Can Basic Income Work? Evidence from around the world

More than 700 million people around the world live in extreme poverty. As per a 2011 estimate, a global safety net that supplements the income of each poor person to lift it above the poverty level of $1.25 per day (World Bank’s International Poverty Line; updated to $1.90 in 2015) would cost about $66 billion each year.[i] More than twice this amount is spent in global aid annually, but eradication of poverty remains a far cry. Would it help if we could simply make enough cash available to the poorest individuals, to lift them (and keep them) out of poverty?

Conceptualized on these lines, Basic Income (BI) as an idea is rapidly gaining ground in international development.

Simply put, Universal Basic Income (UBI) is a social security mechanism under which all citizens receive an unconditional sum of money on a regular basis to spend as they deem fit. The universal and unconditional nature of UBI differentiates it from other forms of social security – while it certainly makes administration easier and less costly (eliminating problems of identification and targeting), it also forms the grounds for debate regarding BI’s efficacy and financial feasibility.

Although the idea itself is not new (16th century philosophers proposed a minimum income guaranteed by the government; Thomas Paine in the 18th century wrote about paying universal endowments), it is in recent years that Basic Income has received enthusiastic advocacy from across the thought-spectrum and around the world. Those leaning towards the left see redistributive potential in BI to help combat poverty. For those on the right, BI is a market-attuned way of minimizing the interventionist welfare state. For low-income nations, BI is an administratively neater alternative to the existing plethora of inefficient social programs; in high-income nations, the imminent threat of large-scale job losses due to automation has hastened calls (many by Silicon Valley entrepreneurs) for income security through BI. Sociologists hail the agency that BI provides to recipients to make their own welfare decisions; feminists have supported basic income as a way of recognizing women’s unpaid labour, and introducing more parity in gender relations.

However, the prospect of implementing BI raises many questions, with not enough empirical answers yet. Can unconditional income end up reducing the incentives to work? Does granting BI induce agency in recipients? Would recipients spend it ‘wisely’ i.e. for necessary consumption and investment, instead of temptation goods like alcohol? To test the effectiveness of BI, experiments are increasingly being conducted on various scales around the world.

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One of the earliest basic income pilots: Basic Income Grant (BIG) in Namibia [Image: www.bignam.org]

One of the earliest trials was in Namibia, where 1000 individuals in the rural Otjivero-Omitara region received a sum of N$100 per month (roughly the monthly per capita income) under a Basic Income Grant pilot implemented between January 2008 and December 2009. It was observed that agency developed endogenously among recipients; within weeks, the villagers formed an internal committee to advise on how to use the money rationally. Using panel surveys and case studies, researchers involved in the study concluded that the project led to significant decrease in child malnutrition (percentage of underweight children fell from 42% to 10% within six months), improved school attendance, and reduction in household debt. Contrary to the common perception of BI making people ‘lazy’, there was an increase in labour market participation and number of persons engaged in income-generating work (~25%). The project faced concerns over increased alcoholism which, researchers maintained, was not supported by empirical evidence; nevertheless, the community devised ways of dealing with it through informal means (picketing of liquor shops by women, reaching an agreement with vendors not to sell alcohol on the grant pay-out day). For the duration of the project, increased in-migration was observed from surrounding settlements, making a case for universal (instead of selective, as in this pilot) income grants.

he experience of this Namibian project fed into the preparatory work for two basic income pilots in India in Madhya Pradesh, one of the worst performing states on socio-economic indicators. In partnership with UNICEF, researchers distributed unconditional monthly payments of an amount just above the official poverty line to over 6000 individuals over 18 months. Results – in comparison with a ‘control’ group of 6000 other individuals who received no such income – were evaluated through modified Random Control Trial (RCT) methodology via three rounds of statistical surveys and case studies. By the end of the pilots, households receiving basic income were found to have significantly lower indebtedness (14% of BI households had reduced debt compared to only 3% of ‘control’ households), higher food sufficiency (up from 50% to 82%), lower incidence of common illnesses (attributed to varied reasons, from regular medical attention to improved diets, reduced anxiety, improved sanitation facilities) and better schooling indicators. Income grants were also associated with an improvement in children’s weight-for-age, especially among young girls. Contrary to commonly held fears, cash grants were associated with an increase in labour and work, especially own-account work.

