Dr. Pero Mićić
AI and robotics will eliminate many of today’s jobs for humans. To prevent the economy and society from collapsing, we will have to help people earn an income without them working in the traditional sense. But how on earth are we going to finance this?
In this article, I will give you my answer to this crucial question about the future in the form of a master plan.
Video: Income without work
What was before
This is the third part. In the first part, I used three scenarios to show where things could lead if AI and robots take over most of today’s work.
- A horror scenario, because we have a fatal flaw in our economic system. Namely that 90% of people have to work as employees in order to earn and pay their living. If these jobs disappear, everything will collapse.
- An abundance scenario in which we succeed in ensuring that virtually everyone benefits from the enormous increase in productivity brought about by AI and robots and that the quality of life increases significantly for everyone worldwide.
- And a crisis scenario that lies somewhere in the middle.
In the second part, I presented a master plan with almost 20 strategies for realizing the abundance scenario. By creating income for people without them having to work in the traditional way. Primarily through a negative income tax and by building up ownership of productive assets, especially future-proof companies.
In this third part, I will now show you the second part of the master plan. More specifically, how we can finance the new income for people.
Principles: What we need to pay attention to
Right at the beginning, I would like to mention a few principles that explain my and our view at the FutureManagementGroup:
- Principle: The solution must benefit as many people as possible across the board and not just a few.
- Principle: The solution must be as simple as possible.
- Principle: The solution must be sustainable, i.e. it must make sense for eternity. The decisive factor is what has the most positive long-term consequences. Not what is most convenient in the short term.
- And Principle 4 follows from the first three principles: The solution should include as much private freedom as possible and as little government and regulation as necessary.
Everyone can easily agree with principles 1, 2 and 3. But many people see principle 4 differently. From my point of view, it’s wrong.
The state is never a good entrepreneur and therefore not a good implementer. State organizations are always far less efficient than private owner-managed companies. Why is that the case?
- Companies fail and go bankrupt if they are not financially sustainable. The state hardly ever fails because it continues to run up debts. At the expense of future generations.
- The state is never just about the actual task, but always about political interests and ideologies. This means that unnecessary new posts are created in order to provide for politicians who have been voted out of office. Despite digitalization, ministries continue to grow. Or technically and economically completely nonsensical projects are subsidized, such as hydrogen vehicles or – even crazier – citizens are promised heating with hydrogen in the future.
Let’s now look at how we could implement the transformation to the AI and robotics economy and finance the new income.
Work, self-employment and entrepreneurship
Income for socially useful work
This can be financed by funds for public welfare work, which in turn could be financed by the wealthy in return for sufficient tax savings. I am portraying it very light blue because it would be an artificially created labor market and there is therefore a risk that it would be inefficient and that real companies would face competition.
More self-employed and entrepreneurs
A fund for new start-ups of self-employment and companies could also be financed by wealthy people in return for tax savings. The same tax savings should be achieved by investing directly in new companies. Slightly darker blue, because this is more of an investment than the fund for public welfare work.
Is that risky? Yes, of course it is risky. This fear of risk is exactly what has got us into the predicament that most European countries are in. Because we want to exclude every conceivable risk, because we want to protect our citizens from even the smallest risks, we are taking the greatest risk. Namely, to hinder all progress and innovation. Let’s compare ourselves with the USA and China. We will play virtually no role in the markets of the future. We need to take more risks again in order to create more prosperity and quality of life. Everything else is just a dream.
Under no circumstances should we solve these problems with state employment organizations or with state contracts. See Principle 4: The state is not a good entrepreneur. Therefore dark red.
Ownership of assets
Subsidized investments in companies
The investment in many future-proof companies is the best long-term and systemic solution for an affluent society. Those who have too little income for sufficient investment can also be supported here by funds to finance the investments. And wealthy people can also invest here in return for tax relief. However, it would take a very long time for a large proportion of citizens to build up enough wealth to be able to live off the income. The state will have to provide additional support for the time being.
Subsidized investments in tangible assets
Investments in real estate, infrastructure or energy plants are usually less profitable than investments in companies. If you still want to promote them, funds to finance the investments could be the solution.
Transfer payments and benefits
Reduction in government spending
The many conceivable types of monetary gifts to citizens can be financed in part by the state reducing its spending. Yes, this has rarely worked in the past, but we are dealing with the biggest economic transformation in centuries. The usual individual interests should not play a role here. At least they shouldn’t. But of course they will.
Germany, the EU and the USA maintain a complex system of subsidies. These have to be applied for, checked, paid out, managed and monitored. There are thousands of different subsidies. The fact that you can’t find an exact number of pots and programs says it all. In an AI and robotics economy, if anything, citizens must be subsidized directly. Everything else should be scrapped. After all, Germany could save over 120 billion euros in official subsidies alone. Every year. That is only just under 1,500 euros per inhabitant per year, but the huge administration of subsidies would also be eliminated. And we would also get rid of another harmful effect of subsidies. Subsidies assume that politicians know better what the economy and people need. This is sometimes the case, but usually not. A good example is the promotion of hydrogen for mobility and energy, which goes against the logic of physics and economics. Subsidies tend to prevent sustainable and future-oriented development because they promote the wrong things or keep outdated things alive for an unnecessarily long time.
