Socialism and universal basic income: Creating happy societies in the age of the knowledge economy

Lance Gore analyses that the knowledge economy offers great potential for bettering the lives of people. But capitalism may not be the best route to take. Power in the hands of a few, income gaps, job losses and wage cuts in the digital age bear this out. Can China offer a third way as it seeks to marry socialism with a market economy? The West is already considering some proposals with a socialist bent such as the Universal Basic Income (UBI). Surely, proponents of socialism can think of even more revolutionary ideas?
Delivery workers wearing face masks ride scooters in front of Lujiazui financial district, in Shanghai, China, 10 July 2020. (Aly Song/File Photo/Reuters)
Delivery workers wearing face masks ride scooters in front of Lujiazui financial district, in Shanghai, China, 10 July 2020. (Aly Song/File Photo/Reuters)

“Only socialism can save China!” 

We have been hearing this slogan for almost 70 years since the socialist transformation of the 1950s. Of these 70 years of exploration, it was the three decades of the Mao Zedong era that shaped China’s basic political structure and established a fairly comprehensive industrial system. The general population, however, was mired in prolonged poverty during this period. The great famine of the early 1960s aside, the bulk of the rural population was always starving. Only thanks to polices skewed towards city dwellers were the latter able to barely scrape by. Today the Chinese people are not only well-fed, but even troubled by obesity. Obesity remains a big problem, especially for some women who are willing to spend tens of billions every year to get rid of their extra pounds.

However, huge problems remain when it comes to the most critical marker of socialism, which is income distribution.

Socialism + market economy = ?

Some say that China has already shed much of its socialism during the reform and opening up era. Deng Xiaoping had imagined that while China’s per capita income might still fall behind that of the developed capitalist countries for a long time to come, his countrymen would nevertheless live a much better life than before because the state would still be practising socialism. But how should the best in socialism be brought out under the conditions of a market economy? 

On this matter Deng was silent, leaving behind a towering challenge for future leaders to tackle. Today, the strengths of the Chinese system have already made themselves clear in areas such as the maintenance of stability, the mobilisation of resources, long-term planning, decision-making and execution, competence in responding to changes, as well as the nationwide coordination of infrastructure-building. However, huge problems remain when it comes to the most critical marker of socialism, which is income distribution. That is because “playing by market rules” necessarily leads to a sharp division between the haves and have-nots, and those who have grown wealthy first would also have no way to bring others along towards common affluence.  

If China is able to release all of its reserve production capacity, it would suffice to eliminate poverty, enabling most people to live a middle-class life. However, the rules of the market do not allow this.

Vendors sell vegetables at street stalls, in Guangzhou's Xiaobei neighbourhood, Guangdong province, China, 17 June 2020. (David Kirton/Reuters)
Vendors sell vegetables at street stalls, in Guangzhou's Xiaobei neighbourhood, Guangdong province, China, 17 June 2020. (David Kirton/Reuters)

China has a substantial low-income demographic. 600 million people live on about 1,000 RMB per month, which is insufficient even for housing rent alone. What we have here is inadequate demand from those with spending power, coupled with a tremendous surplus of production capacity. This is the classic “basic contradiction of capitalism” as described by Karl Marx: the market capacity (rather than actual demand) constitutes the upper limit for economic growth, causing poverty and surplus to exist concurrently. 

Theoretically at least, socialism is about breaking through the limits of the market and releasing the total production capacity attainable under prevailing technological conditions — that is to say, “liberating the forces of production”. If China is able to release all of its reserve production capacity, it would suffice to eliminate poverty, enabling most people to live a middle-class life. However, the rules of the market do not allow this. Selective decoupling from the capitalist system is thus both inevitable and necessary, not only due to the new Cold War, but also because socialism requires relatively independent space for its own policies and institutions that are less subjected to external constraints.   

Knowledge is power 

It is in the emergence of the knowledge economy that the future of socialism lies. The knowledge economy is driving the capitalist mode of production into a dead end, and opening up a new world for socialism. 

Unfortunately, capitalism poses some serious constraints on unleashing the knowledge economy’s strengths. 

An opera performer waits for customers at a restaurant on Jinli Ancient Street, in Chengdu, Sichuan province, China, 8 September 2020. (Tingshu Wang/Reuters)
An opera performer waits for customers at a restaurant on Jinli Ancient Street, in Chengdu, Sichuan province, China, 8 September 2020. (Tingshu Wang/Reuters)

In the ongoing fourth industrial revolution, knowledge is the most essential factor of  production. The knowledge economy has a few prominent characteristics. To put it simply:

1) Once created, knowledge can be reused repeatedly at close-to-zero marginal cost; 

2) Knowledge-based products come with extensive positive externalities, which the conventional metrics of GDP often fail to capture;  

3) The knowledge economy follows Moore’s Law and grows exponentially; and 

4) Knowledge-based products go against the traditional law of diminishing marginal returns. Their marginal returns actually grow. 