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Basic income trials in India [Image: www.basicincome.org]

Using BI for paying off informal loans, as observed in Namibia and India, is consistent with the general experience with cash transfers across countries which suggests that recipients give high priority to paying off debt (Kabede, 2005). Reduced indebtedness among recipients is one of the most transformative impacts of basic income, as poor households are often stuck perpetually in a high-interest debt trap. This not only devours their meagre incomes but also leaves lifelong impacts – anxiety due to scarcity of money can debilitate mental and decision-making abilities, which inevitably has long-run adverse effects (a study found that Indian farmers score worse on intelligence tests before a harvest when money is scarce (Mullainathan and Shafir, 2013)).

In Kenya, a rigorous statistical exercise studied the response of poor rural households to large changes in temporary income. Under an RCT conducted from 2011 to 2013, over 1400 households were randomly assigned to receive unconditional cash transfers of at least USD 404 (twice the monthly average household consumption in the area) from the NGO GiveDirectly, either as a lump-sum amount or through monthly transfers. The results found improved food security (36% decrease in the likelihood of respondents having gone to bed hungry in the preceding week), higher voluntary expenditure on health and education, and no impact on alcohol/tobacco use. Households invested part of the transfers in home durables (notably metal roofs) and productive assets for self-employment (such as livestock). There was, however, no statistically significant improvement in health or education outcomes. Interestingly, the study also looked at psychological effects of cash transfers: recipients experienced large increases in psychological well-being and reduced levels of the stress hormone, cortisol.

Give Directly at work in Kenya [Image: www.givedirectly.org]

To seek comprehensive evidence on how Basic Income influences individual decisions and welfare over time, GiveDirectly has now begun a 12-year randomized controlled trial  – touted as the biggest social experiment in history – across 300 villages in Kenya with more than 26,000 participants. Pilots with various versions of BI have been announced in many other nations, including CanadaUganda, Finland, Italy, the Netherlands, and the US

However, even when data starts rolling in, the issue of conditionality must be kept in mind: one size does not fit all when it comes to socio-economic development. For instance, BI needs functional markets for welfare goods, and while this may exist in many high-income nations, most low- & middle- income nations are yet to create amenable conditions (supply side adequacy, to begin with) for welfare choices to be exercised by individuals.

The quantum of Basic Income (how much is ‘basic’?) and its mode of financing are also vastly problematic issues. A supplementary BI can barely be afforded by any nation, and a BI that replaces the current welfare system may render the most vulnerable citizens worse off by removing the existing, multi-pronged support programs. BI supporters discuss giving additional benefits for the disabled or chronically ill, but this takes us back to the problems that accompany targeting in any social program.

Many other concerns also need to be debated – trade unions worry that BI may spell the end of minimum wages; conservatives decry the likely tax burden of financing UBI; skeptics fear a loss of ambition and work incentive among the poorest; activists fear that governments will abdicate their welfare responsibilities by simply transferring some cash to citizens; and the giving/receiving of what many view as ‘free money doles’ carries a stigma (and is resented by the well-off, who don’t have much to gain from it). Until the numbers come in, and until these issues are discussed and addressed, Universal Basic Income would remain a radical, even utopian, idea to help fix our broken welfare systems.

 

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This blog post is published as part of the Ambassador Series, which presents insights into social protection around the world from the viewpoint of our Ambassadors, a group of international online United Nations Volunteers who support the online knowledge exchange activities, networking and promotion of socialprotection.org.

 

[Banner image: Illustration by Roland Brückner | bitteschoen.tv]

 

REFERENCES:

[i] Chandy, L. & Gertz, G. (2011). “Poverty in Numbers: The Changing State of Global Poverty from 2005 to 2015.” Policy Brief 2011-01. Washington, DC: Brookings Institution Press.

Davala, S., Jhabvala, R., Mehta, S.K., & Standing, G. (2015). Basic Income: A Transformative Policy for India. London: Bloomsbury Academic.

Haushofer, J. and Shapiro, J. (2013). Household response to income changes: Evidence from an unconditional cash transfer program in Kenya. Princeton University.

Kebede, E. (2005). “Breaking the poverty cycle? Cash distribution and safety nets in Ethiopia”. Paper presented at Overseas Development Institute (London).

Mullainathan, S. and Shafir, E. (2013). Scarcity: Why Having Too Little Means So Much. London: Allen Lane.

Social Protection Programmes: 
  • Social assistance
    • Social transfers
      • Cash transfers
        • Unconditional cash transfers
Social Protection Topics: 
  • Benefits payment/delivery
  • Conditionalities
  • Coverage
  • Universal Social Protection
Cross-Cutting Areas: 
  • Consumption and expenditure
  • Poverty
Countries: 
  • Global
  • Kenya
  • Namibia
  • India
Regions: 
  • Global
The views presented here are the author's and not socialprotection.org's

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