Universal Basic Income (UBI)
By Anjali Verma
In 1795, a village called Speenhamland in England was under great distress of an increase in prices of grains due to a shortage in supply. Even the employed couldn’t afford the basic amenities. To mitigate the effects of an increase in prices and devise a way to deal with the social crisis the magistrates of Speenhamland gathered and decided on disbursing extra wages to the families considering the price of bread and the number of children in the families. The burden of the system was directly on the landowners to pay the poor. The system reached its peak during the Napoleon wars when people were increasingly outraged by the hike in food prices. The system became growingly popular in the South of England. The Speenhamland system or Berkshire Bread Act was one of the earliest models of what is today known as Universal Basic Income. Universal Basic Income (UBI) is a government public program of a guaranteed payment to all citizens irrespective of whether they’re working or not. Many questions surround UBI including what is the aim of UBI, is it to alleviate poverty or income inequality, how will people spend the extra amount of money, will they invest it in health and education or will it promote bad habits, and is it a fiscally feasible or mere theory. Amidst the consumption slump, these questions become even more important as many economists advocated to put money into the hands of the people to stimulate the demand.
Coming back to the Speenhamland system and its impacts, Thomas Malthus and David Ricardo believed that such a system would discourage people from working and ultimately lead to excessive population growth that would surpass the food production, defeating the purpose for which it was started in the first place. Does this imply UBI would be ineffective in the long-term? But Thomas Paine, an early US philosopher advocated unconditional citizen’s pension, and many American economists like James Tobin, Paul Samuelson, and Milton Friedman also strongly supported guaranteed minimum income.
Firstly, what do we aim at by implementing UBI? The answer is different in different countries. For developed countries, it is a solution to the technological unemployment on a large scale expected shortly due to automation and artificial intelligence but for developing countries, it is a tool to eradicate poverty and improve financial and social inclusion. Most of the policies are so growth-centric that they tend to neglect other relevant matters that should be prioritized. Annie Lowrey, an economic journalist in her latest book wrote, “A UBI is a lesson and an ideal, not just economic policy. The ideal is that society, as a priority, should look out for its people’s survival”. One might question if it’s just about uplifting people above the poverty line why not pay-out more money to a proportion of the population that needs it rather than distributing it to everyone including people who have sufficient resources and are indifferent to that amount of money. These are called means-tested programs target a specific group of people such as pension to older age group, unemployment allowances, or funds to farmers owning land under PM Kisan Yojana which have much lower costs than the universal schemes. However, UBI saves the work and administrative costs of determining the target group as targeting requires data collection from time to time especially in a developing where the poverty status of a significant number of people keeping changing every year. Besides, universality improves the political economy of redistribution. It limits the government’s capacity to implement targeting schemes to a large extend and thereby, reducing the scope of corruption and abuse of power associated with target schemes.
Until now we have been emphasizing on making a certain section of the society that lives in abject poverty better off, but what about a person belonging to a middle-class family who works with an abusive boss or a person who is compelled to do a job, he/she doesn’t. Universality would provide such people with greater bargaining power in the labor market and assurance of choice because the further you get from subsistence, the easier it is to ask fundamental questions like What do I want, and how do I get it?
Although one concern raised was people would consume addictive goods and spend the additional income on alcohol, drugs, and illegal activity. In 2010, a research was conducted giving out two hundred dollars to addicts and criminals in Liberian slums. The researchers found out that the money was largely spent on subsistence and enterprise. Another criticism faced is an unconditional source of income would decrease the incentive to work and make people lazy. In a pilot program conducted in Manitoba district, Canada it was observed that labor supply decreased by 13% which was much less than expected. A burst of the bubble is that idea of universality is limited to the minds of people. All the conclusions drawn are from short term pilot programs and experiments, there has been no long term 100% implementation to be certain about the impacts of universality. Until now only a few short-term experiments are conducted like basic income pilot in Madhya Pradesh, an experimental study in Delhi in 2011 conducted by UNDP and Delhi Government, and another in Kenya in 2011-13. So, there is no clear evidence for the impact on labor supply in the long term.
When the idea of UBI is introduced to anyone the first thought that pops up in mind is ‘It would be so costly is it even feasible?’. A truly universal scheme would be enormously expensive and cost-ineffective. Implementation of a UBI model would require cuts to other programs and higher tax revenue. Arvind Subramanian advocated and laid out an idea of quasi UBI proposing handing out ₹7,620 per year to 75% of the population of the country in the Indian Economic Survey 2016-17. Estimated in terms of current prices it would cost approximately 4.5% of the GDP. Another suggested version of UBI was consolidating all the subsidies and ineffective welfare schemes into one basic income. Different models of UBI and quasi UBI would incur varied costs. But, UBI doesn’t seem like a far utopian dream especially in the times of the pandemic when the economy seems to be stagnant and a larger portion of the population strives for subsistence.
Anjali is a third-year economics honors student from Hansraj College. Her interest include development economics, behavioral science, and public policy