UNIVERSAL BASIC INCOME
By Rishi Shah
Universal basic income is an economic idea based on the premise that all resident citizens of a country receive a fixed amount of money on a regular basis. This is regardless of the previous wealth that a person has and it isn’t based on any condition whatsoever. It is a scheme that would be funded by the public sector (i.e. the government) and any income gained from work will add to this. The main aim of a basic income system is to allow every citizen in a nation to have a fair opportunity at an adequate quality of life. It fights income inequality and removes absolute poverty. Is this an ideal solution to world poverty and hunger? Is it a flawless system that should be immediately implemented globally? Flawless, no. Universal basic income doesn’t come without its flaws.
Universal basic income is commonly used in systems such as socialism. This is because the fundamental basis of UBI is to narrow the gap between the rich and the poor, abolish the plague of absolute poverty and world hunger. In a nation with a basic income, there will be no (absolute) poverty, everyone, everywhere will have enough money to satisfy their needs. I would argue that UBI is essential to allow an economy to react and adapt to labour market changes. With artificial intelligence, machine learning, and robots becoming a reality, people may be made redundant due to the structural shift away from the need for human capita. Thus, to ensure that there is this invisible safety net to prevent people from falling into the dark realms of poverty, UBI is necessary. With welfare state scams and unfair claimants being an issue regularly hitting the headlines, UBI is a much more efficient and effective manner in which to implement a social welfare system. With everyone having access to equal amounts of funds, there is a decreased risk of scams and unfair practices. Cumulatively, the premise of UBI may also allow people to achieve a healthier work-life balance, increased quality of life and life satisfaction through pursuing leisure activities. Less qualified workers who work in full-time jobs, in order to gain an income, will be able to reduce their work to part-time. This frees up time for other pursuits such as studying/ developing vital skills or increasing the time available to relax. The basic income reduces the stress associated with unemployment, as people have a basic income that is ever-present.
Flaws? Like with any major economic reform, UBI does have numerous drawbacks. It diminishes the incentive to work. If people can gain an income without working a single hour in their life, why spend your life toiling away in an office. However, this is a very weak argument, seen as the small amount that is paid as the UBI would only be enough for a very modest. Most people strive for a better standard of living, and therefore people will voluntarily work.
This system is actually in place in some cities around the world. Hamilton, a city of about 551,000 people in Canada, has initiated a 3-year experiment trialling UBI. It is funded by the provincial government, and the aim of it is to test whether a basic income of up to C$17,000 (£10,000) for all 1,000 participating individuals is more effective in reducing poverty than its existing social security system. They also provide aC$6,000 (£3,500) supplement for those with a disability, thus ensuring there is no disadvantage for those who may have higher living costs. It has led to an increase in dignity in the participants, and they can better plan for their futures.
Places like India could massively benefit from a UBI system. This is because their current welfare system is riddled with corruption and leakages and misallocation. The high administration costs would fall and the inequality in India would fall. It would be very effective in India as there is a large number of people under the poverty line. However, the initial fiscal cost would be huge. Providing a mammoth 1.324 billion people with a regular income would cost India around 5% of its GDP.
The graph shows how a more holistic UBI, where a large percentage of the population gains a very large annual sum, will have a very large fiscal cost close to 8%. India’s current GDP is $2.264 trillion. 8% of this is around $118 billion.
Overall, the UBI debate is one that has valid points on both sides. On one hand, it could be an ideal solution with a drastic reduction in poverty and vulnerability, insurance for the population against economic shocks and administrative efficiency. However, on the contrary, people argue that UBI will cause increased spending on wasteful activities and it could be a moral hazard as people leave work.