Explained: What is Universal Basic Income?

In the 2016-2017 Economic Survey of India, the then Chief Economic Advisor, Arvind Subramanian had floated the idea of a possible Universal Basic Income (UBI) in the near future. In fact, the survey had an entire chapter dedicated to it titled “Universal Basic Income: A Conversation With and Within the Mahatma”. In fact, even as recently as January 2019, the Centre had been mulling some variant of UBI in lieu of the heavily contested farm loan waivers. On January 29, 2019, Rahul Gandhi promised a minimum income guarantee for all poor families should Congress come to power in 2019.

The clamour for and discussions around UBI are not limited to India. It is being actively considered in, and even piloted in other countries including USA, Finland, Canada, Switzerland and Kenya. UBI, despite general populace’s limited knowledge of it, is an immensely important topic that has the potential of touching all political, economic and technological discussions prevalent in the world today.

What is UBI?

At the heart of it, UBI is a programme in which every citizen of a country, state or region is given a fixed monthly income free of cost, that is, without the expectation of repayment or enrolment from the beneficiary. The amount disbursed is deemed enough to cover a person’s basic expenses.

UBI is not a new concept. In fact, it was first implemented as a wage-supplement system called the Speenhamland system in 1795 in Speemhamland, England. Since then, it has found advocates in many philosophers, economists and influential personalities such as Thomas Paine, Martin Luther King, Richard Nixon, Bill Gates, Richard Nixon, Elon Musk, Mark Zuckerberg, and among many others.

What does UBI aim to do?

As an economic and social scheme, UBI aims to reduce poverty, and improve working conditions of the economically weaker sections of the society.

Theoretically, for UBI to be successful in its implementation, it needs to be universal, unconditional, and should involve direct transfers from the government to the recipient citizen. Universal means that UBI should ideally not cover a small section of society, because identifying and targeting a subset is inefficient and ineffective as an anti-poverty measure. Unconditional implies that every citizen, regardless of their employment status or their economic means, gender or occupation would get the benefits of UBI without having to pay tax on it. Finally, direct transfers are crucial to ensure that the delivery chain remains fool proof and does not develop leaks due to operational or bureaucratic reasons.

How does UBI help?

Poverty is the root cause of many problems in India — from rampant illiteracy to appalling healthcare to economic and social exploitation in an inequitable world. Most theories of justice propound that a society that is unable to provide basic necessities to all its citizens fails the test of justice. Currently, about 22% of India’s population lives in poverty, and the country houses about 5% of the world’s extreme poor. After Nigeria, India is home to the largest population of poverty-stricken people in the world.

  • Meets basic living needs of everybody

A Universal Basic Income will serve to reduce poverty in India. Proponents of UBI argue that as UBI ensures that everybody’s basic needs are met, it improves the standard of living across different parameters.  For the poor and unemployed, a Universal Basic Income would serve as the only means of income. This guaranteed minimum income would help the beneficiaries cater to their basic needs of food, clothing and shelter.

It also promotes liberty and empowerment within the currently impoverished masses, and provides more choices in terms of employment. The importance of this freedom of choice cannot be overstated for the desperate person stuck in a job with high moral or health hazards. A guaranteed monthly income can help them look for better, safer and more fulfilling jobs.

  • Positive domino effect on other aspects of life

Elimination of poverty eliminates the daily fight for survival, and this opens up resources for other important aspects of life such as education and healthcare. This leads to better psychological well-being as is evidenced from an experiment in Kenya. Between 20111 and 2013, an NGO in Kenya gave out Unconditional Cash Transfers (UCTs) to random groups of households in Kenya. The experiment resulted in a significantly higher food security index, investment in durables such as furniture and metal roofs, increase in psychological well-being, and an increase in female empowerment with largely beneficial tangential effects. Almost all major aspects of the participants’ lives such as food security, health, education, and women empowerment improved because of a guaranteed income.

A Guaranteed Annual Income experiment conducted in the small town of Dauphin, Canada, reported significant reduction in healthcare costs with marked reduction in hospitalisations for accidents and injuries, and in mental health diagnoses. A short experiment run by the American government in New Jersey reported an increase in the odds of a child completing high school.

Another important study has proven that poverty impedes cognitive function. As an example, sugarcane farmers in Tamil Nadu were reported to have had lower cognitive IQ scores before harvest in a debt-ridden, cash-strapped environment, as compared to a post-harvest environment with little loans and more cash flow.

  • Acts as an insurance for the underprivileged

UBI will also serve as an insurance against shocks in income due to inclement weather or other natural disasters. According to the 2016-2017 Economic Survey of India, more than 50% of Indian rural households face at least one form of shock such as crop loss, water borne diseases, loss of property, cyclones, drought, etc. 60% of these households compensate for these losses from their personal savings, with little to no help from the government or institutional insurance.

