by Citizens' Income Trust | Oct 15, 2012 | Opinion
The debt crisis persists. Bankruptcy is more common now than ever before, with bankruptcy attorneys in Harrisburg PA, and attorneys all over the world, dealing with increasing numbers of clients searching for advice on their debts and money worries. In the US, the Eurozone, and the UK, politicians are implementing dire austerity packages in order to reduce government deficits. Greece and Italy may be in the worst position, but the phenomenon deeply affects the majority of developed economies.
The new circumstances have led to the increase in the need for a debt collection agency for most banks. On the other hand, debt can quickly become overwhelming for companies who rely on business finance to stay afloat. If you’d like to learn more about ensuring your cashflow management system is as robust as possible in order to keep your business at its best, take a look at these debtor management tips.
Faulty thinking
How has this come about? The popular answer trotted out as the daily news mantra that governments have been reckless, bankers have been greedy, and consumers have been overspending, is too simplistic. The problem has deeper roots and causes, and will continue unabated unless these are better understood and addressed by policy.
Current talk is entirely monetarist. Economics is reduced to some sort of meta-accountancy. Keynes is derided by people who have never read him. Leading economics media commentators often have no formal economics training or degrees. Economics degrees themselves have often been restyled as ‘economics, finance and business’ degrees. The British Chancellor of the Exchequer tells the nation that it ‘cannot afford’ economic activity, which has to be cut because we simply ‘don’t have the money’. But the real economy is about real resources of people, skills, infrastructure, technology, land. All of these are available.
Standing back for a moment, isn’t it curious that human societies allow the money that they themselves create as an artefact to serve the real economy, then allow it to dictate their real economic behaviour? The tail really is wagging the dog. In the present structure, governments must raise money from the bond markets, who insist on repayment at interest rates which these markets determine according to their own level of confidence. Thus society and its governments are entirely subject to the prescriptions of bond dealers and credit rating agency speculators, who have no remit or capability in social leadership and management. Curious again, that UK political comment which is so troubled about ‘handing sovereignty to Brussels’, and to non-elected technocrats, is entirely supine in handing far greater sovereignty to bond dealers and credit rating agencies. Standard and Poor’s, Moody’s, and Fitch are entirely unelected and lack any democratic accountability, and yet are allowed to sit in easy judgment on our total economies, and to determine their prospects and scope for action. We can thank Michel Barnier, the EC Internal Market Commissioner, for seeking to constrain them. He deserves our support.
Rethinking money
We need a new paradigm in which we understand money and financial agencies as servants rather than as masters of the real economy. Money is virtual, not real. It does not obey the laws of thermodynamics : it can be created or destroyed. Commercial banks do this regularly. They operate lending ratios whereby they lend a multiple of the deposits lodged with them. Market economies ‘print money’ all the time in this way as a regular practice. A sustained total run on the banks would always cause them to collapse. The system is supported only by confidence. The only rule is that the amount of money in circulation has to be matched by real output, if its value is to be maintained. To allow monetary factors to determine policy for the real economy is like trying to drive a car by bending its speedometer needle.
An alternative diagnostic
So what alternative diagnostic of the ongoing debt crisis is available? A thought experiment might help. In an imaginary totally automated economy with no workers, there would be no wages, and therefore no effective monetised demand. Goods and services would therefore have to be allocated by government to consumers by some voucher or shareholder mechanism. As Bob Crow, the RMT union leader put it in his ‘Lunch with the Financial Times’ interview in March last year, ‘if you have robots build cars, how are robots going to buy them?’.
A more erudite version of the same concept comes from Professor Robert Solow, a distinguished emeritus professor at MIT and Nobel Economics Laureate, who points out that with burgeoning production from advanced technologies ‘the wage will absorb only a small fraction of all that output. The rest will be imputed to capital…the extreme case of this is the common scare about universal robots : labour is no longer needed at all. How will we then live? ….The ownership of capital will have to be democratised…(needing) some form of universal dividend…Not much thought has been given to this problem’ (in ‘Revisiting Keynes’ by Pecchi and Piga, MIT Press 2010, p92).
