Inequality and Civic Integrity: A Proposed Solution

Image by Hilary Clark

The concept of participation income (PI) was first introduced by Anthony Atkinson in his 1996 paper, “The Case for Participation Income,” as a basic income given to all citizens who participate in society, whether through formal work, unpaid work, such as care or volunteering, or cultural or creative activities. The principle is that anyone who is contributing to society in some way should be eligible to enjoy its rewards. Society can be understood as the commons: the collective shared space owned, sustained and maintained by all and for all. The commons includes both physical spaces, such as public parks, and intangibles, such as the explicit values and principles upon which our society is based. Activities that support the commons typically do not have a market value, since no single party benefits more than any of the rest: all receive the same benefits. Thus, participation income is a method of paying for the maintenance of the commons by taxing those whose wealth is dependent upon its stability and integrity.

Here, Malcolm Torry summarizes the principle argument against PI, outlined at greater length in his 2016 book, citing “research results which reveal the difficulty of administering a Participation Income, and … calculations that show that on Tony Atkinson’s ‘participation’ criteria only 1.2% of the UK’s population would be excluded from his Participation Income at considerable administrative cost.”

So, if the administrative overheads of PI are high, and the criteria for receiving PI are nearly universal, why not save the expense of administration and just introduce a universal basic income?

The value of PI is that it addresses both the definition of a citizen and the moral hazards of UBI.

No substantive discussion has been had on the merits or demerits of decentralising the process of defining what counts as valid participation. The conversation has been largely about what can be done about inequality, and PI has been dismissed out of hand—as though defining participation in an efficient manner, without creating more bureaucracy, were an insurmountable challenge.

But by democratising the definition of participation, you could remove the administrative costs to a central authority, and forestall accusations of paternalism. To pre-empt the objection that such a process would be far too complex, think of representative democracy. Our democratic frameworks were developed in a period when there were legitimate question marks over whether people had the technology, communications infrastructure and literacy levels required to implement a free and fair voting system. Yet today the arguments over whether people have the capacity to choose their elected representatives are largely marginal. Now that virtually everyone is online, effectively voting with likes, follows, claps and angry emojis, in a grand social validation game funded by advertising, the technology to implement granular voting systems and liquid democracy is nearly ubiquitous. New applications are launched nearly every day, able to handle similar levels of complexity to those we would need to implement a participation income system.

We may question the wisdom of the electorate, but we now know that democracy is “the worst form of government except all those other forms that have been tried from time to time.” Someday, we may think of participation income as the worst form of wealth redistribution—except for all the others that have been tried.

The Problem: Inequality

Economic inequality is increasing rapidly due to what economists know as the Matthew effect: “To those who have much, more shall be given; from those who have little, everything shall be taken.”

This theory was formalised in 1896 by Vilfredo Pareto, who showed that approximately 80% of the land in Italy was owned by 20% of the population. Wealth inequality increases over time, reducing economic and social mobility. The reasons for this range from regulatory capture, to financial influence on politics, access to social and commercial networks and differences in educational and healthcare availability. But its root cause is that, in any game, the greater the inequality the greater the capacity of more fortunate players to make or amend the rules in their favour, which further increases inequality.

For example, feudal lords may have gained power through force, and kept it through competent administration or conquest or both. But the introduction of blood right—the hereditary privileges of nobility—directly modified the conventions of social mobility. Society was no longer meritocratic: heritable, immutable qualities determined one’s status for life. Blood right is a way of ensuring that the strategies that allowed the winners to take power are no longer available to those who come after them. This further increases inequality—often leading to upheavals like the French revolution.

Not all inequality of outcome is caused by the corruption and duplicitousness of a conspiratorial elite. Differences in ability can be significant, and these differences can and do compound over time. But the mere possibility that legitimate inequality leads to the capacity to generate illegitimate inequality by allowing the powerful to change the rules in their favour will often lead disempowered people to consider revolt, to flip over the board so that everyone starts from zero: true equality.

