by Guest Contributor | Apr 9, 2019 | Opinion
Written by: Eduardo Matarazzo Suplicy and Mônica Dallari
This January, we discovered an extraordinary pioneer effort towards poverty eradication in poor rural villages in Kenya: the transfer of Universal Basic Income (UBI). Through the initiative of GiveDirectly, an institution created by four graduates of Harvard University and MIT, Silicon Valley institutions and other organizations contributed to the formation of a US$30 million fund to benefit about 20,000 Kenyans in the most important and thorough study about UBI in history. In the visits to rural villages in the Kisumu and Siaya areas, reports were unanimous in stating that with UBI contributed to a significant improvement in the quality of life of all the beneficiaries.
Lula da Silva on the far left; Eduardo Suplicy on the far right
Upon learning that GiveDirectly was carrying out this experiment in Kenya, we decided to write a letter to them, in which I (Eduardo) introduced myself as the author of the Brazilian Law 10.835 / 2004, which establishes the implementation, in stages, the UBI for all people in Brazil, including foreigners residing here for five years or more. As honorary co-chair of BIEN (Basic Income Earth Network), I said I would like to know about the experiment. This request was accepted by Caroline Teti, GiveDirectly’s external relations director in Nairobi.
Eduardo Suplicy visits Grameen Bank with Muhammad Yunus, in Dhaka Bangladesh. July 2007
How the UBI program works
GiveDirectly´s office in Nairobi. January 2019
As soon as we arrived in Nairobi, we met with her and started a dialogue with the coordinator of a team of 34 people who work in the call center. The call center is responsible for the quarterly contacts with each one of the 21,000 adult beneficiaries of the UBI experiment. In 2016, GiveDirectly started the pilot to provide a UBI payment in Kisumu, Siaya and Bomet counties. More than 630,000 people in these counties live below the poverty line, defined by the Kenyan government as less than US$15 a month per household member, in rural areas, and $28 a month per household member in urban areas.
For the execution of the experiment, 295 villages (14,474 residences) were randomly selected, divided into four groups:
- Control Group: 100 villages that do not receive payments;
- Long-Term UBI: 44 villages in which adults (over 18 years old) receive sufficient income for basic needs, about US$0.75 per day, or $22 per month for 12 years;
- Short Term UBI: 80 villages where adults receive sufficient income for basic needs, about $0.75 per day or $22 per month for 2 years;
- Lump Sum UBI (or UBI Cash Payment): In 71 villages, families receive UBI in the fixed amount of US$1,000 divided into two payments of $500.
The transfers are made through M-Pesa, a mobile money service created in 2007 by Safaricom, a Vodafone telephone company in Kenya. The platform enables financial transactions that are safe, fast and cheap through a cell phone, such as deposits, transfers, and savings. The platform does not need a bank account.
View of the National Park at Nairobi. January 2019
Small retailers in rural villages across the country were trained and became agents of M-Pesa services. Beneficiaries can withdraw money or shop at accredited establishments in all villages in Kenya. Those who did not have cell phones were able to purchase a low-cost GiveDirectly device. Today, 80 percent of the country’s adult population has a cell phone.
From the visits to the beneficiaries of the Kenyan experiment of UBI, we can say that the improvement in the well-being of the people is very significant. This was what we were able to witness in all the residences we visited and in the dialogue with beneficiaries of UBI. Mothers and fathers spoke of the concern to prioritize the education of children and adolescents, ensuring attendance and completion of school. This became possible due to UBI, which even helped in the hiring of auxiliary teachers. In general, our respondents stated that they were better fed and had access to a greater variety of foods.
The benefit of the UBI resulted in people being able to work more intensely and productively, especially because they were able to acquire better working equipment, such as tools, motorcycles to transport people or make deliveries, livestock (goat and cattle) to supply meat and milk, fishing equipment to get more fish in the lake to sell them, land purchasing for vegetable and fruit trees planting. These activities directly increased their income. Some families have invested in systems to better capture rainwater or solar energy collectors in order to have electricity. Households purchased better furniture, such as mattresses, sofas, tables, chairs and small electrical appliances, such as a stereo or radio. Straw roofs have been replaced with steel that contains gutters.
Sunset at Lake Victoria. January 2019
It is important to note that we do not perceive any use of alcohol or other drugs. A study by Innovation Poverty Action1, IPA, corroborates our observation since there was no increase in spending on tobacco, alcohol or gambling. The impression we have goes in the opposite direction; behaviors based on solidarity and cooperation between individuals have been reinforced.
Perhaps most remarkable was the redefinition of gender roles. Because women also receive the benefit, we hear from them how they feel freer in deciding where to spend their money, and we record reports of how couples have come to the table on UBI payday to talk about the household budget. Households frequently organize groups to pool money for a larger purchase or to assume a higher value expenditure. In Kenya, polygamy is allowed. We sometimes see that the UBI contributed to greater solidarity between the wives of one husband, and even between his widows and children.
