General

Universal Basic Income

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This Blog is written by Harsh Sonbhadra from Vivekananda Institute of Professional Studies (VIPS), Delhi. Edited by Harshita Yadav.

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INTRODUCTION

On its face, the definition of a truly Universal Basic Income (UBI) is pretty straightforward. It’s an amount of cash given to everyone within a geographic area that’s then distributed unconditionally regularly, and on a long-term basis, as Marinescu [1] describes it.

A Universal Basic Income can be defined as a government guarantee that every citizen receives a decided minimum income. Some other terms which are used to portray UBI are citizen’s income, guaranteed minimum income, or basic income. The purpose behind paying such income is to provide sufficient capital to cover the basic cost of living, and therefore, to provide financial security. The concept has regained popularity as a way to offset job losses caused by technology.

UBI is defined as income paid to every member of the society without means and works testing [2]. Two primary characteristics of UBI flow from this definition. First, as its name suggests UBI is universal in nature — it is paid on an individual basis to every person. Second, it is unconditional in nature that is, as indicated by the latter part of the definition it is paid to an individual regardless of her income (‘means’ test) and employment requirement (‘work’ test).
In this sense, it differs from the traditional notion of income which is either gained from offering one’s labour in the production of valuable goods and services or from other ancillary sources such as, inheritance. The twin core features of universality and unconditionality are essential to the conceptualization of UBI in this manner; however, they do not preclude suitable modifications in its application. Consequently, it is to be noted that the obligation to provide such a basic income to its citizenry falls upon the modern welfare State.

Poverty around the world and particularly in India is a social menace and policymakers have for long battled with understanding poverty, theorising it and suggesting solutions for its alleviation. For a legal theorist or a constitutional court, poverty presents a package of rights violations. Abject poverty has been time and again termed as a violation of constitutional rights of a citizen by the Supreme Court of India, and more importantly, a violation of the human right to live a life of dignity. It must be noted, however, that income deprivation is only a facet of poverty, as understood in a multidimensional sense. Yet income deprivation is central to any conception of the cause and effects of poverty, and hence, it must be tackled head-on.

The Economic Survey of 2016-17 of the Government of India included a chapter dedicated to the “radical idea” of UBI. The Survey identifies UBI as part of the solution to the problem of poverty and inequality witnessed in the Indian society. This development has given strength to the growing expectation that the Government of India will embark upon a scheme of UBI as a part of its social security measures directed towards poverty eradication.

In this backdrop, it becomes necessary to work out an appropriate legal framework for grounding a right to basic income for the citizens of India. This demands identification of basic principles of constitutional, moral and social values which shall render support to the notion of basic income.

WHAT’S THE HISTORY BEHIND IT?

To understand the growing chatter about UBI today, Burns [3] notes that it’s useful to track its passage through ideologies over time, particularly in the context of the U.S.

During the Great Depression, Milton Friedman, an economist with a reputation for being a radical libertarian, in Burns’ telling, started thinking about how to implement what he was calling a guaranteed minimum income, which was primarily focused on providing enough money for nutritional needs. At the time, Burns notes, Friedman was not well-known, and the idea gained little traction.

He later proposed a negative income tax, a system in which individuals earning below a particular threshold receive funds from the government, rather than paying taxes. The concept of negative income tax helped lay some of the groundwork for conceptualizing UBI.

Aspects of Friedman’s ideas caught on more in the 1960s: In 1969, President Richard Nixon presented the “Family Assistance Plan,” a poverty alleviation program that would have given working and, notably, nonworking poor families a form of negative income tax. Unlike other programs comprising the social safety net, providing cash to nonworking families would have marked a major step towards implementing a program like UBI, since a common means test (employment) wouldn’t have impacted one’s ability to get aid.

Ultimately, the plan was killed by the Senate, Burns notes. With Nixon’s plan scrapped, Marinescu adds that conversations around UBI largely stalled until much more recent talks, starting with a (since rejected) proposal to implement a guaranteed basic income in Switzerland in 2016. Marinescu views this as the impetus for many of the conversations we’re having now.

FEATURES OF UNIVERSAL BASIC INCOME

1) Universal Scheme: It means that UBI is not targeted, so all citizens of the country will receive the payment of cash without any discrimination.

2) Periodic: Money will be distributed to the beneficiaries at a fixed interval i.e. monthly/yearly.

3) Cash Payment: The beneficiaries will get the cash directly into their account. So they won’t get anything in kind of cash i.e. vouchers for goods or services.

