By Sam Verma and Arnav Sampigethaya
IN 1956, a struggling writer received an envelope with a year’s salary in it. It read, “You have an year from your job to write whatever you please.” This writer would use her time to write the bestselling book “To kill a mockingbird”, and today Harper Lee is one of the most well known writers of all time.
At a glance, it doesn’t seem that Silicon Valley tycoons, Napoleon and Nixon have much in common. However, their opinion on UBI overlaps. The idea of UBI has been around much longer than people realise, but the first to coin the term was G.D.H. Cole, a political economist at Oxford, advocated a "social dividend" as part of a planned economy. In 1953 he became the first to use the phrase "basic income." Since then, UBI has been rejected multiple times, but like a boomerang it always comes right back. In recent times, the idea of UBI has been not only accepted, but experimented with and implemented in a few countries.
UBI is a model for providing a sum of money to all citizens of a country or other geographic area with a given sum of money, regardless of their income, employment status. The purpose of the UBI is to prevent or reduce poverty and increase equality among citizens. The money is distributed either annually or monthly. The money is directly added into their accounts. The receiving citizens need not justify their financial status, everyone is equally deserving.
The reason why UBI will be given to those who are rich is because it is a lot more expensive as more people will need to be employed (although that could serve as a good alternative line of work when automation overwhelms the working class) in order to judge who is “deserving” of the said amount. The rich will simply be taxed higher.
UBI is one of the most popular “solutions” for the problem of automation. As machine learning and robotics improve in the coming decades, hundreds of millions of jobs are likely to disappear, disrupting the economies and trade networks of the entire world. The Industrial Revolution created the urban working class, and much of the social and political history of the 20th century revolved around its problems.
UBI is something that cannot be categorised as feasible or not, it depends from country to country; population, mentality of people, index of wealth inequality, government policies and the prevalence of automation. It’s not right to say that UBI won’t work, because it can but it can also go wrong. We’ll look at a few points that have trends in opposite directions and some that are static facts.
INCENTIVE TO WORK
What would you do if you received money from someone every month ? The possibilities are endless, you could use that money to buy good quality food, you could use the money to pay for your education, you could use that money to learn a new skill, invest in stocks, take some risks and start a new business, you could pay off your rent. You could also get carried away by all this extra cash and spend it all on heinous things like alcohol, drugs and other luxury items. This is one of the major reasons why people believe UBI won’t work.
Of course not everyone will use it productively but it's safe to say that since a lot of people (read - 200 million in India, 37 million in the US....) struggle to feed their family, struggle to pay rent, struggle to pay for education it’s a bit insulting to think that all the money will be diverted towards alcohol or drugs. In fact, the reason why alcoholism is prevalent in the lower class is because of the lack of money in the household, that drives them to drink their problems away. More money means less problems.
People’s mindsets, exposure to opportunities and awareness that they might need to make their own opportunities depend on the culture and the literacy.
REPLACEMENT OF OTHER WELFARE MODELS
People will be less reliant on the state because by opting for a less interventionist approach, governments allow people to spend money on what is their personal priority rather than tying them to a state-funded welfare programme or busybody groups that decide what people need for them.
INFLATION
Another issue that comes up with UBI is that it could lead to inflation, which again depends on how the country chooses to correct this problem. Inflation is a speculated disadvantage as it hasn’t been substantial in any of the experiments carried out in other countries, but the
batches are too small to neglect inflation as a probable problem.
The reasoning behind “UBI = Inflation” is “more money - more people spending on the same amount of goods - demand exceeds supply” which is true. It makes sense at first, as anyone who knows about the fundamentals of economics is familiar with the term “Demand pull inflation” but UBI is a redistribution of income from those that have the most, to those that have the least. It does not add new money to the economy, it just changes who gets to spend it.
For starters, Basic Income, as generally proposed, would replace a whole series of welfare schemes. Thus, a lot of the money for Basic Income payments will be the same money that is currently paid out to people as part of existing welfare schemes. People who rely on welfare payments will not necessarily be getting any more money in total than they do now. Basic Income is also likely to replace personal tax allowances. Currently, these tax allowances allow people to earn a basic amount of income without paying income tax. But since Basic Income will give all citizens a basic amount to live on, these personal tax allowances won’t be necessary anymore. So, under a Basic Income system, people will pay that tax money and then simply receive the money back as Basic Income. Essentially, it’s the same money and people won’t suddenly have excess buying power.
POLITICAL ADVANTAGE
In a country like India where false promises are made to the underprivileged and underrepresented tiers of society, their desperation for change being used for their advantage as a part of their campaign, politicians could falsely claim to introduce a model like UBI. Such a system can be used for political gain.
