UNIVERSAL BASIC INCOME: AN IDEA WHOSE TIME HAS COME?

By Rijima Rishi

With large scale mechanisation of production and increased use of labour-substituting technology, the fear of automation induced unemployment seems to be real, at least in the developed world. Machines are largely taking over nearly all aspects of human life and are successfully fulfilling all human needs. The role of human intervention is fast declining. If this continues, it is thought, a whole lot of jobs would be wiped out in the coming future, rendering a vast majority of people unemployed and hence without a source of income and livelihood.

At the other end of the spectrum, there are poorer, developing nations that are still grappling with the problem of gruelling poverty and its gruesome implications in terms of poor standards of living, lack healthcare facilities, education, hygiene, so on and so forth. With rampant red-tapism in their targeted social welfare schemes, systemic corruption and leakages in transfers, there has not been much improvement over the years in terms of poverty reduction or improvement in standards of living.

A solution to these problems, as put forward by many, is the idea of a universal basic income.

This article attempts to first carefully understand the rationale behind the idea and then critically analyse its merits, demerits and challenges that could arise if it were to be implemented. An attempt has been made to paint an unbiased and neutral picture and it is left to the reader to draw appropriate conclusions from the same.

THE IDEA

Although it has gained popularity in recent years, the idea itself is several centuries old.

Thomas Paine, one of the US’s founding fathers, argued that every person was entitled to an equal basic endowment because “the earth, in its natural, uncultivated state was… the common property of the human race”.

Years later, British philosopher and mathematician Bertrand Russell, in his 1918 book Roads to Freedom: Socialism, Anarchism and Syndicalism, argued that “a certain small income, sufficient for necessaries” should be unconditionally provided to all.

In his 1995 book The End of Work, the American analyst Jeremy Rifkin concluded that the most effective way to at least partially protect those who would become displaced by machinery would be through a guaranteed income.

Universal basic income, as the name suggests is a certain predetermined income granted unconditionally to every individual of the state. It is universal in the sense that it is granted irrespective of the social, religious, cultural or gendered identity of the individual. Thus it is different from the targeted welfare schemes that we are currently familiar with.

MERITS

This all-encompassing nature of the grant ensures freedom of choice to its recipients. They are free to spend their money the way they like, on whatever they feel is appropriate for them, without being told what to do or being judged for the decisions they take for themselves. This promotes the spirit of liberalism and individual autonomy in the society.

Also, the fact that the grant would be given to individuals rather than households means that jobs that were unpaid for earlier, like childcare, household work, looking after the elderly, etc, would now be compensated for. Taking this a step further, this could lead to independence and empowerment of women and could make it easier for those in abusive relationships to walk out of them with dignity.

In context of the developed world, with machines taking over production, a UBI would provide the much needed safety net to those forced to move out of labour force. It would also change the notion of working for survival and sustenance to working for self satisfaction and greater societal well being. It could thus go a long way in enhancing the quality of work and help individuals realise their creative potentials and work to the best of their abilities. It could also encourage individuals to take up jobs that are often considered risky due to their erratic or uncertain pay patterns. Unconventional professions such as tea tasting (maybe?) might become attractive.

J Browne and A Hood , in A survey of the UK benefit system, claim that “A UBI would constitute a significant extension of the universal model of social security, creating a much more robust safety net, and reducing reliance on means testing and the growing problems of low take-up, the poverty trap and the stigma associated with it’’. This by itself eliminates the costs associated with targeting and also significantly reduces the scope for corruption. Thus, from the point of view of developing countries, it helps simplify the process of poverty alleviation to a certain extent.

Abhijit Banerjee (MIT) suggests replacing welfare schemes of the government by a single universal basic income, which entitles every adult resident to a minimum weekly income as long as they verify their identity every week.

UBI, as an idea, has been found to appeal to both left as well as right political wings. Said Pranab Bardhan, professor of Economics at the University of California at Berkeley: “… On the left, it is regarded as a simple and potentially comprehensive antidote to poverty. On the right, it is viewed as a means to demolish complex welfare bureaucracies while recognizing the need for some social transfer obligations in a way that doesn’t weaken incentives significantly…”

Vijay Joshi, Emeritus Fellow of Merton College, University of Oxford, contends that ´deep fiscal adjustment´, in combination with UBI, would make a huge positive difference to the lives of people, present and future, and provide an essential underpinning for the acceptability of radical economic reform.

CHALLENGES

So far, so good. The universal nature of the grant seems to be universally appealing, at least so in theory. UBI is also uniform and it is predetermined. The determination of this ‘basic’ level of universal allowance is tedious. It could vary from individual to individual, society to society and country to country.

