Could a ba­sic in­come help poor coun­tries?

Financial Mirror (Cyprus) - - FRONT PAGE -

The old idea of re­cast­ing the wel­fare state by in­sti­tut­ing an un­con­di­tional universal ba­sic in­come has lately been cap­tur­ing imag­i­na­tions across the po­lit­i­cal spec­trum. On the left, it is re­garded as a sim­ple and po­ten­tially com­pre­hen­sive an­ti­dote to poverty.

On the right, it is viewed as a means to de­mol­ish com­plex wel­fare bu­reau­cra­cies while recog­nis­ing the need for some so­cial trans­fer obli­ga­tions in a way that doesn’t weaken in­cen­tives sig­nif­i­cantly. It also pro­vides some as­sur­ance for the dreaded fu­ture when ro­bots may re­place work­ers in many sec­tors. But could it ac­tu­ally work?

So far, the ques­tion has been ad­dressed pri­mar­ily in ad­vanced coun­tries – and the fig­ures do not look promis­ing. Though Canada, Fin­land, and the Nether­lands are re­port­edly now con­sid­er­ing the idea of a ba­sic in­come, some prom­i­nent ad­vanced-coun­try econ­o­mists warn that it is bla­tantly un­af­ford­able. In the United States, for ex­am­ple, an an­nual hand­out of $10,000 to ev­ery adult – less than the of­fi­cial poverty thresh­old for a sin­gle per­son – would ex­haust al­most all fed­eral tax rev­enue, un­der the cur­rent sys­tem. Per­haps it was that kind of arith­metic that spurred Swiss vot­ers to re­ject the idea over­whelm­ingly in a ref­er­en­dum ear­lier this month.

But what about low- or mid­dle-in­come coun­tries? In fact, a ba­sic in­come may very well be fis­cally fea­si­ble – not to men­tion so­cially de­sir­able – in places where the poverty thresh­old is low and ex­ist­ing so­cial safety nets are both thread­bare and ex­pen­sive to ad­min­is­ter.

Con­sider In­dia, where about one-fifth of the pop­u­la­tion live be­low the of­fi­cial poverty line, which is it­self very low. While cit­i­zens with so-called “be­low-poverty-line” cards are el­i­gi­ble for gov­ern­ment re­lief, sur­veys show that about half of the poor do not have the card – while about one-third of the non-poor do.

Many other de­vel­op­ing coun­tries face sim­i­lar prob­lems, with ben­e­fits in­tended for the poor ac­cru­ing to bet­ter-off peo­ple, while many of the in­tended re­cip­i­ents miss out, ow­ing to a com­bi­na­tion of po­lit­i­cal and ad­min­is­tra­tive col­lu­sion and gen­uine struc­tural chal­lenges. Means-test­ing can be very dif­fi­cult in an en­vi­ron­ment where jobs are con­cen­trated in the in­for­mal sec­tor, pri­mar­ily in self­em­ploy­ment, with­out any for­mal ac­count-keep­ing or in­come data. Un­der those cir­cum­stances, iden­ti­fy­ing the poor can be costly, cor­rupt, com­pli­cated, and con­tro­ver­sial.

An un­con­di­tional ba­sic in­come could elim­i­nate much of this mess. The ques­tion is whether gov­ern­ments can af­ford it, with­out in­creas­ing the bur­den on tax­pay­ers and un­der­min­ing eco­nomic in­cen­tives.

In In­dia, the an­swer could be yes. If each of In­dia’s 1.25 bil­lion cit­i­zens re­ceived an an­nual ba­sic in­come of 10,000 ru­pees ($149) – about three-quar­ters of the of­fi­cial poverty line – the to­tal pay­out would come to about 10% of GDP. The Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy in Delhi es­ti­mates that ev­ery year the In­dian gov­ern­ment doles out sig­nif­i­cantly more than that in im­plicit or ex­plicit sub­si­dies to bet­ter-off sec­tions of the pop­u­la­tion, not to men­tion tax ex­emp­tions to the cor­po­rate sec­tor. By dis­con­tin­u­ing some or all of these sub­si­dies – which, of course, do not in­clude ex­pen­di­tures in ar­eas like health, ed­u­ca­tion, nu­tri­tion, ru­ral and ur­ban de­vel­op­ment pro­grams, and en­vi­ron­men­tal pro­tec­tion – the gov­ern­ment could se­cure the funds to of­fer ev­ery­one, rich and poor, a rea­son­able ba­sic in­come.

