Andrew Yang is being championed for breathing new life into an unlikely economic model: The idea of universal basic income (UBI) or, per his campaign, the “Freedom Dividend,” has been at the forefront of his presidential campaign.
Just this past weekend, fellow Democratic presidential candidate senator Elizabeth Warren also indicated that she’s open to UBI as an option to consider to “raise wages” and “strengthen the social safety net.”
The idea of a universal basic income system is simple: Give everyone in a country a small allotment of cash each year to hopefully prevent them from falling under a certain level of living.
Those who support UBI say that people are being left behind, displaced by technology, and need a basic level of sustenance. As a technology entrepreneur and someone who has long been involved in the artificial intelligence field, I do understand these concerns. I also understand them as someone who knew material scarcity in my youth.
But UBI is a lazy solution that fails to solve the real problem: how to give people an opportunity to create wealth. We need to get more people invested in our country as owners of real things that create this wealth—things like real estate, businesses, cars. Otherwise, like in the days of sharecropping, we risk continuing to have a whole class of people who are merely being sustained, but not given the chance for real economic advancement.
Sharecropping by another name
After the Civil War, the southern region of the US was left destitute to a degree barely imaginable by today’s standards. Since the economic model of the south was heavily reliant on slave labor, the region’s economy was struggling to survive after the abolition of slavery.
The answer? Sharecropping.
The practice of giving people a modicum of economic incentives, where they could subsist at a low-income level, but where it was impossible for them to rise permanently, defined American poverty for decades.
In the sharecropping system, a person would rent land from an owner and farm that plot. A “share” of the profits was also provided to the landlord/owner. Rents were set to make economic profit impossible. So, sharecroppers survived through very hard work, but they could not statistically rise as a group. As a result, people never became owners, which is a basic tenet of economic advancement. From an economic vantage point, sharecropping resembled a form of slavery, except that it also enveloped poor white people.
Not surprisingly, following the Civil War, the South was locked into a cycle of poverty lasting into the 20th century with income down 36% from where it was prior to the war.
Today’s proposal for UBI is similarly flawed, specifically since it will not result in more ownership. My fear is that, rather than helping, solutions like this will create a permanent class of people on the margins. Without owning assets of significance, people will remain bystanders.
There are better ways to attack the problems of poverty:
Early and broad education around financial literacy and wealth building, for example, costs taxpayers less and creates more results. I got an MBA and never took a course in simple personal financial management. Poor people are forced into bad financial practices by their circumstances and lack of knowledge.
Another option is tax credits for people who invest in tech companies that produce anti-poverty or wealth-building products that benefit the poor. So, you invest $1 and get a $1 deduction against your income. We have to get tech companies working for the poor rather than indirectly against them. A company can get certified with a B Corporation designation, which indicates that it is a social enterprise. Why can’t we create the same type of designation for companies working on anti-poverty technologies and initiatives?
The US’s Small Business Administration (SBA) costs taxpayers about $715 million a year. It seems to me that this is a case where increasing a spend can move the dial for everyone’s benefit, including by aggressively expanding the SBA, but where it partners with private sector non-profit organizations that emphasize helping people start businesses.
If you look at the history of disenfranchised people, the pattern is that they got themselves out of poverty either by getting educated or by starting their own businesses. This is especially crucial because, despite the popularity of entrepreneurship, the rate of ownership in private companies continues to fall dangerously low over the past 50 years. Lower ownership in private businesses is a national risk.
Having an opportunity to participate and own is integral to human dignity. It is true that the problem of poverty is immensely complicated and encompasses many socioeconomic factors.
But, if solutions are well thought through and not slapped together under a false premise, such as sharecropping and UBI, we can significantly reduce poverty in this country with the resources and economic power that we already have.