Universal Basic Income: – A Project

Research Question: –

Will the implementation of a Universal Basic Income help cut the high rate of global unemployment?

Introduction: –

The Idea of UBI was first floated in the 1920s by economists Bertrand Russel and D.H Douglas. In the simplest of terms, it is a government guarantee that each citizen receives a minimum income. It is also called a citizen’s income, guaranteed minimum income, or basic income. The intention behind the payment is to provide enough to cover the basic cost of living and provide financial security. The concept has regained popularity as a way to offset job losses caused by technology. Plans differ on who receives the income. Some would pay every citizen, regardless of income. Others would only pay those who are below the poverty line, whether they are working or not. This concept has over the years, gained some powerful backers, ranging from Martin Luther King Jr to Milton Friedman who proposed a version of a Universal Basic Income known as the negative tax rate. Other modern-day thinkers such as Elon Musk and Sir Richard Branson have come out stating that a basic income is the only solution to combating rising levels of unemployment, especially faced with the looming spectre of automation, which is expected to wipe out 57% of all jobs

Global Perspective

There are several pilot schemes being conducted across the wo rld concerning the implementation of a UBI, one of those trials is in Finland. On Jan. 1, the Finnish government launched a two-year pilot scheme that will provide 2,000 unemployed citizens with a basic income of 560 euros ($595) per month. The recipients, all between the ages of 25 and 58, were chosen at random and will receive the funds even if they find employment in the next two years. “Now I can concentrate on what I truly want to do, instead of having to deal with the bureaucracy,” Sini Marttinen, 31, told Italian newspaper La Stampa. The center-right Finnish government is spending 20 million euros ($21.2 million) on the experiment. If successful, Finland will implement it nationwide at a cost of 15 billion euros ($16 billion) — up from the current 13.4 to 14.5 billion that Helsinki spends on its welfare state.

National Perspective

India’s annual economic survey released 2017 included a lengthy section proposing a universal basic income of 7,620 rupees a year ($114) for all Indian citizens, though a national rollout is not expected anytime soon. This is not the country’s first experiment with basic income. An 18-month basic income trial took place in 2010 in the central Indian state of Madhya Pradesh, home to 73 million people. The trial provided more than 6,000 individuals in eight villages with unconditional cash transfers that ranged from 100 to 300 rupees per month ($1.5 to $4.5). Designed to supplement the income of families living under the poverty line, a study showed that the trial resulted in a sharp increase in food sufficiency and a drop-in illness in villages that received the funds compared to those that did not.

Significance of Study: –

The world economy is in freefall, as major global economies slowdown and a painful switch away from fossil fuels begins. Thus, the introduction of a UBI could potentially help lighten some of that burden off from already stretched workers. Several eminent scholars & economists have come out saying that the current system of capitalism doesn’t work and that it must evolve if it is to survive. A UBI is being championed as the cornerstone of this new ear and why not, it has several benefits, for example, Workers could afford to wait for a better job or better wages, People would have the freedom to return to school or stay home to care for a relative, The “poverty trap” would be removed from traditional welfare programs. However, there are of course, several potential disadvantages that come along with the implementation of a UBI, thus a project evaluating its effects upon the workforce would be vital in deciding whether it’s a risk worth taking.

Objectives: –

  • To study if the implementation of a UBI will help reduce unemployment
  • To study the feasibility of a UBI structure
  • To study the potential side effects of UBI on the Indian economy

Methodology

  1. Survey- A survey is an attempt to provide a comprehensive & wide-ranging overview on a particular subject based on information obtained from a carefully vetted sample set of the population. In this project, a well-structured & thorough questionnaire will be used to harvest information that will help us in studying the subject matter in a more all-encompassing manner. The responses to the survey will be analysed & a logical conclusion will be drawn from it.
  1. Case Study- Case study is the go-to method for when a holistic & in-depth investigation is required for economic purposes and is tailormade to bring out details from the perspectives of several participants by using multiple sources of information. This project will include several case studies to help better understand if a UBI could be implemented in India & in what form.


