Universal Basic Income: Explained

Introduction

Majority of the countries around the globe are struggling through a pandemic right now. Almost every country is experiencing an economic crisis, and the households with a below-average income and low or no savings at all have been hit the worst. It is a very loud and clear expectation from the governments worldwide to support the population financially.

Amongst many other economical schemes and policies which theoretically aim at saving the country from hitting deep recession, the concept of Universal Basic Income (UBI) has been the most deliberated one. The concept of UBI is essentially ‘universal’ and hence it is extremely debatable if whether only the extreme poor should be given basic income under it. Governments in developing countries mostly introduce schemes and policies that target health, nutrition, education etc. by providing ‘resources’ and not ‘liquid cash’. But what if the priorities of people on the receiving end are different? What if the people on the receiving end are ready to adjust their needs on the given income-cum-budget? What about people who are undocumented, like migrants, will they get the benefits of UBI? Would the amount be taxable? Provide as security in a contract?

“We knew well what it is to endure physical hardship, but our poor lost nothing of their self-respect and dignity. Our great men not only divided their last kettle of food with a neighbour but if great grief should come to them, such as the death of child or wife, they would voluntarily give away their few possessions and begin life over again in token of their sorrow. We could not conceive of the extremes of luxury and misery existing thus side by side.”       

Charle A. Eastman “From the Deep Woods to the Civilisation”[i]

UBI is also discouraged widely because authorities and taxpayers of various countries worry that giving away money to the recipients would lead them in spending it on ways, they do not like. For e.g in consumption of liquor, tobacco, betting and gambling. Further dependency on transfers, surplus money favouring the business of moneylenders, the laziness of the working section, etc. are the drawbacks of the same.

Background

Recently in May this year, Investopedia[ii] published an article explaining a very interesting, long and weird history of the concept of Universal Basic Income. This composed of a very detailed, neat analysis of how a man as a ‘social animal’ went on from hunting-gathering to agriculture to industry-ing and eventually a full fledge movement of mass urbanization. Right from the ancient times, humans have tried to give away a share of their income in the means of food, shelter etc. to the ones in need. This documentation is real. But with time, as institutions were responsible to keep composed the social and thereby the financial well being of societies, mankind witnessed their failure. The greed to have more increased. Resulting in a very unbalanced sense of chart in the different sections. As Mahatma Gandhi has said once “There is a sufficiency in the world for man’s need but not for man’s greed”, we observe today the weaker section of the society is struggling to ‘eat’ while the richer are only getting richer. And each one of us should feel responsible to balance this deranged scale.

Recently, the UBI movement has gained a lot of momentum but the concept is very old. Even if it was not stated in theory, people were putting it into thoughts and practices. The first social movement for the ‘Universal basic income’ dates back to the year 1920 in the United Kingdom. Dennis and Mabel Milner, couple and proponent of the abovementioned movement, published a short piece on “Scheme for a State Bonus” (1918) it successfully introduced a scheme of income paid on a weekly basis to all the citizens of the United Kingdom, without any underneath conditions. They emphasized on the fact and considered it a moral right of all to have means for proper ‘subsistence’, and thus, they believed, should be free of the ‘condition to work’.

UBI- Objective and Meaning

According to BIEN, the definition of Basic Income is- It is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement. UBI is essentially a government-guaranteed payment that promises each citizen a specific guaranteed minimum income, or basic income, understood by the government as ‘sufficient to fulfil basic needs’.

The intention behind providing this regular payment is to help cover the basic cost of living and also simultaneously provide financial security. This also works as security to people who lose job amidst crisis like the current pandemic situation. This concept of Universal According to the BIEN, Basic Income has essentially 5 characteristics-

  • It has to be paid at regular intervals hence making it – periodic
  • It has to be paid in a medium which would be spent freely like – cash
  • This allotment of payment should not be household-wise but rather – individual
  • This payment cannot be made to some sections of the society while leaving others, it has to be – universal
  • This payment cannot be in exchange of work, service, willingness to work hence- unconditional

In 1967, the famous personality, Martin Luther King Jr. said a guaranteed income would abolish poverty and that would also mean a reduction in income inequality as well.

