earnings decreased the regular payments by 50 cents, so people could always earn more by working and not get stuck in the kinds of poverty traps associated with contemporary means-tested benefits.

Given what’s been going on in Ontario, academics and politicians alike have been looking back at the Mincome experiments and in each of the Manitoba locations, the experiment had significant positive effects on poverty, inequality, health indices, schooling and other sociological factors.

Toronto in Ontario. This summer the province's government is giving out payments to randomly selected individuals and families in need

Professor Evelyn Forget on the University of Manitoba analysed the impacts of the Mincome experiment on health in Dauphin. “Overall hospitalisations, and specifically hospitalisations for accidents and injuries and mental health diagnoses, declined for Mincome subjects relative to the comparison group,” she says. She also found that the experiment had a significant impact on school attendance and continued enrolment. “A greater proportion of high school students continued on to grade 12,” she reported.

And the positive benefits extended to dispelling stigma that went with welfare payments. In his analysis, Dr David Calnitsky’s found that Mincome participants were less embarrassed and uncomfortable about being on welfare and experienced less discrimination and prejudice associated with being recipients than those on conventional programmes. The same improvement was there in terms of participants’ experiences at banks, with landlords, in their communities, and with the police, teachers and medical services. One Mincome recipient described the programme as “more normal than welfare”.

Dr Calnitsky argues that the reduced stigma was down to the experiment’s universality and simple delivery design. This is something missing from the Ontario pilot, as all participants are to be randomly selected. Hugh Segal did originally propose a saturation point for the scheme but it didn’t make the cut.

High inflation and high unemployment of the late 1970s, and the rise of neoliberalism under Thatcher and Reagan in the 1980s destroyed the appetite for sweeping reforms of the basic income type. Now in a time of similar socio-economic tumult that appetite is returning.

Today, reflecting on relevance of the Mincome experiment for the Ontario pilot, Dr Calnitsky says that success or failure of these experiments really depends on what’s being looked for. “These experiments can be a bit of a Rorschach test,” he says. “Different people have different goals with respect to what is seen as a desirable outcome. The reasons people cite for finding basic income appealing really runs the gamut.”

Basic income is anything but basic. Historically its supporters range from Milton Friedman, the father of neoliberal economics, and President Richard Nixon to Martin Luther King and John Kenneth Galbraith. Broadly speaking, there is a conservative and a progressive case for basic income. The conservative case looks to replace the welfare system and increase individual freedom through cash transfers. For them the upside is the streamlining of government and reduction of bureaucracy. Progressives worry this would lead to the commodification of welfare. Instead, they think that a basic income should instead replace and complement certain parts of the benefits system, funded through progressive taxation and/or levies on common assets like shared wealth, automation, or land.

“The Ontario pilot represents the conservative case, that of using a basic income to downsize government,” says Guy Caron. “They’re integrating Ontario Works [a social assistance scheme] and the Ontario Disability Support Programme.”

Some, however, question to what extent the Ontario case counts as a basic income. Kate McFarland of the Basic Income Earth Network (BIEN) says: “On the use popularised by European groups like our own, basic income specifically describes policies in which every member of society receives a recurring cash payment of equal amount regardless of other income. In fact, in the case of both Mincome and the Ontario pilot study, the benefit is awarded only to low-income households and tapered off with earned income.”

Charles and Camilla join Canada Day celebrations

Karl Widerquist, associate professor at Georgetown University-Qatar, worries that the Ontario pilot risks being misrepresented. “Whether it will be successful depends on your idea of success,” he says. “Technically, a successful scientific experiment is one that produces data that can enlighten our understanding of the issue, one way or another. It will have some success in that area but it will tell you a lot less than we’d like because a few thousand randomly selected low income people receiving basic income will react very differently from an entire nation receiving it”.

He also argues that the Mincome experiments have been “widely misunderstood and negatively spun”. Much of the research was on whether people stopped working when they were given a basic income. In Mincome, annual hours worked by married and single males declined by 1 per cent, for married women the corresponding figure was 3 per cent, while single mothers reduced their work hours by 7 per cent. This is hardly evidence of the economy grinding to a halt.

Asked about Mincome’s implications for the Ontario pilot, Professor Forget says that in the 1970s “women were just beginning to enter the labour force in large numbers. At the time, maternity leave was much less generous than today. So women tended to cut their hours of work when they were offered a basic income. I think that's less likely to happen today.” She adds that today Canada has “a much more complex system of income assistance, so we have to be much more aware of program interaction. And, of course, the labour market itself is much different than it used to be; people today have a greater need of basic income because it's much harder to find good, permanent, well-paying jobs with benefits.”

The Ontario pilot is focusing on factors beyond just work, namely whether or not the trial payments make a significantly better impact on the lives of the poor than current benefits. Advocates for a basic income justify it on the grounds of social justice, freedom and economic security – things that cannot be tested in a pilot.

“I think we are in the midst of the piloting phase of basic income,” says Guy Standing, professor of development studies at the School of Oriental and African Studies in London, “and that the various pilots, in India in Finland, and the impending pilots in Ontario, among others, will help in the legitimation of basic income more generally.” Now we face the acid test of implementation to see if it will live up to the promise. We are about to see where the unexpected benefits and problems fall; more will always be learned by trying something out than talking about it for longer.

The Ontario pilot may not be a quick cure all for Canada’s current quiet rumble but basic income seems to be an idea whose time has come. The move from theory to practise is undeniably a significant shift.

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