The tendency for a person or group to pull the ladder up after them has generated resentment and provoked violence in societies: from the Roman Republic’s civil war between plebeians and patricians to the communist revolutions of modernity.

Violence tracks the Gini coefficient, the measure of inequality, as Martin Daly argues in his book Killing the Competition:

Criminologists have known for decades that income inequality is the best predictor of the local homicide rate, but why this is so has eluded them. There is a simple, compelling answer: most homicides are the dénouements of competitive interactions between men, and where desired goods are distributed relatively inequitably and competition for those goods is severe, dangerous tactics of competition are relatively appealing. A high homicide rate is just one of many unfortunate consequences.

In a 2002 paper that surveyed 39 countries between 1965 and 1995, Pablo Fajnzylber, Daniel Lederman and Norman Loayza found that “crime rates and inequality positively correlated within countries and, particularly, between countries, and this correlation reflects causation from inequality to crime rates, even after controlling for other crime determinants.”

A Gallup survey of May 2018 asked 148,000 people in 142 countries about their perceptions of crime and how safe they felt, using four measures: whether they trusted the local police; whether they felt safe walking home alone; whether they had ever had property or money stolen; and whether they had been assaulted over the past year. The findings showed that “the correlation between these questions and the amount of income inequality in any given country shows a strong and positive relationship.”

If outcomes are unequal enough, then, individuals and groups will be pushed to the brink of violence and revolution. Faced with the perceived duplicitousness of an elite political, economic or corporate class, a disenfranchised but cynical actor might well foment discord through misinformation and bad faith arguments.

If we want to avoid descending into a cycle of increasing violence and authoritarian responses, we must expand the number of ways in which people can productively contribute to society, thus giving the greatest possible number of people a place and status in society. In other words, we must pay people for positive participation.

What Is Good Participation?

If people are game playing machines, but they are playing a bad game, then they will be bad people. People want to be good. But if the signalling mechanisms for goodness are easily gamed by bad actors, then the strategically optimal decision is to be bad, but to signal goodness.

A player who wishes to engage only with good players must build a game that makes it easy for good actors, but difficult for bad actors, to signal that they are good.

In a multiplayer game, it is not possible for a single player to unilaterally determine what is good, because that player will always be incentivised to present good and good for that player as synonymous.

It is also not optimal for players to outsource their definition of good to a third party, since that party will also be incentivised to say that good and good for them are synonymous.

Good must be good according to most people.

But for a large number of people, good and good for us are synonymous. Though what is good for most of us might be very bad for a few.

Good must be uncontroversially good according to all people. In other words, the few must have a veto over the majority opinion.

To alleviate the pressure caused by inequality, the system must provide a wealth redistribution mechanism that incentivises good behaviour—participation in the commons—and that has very low administrative overheads. People would need to consent to the definition of good behaviour within the existing democratic framework, and it would need to be transparently defined within the rules of the system, such that all parties who opt in are reasonably satisfied that the system is fair.

This is the basis of all functioning welfare systems. This new system would complement, not replace, existing welfare infrastructure, while slowly, incrementally, taking over many of the functions of the administratively costly welfare state.

There will need to be debate on the exact parameters, but in the beginning broad political support is not important, and probably a waste of time. Since all players will argue in favour of their relative interests, and the system must be designed to be fair, it will probably be extremely unpopular in theory, but extremely popular in practice—as shown by revealed preferences.

Real compromise pleases nobody in particular.

The Basics

Assume that a small country that controls its own currency, such as Iceland, Armenia, Finland or New Zealand, were to adopt the participation income system in a single district, as a trial, exclusively for registered residents of that district. It is important that the district include both taxpayers and welfare recipients, so it can be considered a representative sample of the country’s overall level of inequality.

A conditional recurring payment would be paid to each participant abiding by the rules of the system.

In order to receive their payments, participants must post an activity, with a description and appropriate evidence. The designers of the scheme might institute the following rules:

Your activity must be posted publicly, where people who vote can also comment, or report on it.

Your activity must have a location, even if it is a purely digital activity undertaken from your home.

