UUBI (UNIVERSAL ULTRA BASIC INCOME)

So, there is no evidence that unconditional cash transfers lead to a life of dissolution. What does that tell us about the design of welfare policy?

In developing countries, where lots of people are at risk of finding themselves destitute from time to time, and where the safety nets, however imperfect, that exist in rich countries (emergency rooms, shelters, food banks) are missing, the value of having an assured fallback option like UBI could be enormous, both in dealing with bad luck and in making it easier to try something new.

One of the most common ways in which people safeguard themselves against income risk in many parts of the developing world is by holding on to land. We discussed the reluctance to migrate in chapter 2, and one reason is that those who migrate risk losing their land rights. Interestingly, for example, these days most rural land-owning households in India get a majority of their income from something other than agriculture. But land ownership is still valuable because it comes with the assurance that if all else fails, they can grow their own living.

This has the consequence that areas with a large fraction of small-holders tend to find it difficult to industrialize. This is partly due to the design of land reform; when the poor are given land rights, it is often inheritable but not saleable. But there is also a strong resistance to sell among the farmers themselves. In the Indian state of West Bengal, when the communists came to power after winning the 1977 elections, their first priority was to give the tenant farmers permanent rights on the land they tilled. The right could be inherited, but not sold. Thirty years later, the same communist government, conscious of the lack of industrial development in the state, tried to buy out the farmers (including the tenant farmers). That met with such furious resistance that the plans were shelved.

The one thing the farmers in West Bengal wanted in compensation for giving up their land was the promise of a job, a stable source of income. Perhaps if there had been some kind of UBI to provide this income, the resistance might have been much less and it might have been easier to move arable land into industrial use. In chapter 5, we mentioned poor use of land is a major source of misallocation in India, probably responsible for a significant loss of economic growth. If UBI alleviated the need to stick to your land at all costs, it would reduce this misallocation. It might also reduce labor misallocation by making it more palatable for the landed to sell their land and move where there are better labor market opportunities.

India, however, does not have anything like UBI right now. The current scheme proposed by the government applies only to farmers and is nowhere near a living. The minimum income guarantee proposed by the opposition is more akin to the negative income tax credit. The plan is that it should be targeted to the poor and progressively taxed away as incomes grow. In fact, very few countries have anything like a UBI, which is guaranteed to everyone and is not taxed away. If they have anything, they have transfers targeted to the poor that can be conditional or unconditional. But targeting the right people in the developing world tends to be especially difficult because most people work in agriculture or on tiny firms. It is almost impossible for the government to know how much they earn, making it very hard to isolate the poor and target them with the extra income.⁴⁰

The alternative to targeting is self-targeting. India’s National Rural Employment Guarantee Act (NREGA) is the largest of these self-targeted programs (and perhaps some sort of model for the federal job guarantee proposed in the United States).

The program is popular with the poor. So popular that the Modi government decided not to fight with it head-on after winning India’s 2014 election, despite having campaigned against it. One advantage of a workfare program like NREGA is that it substitutes, at least partly, for a minimum wage in places where minimum wage cannot be enforced. Workers can use the NREGA wage to bargain with private-sector employers, and there is evidence they do.⁴¹ Moreover, one study found that private employment actually went up, even though salaries went up. By colluding to pay too little, employers were actually reducing the number of jobs, perhaps because some people were unable or unwilling to work for very little money.

The main sticking point with any workfare program is that someone has to create millions of jobs. In India, this is meant to be the responsibility of the village governments (the panchayats). But there is a lot of mistrust between the central authorities and the village governments, with each side, often with some reason, accusing the other of corruption. The result is the kind of red tape and inefficiency that often arises when there is a lot of emphasis on fighting corruption. Approving a project proposal and getting work going takes several months and quite some effort by the head of the panchayat. This means the program is unable to respond effectively to sudden changes in need, say, an unexpected drought. It also means that if you happen to live in a village where the panchayat leadership has decided these projects are too much trouble, you are out of luck. In Bihar, India’s poorest state, less than half of those who want work through NREGA get it.⁴²

The program ends up being rather prone to corruption because the very people involved in monitoring the program can use their power to block payments and extract bribes.

All of this suggests there are many very good reasons to consider moving to a UBI in many developing countries. The problem of course is money. Most developing countries need to tax more, but that won’t change quickly. Initially, most of the money will have to come from shutting down other programs, including some of the big and popular ones such as power subsidies. Cutting the number of programs potentially has the added advantage of concentrating the limited government capacity on just a few things. The government of India has hundreds of programs on its books. Many of these have essentially no funding, but they have an office dedicated to them and some staff who accomplish very little. Manish Sisodia, the deputy chief minister in the Delhi government, once joked that when he came to power there was a line item in the budget for opium purchases. He discovered this was the remnant of a long-defunct program to help opium-addicted refugees from Afghanistan who had settled in Delhi.

Any universal income that governments of poor countries can afford will be ultra basic. Hence UUBI. The Economic Survey of India proposed something like that in 2017. It estimated that an annual transfer of Rs 7,620 ($430 at PPP) to 75 percent of India’s population would push all but India’s absolute poorest above the 2011–2012 poverty line. Rs 7,620 is very little even by Indian standards (less than what several economists have proposed for an Indian UBI), but perhaps enough to survive on. The survey puts the cost of such a scheme at 4.9 percent of India’s GDP. In 2014–2015, India’s major fertilizer, petroleum, and food subsidies cost 2.07 percent of GDP, while the ten largest central welfare schemes cost 1.38 percent, so cutting these existing programs entirely would pay for about two-thirds of the UUBI.⁴⁴

This proposal assumes it would be fairly easy to exclude 25 percent of people from the program.

While we are in favor of a UUBI based on what we know so far, there is no data yet on its long-term impact. Most of our evidence is from relatively short-lived interventions. We cannot be sure how people will react to being assured a basic income forever. When the novelty of the extra income wears off, will they go back to being discouraged and work less, or aspire higher and try harder? What will be the long-term impact on their families of being assured an income? This is what a large-scale RCT of a UBI in Kenya Abhijit is involved in will hopefully find out. In forty-four villages, every adult has been guaranteed $0.75 per day for twelve years. In eighty villages, every adult will receive the transfer for two years. In seventy-one villages, every adult will receive one onetime payment of $500 per adult. Finally, in a hundred more villages, no one is guaranteed any income, but data will be regularly collected. In total, almost fifteen thousand households are involved in the experiment. We will start seeing results in early 2020.

We can, however, already see long-term evidence from the conditional cash transfers that have been in place for many years in several countries.

Given all this, the best combination may be a UUBI everyone can access when they need it and larger transfers targeted to the very poor and linked to preventive care and children’s education. The conditions for receiving transfers do not need to be very strictly enforced. In Morocco, we saw that a “labeled cash transfer,” which merely encouraged the use of money to help with education costs but without enforcement, seems to have been just as effective at changing behavior as a traditional conditional cash transfer program.⁴⁶ Similarly, the PKH program in Indonesia did not strictly enforce conditionalities. In this sense, it also was a “labeled cash transfer.” This lowers administrative costs and avoids excluding the most fragile families. Targeting can also be done relatively cheaply, by focusing on poor regions and relying on some identification by community leaders and readily available data. There will be errors. But as long as we are willing to be liberal in the application of the tests (so that those who need help don’t get thrown out, even at the cost of giving it to some people who do not need it), and as long as the UUBI is there to provide a minimum, we might get the best of both worlds.