“Cash is the best thing you can do to improve health outcomes, education outcomes and lift people out of poverty,”

Facebook founder “Chris Hughes”

According to Hughes, it’s the only solution to an economy where “a small group of people are getting very, very wealthy while everyone else is struggling to make ends meet.” Hughes said automation and globalization have destroyed the employment market. It’s created a lot of part-time, contract, and temporary jobs. But those positions aren’t enough to provide a decent standard of living.

Evaluating the concept of UBI

Universal Basic Income has many Pros and Cons as a topic

Let’s understand them better-

Pros-

If UBI is granted, workers working on daily wages or low income could actually afford to wait for a better job or even better wages. People earlier confused between taking care of children and going to that low paying job would have the freedom to choose rather than being forced. People could also return to school. It is possible that UBI would help in eliminating the poverty gap arisen from traditional welfare programs and schemes. Corruption in the different tiers would also reduce the as straightforward transfer of money would be possible. Young couples living in countries with low birth rates would have more money to start families. These payments could also help stabilize and support the economy during recessionary periods and crisis.

Cons-

Since people would have money in their pockets to spend freelance, a situation of Inflation could be triggered as the demand for goods and services will also increase. Retailers would subsequently order more, and manufacturers would try to increase production. Now people would have money in equal amount so only poor households might show an increased standard of living but this would not exist in the long run because of inflated prices of goods and services. Thereby, the implication that reduced program with smaller payments won’t make any real difference to poverty-ridden families is true. Free income will lead to laziness and people will not take efforts to find get jobs. Work will seem like a ‘backup’ option now. It could prevent youngsters from getting a good job in a competitive environment.

India and the UBI

There is still very little evidence on the impacts of UBI in developing countries as people fear experimenting with such a high influx. India officially introduced UBI in 2016–17 Economic survey. An annual bank transfer of Rs. 7620 (to each citizen except the top 25% of India’s income-earning population)  was put forth as an idea. It was estimated that nationwide poverty would reduce from 22% to 0.5%. Although the idea of UBI is universal and unconditional and therefore excluding a specific section doesn’t fall in its ambit. In India for example, two years in nine villages in the state of Madhya Pradesh transfers were given to every individual, almost 6000 in number. Higher amounts were given to elders while kids received small portions. People analysing this reported improvements in treated villages on a wide range of indicators, including financial inclusion, housing and sanitation, nutrition and diet, health, education, income and assets (Standing, 2013)

Conclusion

Universal Basic Income is a more egalitarian way of properly allocating well and eradicating poverty. But despite reading the positive side above, perhaps the biggest challenge that would hinder positively experiencing the UBI would still its implementation. Further active and timely transfer of money into people’s hands will be challenging. According to the World Bank, almost 80% of Indian adults held a bank account in 2017, and 50% of these accounts remained inactive.

According to the Hindu, India in its report on human rights, the National Human Rights Commission (NHRC) has informed the United Nations Human Rights Council (UNHRC) that the recommended implementation of a universal basic income was “under examination and active consideration” of the Centre.

According to Edward Alden, a senior fellow at the Council on Foreign Relations and not very supportive of UBI also states that its nearly irresistible as a concept because UBI gets money to individuals in need, and out into the wider economy, more quickly than any other economic alternative.

Questions-

  • What is UBI
  • History of UBI in India
  • What is the objective of UBI
  • What are the pros and cons of UBI
  • Why UBI should be preferred only now more than ever?

References-

https://www.thebalance.com/universal-basic-income-4160668

https://finshots.in/archive/universal-basic-income-in-india/

https://economics.mit.edu/files/16000

https://www.investopedia.com/news/history-of-universal-basic-income/

https://www.thehindu.com/news/national/govt-actively-considering-universal-basic-income-nhrc-tells-un/article31805107.ece

https://www.thehindu.com/business/Economy/coronavirus-pandemic-fallout-revives-talk-of-universal-basic-income/article31166728.ece

https://www.thehindu.com/opinion/op-ed/its-time-for-a-universal-basic-income-programme-in-india/article31717471.ece\


[i] Charles A. Eastman. “From the Deep Woods to Civilization.” Page 147. Accessed 14 June 2020. 

[ii] http://www.investopedia.com/news/history-of-universal-basic-income/

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