VANCOUVER, Canada — With projections that the boom of automation in the 21st century will replace much of traditional work, the concept of Universal Basic Income (UBI), a minimum monthly income that the government provides, has been repeatedly touted since the turn of the century to address poverty and unemployment. However, the public saw it as an abstract, far future policy at best or utopian and destructive at worst.
With the unpredicted and rapid onset of the COVID-19 pandemic in 2020 that saw supply chains halt and many nations’ economies fall into crisis, many world governments were quick to provide stimulus checks to their populations to weather the storm. As the pandemic is slowly winding to a close and economic activity is starting to return to pre-pandemic levels, the precedence of the pandemic stimulus checks has brought conversations surrounding how UBI can reduce poverty back to the forefront more than ever before, especially with the ever-increasing global rate of inflation in the pandemic’s aftermath. The question is whether UBI can provide a permanent solution to global poverty and post-pandemic unemployment levels or whether it is a band-aid solution.
The Way Universal Basic Income Can Reduce Poverty
While certainly providing many advancements and luxuries to society that are unprecedented and positive, automation threatens to further increase global rates of poverty by displacing workers in industries looking to automate. Turkish economist Dani Rodrik holds that in the current manner that automation is rolling out, it is entrenching existing inequalities by divorcing production from employment without compensating those who lost their jobs, increasing global unemployment rates and growing the wealth gap. Forty-seven percent of all jobs in the U.S. may be at risk of automation while developing countries more reliant on physical labor and manufacturing are at an even higher level of risk. Ethiopia (85%), China (77%), Thailand (72%) and India (69%) are the countries with the highest percentages of jobs at risk of automation in the world. With these growing technological developments, discussions over how UBI can reduce poverty are entering more mainstream conversations.
By providing a flat base rate of income, UBI creates a transparent and straightforward social safety net that skips over the bureaucratic processes of current forms of social services and benefits that often see delays and neglect to people in dire situations. UBI can also reduce poverty by effectively mitigating the brunt of the economic damage that the separation of employment and economic productivity automation brings to many industries, allowing for the societal enjoyment of automation’s luxuries without exacerbating poverty.
The longest-running UBI trial in the world has been taking place in Kenya since 2016. The nonprofit GiveDirectly is heading the $30 million project where 20,000 randomly selected individuals residing in 295 rural villages in the Western and Rift Valley region of Kenya receive roughly $0.75 per day until 2028, doubling their average annual income.
Professors Abhijit Banerjee and Tavneet Suri have researched the efficacy of GiveDirectly’s UBI experiment so far. Their findings pointed to UBI increasing the overall standard of living and alleviating poverty and its compounded issues. Those randomly selected to receive UBI were “4.9 to 10.8 percentage points” less likely to experience hunger. Additionally, the report found that individuals selected to receive UBI correlated with higher physical and mental well-being. “UBI recipients were 3.6 to 5.7 percentage points less likely than the control group to have had a household member fall ill,” freeing up 29% of hospital capacity, according to the same study.
Illness and mortality can be make-or-break for households on the line of poverty. The study also found that UBI increased the number of entrepreneurs and small businesses, allowing those individuals to invest in themselves and contribute further to economic activity than they previously were able to. By strengthening spending more and the ability to self-invest, UBI can reduce poverty-related issues qualitatively and quantitatively.
Critiques of UBI
Universal Basic Income remains a novel policy concept, but growing pilot programs increasingly experiment with it, such as GiveDirectly’s project in Kenya. These experiments must also examine critiques of UBI, namely the fear of inflation and the decoupling of labor bargaining from income.
The most commonly levied critique against UBI is that by suddenly increasing spending power across the population, prices will inflate rapidly to meet that new spending rate. However, a 2017 economics study comparing cash transfers to poor households in rural Mexico versus recipients of the country’s subsidized food assistance program found that the areas receiving direct-cash transfers saw little to “no statistically significant change in prices.” The study concluded that “basic income and related policy really do leave individuals better off, rather than just making goods more expensive.”
Another critique of UBI is that decoupling the guarantee of a living wage from the responsibility of the employer would severely weaken both individual and collective bargaining power of employees in the workplace to determine fair compensation and other non-fiscal issues related to employment. However, the weakening of workplace bargaining has been an issue for decades now, and providing people with much-needed financial relief in the face of mass-scale unemployment should not be the red line to which this issue receives attention. The roll-out of stimulus cheques globally during the height of the pandemic worked to massively soften the blow of expectations of people suffering from the sudden shuttering of the global economy.
The Benefits of Subsidization
Recent research from the University of Michigan that the U.S. Census Bureau conducted found that with the passage of the COVID-19 relief bill in December 2021 material hardships that American households faced dropped significantly. The findings showed that “from December 2020 to April 2021, food insufficiency fell by over 40%, financial instability fell by 45% and reported adverse mental health symptoms fell by 20%.” This impacts developing countries as well, with the research showing the UBI-adjacent policies in the U.S. and other developed countries correlate with increased economic activity in developing countries through international trade. Subsidizing people’s cost of living, especially in the post-pandemic inflation period, has helped and shown more positive results than expected.
A Look Ahead
Whether Universal Basic Income could be a long-term strategy for addressing poverty or a short-term band-aid solution to structural issues is still unclear. However, recent optimistic research and the precedent of stimulus cheques in countries all over the world and their positive impacts point to UBI being a potentially future-policy staple worth experimenting in the fight against poverty.
– Majeed Malhas