Universal Basic Income: A Development Policy

October 4th 2013 A celebration of the successful collection of more than 125,000 signatures, which forced the government to hold a referendum on whether or not to incorporate the concept of basic income in the Federal constitution. Source: https://www.flickr.com/photos/generation-grundeinkommen/10577574344/

By Damon Aitken

The possibility of a Universal Basic Income (UBI) has become a hot topic in the political and economic world. Supporters have risen from across the ideological spectrum, touting it as the solution to poverty. Switzerland held a referendum in June on the issue, and although it was rejected by the Swiss people 78% to 22%, it has sparked increasing discussion and was a significant step for the UBI movement. However, what if the UBI was not just a social welfare replacement for developed countries such as Switzerland, but a way out of poverty for the populations of developing countries?

The main idea is that instead of the complex welfare and social benefit systems governments currently run, the governments will pay out a monthly income to citizens, funded by taxes. The main argument against the UBI comes as people believe that such a payment will serve as encouragement for workers to leave the labour market. However, a recent MIT study in 7 randomized trials found that direct cash transfers did not lead to decreased participation in the labour market.

Moving this theoretical construct into practice, however, will require policy experiments on a smaller scale that tests the feasibility. To this regard, the World Bank conducted three experiments to test the feasibility of such a system; in Brazil, Namibia and India.

Since 1996, Brazil has implemented programs in some form or another which incentivise families to keep their children enrolled in school, mostly through direct cash transfers. A study conducted in 2003 found that this program increased school enrollment and attendance, but were too small to mitigate the problem of child labour. Nevertheless, almost a quarter of the Brazilian population could be counted as beneficiaries of the program by 2012 and has been a part of the decline in the Brazilian Gini coefficient, a measure of income inequality by 0.062 from 2003 to 2012. The current government has not expanded the program to a true basic income and given the turmoil in Brazil at the present both politically and economically; it is doubtful that it will happen in the next few years as funding will be short.

Give Directly is a non-profit founded by economics professors from UCSD and MIT that gives unconditional cash transfers to poor people in Kenya and Uganda. They are planning an experiment in which they will provide 6,000 Kenyans with a basic income lasting from 10 to 15 years. The results will be closely tabulated and monitored to see if this model can truly be a successful poverty reduction scheme. The co-founder Paul Niehaus said, I do think the political opposition to UBI rests on some pretty strongly held beliefs about human nature – other people are irresponsible, we can judge better what’s best for them – that this project will speak to, and at least force a closer examination. The Give Directly project is similar to previous projects carried out by numerous NGOs in India that lead to positive results such as healthier recipients, higher school attendance, greater investment in tools, and increased empowerment of female recipients.
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The use of UBI in Namibia was spearheaded by a Coalition of Namibian NGOs from 2008 to 2010. 930 people took part and received about $12.40 a month. The low cost of living in many developing countries means that the cost on the donor’s side would remain quite low. An important positive effect was that social relations among the villagers in the project improved as they longer had to beg others for essentials.

The evidence from the experiments done so far show that UBI as a key part of developmental policy can lead to positive results but the question is now how to implement it. The cash involved will not be as much per person as would be required in richer countries. Excellent record-keeping is certainly required and technological innovations such as biometric identification and banking apps can lead to better results as they will help prevent fraud and provide easier access.

References

Dolan, E. (2014, August 18). EconoMonitor : Ed Dolan’s Econ Blog » A Universal Basic Income and Work Incentives. Part 1: Theory. Retrieved from http://www.economonitor.com/dolanecon/2014/08/18/a-universal-basic-income-and-work-incentives-part-1-theory/
McArdle, M. (2016, June 6). Universal Basic Income Is Ahead of Its Time (to Say the Least). Retrieved from http://www.bloomberg.com/view/articles/2016-06-06/universal-basic-income-is-ahead-of-its-time-to-say-the-least
Eduardo Matarazzo Suplicy. (2003). Legitimizing Basic Income in Developing Countries: Brazil, or “The Answer Is Blowin’ in the Wind” Journal of Post Keynesian Economics, 25(3), 407-424. Retrieved from http://www.jstor.org/stable/4538838
Cardoso, E., Souza, A. P., To Poor Families In Brazil. It Describes Brazil’s Transfer Programs And Presents Statistics On School, & Attendance And Child Labor. In The Second Half Of The 1990S, Many Municipalities Had Adopted The. (n.d.). THE IMPACT OF CASH TRANSFERS ON CHILD LABOR AND SCHOOL ATTENDANCE IN BRAZIL. Retrieved from http://datatopics.worldbank.org/hnp/files/edstats/BRAimp04.pdf
Work, 2. I. (n.d.). UNIVERSAL BASIC INCOME. Retrieved from http://sange.fi/kvsolidaarisuustyo/wp-content/uploads/Universal-Basic-Income-A-New-Tool-for-Development-Policy.pdf
Niehaus, P. (2016, June 3). I’m Paul Niehaus of GiveDirectly. We’re testing a basic income for the extreme poor in East Africa. AMA! • /r/IAmA. Retrieved from https://www.reddit.com/r/IAmA/comments/4lvvai/im_paul_niehaus_of_givedirectly_were_testing_a/?st=iq4bxdec&sh=ad8000df
Bannerjee, A., Hanna, R., Kreindler, G., & Olken, B. A. (n.d.). Debunking the Stereotype of the Lazy Welfare Recipient: Evidence from Cash Transfer Programs Worldwide. Retrieved from http://economics.mit.edu/files/10849