Your activity must be tagged with relevant keywords, so that people can easily find it.

Your activity can be recurring or continuous. You can post once and keep getting verified for the same activity. It can even be a one-off—although in that case it will need to be of significant scale. As long as you can convince one person each payment cycle to verify your activity that is all that matters.

Of course, people can also post multiple activities.

Validation: Was it good?

For taxpayers to accept that activities are good for society, so that in general the activities benefit them.

You must achieve a minimum number of votes (this minimum can be low).

You must have a minimum ratio of, for example 80%, positive to negative votes, to ensure activities are uncontroversially good.

Verification: Did It happen?

Taxpayers must feel secure that the activities actually happened.

For each payment cycle, you must have verification from one person outside of two degrees of separation from you.

You may only be verified by the same person a maximum number of times within a specified period, e.g. 10 times per year, or per 10 years.

Network data is determined by votes of validation, i.e. if Person A has voted or received a vote from Person B, and Person B has voted for an activity posted by Person C, then Person A is deemed to be within the network of Person C, and thus cannot verify her activity.

These parameters may need to be adjusted based on population density.

Cultural or charity organisations may provide validation to their own members and volunteers, by registering with the system and allowing them to use their logos as badges of credibility.

Importantly, in order to create a market for verification, a smaller payment would also have to be paid to people verifying activities. Each participant may verify one activity per week.

We might propose that a person’s verification income is set at 20% or one-fifth of participation income. People who wish to verify an activity must solicit an active participant to verify them. Thus, the person doing the activity may confirm or deny the right of this person to verify her, by viewing his profile to see if he is an active participant himself. It is expected that people will be discerning, in that they will only wish to verify or be verified by honest participants. People with a lot of downvotes, a lack of references, a lack of any known organisational affiliation, or with negative references, will find it more difficult to gain acceptance to either verify or receive verification.

The Income

Payment cycles can be assumed to be weekly.

Above a minimum threshold, each person must be paid according to her market rate to justify her participation economically. The market rate of a person with a high income can be determined by the amount of income tax she pays. This payment is distributed as a tax deduction, or an increase in tax-free credits for the period in question.

The amount of money distributed via tax deductions or cash would be non-negotiable. Recipients decide how much effort they are willing to put into the activity in order to receive the payment. For example, one might set the amount to represent a day’s worth of effort in the market for each participant, based on the local minimum wage or an estimate of the participant’s day rate based on the income tax he pays. Some people might receive $100, others $500—even for the same effort—because the higher earner incurs greater opportunity costs as a result of participating.

Who Pays?

But, if taxpayers receive more participation income than low earners, who will pay for this? How can this be redistributive?

In the beginning, few taxpayers will be on board, and thus the participation income of all participants will be paid for in the aggregate by non-participating taxpayers, or, via inflation, by the government simply printing money.

Once the majority of taxpayers are participating, the big losers will be those taxpayers not participating, though even participating taxpayers will benefit less individually. The system creates a sort of reverse prisoner’s dilemma for taxpayers. If very few participate, then the greatest benefactors will be the few who do. If all taxpayers participate, then the number of net benefactors will decrease, until the only net benefactors from a tax/income perspective are the lowest earners or the unemployed.

A teacher or nurse who pays tax may post that his participation is teaching, and will not need to do anything additional to what he already does, if his peers validate the activity as worthy of payment.

But someone who works in a cigarette company will probably not post her profession, so she will have to think of something supplementary to her work, or pay the tax. If the person volunteers her time or donates her participation income directly to a lung cancer research charity, this is in effect a tax on the externality costs of her labour.

Failure of Consensus

In principle, it is possible for everyone to downvote each other, so that no payments are distributed. In that case, the state has fewer financial liabilities (and thus collects less tax) until a community consensus has been reached on which activities are worthy of payment. If people want the income, they have to come to a consensus as to which activities contribute to civic integrity: which things are good and which are bad for society.

You can find out more about participation income by joining the discussion on our subreddit, or by following me on Twitter.