4) Unconditional Scheme: It signifies that one need not prove their joblessness status or socio-economic identity to be qualified for UBI. In this way, social or economic positions of the beneficiary/individual aren’t mulled over.

5) Individual Beneficiary: In this plan, each citizen (or adult citizen) is considered as the beneficiary instead of each family unit.

THE PURPOSE OF UNIVERSAL BASIC INCOME

In 1967, Martin Luther King Jr. said a guaranteed income would abolish poverty. That implies decreasing income inequality too [4].

Economist Milton Friedman proposed a negative income tax. The poverty-stricken would obtain a tax credit if their income fell below a lowest level. It would be equivalent to the tax payment for the families earning above the minimum level.

In 2018, Facebook co-founder Chris Hughes outlined his plan in his book “Fair Shot.” He argued that U.S. workers, students, and caregivers making $50,000 or less a year should receive a guaranteed income of $500 a month.

Hughes’ guaranteed income plan is financed by taxes on the top 1%. It would work through a modernization of the earned income tax credit.

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.

Sir Richard Branson said a guaranteed income is inevitable.6 Automation has fundamentally changed the structure of the U.S. economy. Elon Musk said robotics will take away most people’s jobs, so a universal income is the only solution.

ADVANTAGES

A universal basic income would allow workers to hold back for a superior profession or discuss better wages. They could improve their marketability by going back to school. They may leave their job to help a relative [5].

It would expel the issue with existing welfare programs that keep individuals “caught in destitution.” If welfare recipients make excessively, they lose food stamps, free medical care, and lodging vouchers. This is a type of structural inequality that keeps the poor from getting enough wealth to improve their lives.

Ongoing welfare programs are likewise perplexing for administrators and recipients. A universal income would replace housing vouchers, food stamps, and other programs.

The modesty of the program implies that it would likewise cost governments less. Cash payments that are delivered to all would remove expensive income-verification paperwork. Only applicants with low incomes qualify for means-tested programs.

Some countries are concerned about falling birth rates. An assured income would provide young couples the morale they require to start a family. It would likewise give workers the courage to bid up wages. From a macro viewpoint, it would give society much-needed ballast during a recession.

DISADVANTAGES

If every citizen suddenly received a basic income, it would constitute inflation. People would at once exhaust the extra cash, driving up demand. Retailers would order more, and manufacturers would try to produce more. However, if they fail to increase supply, they may increment prices.

Increased expenses would shortly make the essentials unreasonably expensive to those at the base of the income pyramid. Over the long haul, an ensured income wouldn’t raise their standard of living.

In 2012, there were 179 million working-age adults [6]. It will cost $2.14 trillion to pay every one of them $11,945 (the poverty level) every year. However, it will restore current welfare programs that cost $1 trillion each year. Hence, it would add $1.2 trillion to the deficit, or 7.5% of the total economic output that year.

To save money, some programs would not pay as much. But research shows that payments of a few hundred dollars aren’t enough to make a real difference in the lives of the poverty-stricken.

Oren Cass, a Senior Fellow at the Manhattan Institute, says it would make work seem optional [7]. Many recipients might prefer to live on the free income rather than get a job. They wouldn’t obtain work ability or a good resume. It could prevent them from ever getting a good job in a competitive environment. It could reduce an already-falling labour force participation rate.

Lastly, such a plan would be difficult to get passed in the United States. More than half of the Americans deny universal basic income [8]. Many would only support it if tech companies paid for it. Even raising the U.S. minimum wage has been difficult, even though 67% of Americans are in favour of it.

WHERE HAS IT BEEN IMPLEMENTED?

Around the world, trials and pilot programs have tested some of the basics behind UBI, with many of these experiments taking place in recent years. Most don’t fully meet the requirement for a pure UBI: In lots of cases, cash payments have been exclusively given to those within a certain demographic in a geographic area, such as those already receiving particular social welfare benefits.

That includes tests in Finland, where 2,000 jobless individuals received €560 per month; Ontario, Canada, where 4,000 low-income participants received an annual stipend ($16,989 in Canadian dollars for individuals; $24,027 in Canadian dollars for couples); and Stockton, California, where 125 residents living at or below the median income line are being given $500 per month. (The Economic Security Project provided $1 million to that program.)

There are a couple of places where a form of UBI has been implemented without a means test, though. As noted in Zuckerberg’s Facebook post, since 1982, the state of Alaska has provided all its residents with a yearly check (typically around $1,000 or $2,000, Marinescu notes) financed with investments of mineral royalties. And in 2011, Iran launched a nationwide cash transfer program in which the government provided monthly payments to each family in response to cuts to certain subsidies, including gas and bread that individuals were previously receiving.

