IMF & UBIs: Ending poverty in the Americas newest Petrostate, Buxton Proposal Part 2

Today’s column engages the IMF’s recent publication on Universal Basic Income, UBI schemes as a direct complement to last week’s, which engaged the World Bank study on the same topic. As indicated, these two columns provide a preface/preview, and summary introduction to my proposed re-visit of the Buxton Proposal, a UBI mechanism, which I have advocated for recently oilrich Guyana, as the most effective path for eradicating persistent poverty.

Previously these two leading international finance and development policy-based institutions have been, overall, reserved, cautious and tentative in addressing UBIs as legitimate social protection mechanisms. Recent publications appear to support greater official acknowledgement and perhaps critical support.

The IMF Study

The focus of the IMF study is on responding to the basic query: what Is Universal Basic Income? The study then poses a stark contrast seeking to underline this query. That is, put bluntly as: “proponents hail simplicity and equity; and, skeptics worry about fiscal cost and incentives”.

This terse expression captures the conundrum posed by the concept of UBI. The IMF’s response is, as we saw in the World Bank study last week, starts with the recognition that, as a rule, all governments pay pensions to elderly people, unemployment benefits to those who lose their jobs, or child benefits to families. As a consequence, cash transfers to households are quite common in most countries. This sets up the core issue of the study; what is a universal basic income, and further how is it different from these programmes? The answer is: Universal basic income is an income support mechanism, typically intended to reach all (or a very large portion of the population} with no, or minimal, conditions.

More light than heat

The IMF shrewdly observes that discussions around UBIs can be very heated, even in the extremes of a scholarly environment or public exchanges. There is often little common understanding, with the result that very different income-support programmes are often labeled “universal basic income,” even when they have little in common or do not aim at the same goal. Clearly these exchanges end up generating more heat than light.

Expanding on this observation the IMF posits that many ongoing and prospective experiments with UBIs around the world refer to very different interventions. The examples include cash transfers to a selected group of unemployed people for a short time in Finland, to adults for 12 years in Kenya, and to randomly chosen households in California. This diversity reflects the absence of a unified definition and assessment methodology in both the scholarly literature and policy discourse.

Programmes typically grouped under the UBI umbrella have a mix of key features Does it replace or complement other social protection programmes? Is the recipient an individual or a household? How is the pool of beneficiaries defined? What is the timing of the payment? Are there conditions attached? Depending on how these key features are chosen and combined, scholars have proposed various forms of UBIs.

However, the IMF notes that two common traits characterize as well as differentiate UBI-type programmes from all others. These are, Universality —or very large— coverage of individuals in society.

Unconditionality —or very broadly conditioned provision—as is the case of Atkinson’s “participation income”.

In real time both proponents and opponents of UBI mechanisms have highlighted several aspects, and arguments in their favour, which in effect, mirror those they oppose. Thus, some advocates point out that it does a better job of reaching the poor than means-tested programmes. That is, programmes which, determine individual or family eligibility for government assistance based on an income or asset test. Many factors can keep meanstested programmes from reaching the intended recipients—for example, administrative capacity, high information and administrative costs, poor performance of targeting mechanisms, and social stigma.

In principle therefore, simple UBI programmes could save administrative costs and increase the transparency of transfer systems, making them less subject to administrative discretion and corruption. Advocates also tout its usefulness as a strategic instrument to support structural reforms such as removal of inefficient programs like energy subsidies. UBI programmes can improve efficiency by avoiding sharp withdrawal of benefits as earned income increases, a common problem in many meanstested programmes, which tends to discourage labour market participation.

At the same time, opponents tend to focus on sustainability—high fiscal costs since all households—including middle- and high-income households that do not need income support—receive the benefit. Skeptics worry about efficiency issues—warning against the undermining of work ethics—and opportunity costs—the risk of diverting scarce resources from other priorities such as health, education, and investment.

Assessment of the merits of such programnes must consider country-specific characteristics and societal preferences. It should also be anchored in a thorough understanding of the trade-offs when choosing one type of design over another. The IMF notes that empirical analysis can shed light on the relative redistributive performance of existing social safety nets, a universal basic income, and potential alternatives. Given that both the spending and the tax side of the budget shape distributional outcomes, a comprehensive analysis should evaluate both to ensure progressivity—that is, gradually increasing net burden on more affluent households and larger benefits for more vulnerable households. Such an analysis must also consider fiscal sustainability. Typically, policymakers face trade-offs along key dimensions:

Conclusion

For later discussion I refer here to the IMF observation that scholars disagree on whether a UBI scheme is more appropriate for countries with limited and ill-functioning safety nets or for richer countries that can afford it. While limited administrative capacity favours a shift toward more universal transfer programmes displacement of other priorities [education and health] is problematic. Indeed UBIs in advanced economies are proposed as means for addressing inadequate safety nets and tackling challenges of technological and demographic changes.

Next week I continue with my re-visit of the Buxton Proposal.