In this scenario, the total voucher spend by the government would represent an unavoidable debt which would never be paid off. We are not there, but we have strong elements of this scenario in our modern technological economies. The delinking of productivity and real wages makes debt inevitable, with people left trying to figure out how to dispute collections in an attempt to continue some sense of normalcy in their lives.
A general diagnostic for technologically advanced economies then emerges that whenever productivity exceeds real wages, and if the difference is not fed through to consumer demand via increased shareholder dividends or social transfer payments, then consumer demand will be insufficient to purchase output GDP. In this situation, which can and does occur, the shortfall in consumer demand can be made up by extended consumer credit and welfare payments, or output GDP can be cut in a recession. The diagnostic bears some resemblance to Marx’s and Keynes’s thinking on the implications for technology, automation and productivity on the economy, but should not be dismissed for this honourable association.
A recent history of the problem
2007 was the root of the present crisis. If we go back to UK economic data then, we find that between 2005 and 2007
- GDP and consumption continued to grow but household disposable income flattened
- in 2007 real household disposable income grew by only 0.1% whilst GDP grew by 3%
- household disposable income reduced as a percentage of consumption from 78.2% to 74.7%
- the gap was met by increased household credit which grew from £17bn to £55bn
This is shown in the following graphs (where ‘household borrowing’ refers to new household borrowing in each year):
The familiar dramatic increase in household credit is less apparent in the scale of the above GDP diagrams but is evident when graphed alone in the following diagram
£55bn new consumer debt in 2007 became essential to fund the purchase of output GDP. Without it GDP would have fallen due to decreased effective demand, and employment, wages and income would then have fallen as a consequence.
Vicious circles
The current system faces two alternative vicious circles, either that
1. increased productivity reduces the wage and household income element of GDP and this demand drop leads to a GDP recession
or 2. the demand gap is filled by increased consumer credit and government debt to fund welfare payments, which becomes un-repayable in the next period.
Neither is sustainable and leads to banks reducing consumer credit, and government cutting the real economy in the mistaken belief that this will eliminate its deficit. This is where we are now, and without a radical rethink, we will be chasing our tails for ever in the doomed attempt to write off deficits from an ever shrinking GDP. Those who call for increased government expenditure under a Plan B to raise GDP (which would have the effect of raising the tax take and reducing welfare payments and hence reducing the deficit) are derided by their critics who ask how it can be possible to incur debt to reduce debt. But the coalition’s Plan A insistence on cutting the economy to reduce the deficit has to explain how GDP can be increased by cutting GDP.
New thinking
An alternative paradigm is needed to frame an alternative policy. There is nothing wrong with the real economy. Its factories, transport and communications infrastructure, skilled labour, restaurants etc. are all fully operational and highly efficient. There is also plenty of real demand for goods and services, especially globally from developing country consumers. It is purely the financial system which is disabling the real economy, and it is the financial sector which therefore urgently needs re-engineering.
It is commonly said that banks lent too much credit in 2007, firstly in the US sub-prime mortgage market, and then widely in the UK economy. But the above analysis shows that £55bn of bank lending was exactly the right amount needed to purchase GDP output, a claim which is substantiated by the lack of inflation in goods and services markets both then and throughout the NICE decade. It is true that asset prices inflated, but this resulted from any credit beyond that £55bn. The £55bn consumer credit matched against GDP output was non-inflationary.
Distributive considerations
Productivity growth in excess of real wage growth, and the gap between consumer income and GDP output that this produces, has distributive consequences. Between social groups, it tends to disfavour the poor, who rely more on the wage element of income, who suffer the loss of low-skilled employment when automation displaces labour, and whose access to credit as a replacement for wages is weak. Welfare payments are their only recourse. Surprisingly, the Institute of Fiscal Studies report ‘Poverty and Inequality in the UK: 2011′ shows that increased welfare payments did overcome income disadvantage. According to the IFS study, child poverty at 20% is now the lowest since 1985, and pensioner poverty is currently lower than at any point in the last 50 years.
The sectoral distribution of GDP is also affected by automation. Manufacturing employment and real wages per unit of output will fall, and much of this employment is transferred to low wage service sectors of the economy, only some of which, like banking, are subject to automation and productivity improvement. From anecdotal evidence, increased low productivity, low-wage service sector employment has absorbed employment reduction in more automated manufacturing sectors, and masked the effect of productivity in reducing aggregate real wages. Population growth is another factor masking the demand deficiency resulting from the delinkage of productivity and real wages.
