Exploring universal basic income: lessons for COVID-19 response and beyond

COVID-19 is creating unprecedented pressure on governments all around the world: the spread of the virus is taking a toll on health systems and on the economies of many countries. Varied responses have emerged during the past few weeks, bringing attention to how Social Protection can protect those who were most affected by the crisis. Among the many types of programmes used in the response, Universal Basic Income (UBI) has been at the center of the debates.

This blog summarizes the first webinar of the Social protection responses to COVID-19 webinar series, which is part of a joint initiative to systematize and share knowledge on social protection responses to the COVID-19 crisis. The webinar Exploring universal basic income: lessons for COVID-19 response and beyond was organized by the World Bank, the International Policy Centre for Inclusive Growth (IPC-IG), GIZ and DFAT, and took place on March 31st. It counted with the expertise of Ugo Gentilini (World Bank), Francesca Bastaglia (ODI) and Fabio Veras (IPC-IG), examining key issues and evidence on UBI, identifying emerging lessons and reflecting on its potential and limitations as a crisis response, as well as a longer-term intervention.

 

You can watch the webinar recording here and access the webinar presentation here.

 

An economic downfold is already taking place, causing significant impacts on both formal and informal sectors. He stressed that social protection has a role to play both in supporting social distance as well as in supporting livelihood’s recovery during the economic crisis that will follow.

While most social protection instruments are designed to tackle idiosyncratic shocks, this crisis represents a different kind of challenge, with covariate shocks. It requires more comprehensive measures to address the human, social and economic costs of the pandemic. In this scenario, many people argue that UBI would be a comprehensive response – following its universal feature, it would provide support to all people, as all people have been affected by this crisis.

The discussion around UBI also revolves around its sustainability – could UBI be another example of a social protection programme created in a situation of crisis but maintained in the long term? Would a well-established UBI support faster response to another coverage crisis such as the one we are facing now? These and other questions would be addressed during the webinar.

UBI can be a quite controversial and polarizing – some it as an instrument for social justice (Lowrey, 2018), while others, like Piketty (2016), argue that it is “social justice on the cheap”. The many (at least 36) proposals for UBI in the world today vary enormously in scope and in design, being advocated by people on diverging sides of the political spectrum. 

In that sense, there is a clear need to clarify competing views over UBI, accommodating them under a coherent framework for decision making – particularly if it is being considered as a response to the COVID crisis.

Social protection responses to the crisis have been quite diverse. In the last two weeks, 84 countries established or adapted social protection programmes to address the pandemic. In total, 284 programmes were identified, with the majority of those are social assistance programmes and, more specifically, cash transfer programmes.

 

Source: Gentilini et al, (2020)

Source: Gentilini et al (2020)

 

It was also noted that programmes were created or adapted in at least seven ways, demonstrating the adaptability and flexibility of social protection systems:

• Ad-hoc programmes
• Scaling up existing schemes
• Providing more generous benefits
• Advancing payments
• Simplifying administration
• Sharing delivery systems
• Innovative design (e.g., Spain’s conversion of school feeding to cash)

Furthermore, it was observed that low-income countries did not present a level of response through social protection programmes so far.

 

UBI’s Concept and Features

While most people would simply define UBI as a cash-based, unconditional programme with no targeting, its features may be more nuanced. Other key features from UBI include its open-ended nature - in contrast with HM’s one-time-only characteristic -, as well as the frequent provisional transfers, usually in monthly benefits.

Furthermore, UBI provides equal amounts to all beneficiaries and usually targets individuals instead of households. Lastly, UBI is usually provided for citizens only (or at least residents). As we will explore below, one of the things that make UBI so controversial is that each aspect of its definition leads to a particular debate.

Universal

There is a lot of debate around the universality feature of UBI and what it represents. While universality can prevent exclusion errors and foster political sustainability (by involving the middle class), it is argued that it does not address differentiated needs and depends on several factors for its sustainability.

Another argument pro universality is that it would reduce transaction costs and reduce the stigma against beneficiaries – applications would require minimal data and analysis and no segregation between beneficiaries and non-beneficiaries. On the other hand, evidence shows that there are cost implications (particularly fiscal ones) and there was stigma reduction in other programmes as well.

The table below displays some of the arguments in favor and against universality:

 

Source: Gentilini et al (2020)

Basic

The definition of what basic means is highly reliant on the core objectives of each specific UBI programme. As mentioned before, UBI can follow diverse narratives with significant implications for the programme design - including the amount of cash that will be provided. Possible narratives to justify the implementation of UBI vary from the need to balance the counter effects of automation to addressing poverty and vulnerability.