And by the way, do you think it’s right that a large proportion of the subsidies go to profitable large corporations like Siemens? Why is that the case? Because they can pay for entire departments that specialize in applying for and collecting subsidies. I have experienced this myself several times.
Public administration could also be radically simplified. One glaring example is the social benefits system. An unimaginable amount of effort is put into managing the many social pots, determining need and administering them. Only the smaller part goes to the actual task, the larger part to the administration itself. This applies to the job centers, for example.
Quote from Per Steinbrück: “A single woman who has a father in need of care is entitled to twelve social benefits from five different ministries, based on four concepts of income, from eight granting authorities.”
All of this could be completely abolished with a negative income tax without the recipients noticing. I repeat myself: the administration of a negative income tax would cost practically nothing. It can be fully automated. You could save the entire social administration. Billions spent on applications, checks, calculations and so on could be put to better use. But nobody dares to attempt this radical simplification.
What can also be radically simplified is the tax system and tax law. Yes, this has also been demanded for decades. Taxes should generate revenue for the state. That and nothing else. Instead, taxes are misused for all kinds of political interests and then every conceivable supposed injustice is to be compensated for with taxes and tax concessions. This makes tax law infinitely complicated and costs companies, citizens and the state an unnecessary amount of time and huge sums of money, and brings no real benefit whatsoever. In addition, it is precisely those who can afford good advisors who benefit from tax concessions. As a rule, they do not need to be helped by the state.
All this shows once again how irrationally and inefficiently states are often organized. The sensible things are not done because there are too many who benefit from the irrationality and inefficiency. And no, this is not only the case in Europe.
Digitalization and intelligentization
Once we have simplified, we can automate, digitalize and intelligentize, i.e. use AI. It’s hard to believe: in the last ten years, many German ministries have grown by over 50% in terms of personnel! This is essentially self-created work with no tangible benefit for citizens. What was enough staff in 2015 would still be enough today. That would already be a reduction of one third to the 2015 level. If we were to really radically digitalize public administrations, another third could easily be saved. Estonia is a role model for digitalization. Yes, it is a small country, but it is not impossible to truly digitalize and intelligentize a large country. The patchwork of IT systems alone is incredible. Even a large country could be managed on a single standardized cloud software. Then we as citizens wouldn’t have to keep entering the same data and providing proof in different places. That should have happened long ago. Yes, this is also possible with full data protection. The data would even be more secure. It’s all possible. The will is just missing. But the will will have to come.
Property tax
Taxes on very large assets are a popular demand. However, when viewed in the light of day, it is not an effective solution. First of all, money that has already been taxed would be taxed again, which is dubious for ethical reasons. Without the entrepreneurial initiative, these assets would not have existed. And neither would the jobs. Initiative must be worthwhile. It is almost always an enormous effort to build up a company. Especially mentally.
The idea that the economy is a zero-sum game is wrong. Anyone who thinks the economy is a zero-sum game in which one person’s gain must be another’s loss, who is suspicious of the high incomes and wealth of top performers, cannot even think of a sustainable solution. No, the economy is not a zero-sum game. The pie is getting bigger and bigger. And even a small slice of the pie enables a far better quality of life than before.
The economic volume is dynamic. It is growing. That is why the wealth of almost everyone around the world has continued to increase. Those who have created their own wealth have not taken it away from someone else. Marx’s theory that entrepreneurs pocket the surplus value generated by their employees would only apply if entrepreneurs no longer had any function. No more founding and expanding. No more developing and successfully implementing strategies, no more acquiring orders, no more management work and so on. And if the employees had no choice but to work elsewhere or independently. But none of that is the case right now.
Even if you took all the money away from all the billionaires, it wouldn’t last long. And without a global agreement, wealth will simply flee abroad. A global wealth tax is very unlikely. The wealth of the super-rich is drastically overestimated as a source of money. Usually for ideological reasons. Or simply out of envy. Wealth taxes are not a good solution. Apart from the fact that the term “wealth” itself is open to wide interpretation and armies of civil servants are busy calculating the taxable assets where wealth tax still exists. We already have a progressive tax rate that taxes high incomes more heavily in most countries. And if, as proposed, we remove the many tax avoidance options, the super-rich and large companies would also have to pay more tax on their income. It would help more than a wealth tax if the super-rich were to support the non-wealthy in building up wealth, as I suggested earlier. Voluntarily, in return for tax savings. Then nothing would be lost in the administration of the wealth tax.
Higher tax on large inheritances
Much the same applies to a higher inheritance tax on large fortunes. However, it can be argued that the heirs have not earned the wealth themselves and should therefore contribute a large part to the wealth accumulation of the non-wealthy. This could create more equal opportunities, because we need to help people across the board to build up productive wealth. Otherwise, heirs will not be able to enjoy their unearned wealth for long. That’s why I see this as a viable and light blue solution.