We could of course take the view that reduced consumption is exactly what we want as part of a new ascetic paradigm to conserve world resources. Competition for natural resources from China and India may well force this choice on us anyway. But if we do pursue this option, income redistribution to those newly unemployed through productivity gains unmatched by new demand will be an essential part of the paradigm. Some form of welfare payment which does not add to government debt would be needed.
A Citizen’s Income – the only route to stop debt being inevitable as productivity grows
If it is accepted that the delinkage of productivity and real wages will make an element of debt financing inevitable, then a possible way forwards is a non-repayable financial instrument, a universal credit. This would have to be non-repayable at both consumer and government level. Proposals for a citizen’s income are longstanding. Such an income would not be repayable by the consumer and could be financed without incurring government debt. This could be done by creating a public sector bank with a government deposit, and a lending ratio set to exactly meet the shortfall between output GDP made possible by increased productivity, and flat or declining real wages. If the £55bn incurred as consumer credit in 2007 had instead been funded in this way then the economy would not face the crisis that it faces today. We have to think outside the box. Calls for a plan B are stuck within the present paradigm. This new paradigm would re-engineer the financial sector and the management of inevitable debt. It would release the real economy from artificial financial constraint, and deliver sound finances built on productivity advances. It would also greatly enhance social cohesion.
by Yannick Vanderborght | Jan 16, 2012 | Opinion
Essay presented to UN Regional Commissions’ High Level Meeting on Transition to Democracy, Beirut, Lebanon, January 15 and 16, 2012
It is an honor for me to be invited to participate in this “United Nations Regional Commissions’ High Level Meeting on Transition to Democracy”, in this panel on “Balancing Growth and Social Justice”, concerning mainly the Arab Countries, held in Beirut, Lebanon, on January 15 and 16, 2012. This is a highly relevant opportunity to exchange ideas about the experiences of so many countries in the five continents about how we can raise the level of justice in our societies so as to live with a sense of solidarity and peace.
As a Brazilian Senator, member of the Workers’ Party (Partido dos Trabalhadores), author of Law 10.835/2004 that institutes a Citizen’s Basic Income to all residents of Brazil, including those foreigners who are living in Brazil for five years or more, no matter the origin, race, sex, age or socioeconomic condition, and also Co-President of Honor of the Basic Income Earth Network – BIEN – I am happy to bring you information about what is going on in my country, and about the development of this proposal in other parts of the world.
According to the law, approved by consensus of all parties, in December 2002 in the Federal Senate, and in December 2003, in the Chamber of Deputies, and then sanctioned by President Luiz Inácio Lula da Silva in January 8, 2004, the Citizen’s Basic Income will be an annual monetary benefit, equal to all, sufficient to attend the basic needs of each person. It may be paid monthly, in equal parcels. Its level will consider the level of development of the nation and the financial possibilities. It will be instituted gradually, under the Executive criteria, taking into account those most in need in the first place, such as the Bolsa Família Program does today.
In his “The Idea of Justice” (Penguin Books, 2009), the Nobel Prize economist Amartya Sen tells us about the importance of searching for justice, of building democracy, of the government built by debate, as well as of the nature, the viability and the extent of the demands of human rights. He mentions the sense of perception of clear injustices that could be overcome that characterized the actions of the Parisians in the French Revolution of 1789, Mahatma Ghandi in India and Martin Luther King Jr in America.
Amartya Sen mentions several examples of how democracy, freedom of expression and of the press have contributed for societies to solve their problems including that of severe famines.
Sen asserts that the history of the Middle East and of the Muslin people includes a large number of episodes of public discussions and participatory politics through dialogue. In the Muslin kingdoms centralized in Cairo, in Baghdad and Istanbul, in Iran, in India or even in Spain, there were many defenders of public discussions. He argues that the degree of tolerance with respect to different points of view was frequently exceptional in comparison to Europe in the XVI and XVII centuries. I am sure that Amartya Sen is regarding very well the development of this Meeting in Beirut.