These narratives may also follow different strategic purposes, depending on one’s underlying visions on the role of the State. For some, UBI can function as a “trojan horse”, a way of diminishing state interference (Drèze 2017; Friedman 1967). For others, it can serve as a building block to strengthen the state and its interventions (Ortiz et al, 2018). The diversity of those narratives and strategies are the reason why UBI resonates with very different groups and backgrounds.

Income

The income feature can also lead to a number of different debates and varieties across UBI programmes.

Firstly, there are different ways of introducing the UBI among the existing schemes – as an addition, as a substitution or as an alternative:

 

Source: Gentilini et al (2020)

While examining this feature, it is important to highlight the difference between UBI and Guaranteed Minimum Income (GMI). The benefits structure and targeting are significantly different, not to say opposites. the first major contrast among them – the level of benefit falls as income rises, which does not happen in UBI:

Source: Gentilini et al, (2020)

GMI is focused on the bottom of the income distribution, ensuring the bare minimum income for those who are eligible for the benefit. This attribute contrasts sharply with UBI’s flat and universal benefit. Furthermore, the administrative and operational demands of GMI programmes are also significantly different from UBI’s, as beneficiaries’ eligibility requires more detailed analysis and periodic reassessments.

 

UBI and Helicopter Money

The upcoming - or perhaps ongoing – recession will certainly urge governments to try to keep their economies in place. In some cases, however, the typical measures will not be enough to prevent a downfall, and governments may have to adopt unconventional strategies. Helicopter Money (HM) and Quantitative Easing (QE) are some of those policies.

As the economy contracts, the need to ensure income rises and the debate around UBI gains strength. In this context, UBI may (unfairly) be seen as HM.

HM basically consists of the redistribution of newly printed money as an attempt to foster economic activity. The term relates to a parabole used by Friedman (1969), in which “a helicopter flies over this community and drops an additional $1,000 in bills from the sky”.

The notion that cash is being provided indiscriminately to all causes frequent confusions between the concepts of HM and UBI. In reality, they are quite different – their objectives, duration, financing and modalities can be significantly diverse. The table below provides a comparison between the two:

 

Source: Gentilini et al (2020)

It is important to stress the differences between HM and UBI not only to contextualize the debate, but also to set people’s expectations when one of them is implemented – particularly when it comes to the duration of the measure.

In a crisis context, both HM and UBI can be interesting measures to be adopted. Furthermore, what initially began as HM might transition to UBI. However, in order for that to happen, it is necessary to delve on the measure’s objectives and find its place in the overall social protection system – both financially and administratively.

 

Experiences

A range of 18 programmes promoted as UBI around the world were analyzed against the definitions and attributes discussed above. The idea was to identify whether those programmes were really UBI and, in case positive, pinpoint successes and lessons learned.

Only a few of those programmes complied with the rules of unconditionality, universality and periodicity. If ‘cash-based’ and ‘nation-wide’ are added as criteria, only two programmes would remain (from Iran and Mongolia). None of the programmes remained active to this date. Although there are no UBI programmes in place, there have been (and still are) small-scale pilots and a few larger-scale experiences that could provide useful insights.

• Mongolia’s programme was a scale-up from existing child grants, financed by copper prices, which lasted for two years before being cut. It had positive results on financial inclusion, but also serves as a cautionary tale on the volatility of funding.
• Alaska had a UBI programme with annual payments for almost 40 years. Benefits varied widely from year to year, but the programme had good results in the generation of jobs and taxable income.

Iran’s programme provided a UBI equal to 29% of median household income and a comprehensive communication campaign and compensation sequence. Overall it had no negative labor supply effect, but the context of high inflation eroded the real value of the benefits.

Simulations run by Gentilini et al (2020) suggest that in most cases existing social assistance programmes may be more effective than UBI to reduce poverty. If UBI programmes were established with the sole goal of reducing poverty, significantly higher transfers would have to be distributed, and would require a lot of consideration regarding distribution effects and financing.

 

Main Takeaways and emerging insights regarding UBI

An analysis of UBI’s features and implications lead to the identification of five main takeaways regarding this instrument, explored in depth by Gentilini and colleagues in this book.

The first of them is that UBI appears to be simple – in a closer analysis, however, it reveals itself as a complex, nuanced and system-wide intervention, with significant social, political and economic impacts.

Secondly, UBI is a tool. It can serve different purposes and narratives, and likewise can be designed and implemented in a variety of ways. Therefore, UBI should always be seen as a means to an end. Like any tool – serving a variety of strategies -, UBI may help to address some challenges, but it may also amplify others.