Various factors need to be accounted for while determining this amount. At this stage it is also imperative to determine what happens to the already existing welfare schemes in the economy? Are they to be abandoned altogether or are they to be selectively discarded? Or is the UBI to supplement these pre-existing schemes? If so, how is the federal government to manage the extra financial burden generated by the UBI? Given the universal nature of the grant, this burden is not expected to be small in magnitude. Even if the amount were to be minimised to the bare subsistence level, and is to be made equal to say the poverty line mark, this small amount when multiplied with the total population would in most cases generate a very large number. Significant tax hikes or reductions in public spending or a combination of the two would be inevitable for budget management.

Whether or not this is feasible for poor developing nations is debatable. Whether or not it would be politically acceptable and popular among the masses is again contentious.

Pranab Bardhan, argues that even though universal basic income is being considered unaffordable in some developed countries, it may well be feasible and desirable in a poor to medium-income country partly on account of low poverty thresholds and existing social safety nets that are threadbare and costly to administer. Maitreesh Ghatak, Professor of Economics, London School of Economics, contends that potential resources do exist to fund a universal basic income scheme, via subsidy cuts and/or raising more tax revenue – but the real issue is whether there will be political support to do so.

THE FLIP SIDE

Affordability aside, questions regarding the necessities of UBI have also been raised by sceptics.

One is on account of reduced incentive to work. It has been argued that if it were possible to earn without working, people might as well choose leisure over labour. The evidence from experiments with UBI schemes suggests, in fact, that the number dropping out of the labour force is likely to be small and could have knock-on social and economic benefits. In the 1970s, there were four temporary trials with local negative income tax schemes in the USA, and one in Canada called Mincome. Analyses of the experiments found a modest decline in labour supply. There was a small level of drop-out among primary earners (of the order of 5%) and higher among secondary earners (notably young mothers, teenagers in education and those about to retire), and some workers took longer between jobs (RA Levine et al, “A retrospective on the negative income tax experiments: looking back at the most innovative field studies in social policy”). But the impact on families, communities and self-development through training and well-being have not been measured but could be considerable.

Incentives for people to move out of labour force are contingent on the income that could be earned from alternate sources. There are tradeoffs between the utility from this income and leisure and that from labour income. What dominates depends upon: i) the difference between the two incomes and ii) the utility that an individual derives from leisure. The latter may be large for secondary workers and thus a UBI may induce a reduced secondary labour participation in the workforce.

The effect of the former depends on the magnitude of the basic income that the state can afford to pay to its citizens. The larger this magnitude, larger would be the disincentive to work.

In the context of developing nations, this effect is not very likely to be of much significance. In such poor countries, the level of income that could be granted by the state would just equal the minimal subsistence wages. Higher grants might make governments go bankrupt. Any individual willing and able to work, would not, in his rational state of mind, choose to live off that low an income. Accepted that the labour supply curve is backward bending and that beyond a certain threshold income, labour supply begins to exhibit a negative correlation with income; but that happens at fairly large levels of income. The idea of fairly large could no doubt vary across societies but it is highly unlikely that a society would consider poverty line income to be large.

Very limited and small-scale UBI schemes have been piloted in Namibia and India. The findings from the Namibia experiment are that the payment did not discourage recipients from working. In India, positive results were found in nutrition, health, education, housing and infrastructure, and economic activity. There was an improvement in access to medical treatment, while school attendance in the cash transfer villages rose sharply (“The poor are responsible too”, Financial Express, 6 June 2013)

Another argument against UBI involves the poor state of public infrastructure in most developing economies. A nation without proper facilities for public healthcare, education, transport, drinking water, sanitation and hygiene should ideally invest in improving these rather than attempting to provide something like the UBI.

A third contention raised against the need for UBI questions the very fact that technology could be labour displacing in the future. This idea is based on the assumption that the society has been able to deal completely with the ‘problem of production’ and is now left only to deal with the ‘problem of plenty’, as E.F. Schumacher puts it in his book Small is beautiful. That is, we have now entered an age wherein technology is capable of producing ample and if political systems were to operate as they ought to, then everyone’s needs could be satisfied. This, he argues, may not be the case. “This illusion”, he suggests, “is mainly due to our inability to recognise that the modern industrial system, with all its intellectual sophistication, consumes the very basis on which it has been erected. To use the language of the economist, it lives on irreplaceable capital which it cheerfully treats as income.” The problem, according to him, is thus much more deep rooted than what a UBI is capable of solving. It involves changes in modes and methods of production, and more significantly, changes in individual psyche and attitudes.

Whether the Universal Basic Income is a miracle cure or a nostrum remains to be seen. The idea is currently being implemented on a pilot basis in Holland and a pilot will be implemented in Finland next year. This could bring to light the challenges involved in implementation and, to some extent the efficacy of the policy in developed countries. However, the debate around the ethical and normative aspects is likely to evolve further as the developed world grapples with the possibility of robots taking over jobs and as the developing world wonders how it can pull people out of poverty while facing a resource crunch.

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