Causes:

  1. Improving the welfare of the poor-Countries like India have a host of subsidies and transfer schemes aimed at helping poor people. Many of these programs fail to reach the poor. The leakage rate of India’s Public Distribution System has been estimated at 40 percent. Replacing these inefficient subsidies with cash transfers would ensure at the very least that the poor are getting the intended monetary benefit. But it could also be empowering. Subsidizing food or fuel or water implies that the poor have to consume these commodities, even if the quality is very low, to receive the benefit. By contrast, a cash transfer means that the poor person can choose how to spend the money. If the quality is poor, they have alternatives. There is also the question of whether the transfer should be universal or targeted to the poor.  While targeting is preferable in principle, in practice there are so many problems in identifying the poor that a universal scheme may do just as well. Finally, thanks to technology, these cash transfers can be implemented at low cost. India’s Aadhaar program, which issues universal ID cards that also serve as cash cards, covers a billion people, including 93 percent of the adult population.
  • Adjusting to labour-saving technologies- Advances in artificial intelligence, robotics, and other technologies have called into question the future of work. The dilemma is that with these technologies’ productivity will increase but many people will lose their jobs (self-driving trucks are an example). Managing this transition is difficult from an economic, political, and moral viewpoint. A system where part of the increase in productivity is taxed, and then distributed as cash transfers to all citizens, whether they are working or not, could help resolve some of the tension. The programs being piloted or proposed in Finland, Switzerland, and New Zealand are essentially aimed in this direction. They challenge the basic notion that you earn your income by working in a job. While this notion has been around at least since the Industrial Revolution, perhaps it needs to be revisited in light of rapid changes in technology. We could envision a society where productivity is high enough that everyone receives a basic minimum income, and people choose to work on whatever they’re good at, including not working at all.

Stakeholders: –

  • Govt.
  • Taxpayer
  • Central Bank
  • Market
  • Economy

Advantages: –

There are several advantages for the implementation of a Universal Basic Income, for the sake of clarity & lucidity, they have been classified under bullet points.

  1. Drastically reduced housing insecurity India’s household debt surged 1.8 times from Rs 3.7 lakh crore to Rs 6.74 lakh crore between 2016-17 and 2017-18, thus indicating that such debt continues to be a bane for most middle- & low-income households. The introduction a UBI would significantly help in the redressal of these debts and has already helped 9 million people do so in the United States under the EITAC program.
  • Drastically reduced food insecurity– With India slipping to 103rd rank in the World Hunger Index, it is becoming increasingly clear that a radical solution is required for the alleviation of food insecurity in our country. A UBI could significantly slash hunger rates & drive up access to food stuffs.
  • Reduced recidivism — Formerly incarcerated people attempting to reintegrate into society will have a financial backbone to build a new life around and could end up more than repaying their monthly income back to society
  • A truly free labour marketAccording to Gallup, worldwide, only 13% of those with jobs feel engaged with them. In the US, 70% of workers are not engaged or actively disengaged, the cost of which is a productivity loss of around $500 billion per year. Poor engagement is even associated with a disinclination to donate money, volunteer or help others. It measurably erodes social cohesion. At the same time, there are those among the unemployed who would like to be employed, but the jobs are taken by those who don’t really want to be there. This is an inevitable result of requiring jobs in order to live. With no real choice, people do work they don’t wish to do in exchange for money that may be insufficient – but that’s still better than nothing – and then cling to that paid work despite being the “working poor” and/or disengaged.

 Basic income fundamentally alters this reality. By unconditionally providing income outside of employment, people can refuse to do the jobs that aren’t engaging them. This in turn opens up those jobs to the unemployed who would be engaged by them. It also creates the bargaining power for everyone to negotiate better terms. a basic income improves the market for labour by making it optional. The transformation from a coercive market to a free market means that employers must attract employees with better pay and more flexible hours. It also means a more productive work force that potentially obviates the need for market-distorting minimum wage laws. Friction might even be reduced, so that people can move more easily from job to job, or from job to education/retraining to job, or even from job to entrepreneur, all thanks to more individual liquidity and the elimination of counter-productive bureaucracy and conditions. Perhaps best of all, the automation of low-demand jobs becomes further incentivized through the rising of wages. The work that people refuse to do for less than a machine would cost to do it becomes a job for machines. And thanks to those replaced workers having a basic income, they aren’t just left standing in the cold in the job market’s ongoing game of musical chairs. They are instead better enabled to find new work, paid or unpaid, full-time or part-time, that works best for them.

