Universal basic income: The time is now

The idea of a UBI is not perfect, but the decision on it must be taken soon. Of all the things the coronavirus has given us, the least is time. If there was ever a time for a universal basic income, it is now

A concept that has been under debate for some years in global forums is the Universal Basic Income (UBI), which briefly defines a distribution structure where every citizen receives a fixed amount of cash regularly from the government. With the Covid-19 virus highlighting the ills of poverty and inequality, especially in emerging markets, the discussions around UBI have become louder.

A universal basic income has three key components.

It is universal - no citizen is excluded. Everyone gets the same assistance, irrespective of their gender, wealth, age or occupation.

It is unconditional, that is, transfer is done without any pre-condition. The recipient does not have to perform any task in order to be eligible for the income.

It is direct - money reaches the targeted beneficiary directly, without much interference from any middleman.

The biggest criticism has been with regard to the universality of the UBI, as economies have limited fiscal space and ongoing expenditures.

While it eliminates the exclusion error, the inclusion error rises, where a lot of relatively richer individuals also receive the payment. However, existing schemes also run similar risks, and sometimes the opposite, where exclusion errors are significant and the benefits reach a little few.

Regarding the fiscal space, it has been suggested that the UBI should not be implemented in addition to existing programmes, but rather as an alternative. The constraint then is not fiscal but political, as scrapping existing programmes requires a lot of political will and concurrence of a lot of stakeholders in the status quo.

Another criticism is about the one-way transfer of cash with nothing in return.

Such unconditional transfers would make the recipient lazy and unwilling to work, which would be detrimental to the economy.

This idea is based on an assumption that the sole purpose of an individual to work is survival. This is questionable, as human necessities go beyond food, and extend to clothing, housing, health, education and other activities, which are continuously upgraded with rising incomes.

Also, the ones at the bottom have too little to save.

Any increase in income would immediately turn into expenditure. With a higher marginal propensity to consume, the multiplier effect would give significant gains. For those slightly above this bottom section the additional incomes could also ignite entrepreneurial instincts, leading to investments and employment.

There is therefore a need to trust these individuals, that they will strive to improve their lives and not be lazy.

The biggest handicap with respect to the UBI is that of targeting, especially in emerging countries. Despite the right intensions, the policy makers can’t implement the UBI if there are limitations in the distribution capabilities. The lack of internet penetration and absence of banking services in remote areas makes direct transfers impossible, and cash transfers through intermediaries would open the gate for corruption.

While the state could start with areas that they could service right now, in the medium term they would have to work on preparing the infrastructure to facilitate UBI.

Banks would also have an incentive to open branches, as they get a new set of depositors and borrowers.

Banking correspondents could be hired in these areas to reach more individuals and get them under the government and bank’s service net. This data could be used in future policies, and also to improve the targeting of the UBI itself.

Versions of the UBI have been implemented in countries like the US, Finland, Brazil and Germany.

The effectiveness of these programmes has also varied from case to case, and while some decided to continue with it, most took the alternative route with methods like providing subsidies, exemptions or indirect transfers.

In the USA, the oil dependent state of Alaska makes an annual unconditional transfer of the Permanent Fund Dividend ranging from US$ 1,000- 2000 depending on the price of oil. The dividend was observed to have no impact on overall employment.

However, it affected fertility rates, as families were encouraged to have more kids.

In the town of Dauphin, Canada, to check the impact of a basic income, a randomised control trial was done during 1974-79, where every family was eligible to participate. It seemed to have benefitted the physical and mental health of residents, with fewer doctor visits and cases of hospitalisation. High school graduation rates also improved.

The Bolsa Familia Programme in Brazil is a case of conditional transfer, where recipients are expected to keep their children in school and visit health clinics. Millions of recipients are covered under the programme. Finland ran a one year trial in 2017 by choosing 2,000 unemployed citizens and giving them 560 euros every month for two years, irrespective of whether they held a job. The results showed that the income didn’t help them get jobs, but it did make them feel happier and less stressed.

The recipients also reported that they felt more trust toward other people and social institutions.

In Germany, in 2014, the non-profit Mein-Grund-einkommen used crowd funding to set up a basic income programme.

Each got about $1,100 per month for a year. Most of the recipients said the income made them less anxious, more than half said it helped them continue their education while about a third said they feel more motivated at work. In India, between 2011 and 2012, a pilot project in the state of Madhya Pradesh gave a basic income to some 6,000 Indians. Receiving a basic income led to improved sanitation, nutrition and school attendance.

The idea of a UBI is not perfect. Each country, including Nepal, would have to assess the plausibility of its implementation in the context of their abilities.

But the decision would have to be taken soon. Of all the things the coronavirus has given us, the least is time. If there was ever a time for a universal basic income, it is now.

Sharma is economist and co-founder at Sankhya Solutions, a research and analytics company