Sen’s starting point is the Theory of Justice as Equity elaborated by John Rawls. In his “A Theory of Justice” (Harvard University Press, 1971), Rawls establishes the principles of Justice that should be put into practice in a society:
- Each person is to have an equal right to the most extensive system of equal basic liberties compatible with a similar system of liberty for all (the principle of equal liberty);
- The inequalities of social and economic advantages are justified only if (a) they contribute to the improvement of the less advantaged of the society (the principle of difference), and if (b) they are linked to positions that everybody has equal opportunities to occupy (the principle of equal opportunity).
In 2005, I had the opportunity to attend the first lecture given together by Professors Amartya Sen and Philippe Van Parijs, in their discipline, “Justice and Cultural Diversity”, for the graduate students of Harvard University. Van Parijs asked the students who had a mother language other than English among them. About one third raised their hands. He observed that even having different backgrounds – in terms of origin, race, language, religion and so on – we could have common views on our criteria about how to build a just society.
Then, Amartya Sen explained that in that discipline they would examine what are the institutions that would help us in raising the level of justice. For example, when slavery was abolished, it raised the level of justice in society. If we provide a good level of education for all boys and girls in the society, we are raising the level of justice. “In this course we will examine”, Sen mentioned, “to what extent an Unconditional Basic Income, as argued in favor of by Professor Philippe Van Parijs and Senator Eduardo Matarazzo Suplicy, who is visiting us today, will or not raise the level of justice in society.” I felt quite happy.
We could think of other instruments that would help in this direction, such as the stimulus to cooperatives, the expansion of microcredit, the agrarian reform, a good public health system, the participatory budget and so on. John Rawls mentions in “A Theory of Justice” that a negative income tax that would guarantee a minimum income to all would help the application of the principles of justice.
According to Professor Philippe Van Parijs, in “Real Freedom for All. What (if anything) may justify capitalism?” (1995, Oxford), much better than the Negative Income Tax to Guarantee a Minimum Income is the Unconditional Basic Income to all, no matter origin, sex, race, age or socioeconomic condition, for the purpose of applying the three principles of justice.
What follows is the development of the paper that I have prepared for the Book of essays for Philippe Van Parijs, “Arguing about justice”, edited by Axel Grosseries and Yannick Vanderborght (2011, UCL, Universitaires de Louvain), because of his 20th year as the responsible for the Hoover Chair in economic and social ethics at the Catholic University of Louvain as well of his 60th birthday.
How Basic Income inspired Brazil’s social policy
In 1966-68, and again in 1970-73, as I was studying for my Master’s and my PhD in Economics at Michigan State University, in the USA, I came across the concept of income guarantee through a negative income tax (NIT). Back in Brazil, I interacted with Professor Antônio Maria da Silveira, who had proposed the institution of such a NIT in our country (Silveira 1975). When I was elected Senator by PT-SP for the first time in 1990, we then worked together on a proposal called the Guaranteed Minimum Income Scheme, PGRM. Every adult person 25 years or older who did not earn at least 45 thousand Cruzeiros per month (at that time, about US$150) should have the right to a complement of 30% to 50% of the difference between that level and his/her disposable income. The project was approved by the Federal Senate, by consensus of all parties, on December 16th, 1991. It went to the Chamber of Deputies where, at the Committee of Finance and Taxation, received an enthusiastic written opinion from Representative Germano Rigotto (PMDB-RS). The proposal, however, was not voted in that form because of several developments that followed.
The debate on the subject then started to flourish in Brazil. In 1991, during a discussion with approximately 50 economists who were close to the Workers’ Party (PT), Antônio Maria da Silveira and I presented the PGRM proposal. Professor José Márcio Camargo observed that the guarantee of a minimum income was a good step, but that it should be granted to needy families only, with children attending school on a regular basis. These children would then not be induced to work in order to help the survival of their families.
In 1995, taking these thoughts into consideration, Mayor José Roberto Magalhães Teixeira (PSDB), in the municipality of Campinas, and Governor Cristóvam Buarque (PT), in the Federal District, started minimum income schemes linked to educational opportunities. The programs were called Bolsa-Escola. All families with income per capita below half the minimum wage would have the right to receive: a) in Campinas: whatever would be necessary to complete half the minimum wage per capita for the family; b) in the Federal District: a full minimum wage, no matter the size of the family, or how many people in the family were working or not. Those experiments inspired several other municipalities. In the National Congress, bills were presented defining the support level that the Federal Government would provide to municipalities introducing minimum income programs related to educational opportunities.
