Universal Basic Income: Give Cash To The Poor

Universal basic income (UBI), in other literature referred as basic income, citizen’s income and unconditional basic income is a regular cash payment, paid periodically by a political community to all its members on an individual basis without means test. The Basic Income Earth Network (BIEN, 2019) lists five characteristics of UBI, namely;

1. It is periodic, as opposed to one off grant but an annual or monthly supply.
2. It is a cash payment, not inform of services or food.
3. It is paid on an individual basis as opposed to households.
4. It is universal, i.e. paid to every member of a society without means testing.
5. It is unconditional, it is given without a requirement to work or to demonstrate willingness-to-work.

Many reasons have been proposed in favour of UBI with support across the political divide. Proponents on the right see the idea as a way of minimising state action in other areas. To them, UBI provides a more efficient and less bureaucratic system compared to existing welfare programs. On the other hand, proponents on the left like the idea because of its redistributive qualities, it is profoundly a democratic and egalitarian concept of offering both a robust income floor and tackling poverty. Other reasons put forth in favour of UBI include, liberty and equality, efficiency and community, common of the Earth and equal sharing in the benefits of technical progress, the flexibility of the labour market and the dignity of the poor. However, for the purposes of this discussion I will focus on evaluating the significance of three common arguments for UBI; firstly, to simplify and reduce the costs of welfare provision, secondly to make efficient use of resource rents, and lastly to assist an adjustment to labour-saving technologies.

Simplify and reduce the costs of welfare provision A view on the current concept of welfare state reveals that an individual will receive income if and only if they cannot sustain themselves. UBI deviates from these plans in its universality and in that it should be enough for one to live on. Means tested benefits are becoming increasingly complex and cumbersome and UBI is seen as a tool to fix many problems connected to social safety. It is especially this that makes the idea favourable to both left- and right-wing politicians. Entrance of UBI greatly transforms the welfare state through dramatic simplification of existing rules and conditions. Since UBI constitutes an extension of the welfare state, it creates a robust safety net, cuts the number of flaws in the current welfare state associated with the state-imposed restrictions on benefits and reliance on means testing. By reducing the problems of low take up, the poverty trap and the stigma associated with the complex rules and conditions, UBI ensures a more comprehensive coverage of the population. Growing complexity in rules over entitlement requires people to know what benefits they entitled to as well as how to apply for them. The result has been many people falling through the cracks and many cases of individuals and families running out of money. Without alternative income these people are reduced to paupers and pushed to severe hardships. A UBI, will prevent these cracks and relieve the temporary crisis of income.

Shanta Devarajan, director and chief economist for the Middle East and North Africa at the World Bank, together with Shamika Ravi, a senior fellow of governance studies at Brookings India, in a debate held by a UK based think tank argued that developing countries facing difficulties in running social benefit systems would realize significant efficiency gains by adopting a UBI. For example, India has a myriad of subsidy and transfer schemes aimed at reaching the poor. However, with a population of over 1.3 billion, and a convoluted bureaucracy leakage is a major issue, 36% is estimated to pure leakage, another 36% missing the targeted poor and going to non-poor, and only 28% being well targeted. In this case, replacing the existing transfer schemes with a comprehensive cash payment is argued to improve efficiency, accountability, and poverty reduction. Food subsidies, and non-cash transfers compels recipients to consume those goods or services even when the quality is low. On the other hand, if the people are paid cash, they are free to decide for themselves, i.e. they have alternatives.

Efficient Use of Resource Rents

Though endowed with many natural resources like oil, most of the global south countries have suffered from poor public spending. In a survey organised by World Bank leakage rate for non-salary public spending in health sector in Chad was at to 99%. Equatorial Guinea and Gabon are on the bottom list of countries in Africa with lowest rates of immunization yet according to data from World Bank Gabon has a per capita income of US $10,000 and Equatorial Guinea US $22,742.38 which reckoned to be among the highest in the region. According Devarajan et al. (2011) the root cause of this is that revenue received from oil goes directly to the government and does not pass through the hands of the people. They argue that if revenue received from oil were transferred directly to the people and then assessing tax on that income it would result in well informed citizens on the magnitude of the oil revenues, and a higher incentive to scrutinize public spending. Shanta argues that even if these reforms did not take place a simple direct payment of 10% of the oil revenues would effectively eliminate poverty. According to Giugale & Nguyen (2014) cash transfers could account for a large share of the income needed by the poor to cross over the poverty line. High income countries like Kuwait, and Saudi Arabia which are already transferring oil revenues through subsidies, the argument differs from developing countries in that, theirs is a problem of corrosive subsidies. A large share of the deficits observed in Middle East and North Africa government budgets is attributed to Energy subsidies. These subsidies crowd out public spending on education, public health and investment in other sectors. Not only do these subsidies exert pressure on the government budget but they are also skewed towards the rich, whose energy needs are much higher than the poor. The entrance of a program like UBI, that replaces or reduces subsidies, and distributes oil revenues as direct cash payments will enhance efficiency.