Financial transaction tax
A tax on financial transactions would of course be popular. In fact, the financial sector has become very detached from the real economy. The abstract volume of money flows is often greater than the real volume of the physical economy. This is not without danger. However, experience to date with a financial transaction tax in France, Italy, Belgium, the UK and Sweden has not been promising. Sweden has abolished it again. There is little chance of a global agreement. Not even the EU can agree on it. For years. In principle, a financial transaction tax to finance transfers makes sense, but is difficult to implement. Therefore only light blue.
Income tax on capital gains
In all major economies, capital gains are taxed at a significantly lower rate than income from work. In China and Switzerland, private capital gains from capital appreciation are even largely tax-free. In addition, income from work is subject to very high social security contributions. In Germany, this is around 41% and rising. By contrast, no social security contributions are levied on capital gains. Yes, the tax advantage for investment income is intended to encourage investment. Nevertheless, in an automated world, it is no longer fair that owners of capital who do not work pay so much less in taxes and duties than people who have to sell their labor. Radical simplification of the tax system must in principle also include more uniform taxation. If we look at the big picture, higher taxes on realized capital gains and less or no taxes on earned income would be a sensible measure. The fact that I am an entrepreneur and investor myself does not change anything when you look at the big picture.
State participations
Principle 4 prohibits state participation in companies in principle. It is not the task of the state to run companies. Nor is it its strength. On the contrary.
Debt and money creation
I have marked government debt to finance transfer payments in dark red. Firstly, because most countries are already heavily in debt and, more importantly, because it would be debt for consumption. This contradicts principle 3. It only postpones the problems into the future, makes them worse and is absolutely not a sustainable solution. It leads to financial catastrophe in the long term.
This applies even more to state money creation, commonly known as money printing. The more money the state creates and spends, the faster and more it destroys the economy and thus society. So dark red at best.
AI and robot control
The old idea of a machine tax is often cited as a source of funding for a basic income. But if there is to be a machine tax, which should now be called an AI and robot tax, then there should also have been a steam engine tax, an automobile tax, a computer tax and a software tax. Anyone who introduces SAP would have to pay taxes on it because jobs would be saved. We would then have to tax every productivity tool. We would be taxing innovation and progress. Not a good idea. In addition, an AI and robot tax would mean competitive disadvantages compared to companies in countries that do not levy one. And it is extremely unlikely that all countries will agree on this. I’ll show you a better option in a moment. So red category for the AI and robot tax in its pure form.
Higher income tax for companies
Let’s take another look at the big picture. What will happen? AI and robots will take over a large proportion of cognitive and physical human labor. And at a much lower cost. Who will use AI and robots? Companies, of course. They will become much more productive. They can generate significantly more revenue and profits. The big problem is that many people will lose their jobs, and this will happen in almost all companies. Fewer salaries to achieve higher profits. What is the obvious solution? This is where I see the most suitable source of funding: higher income taxes for companies.
And I say that having been an entrepreneur all my life. Ideally, the sum of salaries paid should be taken into account in a special way. Those who still employ many people pay less tax than the most automated companies.
As I said, it would be best if people were involved in the companies. However, as this does not work overnight, higher income taxes for companies can address the cause and effect. People need income without traditional work, but they don’t have it because companies no longer employ them and instead automate with AI and robots, thereby generating higher profits.
This source of financing for transfers is also elegant and simple because a company’s profit already has to be calculated with the utmost precision anyway. Then “only” it must be ensured that the few percent of international companies no longer have the opportunity to reduce their tax burden to minimal amounts. Either through a global minimum tax, on which good progress is already being made, or through a different definition of taxable profit.
Price effects
How are the massively falling prices to be financed? Very simple. This happens automatically as companies with lower prices generate lower revenues. You don’t have to actively take care of this.
The master plan
This is the master plan. Yes, it’s complicated and complex. I know it is. It’s a space of possibilities. A menu for solutions. The darker green the new types of income on the left and the darker blue the implementation financing strategy, the more effective and meaningful they are. Some are effective quickly, such as the basic income as a negative income tax, some only in the long term, such as building up ownership of productive assets for as many people as possible.
Each state will choose its own mix. Some governments will be smarter and more future-oriented, others less intelligent, more ideologically clouded and therefore more short-sighted. The world is the way it is because people are the way they are.
Résumé
The biggest and fastest transformation of our lives and work of all time lies ahead of us. A lot is coming our way.
What this master plan shows: We are not doomed in an AI and robot economy and do not have to end up in an economic catastrophe in a horror scenario. Quite the opposite. It is neither simple nor easy, but we have plenty of opportunities to make the transition to a healthy and affluent society with an unimaginable quality of life and good incomes bearable. If we act in good time and with an eye to the future.
What can you do now to prepare yourself and your company for this not-too-distant future? I will answer this question in the next article.
I wish you a bright future. Have a bright future!
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Here you can find the other articles on AI and robotics:
– Humanoid robots: the solution to the labor shortage? (Part 1)
– Humanoide Roboter: How intelligent will they be? (Part 2)
– Humanoid robots: how will they learn? (Part 3)
– Humanoid robots: how much will they cost?
(Part 4)
– AI kills all jobs – and then what?
Three scenarios (Part 1)
– Prosperity through AI, but how? (Part 2)