In 1996, I took Philippe Van Parijs for an audience with President Fernando Henrique Cardoso and the Minister of Education, Paulo Renato Souza. Van Parijs argued that an unconditional basic income was a first-best, but also recognized that starting with a minimum income guarantee associated with education opportunities was a good step, because it was related to investment in human capital. President Fernando Henrique Cardoso then gave permission to the National Congress to approve a law which authorized the federal government to grant a financial support of 50% on the amount spent by the municipalities that provide a minimum income linked to social and educational opportunities.
In March 2001, again under Fernando Henrique Cardoso’s impulse, the National Congress approved another law authorizing the federal government to conclude agreements with all Brazilian municipalities in order to implement the Bolsa Escola. Later on, the government also instituted the Bolsa-Alimentação and the Auxílio-Gás programs. In 2003, Luiz Inácio Lula da Silva’s government instituted the Vale-Alimentação program.
In October 2003, President Lula’s government decided to unify and rationalize these different programs into a single Bolsa Família Program, which had 3.5 million families registered in December 2003. The number increased to 6.5 million families in December 2004, 11 million families in December 2006, and 13.352 million families, or almost 50 million Brazilians, in December 2011.
The Bolsa Familia: A Success Story
Along with other economic policy instruments, the Bolsa Família Program greatly contributed for the reduction of absolute poverty and the level of inequality in Brazil. The Gini coefficient had reached 0.599 in 1995, but gradually decreased every single year, reaching 0.581 in 2003, 0.544 in 2008, 0.530 in 2009, and 0.526 in 2010 [1]. The proportion of families under the extreme poverty line, with income per capita below R$ 93.75 which was 17.5% in 2003, decreased to 8.8% in 2008. The proportion of poor families, with income per capita below R$ 187.50, decreased from 39.4% in 2003 to 25.3%, in 2008. These favorable results can also be shown in the following way. The 20% poorest families had an income per capita increase 47% faster than the income of the richest 20%. While in 2001, the average income of the 20% richest families was 27 times more than that of the 20% poorest families, in 2008 it was 19 times higher, a reduction of 30% in inequality in seven years.
Since June, 2011, when the newly elected President Dilma Rousseff announced the Brazil Without Misery Plan and an adjustment of the program, the Bolsa Familia stated to function as follows: If the family per capita income is below R$ 70 per month, it has the right to receive a basic benefit of R$ 70 per month [2]. All families with monthly per capita income below R$ 140 are entitled to R$ 32, R$ 64, R$ 96, R$ 128 or R$ 160 if they have one, two, three, four, five or more children under 16 years of age respectively, plus R$ 38 for each adolescent between 16 to 18 years of age (up to a maximum of two). Therefore, the average benefit per family has increased to R$ 120 per month, with a minimum of R$ 32 and a maximum of R$ 306 per month.
The average size of the Brazilian family is 3.3 persons. The average is somehow higher, for families that benefit from the program. These families need to meet important requirements. If the mother is pregnant, she has to go to the public health network for prenatal examinations and monitoring. Parents have to take their children up to six years of age to be vaccinated according to the calendar of the Ministry of Health. Children from seven to 16 years of age have to go to school, with an attendance average of at least 85%. Children from 16 to 18 years of age must attend school with at least 75% attendance.
Despite the achieved progress, Brazil is still one of the most unequal countries in the world. While the poorest 40% live with 10% of the national income, the richest 10% live with more than 40%. The income appropriated by the 1% richest is the same as of the 45% poorest. Undoubtedly, the creation and expansion of the Bolsa Família Program had positive effects. However, in order to move towards a more efficient and direct eradication of the absolute poverty, as well as to achieve greater equality and guarantee greater real freedom for all, Brazil should implement a true Citizen´s Basic Income (CBI).