With marginal costs that tend towards zero, extensive positive externalities and exponential growth, it is possible for social productivity to grow by leaps and bounds. Want would thus be eradicated completely, and extremely great enrichment of both material and spiritual life can be expected. Unfortunately, capitalism poses some serious constraints on unleashing the knowledge economy’s strengths. 

IP rights thwart progress for the common good?

Firstly, while the protection of intellectual property (IP) rights may seem to be the unquestionably right thing to do, it is actually an arch enemy of the knowledge economy, because it greatly restricts the use of knowledge. What it guarantees is high profit for a minority, rather than the greater good for the majority. IP rights hinder the development of productivity in a number of ways. For example, the following are known for a fact:

 1) The generalisation and overprotection of IP rights raise the cost of transactions, thereby impairing the public good and social morality. In the domain of medicine, for example, IP rights take priority over the health and lives of the general populace. This obviously goes against everything that socialism stands for. 

2) Large companies and consortiums acquire a lot of new technology and high-tech start-ups that pose a potential threat to their own, only to shelve these projects, thus causing society to lose a great deal of potential welfare, options, and pathways for technological developments. 

People walk past the Tencent booth at the China International Fair for Trade in Services (CIFTIS) in Beijing on 6 September 2020. (Noel Celis/AFP)
People walk past the Tencent booth at the China International Fair for Trade in Services (CIFTIS) in Beijing on 6 September 2020. (Noel Celis/AFP)

All IPs are built upon the spiritual and mental wealth created by the human race collectively. They make use of a large amount of knowledge, experience, and technology, as well as the best of culture and civilisation, all of which belong to humanity in toto. The benefits accrued, therefore, ought to be shared to a greater extent, instead of being a privilege enjoyed by a few.  

The argument that IP rights safeguard the enthusiasm for innovation is not entirely in line with the facts either, even in the capitalist countries. As shown by empirical studies, the initial motives behind scientific research, innovations and entrepreneurship mostly have to do with curiosity, the thrill of taking on a challenge, altruistic ideals and values, as well as the quest for self-actualisation. Money-making is only a means to the end or a by-product, so to speak. The positive social motives, inherent in human nature and yet suppressed by the capitalist law of the jungle, are what socialism seeks to uncover and utilise. In contrast, capitalism only utilises and magnifies selfish motives of the individual. IP rights are therefore part of the capitalist ideology. To break through this, socialism needs to have relatively independent space for its own policies and institutions.

The government itself is a major producer of positive externalities. After all, how has the US become a technologically advanced nation of innovations?

Creating spin-off benefits for the people

Secondly, extensive positive externalities are an important feature of the knowledge economy, as much as it is a major means for wealth diffusion across all of society. Inexpensive China-made mobile phones and the Huawei network have empowered impoverished, backward tribal people in Africa overnight to do business with the world at large. The economic and social benefits of such dramatic transformation of life cannot be measured by GDPs. 

The logic of capitalism dictates that IP rights are to be bolstered to limit the spillover of positive externalities, and also downplayed to evade any responsibility for negative externalities. That is because the purpose of capitalist production is to maximise profits. In contrast, the purpose of socialist production is, in the current official wording of the Chinese Communist Party, to “satisfy the people’s growing need for a good life". It follows then that a major task for the government would be to create conditions for the positive externalities to be maximised, or even become the main thrust of socialised production. 

The government itself is a major producer of positive externalities. After all, how has the US become a technologically advanced nation of innovations? A big part of this had to do with the American government’s investments in shared technologies. Some of the core technologies of the fourth industrial revolution, from the computer, the Internet, GPS, new energy, the mobile phone touch screen technology, to the Human Genome Project, aerospace capabilities and the Silicon Valley model, were born out of funding by American government agencies or R&D spearheaded by them. Given that the government is spending the taxpayers’ money, the benefits of its scientific research have to be shared with the public. 

The Chinese government, too, does quite well, especially with respect to infrastructure, where the spillover effect is consciously emphasised. The Chinese high-speed rail system is a case in point. Although the system cost a lot to build and is making a loss in its operation every year, it makes good developmental sense when we take into account what it does for the country’s economy and society. The same can be said for China’s “whole-nation system” for boosting national sports performance, as well as the key technological R&D projects led and organised by the state. 

