In developing countries, the social safety net is usually even patchier than in the US. For a long time, the policy preoccupation in these countries has been with poverty
reduction, and most developing countries have made considerable progress in this respect (now the pandemic-related economic crisis has pushed back that progress somewhat). But large fractions of the population, who may be technically above the poverty
line (which in poor countries is usually a line of extreme destitution), suffer from all kinds of brutal risks in their daily life and livelihood, due to weather fluctuations for agriculture (now likely to be increasing in severity with climate change), job losses, illness episodes (for family members or for animals used in production) or pest infestation. A floor basic income is part insurance against such risks, without the administrative costs of checking for the usual problems of moral hazard and adverse selection that commercial insurance projects involve. In trying to expand the domain of UBI much beyond the poor, I am more concerned about these highly insecure sections of the population and less bothered about the inclusion error that people with the targeted anti-poverty
approach worry about.
When I am asked to justify why UBI should be given even to the plutocrats, my answer is that the plutocrat is entitled to it as part of their citizen rights. Just as we recognise the right of plutocrats for police protection against crime—a matter of physical security– as a basic right, even though they can very much afford their own private protection services, we should not deny them the right to minimum economic security in the form of a basic income. (If they decide to waive it, or if some asset threshold—car ownership, a threshold in income tax return, etc.– can be transparently implemented to exclude them, I’ll not object on pragmatic or political expediency, rather than normative, grounds. Also, some of the UBI paid to them will come back to the Government in the form of taxes.) This also means I am looking at UBI primarily as a means of relieving economic insecurity, not economic inequality. (Although, as I am later going to suggest a UBI in poor countries largely funded by reducing currently regressive subsidies and taxing the rich, its introduction will have some egalitarian consequences. Just as the Social Security program in the US is a universal program to relieve economic insecurity for the old, the way it is funded and implemented makes its net impact progressive.)
Looking at UBI from the economic security point of view has also important implications for the labour market. In India, as in some Latin American and European countries, there exist some protective labour laws which make labour lay-off in large factories difficult even when market conditions warrant a drop in labour demand. Many business leaders and pro-business economists say this makes employers think twice before hiring, and thus ultimately hurts employment of workers. Most trade unions are avid supporters of such labour laws for ensuring job security for workers, particularly in developing countries where unemployment benefits are non-existent or highly inadequate. This has been a source of political tension between capital and labour. UBI can relieve some of that tension, by disentangling the issue of security of a particular job from that of ensuring general economic security for workers. If everybody is entitled to a decent UBI, then losing a particular job is less traumatic for the worker.
Special Factors Reinforcing the justification of UBI in developing countries
Apart from minimum economic security being the main rationale for UBI in developing countries, there are some special factors which reinforce the rationale for these countries.
In some developing countries (particularly in south and west Asia and north Africa) the majority of women do not participate in the income-earning labour force (in India, the proportion of such adult women is as high as three-quarters), as they are mostly in unpaid domestic and care-giving work. A UBI deposited in their account every month can go a long way in boosting their existing low autonomy and status within the family and activating their agency.
In developing countries some occupations are often stigmatised (manual scavenging, garbage collecting, sewage cleaning, sex work, etc). People usually work in these occupations because they have no other alternatives. UBI can provide them an escape ladder, so that they have more choice in the labour market (and induce society to mechanise some unwanted cleaning jobs). Even beyond socially stigmatized work, UBI can be a great relief for the stark livelihood uncertainties faced daily by the vast numbers of the self-employed and the marginalized casual and migrant workers, and will help them in seeking better jobs and more profitable investment. It will also enhance their bargaining power against the traders, employers, creditors and landlords they encounter.
UBI can play a role in mitigating the incidence of clientelism in poor countries. The politics of redistribution is often centered around group-specific or individual-specific patronage—like job reservation, ‘jobs for the boys’ (what the Italians call lottizzazione), and disbursement of subsidised private goods (food, fuel, credit, etc.). This distorts the nature of democracy and diverts policy emphasis away from public goods which can improve productivity. In this context a universal policy like UBI can have a special social-transformative appeal, particularly if normatively one thinks of it as part of minimum citizenship rights, replacing clientelistic favours dispensed by politicians.
Unlike in rich countries, a large fraction of workers in poor countries, sometimes a majority of them, work in the informal sector. One reason the labour movement is weak in those countries, and thus their bargaining power is low, is because the movement is fragmented by this formal-informal division. Trade unions give leadership to workers in the formal sector and agitate or lobby for wage demands and labour laws that largely protect only the formal sector workers. The informal workers do not enjoy the pensions and benefits of formal workers, and so they’d benefit a great deal from UBI. To unite the labour movement one needs platforms which will benefit both types of workers. A collective demand for UBI, as with other universal benefits like health care, can serve as a bridge between the two types of workers and strengthen the labour movement.
Arguments against UBI
The idea of UBI often faces four general kinds of opposition:
From many common people, particularly those with strong work ethics, as well as some paternalistic leaders that UBI will encourage laziness, an attitude of taking from society but giving nothing in return, and a possible inclination of some recipients to blow it up all in drugs and alcohol;
From fiscal bureaucrats and conservative economists, as it may break the budget;
From social activists who regard this as a ploy to undermine existing welfare programmes, particularly when they are working reasonably well;
From many that any extra money should better be spent on education, health and infrastructure which are seriously deficient in poor countries.
Let us discuss these four issues one by one.
1. To start with, the incentive to indolence argument may be used against any income improvement for the poor. In recent years there have been quite a few experimental studies on the effects of cash transfers to people in developing countries (the largest and the longest-lasting one has been the on-going study in 40 villages in Kenya by the Give Directly Program). There is no systematic evidence that cash transfers discourage work or encourage use of drugs or alcohol. In addition, my view on the possible work disincentive effect is that if anything, the poor are often overworked in back-breaking oppressive work, and it will be better if they, particularly women, can work a little less. As for taking from society, not giving back, it has been suggested that even though UBI is technically unconditional, one may try to develop a social norm of every recipient expected to give something back to society to the best of their ability (say in terms of some social service).
2. The financial viability of a UBI is surely a major, and sometimes a decisive issue. Much, of course, depends on how generous the amount of UBI envisaged is. In rich countries most decent sums proposed for UBI have been thought to be unaffordable in view of what the taxpayers are prepared to bear. It is our intention to show here that for poor countries a decent UBI, by the standards of those countries, may not be out of bounds of fiscal feasibility.
In 2017 a Report of the International Monetary Fund
estimated the gross fiscal cost of a UBI (as percentage of GDP) for 6 countries calibrated at a quarter of the median income per capita of each country. In general, the percentage was higher for the US (6.4 per cent), Poland (4.9 per cent) and Brazil (4.6 per cent), than for Mexico (3.7 per cent), Egypt (3.5 per cent) or South Africa (2.3 per cent). But this study did not go into the question of how the UBI will be financed and how the form of financing may affect the fiscal cost itself.
(To be concluded Thursday)
The article was first published on 3 Quarks Daily. The writer is professor of Graduate School at University of California, Berkeley