Towards A CBI
During the 1990s, I increasingly interacted with the founders of the Basic Income European Network (BIEN) [3], and took part in its bi-annual congresses. I was then convinced that an unconditional Basic Income for all was much better than conditional schemes or even a NIT. For this reason, in December 2001, I presented a new bill of law to the Brazilian Senate, which called for the institution of the Citizen´s Basic Income (CBI). After having studied the proposition, Senator Francelino Pereira (PFL-MG) argued that it had to be made compatible with the Fiscal Responsibility Law under which it is necessary to secure correspondent revenue for expenditures. He suggested the inclusion of a paragraph saying that the CBI had to be instituted step by step, starting with those most in need, until one day it will be unconditional for everyone regardless of income. It reminded me of James Edward Meade’s recommendation, in the last chapter of Agathotopia. What is important is to have our objectives crystal clear in mind, and to move firmly, gradually, in that direction.
Due to this aspect, the bill of law was approved by consensus of all parties in the Senate (December 2002) and the Chamber of Deputies (December 2003). When it came to the President for his examination, Minister of Finance Antonio Palocci told him: “since it is to be introduced step by step, it is feasible and you may sanction it”. On January 8th, 2004, President Luiz Inácio Lula da Silva sanctioned the Law 10.835/2004 that institutes a CBI, step by step, under the Executive criteria, starting with those most in need, such as in the Bolsa Família program. Later, then, we will have an equal CBI for everyone as an individual right to participate in the wealth of the nation. On this day, the President received the following message from economist Celso Furtado:
At this moment when Your Excellency sanctioned the Citizen’s Basic Income Law I want to express my conviction that, with this measure, our country puts itself in the vanguard of those that fight for the building of a more harmonious society. Brazil was frequently referred as one of the last countries to abolish slave labor. Now with this act which is a result of the principles of good citizenship and the wide social vision of Senator Eduardo Matarazzo Suplicy, Brazil will be referred as the first that institutes an extensive system of solidarity and furthermore, it was approved by the representatives of its people.
As I see it, a true CBI should be as high as possible in order to meet each person’s vital needs, and should be paid to all inhabitants of a community, municipality, state, country, or even, someday, to the whole population of a continent or the world. Regardless of his/her origin, race, sex, age, civil, social or economic condition, everyone will have the right to receive the CBI as a right to participate in the wealth of that community, municipality, state, country, continent or the planet. Such a scheme has many advantages. Let me mention a few of them.
First, all the bureaucracy involved in knowing each person’s income in formal or informal market would be eliminated. This would also allow for the elimination of any stigma or shame, since individuals would not need to tell civil servants: “I earn only this much, so I need a supplement of income for my survival”.
Second, perhaps the most important advantage of the Citizen’s Basic Income is that it raises everyone’s level of dignity and freedom. From the point of view of what Amartya Sen says in “Development as Freedom” (1999, New York: Knopf): “Development, to be meaningful, must mean a greater degree of freedom for everyone in society.” Take the case, for example, of a girl who does not have another alternative for her survival than selling her body. Or a young man who, to support himself and his family is forced to work for the drug traffic gangs. If there is a Citizen’s Basic Income, they can refuse those alternatives, and wait for opportunities that match their propensity or vocation.
Third, a basic income allows for the elimination of the dependency phenomena. Conditional programs function as follows: if a person’s income is below a given amount, she is entitled to an income supplement. When she gets a job, she loses (part of) the benefit. Hence, she might decide not to take that job and gets into the unemployment or the poverty trap. With a universal basic income she will have more employment options.
One of the most often-heard objections to Basic Income consists in saying that it would stimulate idleness. The Brazilian Constitution and laws, as well as the laws of so many countries, assure the right to private property. That means that the owners of factories, farms, hotels, restaurants, banks, real estate and financial bonds have the right to receive capital revenues, that is, profit, rent and interest.
Do the Brazilian laws, or of most other countries, mention that to receive those revenues, the capital owners must demonstrate that they are working? No, and they usually work, and many of them also dedicate a good part of their time to voluntary work. Do they need to demonstrate that their children are attending school? No. Nevertheless, their children usually attend the best schools.
So, if we assure those who have more resources the right to receive their revenues without conditions, why not extend to everyone, rich and poor, the right to participate in the nation’s wealth as our right for being Brazilians? If we want to eliminate absolute poverty, becoming a more equal and fair society and assuring dignity and real freedom to everyone in the society, instituting the Citizen’s Basic Income is a solution as simple as leaving home through the door.
