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Germany Adopted a Universal Basic Income, and Nobody Noticed

Last year in Germany, the Supreme Court capped job centre penalties, effectively removing the legal requirement to seek employment. Is the paradigm shifting? Could this be the precursor to universal basic income (UBI)? And will UBI really create the utopia its advocates hope for?

Dennis Pachernegg

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Germany may have bagged itself a universal basic income (UBI) through a legal back door. 

We’ll never know if the judges at the German Supreme Court in Karlsruhe were fully aware of the enormous consequences of their verdict last year. Probably not, because what they ruled on, at least officially, was not “Should there be a universal basic income, yes or no?”

What they had to decide was simply the legality of an administrative regulation. Specifically, regarding possible penalties Hartz-IV benefit recipients could incur for failing to do everything (within reason) to end and/or reduce their benefit dependency.1 The German Hartz-IV benefit system is designed as a catch-all safety net — not just for the unemployed, but also for the sick, and for those only able to work a few hours per week; like single parents, or people who care for an elderly relative. 

The status quo ante

According to the law that was under scrutiny, beneficiaries deemed fit to work had to present evidence of their efforts to end their financial dependency. Even though job centre agents had considerable discretion regarding what was considered evidence for such efforts, the refusal to show any effort whatsoever usually resulted in benefit cancellation.

For example, missing a job centre appointment (without a valid excuse) resulted in a 10% penalty for the duration of 3 months. Cumulative penalties – according to the regulations that were under judicial scrutiny at the time – could reach 100%, in which case all support, including health insurance, would be withheld. This was declared unconstitutional by the German supreme court.

The legal reasons 

According to the judges, the 100% penalty did not prove—to the satisfaction of the court— to be a compelling necessity that would nudge beneficiaries back into paid employment:  i.e. a conditio-sine-qua-non.

With no such proof, the 100% penalty would constitute an undue hardship, (i.e. a hardship not in service of a legitimate goal) and thus a violation of human dignity: ‘Menschenwürde’.2Is the right of a person to be valued and respected for their own sake, and to be treated ethically. It is of significance in morality, ethics, law and politics as an extension of the Enlightenment-era concepts of inherent, inalienable rights. The term may also be used to describe personal conduct, as in “behaving with dignity”. This is the primary constitutional principle with which all German legislation must comply.*

Though the judges recognised that the penalties achieved a certain degree of effectiveness and therefore did not declare them per se unconstitutional, the verdict imposes a hard limit of 30% of the basic allowance (excluding rent). Beyond this, it was ruled that no further penalties would be made, no matter what.

It is important to get the legal subtleties right.

The court did not say that the principle of human dignity compels the state to support its citizens with a UBI. It rather declared it unconstitutional to totally withdraw support due to a lack of substantial proof demonstrating the effectiveness of this measure. Basically, the Supreme Court did what I call a judicial Jiu-Jitsu move.

That is why it might not sound like a big deal, and further, why the public failed to realize the profound implications of this decision. To go from “The Hunger Games” to “As you like it” can be called, I believe, a paradigm shift.

In practice the verdict basically means the following: even if the beneficiary fails to apply for jobs, misses appointments, or, during a job interview, poops on the table while singing La Cucaracha — they will under all circumstances retain 70% of their food allowances, plus housing allowances, plus health insurance allowances… for life.3Unemployment benefits in Germany continue indefinitely — unlike unemployment benefits in the US or France.    

How much? Around 1160€ per month

Although this calculation has some caveats, it provides a good idea about the standard of living under the UBI. And what’s more, it is within the range of what past UBI proposals envisioned. The final sum is made up of several components:

Food allowance: 300€

The standard allowance for food and other daily necessities is set at 424€, which, assuming a 30% deduction, would be reduced to around 300€ per month. A young, healthy person will find it possible, with some careful planning, to fill their plate with such a stipend.

Housing costs: ?

It is not possible to give an exact sum here, mostly because the cost of ‘adequate housing’ varies from place to place. For a single person, ‘adequate housing’ is defined as any dwelling up to 50 square meters in the low-to-medium price range quarters of town. For Berlin, that is around 500€, for Munich up to 700€, but in some rural areas, it could be as low as 300€.

Health insurance: 320€

This is the hardest component to calculate. The monetary value of having health insurance is clearly bigger than zero, but the exact value varies depending on the state of your health (at least in a system without universal health care). In a public health care system, people do not pay according to the state of their health, but according to their ability to pay. Because there exists no genuine ‘market price’ for that kind of health insurance, we have to calculate it via proxy: the minimum employee contribution for regular membership within a public health insurance in Germany is 368 euros per month.4 

So, for an estimate of how much such a UBI would amount to in your own country, you’d have to add the rent of a medium to small place, whatever you’d have to pay for regular health insurance, plus the equivalent of 300 euros for food.

Is this a “real” UBI?