  • Increased school attendance and performanceStudies have shown that kids in families receiving cash transfers stay in school longer, show improved grades, and in some cases, students rate their teachers more highly. One imagines this is directly related to issues like food and housing insecurity. It’s hard to be an ace student when you are hungry, don’t have stable housing, etc.
  • Boosts Self-esteem & Mental Health – “The link between health and income is solid and consistent—almost every major health condition, including heart disease, cancer, diabetes, and mental illness, occurs more often and has worse outcomes among people who live at lower income. As people improve their income, their health improves. It follows that improving patients’ income should improve their health.” This is according to a letter penned by 192 physicians to Minister Hoskins of the state of Ontario in Canada. They, and various others in their field argue that a UBI would thus go a long way in helping giving a sense of security to all citizens and dramatically improving their mental health and confidence, thus spurring them on to pursue new business ventures and their true passions, things that they would not have been able to do if not for that crucial guarantee that their basic needs will be met.

Disadvantages: –

  1. Cost- This is often cited as the biggest drawback of a Basic Income scheme, with the cost of implementing a UBI in countries like the US being estimated to cost over 3.9 trillion dollars. In countries like India or Kenya, the implementation of a UBI would require the annulling of all other welfare schemes, something which obviously dents the UBI’s principle argument of slashing poverty.
  • Increased Inflation Many economists theorize that the increased demand for goods & services caused by the widespread availability of money to all citizens could cause inflation rights to skyrocket and worry that central banks that are already struggling to deal with normal market caused inflation may find that not even radical techniques like QE can help them to push them back down.
  • Getting it passedOne of the most prominent and simple arguments against UBI is the very fact that it may never get passed in any legislative assembly due to the aversion that people have for giving free handouts to the unemployed, as UBI is perceived to be.
  • It won’t make a difference anyway- Another theory is that a reduced UBI program without any other social security schemes would only maintain the status quo & could instead exacerbate corruption & leakage of govt. funds.

Remedies: –

To all the cited disadvantages of a UBI, there are a few possible remedies that could help make the case for the implementation of a Basic Income seem even more appealing.

  1. Battling the Cost Argument- What tends to go unrealized about the idea of basic income, and this is true even of many economists – but not all – is that it represents a net transfer. In the same way it does not cost $20 to give someone $20 in exchange for $10, it does not cost $3 trillion to give every adult citizen $12,000 and every child $4,000, when every household will be paying varying amounts of taxes in exchange for their UBI. Instead it will cost around 30% of that, or about $900 billion, and that’s before the full or partial consolidation of other programmes and tax credits immediately made redundant by the new transfer. In other words, for someone whose taxes go up $4,000 to pay for $12,000 in UBI, the cost to give that person UBI is $8,000, not $12,000, and it’s coming from someone else whose taxes went up $20,000 to pay for their own $12,000. However, even that’s not entirely accurate, because the consolidation of the safety net and tax code UBI allows could drive the total price even lower. The below graph, taken from the World Economic Forum’s report on a Universal Basic Income, helps illustrate this point.

The funding for a UBI can also easily be achieved through the passage of a wealth tax, the elimination of various loopholes in the tax code, consolidation of all welfare programs under one UBI tax credit thus eliminating the disproportionate benefits that the rich derive from these programs. Corporate and ordinary income tax rates can be slashed & carbon emissions & high frequency trading can be taxed instead, thus increasing the benefit for the poor & maintaining tax collection levels. One radical solution for bridging the funding gap is citizen seigniorage, which would not only reduce banking debt, a huge need in the current Indian economy, but would also put the ability to create cash back solely in the hands of the central banks. Another option would be to create universal citizen shareholders by allocating a tiny share of an IPO into a UBI mutual fund.