Turning Basic Income into reality in Brazil
In Brazil, we could consider the institution of the Citizen’s Basic Income (CBI) as consistent with the values defended by the indigenous, by the fighting “quilombolas” and those for the slavery abolition, and by all those researchers and scientists who fight for the creation of a fair nation.
In the same way as the first minimum income linked to educational opportunities started locally, in Campinas and in the Federal District, it is possible to start the CBI in communities or municipalities.
Take the example of Recivitas – Instituto pela Revitalização da Cidadania, an organization which has created a free library and a free toy center in Vila de Paranapiacaba (Serra do Mar, 1,200 inhabitants). It has recently proposed the creation of a CBI. Recivitas President Bruna Augusto Pereira and coordinator Marcus Brancaglione dos Santos are waiting for the steps of Santo André’s Mayor to carry out the project. While waiting, they started a pioneering experience in another village, Quatinga Velha where, since the beginning of 2009, they pay R$ 30, or US$ 18, per month to 83 persons. This is possible thanks to the voluntary contributions of several citizens.
Another promising experiment is taking place in Santo Antonio do Pinhal, in Serra da Mantiqueira, 177 km from São Paulo, 6.500 inhabitants. There, on October 29th, 2009, the Municipal Chamber, by consensus of its nine councilmen, approved the Municipal Bill of Law for a Basic Income, proposed by Mayor José Augusto de Guarnieri Pereira (PT). Among the 5.565 Brazilian municipalities, it is the first that approved a law instituting the CBI. Its first article declares:
“With the purpose to turn Santo Antonio do Pinhal into a Municipality that harmonizes sustainable social and economic development with the application of justice principles, meaning the solidarity practice among all its inhabitants, and, above all, to grant a higher level of dignity to all its inhabitants, the Citizen´s Basic Income of Santo Antonio do Pinhal – CBI is instituted, consisting in the rights of all registered residents or residents in the Municipality for at least 05 (five) years, regardless of their social and economic status, to receive a monetary benefit.”
Exactly as in the federal law, it also states that the CBI will be achieved gradually, giving priority to the most needed segments of the population. To finance the payment of the CBI, a Municipal Fund will be created.
To turn the CBI feasible for the whole country however, it would be necessary to collect a great amount of resources. If it wants to provide an even modest improvement in relation to the Bolsa Família, Brazil should begin with at least an amount higher than the average paid by this scheme, i.e. R$ 120 per family, which means something like R$ 40 per person for a family of three members. So, if we think about a CBI of R$ 40, it would be R$ 240 per month for a family of six members. In 12 months, the yearly amount would be R$ 480 per person. With Brazil’s population reaching 191 million in 2011, we would need R$ 91,680 billion, something around 2.71% % of the Gross National Product of R$ 3,388 trillion or US$ 2,287 trillion in 2010, about 6.7 times the Bolsa Familia budget of R$ 13.6 billion for 2010, a considerable leap.
R$ 40, or US$ 22, per month is a modest amount, but in time, with the progress of the country and the growing approval from the population, the CBI could turn into R$ 100, then R$ 1.000, and so on. A way to make it feasible is the creation of the Citizen’s Brazil Fund, according to the Bill of Law 82/1999, which I presented to the Senate. It has already been approved by consensus by the Senate, and is in legal procedures in the Chamber of Representatives, where it has been approved by the Committee of Family and Social Security. This Fund is constituted by 50% of the resources generated by authorization or concession of natural resources exploitation; 50% of the revenues from rentals of federal government real estate, which belong to all the population; 50% of the revenues generated by concession and services and public works and other resources. The output generated by the investments of the Fund resources, like the Alaska Permanent Fund, will be used to pay CBI to all the Brazilian residents.
Citizen’s Brazil Fund legislation is now awaiting approval by the Chamber of Representatives Committee of Finance and Taxation. A new reporter has been nominated, Federal Representative Cláudio Puty (PT-PA) (from the Workers’ Party, State of Pará). He will be able to present a favorable report as long as there is a green light from the Executive. This is not so easy, although I always say that I am ready to accept any suggestion to make the proposal feasible, such as to diminish the proportions that are listed in the proposal. It is important to consider that Congress approved in 2010 President Lula’s initiative regulating the proceeds of the oil found in the Pre-Salt area deep in the Atlantic Ocean. The legislation has the eradication of poverty, the expansion of educational opportunities, scientific and technological progress, and better environmental and cultural activities as its main objectives. There is a strong dispute, however, between the representatives of the Federal Units, 26 States and one Federal District, on how to distribute the resources from the exploitation of the pre-salt oil.
