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Network News • 30-04-2021

A UBI policy to fight poverty streams

Author: George Mangion
Published on The Malta Business Weekly 30 April 2021

In its most basic form, a universal basic income (UBI) is a guaranteed cash benefit that the government provides to all citizens. This is not a new idea, but one that has historically resurfaced from time to time.

English philosopher Thomas More proposed such an idea in his novel Utopia in 1516, although it wasn’t until the 1960s and 1970s that economists began to think more seriously about how it could be applied. The US economist Milton Friedman proposed an idea related to UBI called a negative income tax in 1962, in which those earning under a certain amount would receive supplemental funds from the government rather than paying tax.

The Covid virus has given scope to panicky wage supplement measures that governments have deployed at vast fiscal cost.  These discriminate as they exclude many people, notably the most vulnerable, and are a bureaucratic nightmare.  They also serve to ossify the unsustainable pre-coronavirus economic structure and prop up zombie companies. By contrast, a universal basic income would go to everybody, without exception, eliminating the huge administrative costs of means tests and eligibility checks.

Well-paid jobs are hard to find, and during a pandemic, most do not pay enough to meet the cost of living. As unemployment rises after the covid crisis, and insecure, unstable jobs are the norm, the precariat will spread to include middle-class professionals, not just the young struggling after graduation or people doing anything to get by.

Enter the UBI concept.  Simply put, a UBI true to its name would be unconditional and carries no means test for eligibility.  It would be given to every individual, regardless of their own or their family income. The move to support universal basic income (UBI) comes at a time of unprecedented economic turmoil brought on by the coronavirus pandemic.  Spain was one of the hardest-hit countries in the early days of the pandemic.

The nationwide lockdown in Spain curbed the spread of the virus but came at a staggering financial price.  Millions of people lost their jobs as the economy shrank rapidly, putting many of the most vulnerable citizens at risk.  Spain introduced a minimum basic income in May 2020, reaching about 2% of the population, in response to Covid-19 “to fight a spike in poverty due to the coronavirus pandemic”.

The scheme aims to guarantee an income of 462 euros per month for an adult living alone, while for families, there would be an additional 139 euros per person, whether adult or child, up to a monthly maximum of €1,015 per home.  It is expected to cost state coffers €3 billion ($3.5 billion) a year.  Moving on, we observe a team of economists who began a large-scale UBI experiment in Kenya before the outbreak of Covid-19.

They were able to monitor its performance during the crisis and concluded that recipients reported levels of well-being that were modest but meaningfully higher than those excluded in the UBI test group.  It goes without saying that the cost of basic universal income is one of the biggest questions in the public debate as well as in the research.

But its cost depends on many things.  It is first and foremost dependent on the level of the basic income as such, but it also depends on many technicalities regarding exactly how it is constructed.  By definition, UBI does not make a distinction between “deserving” and “undeserving” individuals when making payments.

Opponents argue that this lack of discrimination is unfair.  For example, during a referendum in June 2016, a fifth of the Swiss electorate voted in favour of introducing a UBI, although it seems likely that only a minority of these supporters would have been able to provide a consistent answer to the financing question.

Studies show how the pandemic has forced a re-evaluation of the social contract, in particular how risk should be divided among individuals, employers and the state.  The discussion on the effectiveness of the welfare state has been the greatest in living memory.

Government policy changed to bail-outs of citizens, rather than banks (as was the case in 2007/8) and certainly, this could mark a new chapter in welfare history.  In conclusion, the pandemic (now in its third wave) has triggered a surge of interest in UBI as a way of compensating people for the economic hardships imposed by lockdowns, curfews and keeping social distances.

Whenever, UBI is introduced as a modest, regular, equal payment to all individuals, regardless of income or employment, then it is fair, non-discriminatory and comprehensive – unlike the chaotic Covid-19 temporary schemes that governments have scrambled to put in place.

Author: George Mangion
Published on The Malta Business Weekly 30 April 2021
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