Case Studies: –

  1. Namibia, BIG Foundation- Namibia has long suffered from high levels of poverty and income inequality. About two-thirds of all Namibians live below the poverty line and it has the most unequal distribution of income in the world, in part a hangover from the colonial and apartheid eras. The reduction of inequality is not only an issue of justice, but it has also been identified as a prerequisite for economic growth and investment in Namibia, as for any developing country. In this context, the Namibian Tax Consortium (NAMTAX) made the proposal for a Basic Income Grant (BIG) for Namibia in 2002. The proposal was part of their recommendations for poverty reduction and income redistribution. A two-year pilot project was implemented through a universal cash transfer programme to Namibians who were living in poverty. “In January 2008, the [BIG] pilot project commenced in the Otjivero-Omitara area, about 100 kilometres east of Windhoek. All residents below the age of 60 years [received a BIG] of NAD100 per person per month, without any conditions being attached. A nationwide roll-out of the BIG formed part of the national 2016-2025 plan, although it has yet to be implemented. The public impact was that household poverty has dropped significantly. Using the food poverty line as a yardstick, 76 percent of citizens were below this line in November 2007. This was reduced to 37 percent within one year of the BIG programme. Among households that were not affected by [in-migration], the rate dropped to 16 percent. The BIG resulted in a huge reduction of child malnutrition. Using a WHO measurement technique, the data shows that children’s weight-for-age has improved significantly in just six months from 42% of underweight children in November 2007 to 17% in June 2008 and 10% in November 2008.Attendance in schools almost doubled (it grew by 90 percent) because more parents were able to sustain the cost of sending their children to school. Dropout rates fell from 40 percent in 2007 to 5 percent in 2009.The BIG has contributed to a significant reduction of crime. Overall crime rates – as reported to the local police station – fell by 42% while stock theft fell by 43% and other theft by nearly 20%.
  • India, SEWA Study- In 2009, the Self-Employed Women’s Associations (SEWA) began organizing pilot programs to test the effect of an unconditional cash transfer in Madhya Pradesh, one of India’s least developed states. SEWA is a trade union that was established in 1972 to promote the rights of self-employed, low income women throughout India. Its mission is to improve the standards of living for women in India and help women achieve full employment. The purpose of the Madhya Pradesh Unconditional Cash Transfers Project (MPUCTP) is to test the potential for cash transfers to address vulnerabilities that low-income Indians face. The unconditional cash transfer is a form of a universal basic income, as it provides a set allo wance to all civilians in a village every month without any restrictions on what the money can be used for. The MPUCTP, backed by funding from UNICEF and implemented by SEWA, consisted of two pilot programs in 2011 and 2012, both in Madhya Pradesh, a rural area in which SEWA tried to alleviate poverty and inequality. In the first pilot, which lasted 18 m, 20 similar villages were chosen. In eight villages, everyone received grants and in the remaining 12, no one did. In half of all the villages, regardless of whether a village received a grant or not, there were SEWA representatives present to monitor the village. These test villages had similar variables of socio-economic levels, service access, geographical location, and similar infrastructure. In the second pilot, which lasted 12 months, two similar tribal villages were chosen. Everyone in one village received grants and no one in the other village received anything. Between both pilots, over 6,000 individuals received cash transfers. In both pilots, every man, woman, and child in the selected villages were given a moderate unconditional cash grant: 200 per adult per month and 100 per child per month for 12 months. After 12 months, their grants were raised to 300 and 150, respectively, per month for 6 months. A child’s grant was given to its mother or other designated guardian. These amounts accounted for 20 to 30 percent of a monthly income for a low-income family. To distribute money to families without bank accounts, SEWA used “door-step” banking. Some villagers were suspicious of SEWA giving “free money”, fearing later conditions. SEWA could not directly address these issues and were dependent upon time and understanding. On May 30 and 31 of 2013, SEWA presented its preliminary findings from the studies at a conference on “Unconditional Cash Transfers: Findings from Two pilot studies” in Delhi. The findings show numerous improvements in health, productivity, and financial stability. In terms of impacts to health, the unconditional cash transfers were associated with better food security and lower rates of malnutrition in female children. Less food deficiency improved children nutrition and led to more balanced diets. Recipient villages had lower rates of illness, more consistent medical treatment, and more consistent medicine intake. Families receiving cash transfers had more livestock, which helped improve health and financial stability. Additionally, productivity rates increased, as children in recipient villages had higher rates of school attendance. Villages receiving cash transfers had higher expenditures on schooling and agricultural inputs, promoting better education and higher agricultural yields. Some concerns of the universal basic income are that it will discourage labor and encourage consumption of alcohol. However, cash recipients had higher rates of labor and work, especially in self- employed contexts. And, there was no evidence of higher alcohol consumption in recipient villages than control villages; in fact, in the recipient tribal village, alcohol consumption actually decreased. The effect on labor productivity was especially strong for women and tribal communities. Financial stability improved significantly in villages receiving cash transfers. Households with cash grants were three times more likely to open a new business or take on a new production activity than households that did not receive the cash transfer. These households also decreased their indebtedness and increased their savings, and some were even able to open bank accounts to remit the cash grants. One important factor not addressed in the study was the impact of environmental hazards on the sustainability of the project and, thus, the larger universal income idea. Although the positive results of the pilot programs were overwhelming, the long-run impacts of such short term (12–18 months) projects cannot be measured. But overall, the results of the pilot program disprove many criticisms of a Universal Basic Income & serve as a roadmap for nation-wide implementation.