Another promising alternative is being pointed out Professor Philippe Van Parijs while quoting Edward Glaeser’s excellent book “The Triumph of the City”, Penguin, 2011, p.221:
“Smart environmentalism needs to embrace incentives (…) Throughout the world, we can adopt a global emission tax that charges people for the damage done by their carbon emissions (…) Opponents of big government understandably worry that this type of policy will just turn into an added source of revenue for the government, but this worry can be reduced with a public commitment to rebating tax to citizens as an energy dividend, much as the state of Alaska pays each of its citizens an annual dividend from all revenues.”
Especially when more people understand how CBI could contribute for the construction of a fair and more civilized Brazil, more voices will be saying to the President of the Republic, to the Governors and Mayors: “It is a good proposal. Let’s put it into practice right away”.
Conclusion: what are the immediate prospects?
During the IV National Congress of the PT in Brasilia, February 19th to 21st, 2010, by the unanimous vote of the 1.350 delegates, the following point was added to the National Program of Dilma Rousseff, who was acclaimed Presidential candidate by consensus:
“The Great Transformation
The accelerated growth and the fight against racial, social, regional inequalities and the promotion of sustainable development will be the axis of the economic development structure.
19) The expansion and the strengthening of the popular consumption goods, that produces strong positive impact over the productive sector system, will be attained by:
a)…
f) permanent improvement of the income transfer programs such as the Bolsa Família, to eradicate hunger and poverty, to facilitate access of the population to employment, education, health and higher income;
g) transition from the Bolsa Família Program towards the Citizen´s Basic Income, CBI, unconditional, as a right of every person to participate in the wealth of the nation, such as set by the Law 10.835/2004, a PT initiative, approved by all parties in the National Congress and sanctioned by President Luiz Inácio Lula da Silva in January 8, 2004.”
It would be rational that the Bolsa Família and the state social programs become unified since they are quite similar. Both could be increased in value, for more people, in the direction of the CBI.
President Dilma Rousseff was elected in October 31st, 2010 in the second ballot, with almost 55.7 million votes, 56% of the total. On her inauguration day, on 2011, January 1st, she announced that the eradication of misery or extreme poverty in Brazil would be her first and most important priority.
On June 11st, President Dilma Rousseff announced the Brazil Without Misery Plan. The main purpose is to include in the program those 16.27 million people who are not yet being benefitted by the Bolsa Família program, although they are people who, according to the 2010 Census, are living with less than 70 reais per capita. She announced that the government will start making an active search for these people wherever they are. Since many of these people are children up to 14 years of age, the Bolsa Família Program increased the benefit from three to five children up to 15 years of age that may receive the 32 reais per child. This measure is expected to reach 800 thousand families more, up to 2014, and 1.3 million more children.
It will be a tremendous challenge for a 150-year old financial institution like the Caixa Econômica Federal, a Caisse des Dépôts, to administer the unconditional right to all 191 million Brazilians, even more in the future. But for an institution that was able to increase the number of families being benefitted by the Bolsa Família Program from 3.5 million families in December, 2003, to 13 million in December 2011, that corresponds to around 50 million inhabitants, and so efficiently, to manage the Citizen’s Basic Income to all Brazilians is a feasible objective. It is my purpose to help President Dilma Rousseff and her Ministers to take the necessary steps to institute the Citizen’s Basic Income by 2014.
[1] Sources: Study number 30 of IPEA – Instituto de Pesquisa Econômica Aplicada, First Analysis about the results of the 2008 PNAD – Pesquisa Nacional por Amostra de Domicílios, published in September 24th, 2009, plus the 2009 PNAD and 2010 Census results officially published by the IBGE – Instituto Brasileiro de Geografia e Estatística in 2010 and 2011
[2] As of June 1st, 2011, R$ 1,00 was US$0.63, and €0.44.
[3] In 2004, BIEN became the Basic Income Earth Network.
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