This depends, of course, on what is meant by ‘real’. There are many different UBI proposals around: with or without a comprehensive tax reform, as substitute for all other welfare payments (or not), as a negative income tax, as payable from birth, as payable upon maturity, funded by VAT etc. etc. If you insist on your model being implemented to the letter, then (surprise!) this is not a ‘real’ UBI — or rather, not your real UBI. However, all of the UBI proposals I’ve seen share some core features:

Every adult receives a monthly payment that covers basic needs and has no conditions attached. Which is precisely what is now the reality in Germany.

Of course, one can argue what ‘enough to modestly live on’ means, or should mean, but I’m not going into that. I think  not starving, not homeless, and not dying for lack of medical treatment is a good enough working definition without any obvious flaws.5 Something that came up time and again: can it still be rightfully called a UBI, if it gets reduced upon taking up employment? I’d say that question misses the central point: that each and every UBI proposal is predicated on taxing the relatively richer more, than the relatively less rich. So, when someone takes up employment, they will naturally have to contribute a bigger share towards the support of the commonwealth than someone who is out of work. How the state decides to collect that money, whether by reducing someone’s benefits or increasing someone’s taxes, is of no real consequence to that person.

Predicting the effects of a UBI

Predictions  on the effect of a UBI differ somewhat. 

The predictions about the societal effects of a UBI vary considerably, and they do so roughly along the fault lines that divide the two political camps. Some on the political left see it as another step towards utopia, in the same order of magnitude as the introduction of the welfare state after World War II. They believe that removing the ‘tyranny of work’ will make everyone free to create art, volunteer for valuable causes, follow their passions and become more fully human. In short: life will become a perpetual spring day picnic in a flowery meadow, with Beethoven’s ‘Ode to Joy’ playing in a loop in the background.

The political right is more sceptical, fearing the collective abandonment of virtue, the spreading of a late-Roman decadence and a gradual enfeeblement of body, mind and spirit. They see it as the first step on a slippery slope of civilizational decline, culminating in the invasion of barbarian hordes from out of the depth of the Eurasian steppe — savages who eat raw meat, pray to strange gods, and wear funny fur hats.

We will soon know whose intuition is right, because we now have a chance to observe the effects of a UBI in the field – in a large, developed country of the Western world. Nobody can object, “But that wasn’t a real UBI”, nor “Maybe you can do that in Germany, but the economic preconditions here are totally different.” My own prediction is that we will see little change at all, because of some basic factors that both the left and the right usually don’t consider.

On both sides, there is a tendency to equate income solely with money. That is not necessarily unreasonable, because for most practical purposes they are equivalent. But in this case, I believe it is useful to remember that in the past it was common to pay people in kind instead. Once you remember that, you realise something particularly important…

What is an “income”, anyway? 

If we take a bird’s eye view, it becomes clear that at the heart of both predictions lies a misunderstanding of what a (monetary) income is, or rather, what it is equal to: means of survival. We then realise that we have had a kind of UBI all along, namely in the form of resources in our natural environment–ever since we came down from the trees, but also before that. It wasn’t just monetary income.

While getting a monetary income, instead of a natural income, may be a bit more convenient, it does not make that much of a difference. Whether our environment gives us food, or money for food, we still have to do some work to get it: hunting, shopping, or even opening the fridge.

Nobody, ever, lived in an environment that was entirely void of anything to assist them in their quest for survival. However, humans differed with regard to the skill-sets they developed to make use of these resources, and these factors–in our current context–will play themselves out as well.

The leverage that an individual can apply to the ‘baseline supply’ of a UBI will vary a lot between people, because people still have vastly differing amounts of social, sexual, intellectual, and geographical capital. Competition between people will not be eliminated just because we now have a UBI.

Competition will simply be about relative social status instead of physiological survival. But then, if we consider that almost nobody dies of hunger these days anyway, the consequences for society – good or bad – will probably be limited. There will still be zero-sum games, simply because some desirable commodities are by their nature exclusive: not everybody can live in the city center, not everyone can have a nice car.

I’m all for a UBI, because I believe if society is able to guarantee everyone their material existence, it has the moral duty to do so. However, I also believe people have overestimated the positive impact of a UBI on general happiness. A good life isn’t just a life without material want, but a life with something meaningful to do. Even though society can help its members with finding that something, it ultimately remains the responsibility of the individual to take that extra step.

Even the best things ultimately lose their meaning if no challenge is involved in their attainment.

Dennis Pachernegg

Born in a small town one hour north of Cologne, I now live in Berlin and work as a copywriter and brand strategist. I love the city, mostly for the interesting people it attracts from all over Europe and beyond. If you consider Europe as a brand, however, I believe it lacks something crucial: a capturing narrative. Only seeing an effective bureaucracy at work won’t fill your heart and soul with awe (unless you’re German, perhaps) but this is exactly what is needed for a polity's long-term survival, if history is any guide. I don’t know whence this "European Dream“ will come, but unless it does, I remain sceptical, especially if times get tougher.