Analysis of Survey: –

The Findings of this survey are rather interesting to look at when one tries to identify the feasibility of a Universal Basic Income scheme in India. More than 83.3% * of all respondents were within the working age groups, thus the views expressed in this survey are those that of the members of the very workforce that UBI is designed to help, thus they stand the most to gain and or loss from its implementation, enabling them to provide frank & honest responses.

About 66.7% of respondents reported having prior knowledge regarding UBI before attempting the survey, indicating that the idea is no longer confined to the deliberation rooms of economists but is now spreading into the public conscience, thus prompting greater discussion and innovation regarding the idea. The same percentage of people also supported the implementation of a UBI as a means of alleviating poverty and supplementing wages to help manage daily expenses. However, there was a deep divide as to who must receive the funds, with 44.4% of respondents believing that a mix of middle class and poor people is best, while 33.3% felt that it must only be provided to those below the poverty line. Only 22.2 of respondents felt that all citizens are entitled to the cash transfers, indicating that despite academic data leaning towards complete and universal distribution, public sentiment favours targeted sums.

When asked about the economic feasibility of such a lump sum scheme, opinions were bitterly divided. While broadly 72.2% of respondents did believe that it was economically feasible, they disagreed on the minutia. Some felt that corruption needed to be weeded out to drum up the funds, others felt that progressive taxation and widening of the tax base ought to do it, still others felt that unless the govt. shuttered a subsidy or welfare scheme program, a UBI could not be implemented.

The top 4 monthly expenditures of respondents were food, groceries, loans and education costs, with groceries emerging as the top priority when all responses across rankings are tabulated. All these expenses cost upwards of 5000 rupees according to 77% of all respondents and yet a majority of respondents, 44% of them to be precise, felt that 3000-5000 rupees was the appropriate amount to be paid to an average citizen every month under a universal Basic Income scheme. It’s hence clear that the population regard the UBI as a supplementary stipend and not as a silver bullet that will alleviate all of their major expenses. This pragmatism is all the more surprising when 50% of the population believing that salary growth has not been enough to meet these expenditures & 66.7% of them believing that AI will have a severe impact on Indian manufacturing & jobs. Respondents also felt that corruption, financial feasibility & regional disparity are the major hurdles that threaten to de-rail the implementation of a UBI in India.

Finally, when respondents were asked to name an organization that would be in charge of the implementation and workings of this UBI, more than 38.9% of them felt that a new institutional body had to be set up for this purpose, with citizen assemblies being the most popular alternative. This indicates a deep mistrust towards the powers that be, and an attempt to keep such enormous financial resources away from the talons of the rich & powerful.

It can thus be inferred that the population is extremely hard-nosed and cautious regarding the financial workings of the UBI and wish to ensure that all safeguards and balances are made so as to ensure that the public exchequer is not squandered despite the goodwill intended by a scheme. It is also indicative of the past brushes that populace has had with previous govt. handouts and the risk that if not well managed and explained, UBI could risk being viewed in similar unfavourable light. The pragmatism of the populace, while appreciated, may be a result of lack of imaginations and or information regarding the ways to obtain funds for the UBI ( Measures such as Universal Shareholders & Carbon Taxes have possibly not penetrated the public discussion forums) .However, the situation is still quite positive, the population appears to be well-informed and favourable, that coupled with the solid economic data obtained from the case studies indicates that support for a UBI is going to continue to grow and that countries like India, which is set to potentially dominate the world economy due to its soon-to-be world’s largest workforce will have no choice but to eventually implement some form of UBI if they are to cope with the demands of adjusting to AI and satisfy its hordes of job seekers.

Conclusion: –

Limitations

  • Size of sample set- The responses were only 18 in number and thus the inferences drawn from them could hence be flawed due to the possible homogeneity of the sample set.
  • Due to technical errors, certain data charts may be missing from the main summary.
  • Data from case studies may contrast with that obtained from other such similar studies, possibly undermining the inferences of both studies and causing confusion regarding the true potential of Universal Basic Income.

De-Limitations

  • Research performed by eminent economists pertaining to this particular topic appear to back up the findings of this project.
  • All information published in this project have been meticulously verified and obtained from reputable sources.
  • All objectives have been studied in detail and positive inferences have been drawn for all three.
  • This study & it’s research topic could be highly useful in solving the current problems of the turbulent Indian economy by boosting household spending, increasing taxation & boosting job creation.