The New Case for Universal Basic Income

Could a state-awarded stipend play an instrumental role in the endurance and recovery from the pandemic?

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The initiative for Universal Basic Income adds new supporters by the day. And its long-time advocates claim that, in the context of the pandemic, it’s no longer only needed to deliver social justice, but has become instrumental to avoid a societal collapse.

By Demian Bio *

What is the Universal Basic Income

In a matter of months, the concept of Universal Basic Income -(UBI), a state-awarded monthly stipend for all citizens of age- went from the fringes of paradigm-shifting economic policies to having a solid place in mainstream public conversation.

In fact, the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) proposed the initiative be implemented by governments. The organization said the policy would guarantee the people’s “basic right to survival.”

The proposal’s ascent in the public debate comes as a result of mainly two factors: the first one is that now former US presidential candidate for the Democratic Party, Andrew Yang, based his run on it.

And the second, and more significant, is the unprecedented economic crisis caused by the novel coronavirus that continues to unfold every day.

When Yang championed the policy on his campaign trail, he assured that UBI -which he called the “Freedom Dividend” was necessary mainly because the labor market was evolving swiftly and automation was set to leave tens of millions of people out of work.

In the next 12 years, Yang said, one out of every three Americans risked losing their jobs to new technologies. And, in contrast with other times, this time new ones would not be created quickly enough to replace those lost. Therefore, he proposed giving $1,000 to all citizens of age every month with no strings attached.

Yang’s candidacy did not prosper, and he dropped out of the race in February after disappointing results in the Iowa and New Hampshire primaries.

But his message resonated with the electorate: it had a higher-than expected level of adhesion and contributed to placing the debate about UBI at the forefront of the American -and therefore global- conversation.

The policy, however, doesn’t lack detractors. Economists around the world claim that it would not only be inefficient, but potentially harmful as well.

Among the main criticisms stand out the intention of giving money to everyone, even high-earners and able-bodied working age-adults; and its high cost -between 20 and 30% of GDP in most countries, according a report by the International Labour Office. This latter document concludes that the funds could be “better spent on reforming social protection services and building more and better-quality public services.”

 

The novel Coronavirus crisis raises the concern for UBI

Two months later, the pandemic hit with full force at a global level. And its devastating effects on the economy -with tens of millions being plunged into poverty and the already growing levels of inequality skyrocketing- led its advocates to describe it no longer as a policy that would deliver social justice, but one that is instrumental to avoid a societal collapse.

Leading this effort is Guy Standing. A researcher, writer and professor at the University of London’s School of Oriental and African Studies (SOAS), he has been a pioneer for UBI and led pilot programs throughout the world to back the policy’s feasibility. Standing says that a crisis of this nature had already been brewing for years.

Standing argues the crisis is a combination of three factors: the technological revolution, rampant globalization, and what he calls rentier capitalism: “a system where a growing percentage of income is going to the owners of property.

Physical, financial, intellectual. The United States and China have been extracting rental income from other parts of the world. And the share of income going to people relying on labor has been going down,” he says.

This model, Standing claims, was made possible by what he calls “eight modern giants”: Automation, Inequality, Insecurity, Debt, Stress, Precarity, Neo-Fascist populism and (Climate) Extinction. He says the pandemic could be considered “the ninth giant,” or a trigger that has accelerated and exacerbated the decline of a fragile global system.

“If you introduce a pandemic, the whole thing collapses. And unless we have measures to strengthen the weaker groups of society, the precariat, the pandemic and the economic slump will continue,” Standing says.

 

Where do the funds come from?

There is no unanimous consensus regarding the best way to fund the policy. Andrew Yang, for example, proposed a 10% Value Added Tax. In Argentina, Raúl Kliksberg, coordinator of the Center of Information About Basic, Dignifying and Unconditional Basic Income, says all funds destined to welfare programs should be integrated a UBI fund.

Standing, on his end, claims its a matter of shifting the tax system in a way to target “wealth, not income”. And says a carbon tax should also be imposed to deal with the climate crisis, but clarified it will only be acceptable if it’s recycled through Universal Basic Income – UBI. “Then, in the longer term, we have to build national capital funds through which we pay the basic income as the funds increase”, he says.

However, regardless of the best way to do it, all of its advocates agree that it is easily affordable.

 

Worldwide legislation around the Universal Basic Income

In order to mitigate the economic crisis, several countries have enacted emergency packages that represent unprecedented portions of their GDP. And some of them include measures that are in the UBI’s ballpark.

The larger countries that perhaps got closest are the United States and Spain, the former because of the percentage of the population it reaches; the latter because of its duration in time.

The American Congress passed a law that included sending a check for $1.200 to taxpayers of age whose salaries were under $75,000 a year. Parents also got an additional $500 for each child.

The size of the checks diminished gradually for those whose income was above the mentioned sum, while individuals earning more than $99,000 and couples earning more than $198,000 were not entitled to any checks.

However, this was -so far- a one time measure. And Standing explains that a key component of the UBI is the positive effect it has on different timeframes, being previsibility a significant one in the medium-and long term future.

This is precisely the goal of the Spanish government, which will enact on May 29 a law that will grant a monthly stipend -which will range from 462 euros to 1.015 per month- to households that meet the set criteria.