A man wearing a face mask checks a mobile phone inside a Huawei store, at a shopping mall in Beijing, China, 14 July 2020. (Tingshu Wang/Reuters)
A man wearing a face mask checks a mobile phone inside a Huawei store, at a shopping mall in Beijing, China, 14 July 2020. (Tingshu Wang/Reuters)

Wages set to decrease in knowledge economy

Thirdly, as the knowledge economy becomes increasingly “smarter” (AI-driven), the share of wage income in the total distribution of income will continue to decline, while investment returns will be a constantly growing piece of the pie. This means the lion’s share of society’s wealth will be swallowed by capital. In the long run, only jobs with wages lower than the cost of automation have any chance of being kept. However, Moore’s Law entails that the cost of automation will drop exponentially over time. This, coupled with intensified competition in the labour market, means that wage levels are bound to be kept low, even to the point of being inadequate for feeding oneself and one’s family. 

The rich-poor divide that comes about this way is sufficient to ignite revolutions. In fact, it is one of the roots of the widespread turbulence presently rocking the world.

Such an eventuality is already a reality in the US and some other developed countries: more and more wage earners find it necessary to work several jobs in order to pay their monthly bills. Despite being full-time workers who work very hard and are at least fairly well-educated, they struggle to maintain a middle-class life on their wages, and are dubbed the “working poor”. This is why there have been strong efforts in recent years to push for certain legislation in the US, whereby people seek to raise minimum wages to at least US$15 per hour, the level of a so-called “living wage”. To establish mandatory minimum wages is really to employ non-market means. It has come to this because, under purely capitalist conditions, even America’s phenomenal productivity cannot benefit the constantly expanding demographic of the marginalised. 

Due to the fact that the knowledge economy is marked by growing marginal returns (especially in the internet age), investment opportunities are increasingly clustered around a handful of people, projects or enterprises. Enormous wealth is thus concentrated in the hands of the lucky few who happen to be successful in their entrepreneurship. As the extent of monopoly advances, these large enterprises and corporations — sometimes even government agencies associated with them — are in a position to milk the middle class and other consumers, reaping huge profits while raising the general cost of living. The rich-poor divide that comes about this way is sufficient to ignite revolutions. In fact, it is one of the roots of the widespread turbulence presently rocking the world. 

Fourthly, the growth of the knowledge economy is more and more decoupled from the growth of jobs, such that the employment issue becomes a thorn in the side of governments around the world and remains basically an insoluble problem. Under capitalist rules, no employment means no food on the table, yet joblessness may ultimately become the norm for most people. When it comes to this, the dominance of the capitalist mode of production will necessarily come to an end. The contradiction can only be resolved by non-market means — that is to say, socialism.

China should kickstart preliminary research on universal basic income (UBI), as soon as possible. UBI, according to the Stanford Basic Income Lab, is “a periodic cash allowance given to all citizens, without means test to provide them with a standard of living above the poverty line.” 

People wearing face masks walk on Jinli Ancient Street, in Chengdu, Sichuan province, China, 8 September 2020. (Tingshu Wang/Reuters)
People wearing face masks walk on Jinli Ancient Street, in Chengdu, Sichuan province, China, 8 September 2020. (Tingshu Wang/Reuters)

Universal basic income the way forward?

In the age of the knowledge economy, some of the mainstays of traditional socialism will become obsolete. These include the principle of “to each according to his contribution”, as well as the policy of enlarging the share of labour in the initial distribution. The stage whereby socialism with Chinese characteristics liberates the forces of production by means of marketisation will pass. What we need to create the future is a whole new way of thinking, especially with regard to how we can break out of the tightening noose of the employment issue, and enable people to live with dignity even when they are not employed in the traditional sense. 

China should kickstart preliminary research on universal basic income (UBI), as soon as possible. UBI, according to the Stanford Basic Income Lab, is “a periodic cash allowance given to all citizens, without means test to provide them with a standard of living above the poverty line.” 

It must look into how the market can be transcended under the conditions of the knowledge economy, so as to achieve the maximisation of the social benefits of production. The purpose is to have the Chinese people’s standard of living and sense of happiness catch up with and even outdo those of developed capitalist countries, even when China’s per capita income is far lower than theirs.

The West and some developing countries, including India, have already carried out a great deal of theoretical studies, argumentation and extensive pilot projects pertaining to UBI. In the primaries for the 2020 US presidential campaign, the Asian American Democratic candidate Andrew Yang achieved huge success just by playing the UBI card. As an entrepreneur with no prior political experience, he did much better in his campaign than Senator Kamala Harris, the vice-presidential candidate eventually picked by Joe Biden. Now that Yang has successfully introduced UBI as a mainstream talking point in American politics, the subject can be expected to take centre stage increasingly in those circles from now on. 

What is UBI, after all, if not an attempt to rise above capitalism? It is socialist in nature. Despite being a socialist country, China has ironically fallen behind in this particular area.

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