April , 2021
Redefining universal basic income in post-Covid time
14:13 pm

Tushar K. Mahanti


What does the extreme free-market economist Milton Friedman, tech billionaire Mark Zuckerberg and India’s latest Nobel Laureate in economics Abhijeet Banerjee, known for his experimental approach to alleviating poverty, have in common?


The answer is: At some point, they've all advocated for policies approximating a universal basic income. The government should give every citizen a minimum amount of money for sustenance, on a regular basis regardless of the recipient’s income, resources or employment status, they have argued in their own words.


Among them Mark Zuckerberg was more specific and voiced his support for UBI at the 2017 Harvard commencement address, where he said: "Now it’s our time to define a new social contract for our generation. We should explore ideas like universal basic income to give everyone a cushion to try new things." 


The idea of a basic income was, for decades, looked something like a policy fantasy. But the last few years have seen it become less bizarre, to the point where countries across the globe now have many limited basic income programs up and running.


The Covid-19 pandemic has given the idea a fresh momentum. With the crisis generating so much financial loss and uncertainty, and with federal stimulus packages failing to meet the needs of millions, UBI supporters are arguing that citizens desperately need some sort of guaranteed income.




What is universal basic income?


First, what is Universal basic income (UBI)? UBI is a government program in which every adult citizen receives a set amount of money on a regular basis. The intention behind the payment is to provide funds to cover the basic cost of living and provide financial security. The inherent goal of a basic income system is to alleviate poverty and replace other need-based social programs that potentially require greater bureaucratic involvement.


The rationale for UBI rests on five main arguments. First, no eligibility criteria would be attached while targeting the recipients, except perhaps citizenship or age. Second, universality may eliminate any stigma affecting beneficiaries. Third, the default position of people from being potential beneficiaries is changed to guaranteed recipients. Fourth, a universal transfer would be more labor compatible than most programs, as it removes the price effect of transfers. And finally, universality may strengthen programs’ political sustainability as beneficiaries would draw from the entire income distribution


It sounds like a utopian dream, but support for a fixed, government-sponsored annual income is growing across the world. Exponents argue that it would reduce inherent inequities in the current system, and provide a secure platform for everyone to live a fulfilling and creative life.


There are several questions about how to implement this policy. Would it be taxable? Who constitutes "everyone"? UBI proposals are often underspecified — so it’s not clear who’d get money, how much, or how would they be paid. Should other welfare schemes of the government be discontinued once UBI is in place?


Maybe, the concept needs more clarity but that doesn’t necessarily mean that UBI is a utopian dream. The biggest reason for UBI is the increase of freedom and flexibility it would provide to common people. It could help break the cycle of poverty by allowing people to gain skills, education, or pursue small business development or other passions with additional income giving them the financial security to do so. It would be a great catalyst for entrepreneurship and innovation, while also providing people with enough money to take care of basic needs such as rent, food, and childcare,




History of UBI concept


The history of universal basic income in its present form is roughly half a century old, but the idea that the government should assure a minimum earnings for every citizen discussed and suggested repeatedly over the past two centuries. Maybe, the concept was not articulated earlier but something akin to UBI was proposed in the past in different forms such as a citizen's dividend, a social credit, a national dividend, a demogrant, a negative income tax, and a guaranteed minimum income among others. Few of these proposals meet the basics of the usual definition of a universal basic income, and they differ from one another significantly. But they share a common thread that the government should assure its citizen with a minimum earning.


Tracing back the earlier history, Thomas Paine’s name, an intellectual architect of the American Revolution, who upon encountering the economic divisions in American society would probably come among the firsts to argue for state’s direct payment to individual. Paine proposed that a "groundrent" of £15 be paid to every individual upon turning 21, followed by £10 every year after turning 50. He argued that "every person, rich or poor," should receive the payments "to prevent invidious distinctions."


A century later Henry George, an American economist active after the Civil War, called for "no taxes and a pension for everybody" via a public land fund. However, these were Paine’s or George’s own concepts as neither of them had heard of UBI.


The 20th century saw three periods when discussion about basic income was particularly intense. Firstly, under names like “social dividend”, “state bonus” and “national dividend” proposals for a genuinely unconditional and universal basic income were developed in inter-war debates in England. Secondly, after some years of silence this type of ideas was rediscovered and gained considerable popularity in debates about “demogrants” and “negative income tax” schemes during the 1960s and 1970s in the United States. Thirdly, a new period of debate and exploration emerged as basic income proposals were actively discussed in several countries in North-Western Europe from the late 1970s and early 1980s. Quite independently, this century also saw the introduction of the world’s first, full-blown basic income scheme through the birth of the Alaska Permanent Fund, providing annual dividends to all the inhabitants of Alaska.


In the 1960s the idea of a guaranteed minimum income entered the political mainstream in the US. Martin Luther King endorsed it. Experiments were run in New Jersey, Iowa, North Carolina, Indiana, Seattle, Denver, and Manitoba. Nixon pushed to make it federal law, though he insisted that his "basic Federal minimum" included work incentives and so was different from giving an unconditional defined sum on a regular basis.