The scheme is set to reach 850.000 families, made up of roughly 2,3 million people, with an estimated cost of 3 billion euros.

Standing described the effects the initiative will cause throughout the different time frames: the short-term effect, he said, is a “rescue one.” The way in which the “rescue” manifests itself, however, may vary depending on the country’s overall wealth.

“In poorer countries like India or African countries you see an immediate improvement in child nutrition, schooling and women’s status. In richer countries you see less stress, debt, and more productive work. A shift towards care work. But the positive effects are consistent across countries.”

And, in the context of the pandemic, he said there are two other positive effects that can be added: “It rescues people from starvation. And also helps because they spend money on basic goods and revive the economy.”

In the medium and long term, the effects can be boiled down to one word: resilience. “It will strengthen people’s ability to handle crises.

You will see psychological improvement. We’ve seen that.” And the term he uses for the overarching end goal is “revival”: “People will spend more time caring for loved ones, do more voluntary, community and ecological work. We will lead a different lifestyle.”

The last illustrating study, which also happens to be the first one conducted at a national scale, took place in Finland between 2017 and 2018 and its preliminary results were published on May 6, 2020.

The Ministry of Social Affairs and Health’s main conclusion was that “recipients had a perception of better mental and economic well-being.”

Survey respondents, the study added, “described their well-being more positively than respondents in the control group.”

“They were more satisfied with their lives and experienced less mental strain, depression, sadness and loneliness. They also had a more positive perception of their cognitive abilities, i.e. memory, learning and ability to concentrate,” describes a paragraph of the publication.

The document explained that recipients also “trusted other people and the institutions in society to a larger extent and were more confident in their own future and their ability to influence things than the control group.”

Regarding the possibility that recipients felt drawn to reducing or stopping their work -given that it might not be instrumental to guaranteeing their livelihood- the study said that had not been the case.

In fact, “the basic income seems to have increased activity of different kinds among those who were active already earlier.”

Helena Blomberg-Kroll, professor at the University of Helsinki, said that was also the case because, for those who were in a challenging life situation before the experiment, “the basic income does not seem to have solved their problems.”

Standing says that these conclusions, which are in line with the studies in which he was involved, illustrate why the largest obstacle to enact a UBI is political.

He claims the program is easily affordable, and could be implemented were it not for the grip of the “plutocracy” -large economic actors- in politics, and the consequent reluctance to modify a tax system in a way that makes the funds available.

He recalled that after the 2008 financial crash f“central banks and governments poured billions toward bankers and financiers”. “They had the money and spent it. Don’t tell me we can’t. We can.”

As mentioned, Standing said that the most relevant components of the tax system that should focus on “wealth, not income.” “And we should also have carbon taxes that help us deal with the ecological threat. However, it will only be acceptable for people if the money they pay is recycled through a UBI. Then, in the longer term, we have to build national capital funds through which we pay the basic income as the funds increase”, he explained.

 

Immigration and Universal Basic Income

As for the legal standpoint, perhaps the greatest challenge involves immigration. That is, the possibility that active members of society are potentially left out despite being among the demographics that would benefit the most from it. And that at the same time, a potential surge of immigration caused by the enactment of the policy could lead to a xenophobic wave.

Standing says that “for practical reasons”, basic income should be paid only to legal residents of the country, with a waiting period for all migrants if they are legal. However, he said, this does not mean no help should be given to migrants in need. “It should be subject to a separate social policy,” he explained.

Consulted about the possibility that an injection of money could contribute to spiraling inflation, Standing rejected the potential outcome, explaining that in fact it has helped to lower prices: “If you give money to poorer people, they spend that money on food, services, improving their homes, clothing, paying for children’s needs. Those are what we call an elastic supply. if you increase demand, the people making it increase production. then the unit cost of production goes down,” he said.

To back his claim, he made reference to a pilot in India where, “at the end of the two-year period, the prices of foods were lower, but profits by producers were higher because they were selling more.” Besides, he said, “you’re taking away from the very wealthy”. “In a sense, you’re not increasing total money, but shifting it. It’s not inflation but shifting expenditure.”

Standing said he believes the countries with the best changes of taking the lead and implement a comprehensive policy are “Canada, Denmark, Scotland” — in this last case, as mentioned, with the backing of Nicola Sturgeon.

But highlighter that the first one to take actual steps about it was the African nation of Malawi, between 2006 and 2007. By the end of the pilot, school attendance among girls and women increased by 40%.

 

Universal Basic income in Latin America

In Latin America, Maricá, a coastal town in the state of Río de Janeiro, stands out. It’s program reaches 42,000 residents, about a quarter of its population. And in Argentina, Raúl Kliksberg, coordinator of the Center of Information About Basic, Dignifying and Unconditional Basic Income, said the country has the ability to implement it in an “integral and permanent” manner.

“We propose all money destined to welfare programs be integrated to the UBI fund. It would be implemented gradually and not create inflation because it would increase production”, Kliksberg said. And cited the CEPAL’s statement to back his claim.

Standing concluded the future of UBI can be condensed into a single thought: “For me it’s a big transition question, and we are in a moment where we can move in that direction. If we do not, the collapse will be much greater and the cost will be great too.”

 

* The author is a journalist based in Buenos Aires. His Twitter account.


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