The communication, narratives and objectives of UBI are highly important and have implications both in their design and their performance. There are cases in which a programme was promoted as UBI but was not one (e.g., some proposals in India) and others that did promote a UBI but did so quietly (e.g. Iran and Alaska).

Both the benefits and financing costs of UBI must be taken into account – as they might affect the programme’s performance. At least eight factors must be considered on the design and implementation of the benefit: coverage, progressivity, adequacy of transfers, incentives, fiscal costs, financing options, political economy and delivery capabilities. While no programme will score highly on all those factors, an optimal balance must be pursued and compared to alternative options.

The configuration of the existing social protection system is also an important factor to be acknowledged:

• In contexts where social assistance provides relatively adequate benefits, substantial coverage and slight progressivity, it might be preferable to address specific bottlenecks that hamper eligibility, access, coverage and delivery instead of implementing a new programme. In that scenario, UBI would have to be motivated by different objectives (tech-driven job insecurity, social dividends) in order to be justifiable.
• In contexts where coverage is high but not progressive, UBI could be considered as an option, but vulnerable age groups may suffer and distributional effects may be significant.
• In contexts where social assistance is limited but provided progressively, UBI could extend coverage – but it would also flat the distribution, likely leading to “less for more” and, consequently, “less at the bottom”.
• In contexts where social assistance is erratic and regressive, UBI could be an option to expand coverage – if financed by progressive income taxation, elimination of energy subsidies or redistributing windfall revenues.

Lastly, one should always keep in mind that there are not many experiences in UBI to provide sufficient data over its implementation in different contexts. Critical system-wide issues related to UBI are largely unknown, such as the behavioral responses by households and markets, the integration with services, insurance and wages, the readiness of delivery platform for large-scale pressures and the effects of pilot programmes.

Timely and adaptability are crucial policy features to the effectiveness of social protection in a crisis context. The comparative advantages of cash transfers in such scenarios are significant – besides being relatively simpler to manage, they can provide direct support on income in times of lockdown and direct effects on people’s health.

UBI fits in this discussion not only for bringing the cash transfer aspect, but for its universal attribute. In a context of crisis, UBI could be more effective than narrower social assistance programmes, which would continue to face the same targeting, coverage and administrative limitations even if their provisions were to be increased.

UBI will still raise questions of exclusion – undocumented migrants are a current and important example – implementation and financing. These challenges will require careful and quick analysis, including for their long-term effects.

We face a crisis that requires unconventional responses and, more than ever, we are concerned about how this downfold will interact with existing inequalities and vulnerabilities. In this scenario, it is our duty to analyze every potential alternative carefully, and always consider the system as a whole. The real universalism will only be achieved with a comprehensive approach that includes the entire social protection system.

 

The webinar concluded with a rich Q&A session, accessible here.

 

List of References

Drèze, Jean (2017). Decoding Universal Basic Income. Indian Journal of Human Development 11 (2): 163–66.

Friedman, Milton (1967). The Case for a Negative Income Tax. National Review 7 (March): 239–41.

Friedman, Milton (1969). The Optimum Quantity of Money. London: Macmillan, 1969. Pp. 296. 90s. Access here.

Gentilini, Ugo; Grosh, Margaret; Rigolini, Jamele; Yemtsov, Ruslan. (2020). Exploring Universal Basic Income: A Guide to Navigating Concepts, Evidence, and Practices. Washington, DC: World Bank. © World Bank. Access here.

Gentilini, Ugo; Orton, Ian; Almenfi, Mohammed (2020). Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures. Access here.

Lowrey, Annie (2018). Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World. New York: Crown.

Ortiz, Isabel, Christina Behrendt, Andrés Acuña-Ulate, and Quynh Anh Nguyen (2018). Universal Basic Income Proposals in Light of ILO Standards: Key Issues and Global Costing. ESS Working Paper 62. International Labour Office, Geneva. https://www.ilo.org/wcmsp5/groups/ public/---ed_protect/---soc_sec/documents/publication/wcms_648602.pdf

Piketty, Thomas (2016). What Unequal Societies Need Is Not a ‘Basic Income’ But a Fair Wage. The Wire. https://thewire.in/uncategorised/basic-income-fair-wage-piketty

 

 

This blog post is part of the Social protection responses to COVID-19 webinar series. The series is a joint effort initiated by the IPC-IG, GIZ on behalf of the German Federal Ministry of Economic Development and Cooperation (BMZ), and the Australia Government's Department of Foreign Affairs and Trade (DFAT) collaboration with the socialprotection.org platform, and in cooperation with partners from different organisations.

Join our online community ''Social protection responses to COVID-10 [Task force]" to learn more about the initiative and future webinars.