Philippe Van Parijs argues for a basic income for all legal residents of the European Union to be financed by the Value Added Tax. Unlike the US, the EU lacks automatic inter-state transfers and migration between states is much less common. A universal basic income would serve as a buffering mechanism and enable a stronger recovery from economic downturns. It would also help the Union overcome the pressures of competitiveness that entails a sacrificing of social expenditure and the EU may be seen as more legitimate and less of a heartless bureaucracy in the eyes of its residents

Van Parijs, Philippe

LSE Research Online

7/15/2013The Eurodividend: Why the EU should introduce a basicincome for allblogs.lse.ac.uk /politicsandpolicy/the-eurodividend/Philippe Van Parijs argues for a basic income for all legal residents of the European Union to be financedby the Value Added Tax. Unlike the US, the EU lacks automatic inter-state transfers andmigration between states is much less common. A universal basic income would serve as abuffering mechanism and enable a stronger recovery from economic downturns . It would alsohelp the Union overcome the pressures of competitiveness that entails a sacrificing of socialexpenditure and the EU may be seen as more legitimate and less of a heartless bureaucracyin the eyes of its residents.Criticizing is easy. Making proposals is harder. Here is one, simple and radical, yet — I shall argue — reasonableand urgent. Eurodividend is how I shall call it. It consists in paying a modest basic income to every legal resident ofthe European Union, or at least of the subset of member states that either have adopted the euro or are committed todoing so soon. This income provides each resident with a universal and unconditional floor that can besupplemented at will by labour income, capital income and social benefits. Its level can vary from country to countryto track the cost of living, and it can be lower for the young and higher for the elderly. It is to be financed by the ValueAdded Tax. To fund a eurodividend averaging 200 euros per month for all EU residents, one needs to tax the EU’sharmonized VAT base at a rate of about 20%, which amounts to close to 10% of the EU’s GDP.Why do we need such an unprecedented scheme? For four reasons. The most urgent one has to do with the crisis inthe Eurozone. Why is it that the US have been managing for many decennia with a single currency despite thediversity of its fifty states and their divergent economic fates, whereas the Eurozone is in deep trouble after just onedecade? From Milton Friedman to Amartya Sen, economists have kept warning us: Europe lacks two bufferingmechanisms that serve in the US as powerful substitutes for exchange rate adjustments by individual states.One of them is inter-state migration. The proportion of US residents who move to another state in any given period isabout six times higher than the proportion of EU residents who move to another member state. Europeans maybecome somewhat more mobile. But our entrenched linguistic diversity imposes very strict limits on how far we canexpect — or indeed hope — to amplify this first mechanism. Athens’ unemployed will never migrate as smoothly toMunich as Detroit’s to Austin.The dollar zone’s second powerful buffering mechanism consists of automatic inter-state transfers, essentiallythrough the working of a welfare state largely organized and funded at the federal level. If Michigan or Missourisuffer economically, they do not sink into a downward spiral. Not only is their unemployment tempered byemigration. In addition, owing to tax liabilities shrinking and benefit payments swelling, a growing part of their socialexpenditures is de facto funded by the rest of the country. Depending on the methodology used, the estimates of theextent of this automatic compensation vary between 20 and 40%. In the EU, by contrast, the dampening of amember’s state downturn through adjustments of net transfers across states amounts to less than 1%. Given thepoor prospects of the migration mechanism, the eurozone simply cannot afford to neglect this second one. Whatform should it take? We shall not nor should ever have an EU-wide mega welfare state. Something more modest,far rougher, more lump-sum and therefore more compatible with the EU’s subsidiarity principle, is what we need. If itis to be viable, our monetary union needs to equip itself with a number of new tools. One of them is a bufferingmechanism which can only be something like a eurodividend.The second reason why we need such a trans-national transfer scheme applies to the EU as a whole. The linguisticand cultural diversity of the European continent does not only make inter-state migration more costly and thereforeless likely for the individuals involved. It also reduces the benefits and increases the costs for the communities1/3involved. Integration into the new environment, both economic and social, takes more time, requires moreadministrative and educational resources, creates more lasting tensions than is the case with inter-state migration inthe US. As migrants from poorer countries flock into the more affluent metropolitan areas, the feeling of beinginvaded by indigestible crowds feeds the drive to reinstate thick boundaries and repudiate both free movement andnon-discrimination. There is an alternative, however: organize systematic transfers from the centre to the periphery.People will no longer need to be uprooted and driven away from their relatives and communities by the sheer needto survive. Instead, populations will be sufficiently stabilized to make immigration digestible in the magnet areas andto stop emigration being badly debilitating in the peripheral areas. If it is to be politically sustainable and socio-economically efficient, a European Union with free internal migration must introduce something along the lines of aeurodividend.Thirdly and most fundamentally, the free movement of