The idea of a universal basic income (UBI) has been gaining ground globally. While Switzerland held a referendum on it last year (it was voted down), Finland introduced it earlier this year.
What is UBI?
Universal Basic Income is a radical and compelling paradigm shift in thinking
about both social justice and a productive economy. It could be to the twenty first century what civil and political rights were to the twentieth. It is premised on the idea that a just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity. A universal basic income is, like many rights, unconditional and universal: it requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.
On the face of it, an unconditional basic income for everyone seems a great idea. In the West, the UBI is being discussed as a solution to two problems:
- Unemployment due to automation; and
- Growing social unrest caused by extreme inequality and precarity.
It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI. The reality, however, is not so rosy.
The UBI debate in India has been a narrow one — restricted, for the most part, to financial viability. Its advocates argue that it is a more efficient way of delivering welfare, while its opponents hold that the fiscal burden would be too much.
The most eloquent advocates of UBI today are free-market enthusiasts — the same lot branded as neo-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending. Their guru, Milton Friedman, was an early advocate of basic income. Outside the academic realm, the biggest champion of UBI is the global tech sector. Silicon Valley billionaires such as Elon Musk, the founder of Tesla Motors, and Facebook co-founder Chris Hughes have publicly backed the idea. Invariably, they all present the same conclusion: giving cash to the poor is better than traditional welfare.
The biggest myth about the UBI, partly responsible for sections of the Left endorsing it, is that it is a redistributive policy that would reduce inequality. It is indeed possible to have a redistributive UBI. But it would need to fulfil two conditions:
- It must be funded by taxing the wealthy; and
- The existing entitlements to the poor must not be taken away.
Such a UBI would actually be a socialist measure that would increase the bargaining power of the working classes by giving them an income cushion. But neither of these conditions is met by any of the UBI designs being promoted today, either globally or in India. The much-touted Finnish experiment is restricted to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit.
In India, too, the UBI is not an add-on. On the contrary, it is about giving in a different form (cash), and under one umbrella, what is already being given (in-kind and cash benefits) via different channels.
Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies. The same old arguments for replacing the PDS with cash transfers are now being trotted out in favour of the UBI. The addition of the word ‘universal’ signals greater ambition but alters neither the substance nor the motive.
Economic Survey perspective
Why Universalize?
- The first striking fact is the sheer number of schemes and programs run by the government. The Budget for 2016-17 indicates that there are about 950 central sector and centrally sponsored sub-schemes in India accounting for about 5 percent of the GDP by budget allocation.
- Misallocation: captures the fact that the poorest areas of the country often obtain a lower share of government resources when compared to their richer counterparts.
UBI for a number of reasons
- Social Justice: UBI is, first and foremost, a test of a just and non-exploitative society. From Tom Paine to John Rawls, nearly every theory of justice has argued that a society that fails to guarantee a decent minimum income to all citizens will fail the test of justice.
- Poverty and vulnerability reduction: Poverty and vulnerability will be reduced in one fell swoop.
- Agency: The poor in India have been treated as objects of government policy. UBI liberates citizens from paternalistic and clientelistic relationships with the state.
- Choice: A UBI treats beneficiaries as agents and entrusts citizens with the responsibility of using welfare spending as they see best; this may not be the case with in-kind transfers.
- Better targeting of poor as all individuals are targeted, exclusion error (poor being left out) is zero though inclusion error (rich gaining access to the scheme) is 60 percent.
- Insurance against shocks This income floor will provide a safety net against health, income and other shocks.
- Improvement in financial inclusion Payment – transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BC) and an endogenous improvement in financial inclusion. Credit – increased income will release the constraints on access to credit for those with low income levels.
- Psychological benefits A guaranteed income will reduce the pressures of finding a basic living on a daily basis.
- Employment: UBI is an acknowledgement that society’s obligation to guarantee a minimum living standard is even more urgent in an era of uncertain employment generation.
- Administrative Efficiency: In India in particular, the case for UBI has been enhanced because of the weakness of existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor. When the trinity of Jan-Dhan, Aadhaar and Mobile (popularly referred to as JAM) is fully adopted the time would be ripe for a mode of delivery that is administratively more efficient.
Case against UBI
- Conspicuous spending Households, especially male members, may spend this additional income on wasteful activities.
- Moral hazard (reduction in labour supply) A minimum guaranteed income might make people lazy and opt out of the labour market.
- Gender disparity induced by cash Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfers.
- Implementation Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
- Fiscal cost given political economy of exit Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
- Political economy of universality – ideas for self-exclusion Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
- Exposure to market risks (cash vs. food) Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer’s purchasing power may severely be curtailed by market fluctuations.
In the final analysis, we need to answer a simple question: is the UBI about reducing inequality and poverty? If the answer is yes, then there are many things the state could do at a fraction of what the UBI would cost. But if a dispensation hostile to these tried and tested anti-poverty measures develops a sudden zeal to eliminate poverty through UBI, a measure of scepticism is in order.