The political winds shifted, and the idea of a basic income was pushed aside during the Reagan-Thatcher era. Market socialists weighed its merits against those of other fringe proposals, such as a coupon-based stock market in which all citizens would own dividend-paying shares, without the option to cash out. The occasional proponent from elsewhere on the political spectrum cropped up now and then across countries but they had a few takers.


Today the idea of a basic income has again entered the mainstream. Unsurprisingly, given its scattered lineage, boosters make different arguments from diverse ideological vantage points. Broadly speaking, proponents on the left see it as an antidote to poverty and inequality. On the right its appeal has more to do with increasing the efficiency of the welfare state.


Another distinction, which cross-cuts left and right, is between reformers who want to rationalize policy in light of current issues and futurists who aim to radically overhaul society—or save it from radical overhaul due to automation. In practice, any given basic income proponent is likely to employ several of these arguments, without regard for political taxonomies.




India and the Universal Basic Income


Universal basic income is a model for providing all citizens of a country or other geographic area with a given sum of money, regardless of their income, resources or employment status. Exponents argue that it would reduce inherent inequities in the current system, and provide a secure platform for everyone to live a fulfilling, creative life.


To combat this income inequality, and the consequent plagues that accompany it—poverty, malnutrition, unemployment—the Economic Survey of India (2016-17) addressed the feasibility of Universal Basic Income (UBI) being unravelled in India. While countries like Canada and Finland have already toyed with the idea of guaranteeing their citizens unconditional, universal, and regular cash benefits, experiments in India are still at their nascent stage.


In the year 2017, to help citizens absorb the monetary shocks of demonetization, it was predicted that the government would introduce the provision of universal basic income for its yearly budget. While the prediction did not come true, UBI did find a comprehensive section devoted to it in the Economic Survey of 2016-2017. Hence, the credit for encouraging a debate on the feasibility and efficacy of implementing universal basic income in India can be attributed to the Survey.


It is estimated that in the coming few decades, India stands to bear the two-fold brunt of rising unemployment due to automation (McKinsey Global Institute, 2017), as well as an increasing scale of relative poverty due to the widening of the income inequality gap. In such a situation, advocates of universal basic income suggest incrementally phasing in the implementation of universal basic income at the earliest. In the words of Pranab Bardhan (2016), universal basic income (UBI) is “…the cleanest and least incentive-disruptive idea” to combat the two-pronged complication.


India spends approximately Rs 9 lakh crore a year in welfare through thousands of schemes. MGNREGS, PM Kisan etc have mammoth budgets and sweeping scales. Apart from the difficulty of reaching the right beneficiaries, much bureaucratic energy is spent on verifying eligibility, supervising the implementation etc.


It is time to implement universal basic income (UBI) in India. To give Rs 1,000 per month to 135 crore Indians will cost the government Rs 16.2 lakh crore a year accounting for about 8% of GDP (at current prices GDP was estimated at Rs 203.51 crore in 2019-20). This would compare much better with the Rs 9 lakh crore spent through more than ten thousand schemes involving the humongous bureaucratic cost incurred in deciding who is poor, and designing and maintaining complex systems to disburse the money. Also, despite the best efforts of the government there are huge leakages in these social sector schemes. The UBI should become a fundamental right of every citizen.


India should immediately begin cash transfers of 1,000 per person per month as universal ultra-basic income (UBI) and implement the one-nation, one ration card scheme urgently, to tide over the crisis caused by the Covid-19 pandemic, Nobel Laureates Abhijit Banerjee and Esther Duflo have said after the lockdown was imposed following the spread of the pandemic. Maybe, the urgency showed by Banerjee was due to the abrupt and sudden economic crisis that fell on the poor, but generally he is a strong proponent of UBI.


This will partially take the pressure off the poor from struggling to meet the basic needs and would give them dignity. Their choice of work would become a mode of self-development rather than a desperate means of sustenance. It would seem like a utopian dream, but so was abolishment of slavery, or democracy a century ago. Any other method in India is sure to get sunk in the quagmire of corruption.




Global UBI scenario


Even as the concept of UBI has been evolving for centuries and receiving wide acceptance among intellectuals across the globe, no country has the scheme in place till date, although there have been several small-scale pilots and a few larger-scale experiments. Only two countries; Mongolia and Iran had a national UBI in place for a short period of time. Finland’s highly-touted pilot program decreased stress levels of recipients across the board, but didn’t positively impact work activity.


The majority of UBI pilots are variants of targeted schemes. Many countries have already implemented payment schemes or boosted unemployment benefits in reaction to the pandemic. Others like Spain have used that momentum to launch fully-fledged basic income pilots. Some mapped programs are past experiments used to evaluate basic income. Others are ongoing or new pilots, including recently launched programs in Germany and Spain. Canada too has recently joined the list as countries considering UBI as a top policy priority in a post-Covid world. But as past experiments show, ideas around basic income can be implemented in many different ways.


That is, if UBI is not implemented in its totality, a large number of countries are running varieties of welfare schemes including cash transfer. Critics, however, worry that it will disincentivise work and cheating economies out of productivity. In addition, they say, many governments and may have to cut capital expenditure on basic developmental programmes to arrange funds for UBI.


It’s still too early to tell if UBI will live up to expectations or if the idea will fizzle out, but as new experiments and policy programs take shape, a growing amount of data will become available for policymakers to evaluate the worthiness of the scheme.



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