capital, human capital, goods and services across the bordersof member states erodes the capacity of each of these to perform the redistributive tasks they discharged pretty wellin the past. Member states are no longer sovereign states able to set democratically their priorities and to realizesolidarity among their citizens. They are more and more compelled to behave as if they were firms, obsessed bytheir competitiveness, anxious to attract or keep their capital and their human capital, eager to eradicate any socialexpenditure that cannot be sold as an investment and to phase out any scheme likely to attract welfare tourists andother unproductive folk. It is no longer democracy that imposes its rules on markets and uses them for its purposes.It is the single market that imposes its laws on democracies and forces them to give competitiveness top priority. Ifour diverse ways of organizing social solidarity are to be saved from the grip of fiscal and social competition, part of itmust be lifted to a higher level. The power and diversity of our welfare states will not survive the murderous pressureof competitiveness unless the united European market operates on the foundation of something like a Eurodividend.Finally, it is important for all dimensions of the functioning of the European Union that its decisions should beregarded as legitimate, so that governments and citizens will not feel entitled to circumvent them in all sorts of ways.One important factor turns on whether citizens perceive very tangibly that the Union does something for all of them,not only for the elites, for the movers, for those who are in a position to seize the new opportunities, but also for theunderdogs, for those left out, for the stay-at-homes. Bismarck helped secure the shaky legitimacy of his unifiedGermany by creating the world’s first public pension system. If the Union is to be more in people’s eyes than aheartless bureaucracy, if it is to be perceived as a caring Europe with which all can identify, it will need to find a wayof bringing about something totally unprecedented: a universal eurodividend.Are there any reasonable objections to this proposal? Of course there are. Some, for example, may question thewisdom using VAT to fund the scheme. True, VAT is the most Europeanized of all major forms of taxation. But wouldit not make more sense to use a Tobin tax or a carbon tax, for example? We can do so, but what these taxes couldfund, under pretty optimistic assumptions, is an EU-wide monthly eurodividend of no more than 10 and 14 euros,respectively. Why not the more progressive personal income tax then? Because the definition of the income tax basevaries greatly from country to country and is highly sensitive politically. Moreover, today’s income tax is de factohardly more progressive than VAT. When added to national rates, would a 20% rate of VAT not be unsustainable? Itdoes not need to be added to unchanged VAT rates: the member states’ social expenditures can and should beadjusted downward and the revenues of the income tax upward as a straightforward implication of the sheerpresence of the eurodividend.Others are likely to object that each of the four functions listed above could be served better through some morecomplicated, more sophisticated device. Most of these arguments will be correct. My claim is simply that no othermanageable mechanism would serve all four functions as well while being intelligible to the ordinary Europeancitizen.A more fundamental objection is that, however desirable the expected effects, it would be unfair to give everyonesomething for nothing. This objection rests on a misperception. A eurodividend does not amount to an unfairredistribution of the fruits of some hard workers’ work. It rather amounts to sharing among all European residents, in2/3the form of a modest basic income, part of the benefits of European integration. How much did we save as a result ofnot having to conduct or prepare war with our neighbours? How much did we gain as a result of having increasedcompetition between our firms or of having allowed factors of production to move wherever in Europe they are mostproductive? No one knows and no one will ever know. But what is certain is that these benefits are distributed veryunequally in the European population, depending on whether they are movers or stay-at-homes, depending onwhether or not the situation created by European integration happened to make their consumption cheaper or theirskills more valuable. A modest eurodividend is simply a straightforward and efficient way of guaranteeing that someof these benefits will reach each European in a tangible way.Is this not utopian? Of course it is, in the sense in which the European Union itself was utopian until not so long ago,and also in the sense in which the social security system was utopian before Bismarck put together its first buildingblocks. But Bismarck did not create his pension system out of the kindness of his heart. He did so because peoplestarted mobilizing in favour of radical reforms across the whole of the Reich he was trying to unify. What are wewaiting for?Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of theLondon School of Economics. Please read our comments policy before posting.About the AuthorPhilippe Van Parijs is a professor at the University of Louvain, where he directs the Hoover Chair of Economic andSocial Ethics, and a Senior Research Fellow at Nuffield College, Oxford. He is one of the founders of the BasicIncome Earth Network and chairs its International Board. His books include Real Freedom for All. What (if anything)Can Justify Capitalism? (Oxford, 1995), What’s Wrong with a Free Lunch?  (Boston, 2001), Just Democracy. TheRawls-Machiavelli Programme (Colchester, 2011) and Linguistic Justice for Europe and for the World (Oxford, 2011).3/3

The Eurodividend: Why the EU should introduce a basic income for all

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