AUTOMATION AND UBI
Similarly, the artificial intelligence revolution might create a new "unworking class," which shapes the history of the 21st century. This is an actual problem feared by many leaders around the world, writers like Yuval Noah Harari have stressed on this topic and manufacturing companies have given their input. It’s important to acknowledge that the rise of UBI is largely attributed to automation. The pandemic was just the push UBI needed for countries to give it a shot, to experiment in small groups and to go beyond the argument that “extra money will make people lazy”.
As people lose their jobs to automation, they would also lose the income they need to buy things, meaning consumption would fall sharply. Reduced sales would strain businesses, who would then employ even fewer people, causing the economy to fall into a recession. In such a situation people would try to borrow money to spend on necessities, but since they would have no income with which to underwrite that debt, it would be difficult to find a creditor willing to lend to them; those few who are willing would charge exorbitant interest rates.
UBI AND THE REAL WORLD
When analysing where UBI would work and where it wouldn’t, it’s important to understand that the cons for some countries would be the pros in others. For example, in 1795 in the English village Speenhamland, in order to solve a poverty crisis due to the increasing grain prices [1]. This resulted in a system where a family of three would receive twenty-five pounds of bread a week, even if everyone in the house was unemployed. This was obviously funded by taxing the rich more and this system became popular and spread around England. As a result of this system, the population of England doubled and there was a large girth of society who were unemployed and living comfortably.
The critical flaw of UBI is that in a system where there is no labour or services given in exchange for the money, it places a much higher burden on the wealthy. It also doesn’t stand to benefit them in any way as they do not need the extra income. So, what happens is that the top 10% have to carry the financial weight of the remaining 90%. A less-privileged individual would encourage taxing the rich more to help fund schemes that mainly benefit the poor but this is at odds with the fundamental pillars of capitalism and it would lead to a situation where people aren’t motivated to earn money because a large portion of it would go to the ‘idle poor’.
Where would it work? In countries where the wealth disparity isn’t so drastic. This way the burden doesn’t fall on a minority of the population. Examples are relatively wealthy European and Asian nations like France, Belgium, Croatia, Iceland, South Korea and Japan or poorer African and Asian nations where almost everyone earns similar amounts, like Ethiopia, Libya, Pakistan, Bangladesh. It works in such countries because either a majority of the population can afford to support the minor poor population as seen in ‘developed’ nations or a majority of the population are all in need of the income and everyone will help support each other because poverty is universal so everyone stands to benefit.
It would absolutely not work in countries with high wealth inequality, like the United States, India, Russia and the Netherlands where the wealth is concentrated with a minority of the population because the responsibility on a person the wealthier they get to support the poor becomes more and more and the person gets nothing in return which in-turn demotivates them from becoming wealthier, which would lead to them relying on the UBI themselves, further narrowing the source of wealth.
From June 2011 to May 2012, India’s Self Employed Women’s Association (SEWA) and London University’s Professor Guy conducted an experiment where they gave 6,000 men women and children in nine different villages a basic income of Rs. 1000 a month. The most noticeable improvements were to living conditions, where many increased the size of their homes. The less developed the village was the more likely the people were to buy items like mobile phones and motorbikes with this new income. Food security and nutrition were also massively improved. Paid labour decreased, not because people were becoming lazy but because people, especially women were seeking new job opportunities and ventures, avoiding conventional wage labour. It was also found that many people were getting out of debt.
Reading this, you must be thinking, then why are you against UBI? It brought so many good things. Here’s the catch - the average annual income in rural Madhya Pradesh is Rs. 91,000, the average annual income in an urban city like Bengaluru is Rs. 12,00,000. So the Rs. 1000 would not have helped much in a more urban setting and India is growing in its urban population reaching an all-time high 33.5% in 2019. On top of this, the funds were only given to 6,000 people not 1.211 billion, and the funds were from some rich American university not from hard-working taxpayers. As you unravel the layers, you start to realize that UBI is not sustainable in a country like India, where there is huge wealth inequality, a large population and a population trending towards becoming an urban concentration like in China.
It’s become a buzzword for politicians to use for their campaigns, especially the Democrats in the US but implementing it would be so hard and impractical. So many questions begin to arise. How much income? How much of the population will be taxed for it? Is there any restriction on how it can be spent? Will low-skill jobs be harder to find for employers?
The answers to many of the questions are in odds with each other and implementing it in huge countries is not a good idea under capitalist ideology. The rich are rich because of their hard work or as a fruit of their ancestors’ labour, is it fair for them to be giving out their money to the poor in exchange for nothing?
UBI is a far from perfect model, it being very finicky with its applicability and while it can be very successful, it could go terribly wrong. With the rise of automation and the search for an answer, UBI still stands as a possibility. UBI depends not only on money, but the mentality of the people in the country it is implemented in, it depends on opportunities available, it depends on the land.
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