If the gov­ern­ment lacks the po­lit­i­cal courage to elim­i­nate enough sub­si­dies, two op­tions re­main. Ei­ther it could take steps to boost tax rev­enues, such as by im­prov­ing prop­er­ty­tax col­lec­tions (cur­rently ex­tremely low), or it could re­duce the level of any ba­sic in­come it in­tro­duces.

What gov­ern­ments should not do is fund a ba­sic-in­come scheme with the money from other key so­cial-wel­fare pro­grammes. While a ba­sic in­come can re­place some egre­giously dys­func­tional wel­fare spend­ing, it can­not sub­sti­tute for, say, pub­lic ed­u­ca­tion and health care, preschool nu­tri­tion pro­grams, or em­ploy­ment guar­an­tees in pub­lic works. After all, the ba­sic in­come would still be se­verely lim­ited, and there is no way to en­sure that in­di­vid­u­als would al­lo­cate enough of it to achieve so­cially de­sir­able ed­u­ca­tion, health, or nu­tri­tion lev­els.

If these lim­i­ta­tions are taken into ac­count, there is lit­tle rea­son to think that a ba­sic-in­come pro­gramme could not work in de­vel­op­ing coun­tries. In­deed, the most fre­quently heard ar­gu­ments against such schemes are far from con­vinc­ing.

The main draw­back, ac­cord­ing to crit­ics, is that a ba­sic in­come would weaken the mo­ti­va­tion to work, par­tic­u­larly among the poor. Given that the value of work ex­tends be­yond in­come, the logic goes, this could pose a se­ri­ous prob­lem. Euro­pean so­cial democrats, for ex­am­ple, worry that a ba­sic in­come could un­der­mine the worker sol­i­dar­ity that un­der­pins cur­rent so­cial-in­sur­ance pro­grammes.

But, in de­vel­op­ing coun­tries, work­ers in the dom­i­nant in­for­mal sec­tor are al­ready ex­cluded from so­cial-in­sur­ance pro­grammes. And no fea­si­ble ba­sic in­come would be large enough, at least for now, to en­able peo­ple sim­ply to leave work be­hind.

In fact, among the poor­est groups, ba­sic in­comes would en­hance the dig­nity- and sol­i­dar­ity-en­hanc­ing ef­fects of work, by eas­ing some of the pres­sure on peo­ple – par­tic­u­larly women – who are now vastly over­worked. In­stead of con­stantly fear­ing for their liveli­hoods, self-em­ployed peo­ple, such as small-scale pro­duc­ers and ven­dors, could en­gage in more strate­gic de­ci­sion-mak­ing, tak­ing ad­van­tage of their en­hanced bar­gain­ing power against traders, mid­dle­men, cred­i­tors, and land­lords.

The fi­nal ar­gu­ment against ba­sic in­come is that the poor will use the money to fund per­son­ally or so­cially detri­men­tal ac­tiv­i­ties, such as gam­bling and al­co­hol con­sump­tion. But ex­pe­ri­ences with di­rect cash trans­fers in a range of coun­tries, in­clud­ing Ecuador, In­dia, Mex­ico, and Uganda, have not pro­vided much ev­i­dence of such mis­use; in gen­eral, the cash is spent on worth­while goods and ser­vices.

Pro­pos­als for a universal ba­sic in­come, fan­cied by utopian so­cial­ists and lib­er­tar­i­ans, may be pre­ma­ture in the ad­vanced coun­tries. But such schemes should not be dis­missed in the de­vel­op­ing world, where con­di­tions are such that they could of­fer an af­ford­able al­ter­na­tive to ad­min­is­tra­tively un­wieldy and in­ef­fec­tive wel­fare pro­grammes. Ba­sic in­comes are no panacea; but for over­worked de­vel­op­ing-coun­try cit­i­zens liv­ing in ex­treme poverty, they would cer­tainly be a re­lief.

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