Arguments stack up in favor of universal basic income
The initial results from a bold Finnish experiment with universal basic income (UBI) have come out and are being analyzed. However, most experts involved in the experiment, which saw the Finnish government give 560 euros ($630) a month to a randomly selected group of 2,000 people for two years, indicate that the recipients were happier.
While it will take months, if not years, to completely analyze the outcomes of this experiment, economists and politicians around the world have begun to give this issue serious thought. Some other countries are also carrying out pilot projects, although with a lot of variations.
In Kenya, a very interesting experiment is underway. Unlike Finland and other countries, it is being run by a US charity, which has been giving about 2,250 shillings ($22) a month to a random selection of 21,000 adults in hundreds of villages around the country. The scale of this operation is much broader than the Finnish experiment as, not only are more than 10 times as many people involved, but the duration is also significantly longer. The experiment will continue for 12 years, giving economists and the organization running the experiment some real data on the mid-term and long-term impacts of giving unconditional cash to the poor.
In India, a variation of UBI has been in play for the last 13 years. The Mahatma Gandhi National Rural Employment Guarantee Scheme was launched in 2006. In this, the government guarantees any unemployed rural adult, mainly from landless families, 100 days of paid work or a payment in the absence of employment. The scheme now covers 180 million people and the government spent more than 640 billion rupees ($9 billion) in the 2017-18 fiscal year. Despite Narendra Modi’s sharp criticism of the scheme as being a source of corruption while he was in opposition, his government has significantly increased spending on the scheme in the last five years, showing the importance of this payment in rural India, which is home to an overwhelming majority of the country’s 400 million extremely poor people.
The Congress party, which initially launched the scheme, promised in the election manifesto it released last month to introduce an additional unconditional payment of 72,000 rupees per year to each of the 250 million poorest people in the country.
The argument used by Congress and indeed most proponents of UBI is that the payment is crucial to partially offset the very sharp rise in inequality in society, especially in the last two decades, coinciding with the process of globalization. This trend has touched practically every country in the world. Even nations like France and Sweden, which are reputed to have the best social security systems in the world, have seen this imbalance. This is also one of the major reasons behind the “Yellow Vest” movement that has been going on across France since November last year.
The opponents of the principle behind UBI are the usual suspects: Those who have benefited the most from globalization, most multinationals and the political right wing, who see it as making recipients lazy and a waste of precious economic resources
Not just the poorest, but even the middle classes are now beginning to feel the heat of the rising gap in income and wealth when compared to the top 1 percent of society. A study by the Organisation for Economic Co-operation and Development (OECD), released this month, calls on governments to look at specific tax breaks and reliefs to help the middle classes overcome their challenges in balancing household budgets.
If the relatively well-off middle classes or even the poor in wealthy nations are now feeling the heat of inequality and face exclusion from the economic miracle that is increasingly being limited to a handful in each nation, one cannot even begin to imagine the plight of the poor in the developing countries. Tens of thousands of farmers, faced with mounting debts and falling incomes, are driven to commit suicide in India each year. The situation of farmers and the landless in the war-ravaged countries of Africa is no better.
The opponents of the principle behind UBI are the usual suspects: Those who have benefited the most from globalization, most multinationals and the political right wing, who see it as making recipients lazy and a waste of precious economic resources. However, the results from most places where experiments with UBI have been carried out indicate that transferring funds directly to the beneficiary helps them prioritize their expenses as per their needs.
Having said that, any top-down approach, where the state decides what the funding should be used for or provides the funding in the form of free services — food coupons, health insurance, etc. — suffers from severe handicaps, especially in larger countries like India, where the situation of each family and individual can be dramatically different in various parts of the country. The initial feedback of the UBI experiment in Kenya has also highlighted that the poor prefer to have the right to decide what they will use the money for.
Moreover, in most developing countries with a significant rural population, putting money in the pockets of the poor leads to higher spending on essentials, which in turn boosts the rural and the national economy. This can be seen in India, where a failed monsoon always spells doom for national economic growth, as the rural population sharply cuts back its spending. So, instead of keeping money locked up in fixed assets, held by banks or invested in the stock market, giving to the poor boosts the economy by increasing the circulation of cash. This and the dignity that it offers to the poor are reasons enough for not just the current UBI schemes to continue, but also for the rest of the world to give it a try.
• Ranvir S. Nayar is managing editor of Media India Group, a global platform based in Europe and India, which encompasses publishing, communication, and consultation services.