Arguments for a UBI – The Entrepreneur
This post is part of the sequence Arguments for a Universal Basic Income.
More Stability
Entrepreneurialism is a risky business – most start-ups fail, losing the entrepreneur money, and yet as a whole, it is a process that is hugely beneficial for the economy, as it generates significant employment and innovation. Unfortunately, this tendency to fail makes entrepreneurialism something that most people cannot risk. If you are not already fairly wealthy, leaving a job to pursue an idea that may or may not generate any income is unaffordable right from the start. Even for people with some money behind them, it can be difficult to make ends meet in the period between the initial capital outlay and when the company becomes revenue generating.
Ordinarily, state benefits would not cover someone that had left their job to start a business, however these people are often placed in very difficult positions. They could be faced with the choice between giving up on their idea, which might be on the verge of success, losing all of the investment they have put in, or trying to keep it going whilst living in effective poverty until revenue starts coming in. This decision is a difficult one, and it is often not entirely trivial to just walk into a job straight away after things do fall apart. This can leave some entrepreneurs with an employment gap, and it can take some time for the state benefits to start to come in.
The advantage of a Universal Basic Income here is that it would both avoid this income gap, and help them to succeed. In the event of the worst case scenario, it would ensure that there was no period in which the entrepreneur had no income and therefore there would be no risk of falling into extreme poverty as a result of trying to start a business. On the other hand, while running the business, it would ensure that even if the company had a period of very low or no revenue, the entrepreneur could still eat, would not risk homelessness, and would be able to focus on making the business a success without worrying about either of these things.
Furthermore, a Universal Basic Income would open entrepreneurialism up to people with lower incomes, and less money behind them, as they similarly would not be risking losing their homes. It is a phenomenon that was observed when a Universal Basic Income was trialled on a small scale in a village in Namibia between 2008 and 2012: not only did the number of children in education increase and malnutrition decrease, but several people that were below the poverty line before the trial, started small businesses and were able to increase their earnings considerably once they had the small amount of Universal Basic Income available to them. Through providing greater stability, the Universal Basic Income grants people the freedom to take more risks, which would otherwise have the potential to ruin them.
Various charities have had similar initial results trialling microfinance programs in villages in Africa, and it is true that easy access to debt does encourage more people to try to start a business, however the longer-term impact of these schemes was not so positive. As is to be expected, only some of the small businesses set up were successful, leaving many in the community as poor as before, but also saddled with debt. Those who used microfinance to improve their living conditions likewise only saw a temporary benefit, as they had not increased their earning ability by the time the repayments started to bite. The benefit of a Universal Basic Income over such microfinance or “loans for the poor” initiatives is that low-income people who use this money to start a business will be no worse off than before, if their business fails.
Alongside actors, musicians and artists in general, the existence of various “cottage industries” is a testament to people’s desire to make a business out of their passion. They may not be scalable, relying on very specific people and skills, or they may have a small target market, but they make the economy more diverse, and arguably more flexible. Making it easier and less risky for people to choose to be artists or craftspeople is likely to be a boon to the creative industry in general and will allow more people from a wider variety of socioeconomic backgrounds to follow their passion.
The enthusiasm with which people embrace the idea of “being their own boss”, is a very good counterargument against the idea that a Universal Basic Income will encourage people to stop working. Undoubtedly some people will be happy to live the meagre existence provided for by such a policy, but most people tend to strive for more. Giving people the ability to take risks, without suffering catastrophic consequences is highly likely to result in improved innovation. This might mean that some people quit their jobs, but many of these will do this to try their hand at something new and entrepreneurial, rather than to simply sit at home doing nothing.