In Kenya, the charity GiveDirectly started providing payments to a random selection of 20,000 individuals across rural villages in 2016. There was no means test to receive the money, but the villages’ were generally poor. With some recipients getting the monthly payment for 12 years, it marks one of the longer UBI experiments.

Furthermore, UBI has likewise been tested in some capacity in:

1) The Netherlands, where 250 citizens on government benefits received a “guaranteed basic income,” with different methods for distribution to test what worked best.

2) Namibia, where all residents living in the Otjivero-Omitara region under 60 years of age received 100 Namibian dollars per month from 2008 to 2009.

3) Germany, where a non-profit created an online fund that allowed anyone, anywhere in the world, to enter a basic income raffle, in which you receive €1,000 per month for one year. By the end of 2019, 500 basic incomes were awarded.

4) India, where 6,000 adults and children across nine villages in the central state of Madhya Pradesh received a basic income between 2011 and 2012.

More could soon join the list. In light of the coronavirus pandemic, the Spanish government says it’s looking to implement some form of basic income “soon,” according to social security minister José Luis Escrivá.

POSITION OF UBI IN INDIA

With the next General Elections only months away, political parties in India are scrambling for innovative and attractive schemes to woo voters. The list of promises goes like this — direct cash transfers, loan waivers, direct per-acre subsidy for farmers, minimum guaranteed income, universal basic income. The flavour of the season seems to be the idea of Universal Basic Income (UBI). The UBI idea has taken a huge traction in recent months, especially after the Telangana government reaped the electoral dividend in the recent Assembly polls. Many analysts link the Telangana Rashtra Samithi (TRS) party’s landslide victory to the successful implementation of popular Rythu Bandhu scheme that offered income support to farmers. The electoral success of the TRS is now pushing many other States to come out with their versions of the UBI. Recently, the Odisha government unveiled ‘KALIA’, a version of the UBI that assures guaranteed income support to farmers.

At the national level, a major push for the UBI has come from the opposition Congress Party. To soar up the party’s fortunes among the rural population, especially farmers and daily wage labourers, Congress president Rahul Gandhi promised the idea of minimum income guarantee to the poor. The National Democratic Alliance government under the leadership of Prime Minister Narendra Modi seems to be getting ready with its electoral ammunition. Speculation is rife that the North Block may come up with some form of UBI as a pre-election bonanza for farmers and informal sector workers.

Navigating the Maze called UBI

For quite some time now, the idea of UBI has taken the world by storm. The bigwigs of Silicon Valley and Europe’s social democrats are in the forefront of its advocacy. For instance, venture capitalist Marc Andreessen, web guru Tim O’Reilly and several other bigwigs of Silicon Valley are now supporting something called “social vaccine of the 21st century.” Influential incubator Y Combinator is running its own basic income experiment with a pilot study of 100 families in Oakland, California, to see how it goes. UBI is among few welfare programmes which is gaining support across political spectrum — from socialists to libertarians.

In fact, some countries in the Western Europe and Northern America are currently piloting with the UBI concept. For instance, Finland and Netherlands have begun to cover unemployed individuals with a monthly transfer. Recently, the Canada government said it would experiment with the concept in certain regions facing economic shocks.

Fed up with the effectiveness of traditional anti-poverty programmes, wasteful subsidies and gross incompetency of welfare bureaucracies, many prominent economists are now advocating for a universal basic income to address frequent income shocks, job losses and other such periodic challenges that can overwhelm individuals who are without social security. For them, UBI is a citizen’s unconditional and universal right to have basic income to meet his/her needs. They further claim that poverty and vulnerability of the poor, such as farmers and informal and low skilled workers, can be addressed very effectively by transferring a guaranteed minimum income.

The proponents of the scheme argue that unlike the in-kind transfers which treat them as ‘objects’, unconditional cash transfer would make them as ‘agents’ as it would entrust them with responsibility to spend their money more effectively. This is one way of passing the onus to individuals than the state and its bureaucracy controlling these development processes which often produce bizarre outcomes. Further, a basic and guaranteed income that covers everyone (thereby eliminating the exclusion error commonly found in welfare programmes) can act as a safety net against sudden job losses, income shocks and health issues that can impact an unsecured citizen.