  • Eliminates economic dependence on hazardous jobs

Poverty can cause desperation amongst the poor for money, thereby causing them to take up daily wage jobs that are harmful to their health and lives. An experiment in tribal villages in north India reported that UBI enabled daily wage labourers to shift to agricultural and allied activities. In fact, the surplus income was used to scale up operations and capital investments in farming. The report also found that as a result of UBI, 60% of women had more influence in household matters, and there was a 73% reduction in debts.

  • Basic income in a possibly automated future

Although this reason does not align with the social equity school of thought that we have discussed so far, a possible future in which most jobs are automated is a major reason to consider UBI. A recent McKinsey study estimated that 50% of the current work activities can be automated, and that 6 out of every 10 occupations can be automated to at least 30%. This will result in 15% to 30% of the workforce getting displaced and being deemed redundant.

Is UBI that smooth sailing?

In short, no. If it were, it would have been implemented everywhere already. An economic initiative as big and as disruptive as the UBI, is bound to involve trade-offs.

  • The moral hazard of a reduction in the labour force

The fear of UBI is rooted in the age-old belief that only those who work hard should be rewarded while the lazy should be punished. It is assumed that a guaranteed fixed income will incentivise the labour force to quit their current jobs and stop working for their living.

In 2016, in a referendum held in Switzerland, 78% voters voted against a proposed basic income scheme. The scheme was called a “Marxist dream”. An economics professor, in his criticism of the proposal, said, “If you pay people to do nothing, they will do nothing”.

Although this might sound true in theory, some noted experiments and studies have proven otherwise. A study in Honduras, Morocco, Mexico, Philippines, Indonesia and Nicaragua showed insignificant drop in the labour supply, and a recent experiment in Alaska reinforced this result. Although these experiments can’t be considered representative of every country and region in the world, it gives us enough confidence to conduct similar experiments on a larger scale and seriously consider implementing UBI as a policy in the future.

  • Additional income will be spent on alcohol and other vices

Another common perception is that when the poor get more money, they splurge it on alcohol and tobacco. Economists call this category of products “temptation goods”. In fact, a meta analysis of around 30 different research studies has shown this perception to be false. Across the world, an increase in per capita income has resulted in a fall of consumption of temptation goods. This result is even supported in Section IX of the 2016-17 Economic Survey of India. Again, even though the sample set cannot be considered representative of the entire world, there is enough evidence in these studies to suggest that a presumed natural inclination towards vices cannot be correlated with an increase in income.

  • UBI will prove to be too expensive

When we speak of the implementation of any economic policy, one of the most important criteria is always the cost. The 2016-2017 Economic Survey proposed that this cost can be covered by redistributing resources spent on existing inefficient social schemes.

Currently 22% people in India live in poverty. To bring it down to 9% through UBI, it is estimated that the cost would amount to about 1.6% of the GDP. In another approach, if the UBI were to initially only target women, the cost would fall to 0.85%. As of now, India allocates about 5% of its GDP to its litany of welfare schemes targeted at different socio-economic classes and occupations.

The survey talks about how inefficient each of these schemes is currently, and that the poorest districts in the country receive the least amount of benefit. This inefficiency can be attributed to bureaucracy, and the absence of a direct transfer system. A couple of striking examples of inefficient schemes are the Public Distribution System (PDS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). About 40% of the targeted PDS beneficiaries and 65% of MGNREGS’ do not receive the remuneration due to them. Furthermore, about 1% of the GDP is devoted to subsidies for middle class schemes and welfare which do not directly benefit the extreme poor. In this scenario, it appears but logical that adequate funds from these existing schemes should be reallocated for direct transfers under UBI.

What does Rahul Gandhi’s promise of minimum guaranteed income mean?

To categorise this proposed scheme as UBI would be premature without knowing details about the target audience, distribution channels, and financing sources. If the Congress is voted to power in 2019 and they implement a form of UBI, it would be crucial to understand how they identify the poor, how they ensure adequate money gets distributed to the rightful beneficiaries, whether the employment status of beneficiaries would be considered, and how they would  this scheme.

As of now, we can only speculate about these details. It is evident that even if we do not implement a scheme right away, we must invest the time and effort to conduct more pilot projects and figure out the best variant of UBI for India that can be implemented in the future.

The way forward

UBI is by no means an easy concept to understand. It is even more difficult to get a majority of the concerned stakeholders on board with its implementation. At a philosophical level, it goes against the seminal tenet we have been taught since childhood — hard work equals reward, and laziness equals stagnation and death. However, that lesson does not take into account existing socio-economic inequalities that are compounded with every successive generation.

UBI is a radically new concept that seems to be the need of the hour. Depending on how it is implemented, we will either see a meteoric rise in world happiness, or a horrible crash of a dream that dared to soar too high.

Aditya Mani is a writing analyst at Qrius

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