Segal (2011) advocated that conditional on assumptions made, resource rents transferred to citizens as direct cash payments reduces extreme poverty worldwide by two thirds. In the state of Alaska, a state wealth fund called Alaska Permanent Fund Dividend (PFD) program gives UBI to all residents of Alaska from investment earnings received from oil rents. A study on evaluation of the program showed shat PFD accounted for poverty reduction among the rural indigenous people from 46% to 22% in the period between 2011 - 2015. Adjustment to labour-saving technologies. One of the compelling arguments for UBI is automation and the spectre of technological unemployment. Automation includes the various ways in which technological developments affect labour market structures, it is the ever-increasing computing power, Big Data, Internet of Things, Artificial Intelligence, and online platforms. The entrance of smart robots, 3D printing, algorithms, big data and driverless trucks and other technologies have called into question the future of work, leading to fears of technological unemployment. The number of jobs held by humans is gradually decreasing due to robotics and advances in technology. Frey and Osborne (2013), in their study estimated that 47% of jobs held by humans in the US were at risk. One of the probable solutions to this problem is a UBI. A UBI represents an effective way of dealing with the growing economic risk associated with technological unemployment.

Many experts have argued that we are on the cusp of a software and IT revolution, however, it is difficult to establish its full impact but there is a wide spread agreement that the current trend of technological advances weakens and will continue to reduce job prospects held by humans. On the fore front of championing for UBI are the futurologists and technologists. Jeremy Rifkin (1995) argued that to an effective way protect those losing their jobs through mechanizations was by introducing a guaranteed income scheme. Various studies have presented a UBI as a necessity or at least the desirable way to deal with these new developments given technological changes. Croker (2015) presents it a Keynesian problem, he envisions a thought experiment of a totally automated economy where robots are responsible for production of total GDP, in such a case there are no wages, there would be no demand in the economy. UBI is a necessity to maintain the levels of consumer demand in the economy. It is one tool for ensuring the gains of the new technological revolutions are distributed fairly and do not end up in the pockets of a few winners. In the event that this does not happen, there will be many losers and the inequality gap will only widen. Thus, to ensure that technological gains are not colonised by capital, but fairy shared among winners and losers a UBI scheme is more than necessary, again strengthening the case for a UBI.

Arguments Against UBI

Among the critics of UBI are Labour Unions who have been on the forefront of this, Ilkka Kaukoranta, chief economist at Sak, (an alliance of trade unions in Finland) agrees that UBI is a good idea, and an efficient way of distributing money. However, for Finland as well as other developed economies the issue is not one of distributing money, but rather a question of gathering the money to distribute. The leakage problem which strengthens the argument for UBI, as in the case of India, is not a problem in most advanced economies e.g. Finland’s current social welfare system is said to have very little leakage, about 3% and is hailed for its impact on those it targets for it provides a decent standard of living rather than just the ability to survive. If the question is gathering the money to distribute, then a UBI worsens the matter. A UBI that is enough to live on, will require a hefty budget. Such a welfare scheme is argued to be expensive, unrealistic, ineligible and is economically unsustainable. In the heart of the matter, is the large amount of tax needed to fund the scheme. Thus, though the universality of the scheme is one of its strength, it is also its downfall, giving money to everyone needs a larger tax base and a progressive taxation is unavoidable. However, proponents of UBI have countered this claim by arguing that, the problem is that the funding is based on employment tax rather than income tax, and thus reforming our laws to tax income instead of employment should fix the problem. Taxing the income would mean even if human labour is replaced by robots or other technology, that technology would be taxed, and the income distributed through a UBI.

The opponents of UBI agree that in theory this is true. However, the owners of the robots, algorithms, artificial intelligence or the technology are not in the same geographical location with those labourers who are being replaced by automation. If we had a global government this would be easy to implement, a global tax would solve the problem, however, we do not have a global government and it is not possible to implement a global tax. The reality is we live in a globalised world where the owners of these technologies are highly mobile and are not subject to the same tax rate as the country funding UBI. In this case taxing income rather than employment is not the solution.

Conclusion

It seems to me that the debate for UBI will be with us for a long time, there is a tug of war between the proponents and the opponents of UBI. In the recent past, the proponent of UBI have gained upper hand and the matter is now in policy debates in many countries with some running experiments of the scheme. Giving people money will result in some positive impacts, however, considering competing interests and the budget pressure on many governments one wonders if this is the best use of limited funds. Having reviewed various studies for and against UBI, I believe it is a very good idea, however, there are very few empirical studies and the few that exist on the subject are not enough to inform wide spread policy decisions. I agree that UBI changes the welfare state as we know today, and is probably a good option given the massive cry for change.

References:

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