UBI in India’s policy space

The idea of UBI is gaining rapid traction among economists from the global south. The idea seems to be gaining traction in India too for quite some time, especially as the country is ready with Jan Dhan, Aadhaar and mobile system or JAM trinity for direct benefit transfers and income transfer trials. The UBI concept found a prominent place in the Union Finance Ministry’s 2016-17 Economic Survey, that made a strong pitch for transferring benefits directly in to Aadhaar-linked accounts of specific individuals. The key author of the idea was the then Chief Economic Advisor Arvind Subramanian.

Recently, Subramanian and his colleagues have come out with a proposal called quasi-universal basic rural income or QUBRI for farmers. They have proposed that it is feasible to transfer Rs. 18,000 every year to each rural household, with the exception of those which are “demonstrably well-off”, at an expected expense of Rs. 2.64 lakh crore to tackle the agrarian distress among others. According to them, the fiscal burden under the scheme should be shared between the Centre and State governments in equal measure. With this proposal coming days ahead of the interim budget, the idea seems to have opened the political space in India.

Yet, not everyone is sure how the scheme would turn out. Subramanian himself has accepted that there is no evidence yet to show how it would work, particularly whether the scheme would kill the incentive to work. However, he is emphatic that if implanted effectively, a quasi-universal basic income scheme would be a far more effective tool to tackle the agrarian distress than the minimum support price (MSP) and loan waivers [9].

The bigger question, however, is the fiscal capacity to implement such gargantuan scheme. Going by the estimation of Subramanian and his colleagues, India would require Rs. 2.64 lakh crores (at 2019-20 price) or 1.3% of the GDP to cover 75% of the rural population. With India already crossing the red lines of fiscal deficit, where the money would come from for such a scheme is a big question.

However, it may be still feasible to have the scheme by merging some of the existing welfare schemes. Yet, roll back of the existing welfare schemes for the UBI is not that easy. The best proof is the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Prime Minister Narendra Modi who once dubbed the job scheme as “living monument of UPA’s failures” not only could not scrap the mega scheme, but instead his government last year had to allocate more money for its continuation. In short, once implemented, competitive politics will ensure the continuation of schemes like UBI, notwithstanding their effectiveness. What is more worrisome is, to improve their electoral fortunes over their rivals, political leaderships of all parties will do everything to push the amount of UBI further at the risk of fiscal imbalance.

Further, UBI has potentials to create labour market distortions. Such guaranteed income without any regular work would affect labour mobility as seen in the case of MGNREGA, which in many ways can push the wages impacting farm sector and even factory works.

Finally, given these transfers are unconditional; it is extremely difficult to ensure that the additional income will be spent by the recipients on health, education and other human development needs. As the experience from other cash transfer programmes shows, additional income may be spent on tobacco, alcohol and other such conspicuous consumptions.

CONCLUSION

A right to basic income is integral to achieving real freedom and actualisation of rights of an individual. Within the conception of substantive dignity wherein the State is obligated to ensure a dignified life for all its citizens, a right to basic income is also located. It is so owing to the necessity of real freedom and actualisation of rights in leading a dignified and flourishing life. Under this framework, a right to basic income is consistent and defendable and also has the potential to be eventually constitutionalised. It is also relevant to Indian constitutional and legal jurisprudence which while dealing with a plethora of matters connected to social welfare has always recognised the Indian state as a primary caretaker of its citizens under the scheme of the Constitution and the ideals of dignity and social justice enshrined in it.

Right to basic income has immense potential especially in the matter of improving the standard of living of people in order to actualise the right to adequate standard of living recognised in various international instruments and elsewhere. It also holds true potential in achieving autonomy and agency rights of women and acting as a means for compensating the unpaid care labour within households. Under the human rights approach to poverty which views poverty as deprivation of individual rights and freedoms, a right to basic income could prove game-changing in improving the lives of the poverty-stricken. It can also help overcome some of the deleterious impact income deprivation has on the psyche of individuals and can contribute towards better mental health and decision making.

To sum up, while the jury is yet to be out globally on the UBI, it has many takers in India. The country’s persistent agrarian crisis and the falling rural income is pushing many to jump with this new idea. While a prominent section of intelligentsia, including former chief economic advisor Arvind Subramanian is making a strong pitch for it, one might see some avatar of the UBI finding its space in the Centre’s upcoming interim budget. Yet, with little knowledge about its effectiveness (even Silicon Valley pilots are not yet out!), the government and policy makers need to take a cautious approach on this new idea. This is because, once implemented, a scheme of this nature would be impossible to roll back.