Economic Policy inequality ZEIT ONLINE op-ed column

Opportunity Credit to Safeguard the Future

The social divide did not first become obvious with the election of Donald Trump and the rise of right-wing populist extremists in Europe. In light of social inequality and uncertainty, political polarization and the mounting struggle for a piece of the pie come as little surprise. Policy makers must react by fundamentally rethinking social policy with the aim of improving people’s economic, social, and political participation, thereby affording them new opportunities.

An opportunity credit would be an excellent approach. Based on the model by my colleague, Steffen Mau, such a policy would improve social participation, create equal opportunity, and guarantee more autonomy and freedom for the individual. In a society and working world that transform at an ever more rapid pace, only new ideas can empower political representatives to safeguard lasting social cohesion and economic prosperity.

Reinforcing the accuracy and autonomy of social systems

Our social systems were created for a world in which an individual’s destiny was set early on, both professionally and personally. In the past decades, however, society and the working world have changed greatly. Early twenty-somethings completing their education or vocational training today will not pursue the same career with the same qualifications for their entire working lives. The rapid changes wrought on the working world by globalization and technology imply that everyone must constantly adapt. In the future, lifelong learning, periodic requalification, and frequent occupational changes will be the norm.

Social systems can only rise to the challenge by improving their accuracy and increasing the autonomy of the individual. Our social systems today rest on three principles. To adapt in this manner, they must expand to include a fourth: the principle of autonomy. The instrument of insurance through contributions to social security systems may be individualized to a certain extent; however, it sets very narrow limits that can hardly factor in individual needs.

Need in individual cases, as in the event of illness or unemployment, is a powerful driver of the precautionary principle upon which our social system is based. Yet precaution must mean more than passively safeguarding against social risks – it should focus more intently on avoiding such events at all. The principle of universality is intended to guarantee the education system, for example, but is increasingly unable to ensure equal opportunity because it has limited ability to address individual needs.

An opportunity credit that gives people more freedom to design their lives individually would make our social systems more sustainable and viable for the future. Such a credit would grant all individuals, independent of their social background or individual life situation, the right to 20,000 euros at the age of 18 to be used for education, working time sovereignty, or as coverage against social welfare risks.

People often know best themselves how to plan their lives and what they need in terms of social and state support. An opportunity credit increases individuals’ autonomy to choose freely from specified public services within a clearly defined framework of socially desirable aims. For example, one person could use the majority of this entitlement for training and continuing education. Then again, someone else could invest the money in a better work-family balance by occasionally reducing working hours to take care of the children or other relatives. Recipients could also use the credit to bridge periods of illness or unemployment.

Designing the opportunity credit

An important aspect of the opportunity credit should be its availability to people throughout their entire lives. In addition to its activation at the age of 18, the opportunity credit should include the element of need-based and individualized provision. This would enable the state to provide families or people who become unemployed or are exposed to other risks with higher entitlements. Further, people should be able to decide freely if and how they acquire a higher opportunity credit via work or social work, which they could use for a more flexible transition into retirement, for example.

Such a need-based, individualized design can also safeguard the opportunity credit against triggering inadvertent distributional effects, as well-educated people with good jobs are often better able to take advantage of the opportunities of such entitlements.

Financing the opportunity credit is undoubtedly an important issue. At just under 600,000 citizens per birth cohort, the basic provision of 20,000 euros at the age of 18 would cost the German state 12 billion euros annually. For the most part, the opportunity credit would surely mean additional entitlements for people, but in some cases it would also replace existing benefits. The additional funding needed for the opportunity credit would clearly be affordable without necessitating major changes to the tax system or other social benefits. Contrary to the basic income often proposed as a means of alleviating income inequality, the opportunity credit is both economically and politically realistic.

The opportunity credit is not utopian

For many, the opportunity credit outlined here may sound utopian. But some of our European neighbors already have programs containing some of its constituent elements. In January 2017, France introduced a personal activity account (compte personnel d’activité) in which employers and employees can obtain and use entitlements for further training and qualifications. They can acquire entitlements via professional or volunteer activity; certain social welfare risks also confer the right to them. The UK and Scotland are pursuing programs with similar aims.

In Austria, Belgium, and the Netherlands, people can structure their transition into retirement with greater flexibility. Most of these programs are rather new and it is still too early to evaluate them in detail. They nonetheless demonstrate that other countries are much farther along in conceiving and designing new social systems than we are in Germany

Universal basic income would necessitate a dramatic transformation of social systems. An opportunity credit is fundamentally different from a universal basic income on two accounts. First, it would create equal distribution in the sense that each individual receives the same financial benefit from the state and give citizens autonomy to use funds freely. The opportunity credit, on the contrary, binds financial entitlements to socially desirable ends, such as education, social security, and retirement provision.

Second, with universal basic income the state relinquishes its responsibility to some extent: universal basic income involves the equal distribution of public resources but not equal opportunity for people. Money alone will not help the unemployed acquire qualifications and resume employment. However, the opportunity credit forces the state to fulfill its responsibility to promote equal opportunity while giving individuals a high degree of autonomy regarding how and where state and society shall provide assistance.

In short, the opportunity credit creates a smart balance between an excessively dominant state on the one hand and the individual’s autonomy and freedom on the other. Universal basic income creates autonomy and freedom in a very restricted sense. It gives people freedom from state requirements and constraints. But it helps people to realize their life goals to a limited extent. After all, people need a state and a society not only to support them with education, security and other benefits but also to ensure social cohesion.

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.