The agility and speed provided by the digital income transfer system were also fundamental. Each beneficiary is notified by SMS when the transfer is made, being able to make purchases in the M-Pesa accredited establishments, or if she prefers, to exchange the credit for money.
City of Kisumu. January 2019
Another important development was numerous reports demonstrating a noticeable decrease in violence against women and other criminal acts, such as theft in the villages. The direct income transfer done in this way has avoided incorrect procedures and corruption.
M-Pesa Agency. January 2019
For those who want to know more about this Universal Basic Income (UBI) experiment in Kenya and other countries, please access the website. The website provides testimonials from beneficiaries of the UBI collected by the people who work in the call center, available to everyone. You will have confirmed the positive impression of this remarkable pioneering experiment on Universal Basic Income. In addition, you will have the opportunity for this remarkable and important experiment. If you would like more information, write to info@givedirectly.org.
Call Center at the GiveDirectly´s Office. January 2019
Visiting Barack Obama’s Grandmother Sarah Obama
Eduardo Suplicy visits Mama Sarah Obama, in Kogelo. January 2019
On our last day in Kenya, we visited Mama Sarah Obama, Barack Obama’s grandmother, at her farm in Kogelo, another rural village. At first, we would have only three minutes to be with her because of her age, 98 years, but we talked with Mama Sarah and Obama’s aunt, Marsat Oniango, for almost 30 minutes. Enthusiastic about the conversation, they assured me they would send President Obama a letter that I had with me, the same one I had handed to him on October 5, 2017, during a lecture in Sao Paulo.
I spoke of my enthusiasm when I watched on TV the homage Obama paid to South African President Nelson Mandela on his 100th birthday in the packed stadium of Johannesburg. In that speech, the former US president made an important statement, expressing concern about “artificial intelligence that is accelerating. Now we will have automobiles without drivers, more and more automated services, which will mean the need to provide work for all. We will have to be more imaginative because the impact of change will require us to rethink our political and social arrangements to protect the economic security and dignity that comes with work. It’s not just money that a job provides. It provides dignity, structure, a sense of place and purpose. And we will have to consider new ways of thinking about these problems, such as universal income, review of working hours, how to train our young people in this new scenario, how to make each person an entrepreneur of some level.”
I concluded by expressing my certainty that this positive experiment in the Universal Basic Income in the country of Obama’s father and grandfather, whose graves we visited on the grounds of Mama Sarah’s house, will resonate very favorably throughout the world.
Steps after the trip
Eduardo Matarazzo Suplicy
Steel Roof to capture rainwater
The fact of having experienced a real immersion in the subject of Basic Income in such a short space of time and in two very different dimensions, that is, the theoretical academic approach of the conference in Cambridge and the opportunity to make field observations during our visits to Kenya, provoked a series of reflections, which made me desire to act.
The trip was made throughout the month of January 2019, coinciding with the inauguration and first month of the government of Jair Bolsonaro. The campaign of the victorious candidate in the 2018 election, his statements after confirmation of his election and the movements of the transition process between the Temer government and the new occupants of the Planalto indicate that the new government has an economic agenda that is based on intentions to resume growth and development of the country, generate jobs and guarantee some stability in public accounts. Despite the fact that I belong to the party that opposed the Bolsonaro candidacy, I believe that certain principles of equity, income distribution, and assistance to the most excluded are values of democracy that are not exclusive to this or that political aspect. So I decided that it was time to warn President Jair Bolsonaro, Minister of Economy Paulo Guedes and the Special Secretary of the Federal Revenue of Brazil Marcos Cintra Cavalcante de Albuquerque about the pertinence to take the steps towards the Citizenship Basic Income.
Philippe Van Parijs and Eduardo Suplicy at the University of Cambridge. January 14th, 2019
Soon after coming back to Brazil, I wrote a letter to these three government officials who had just taken their first steps and offered two copies of works that I believe are fundamental to understanding the concept of basic income: My book “Citizen’s Income: The Exit is Through the Door,” and “Basic Income – A Radical Proposal for a Free Society and a Sane Economy” by Philippe Van Parijs and Yannick Vanderborght, which contains a foreword by myself.
In my argument, I stress the fact that Law 10.835 / 2004, which establishes the Citizen Basic Income, Universal and Unconditional, was approved by all the parties in both houses of the National Congress, including by the then deputy Jair Bolsonaro. I reminded the President “in case the President of the Republic wishes to comply with Article 3 of the Constitution on the fundamental objectives of the Republic of Brazil, in a manner compatible with what is expressed in its program of government, to guarantee a minimum income for all Brazilian families, as liberal thinkers like Milton Friedman argue, the most effective way to do so will be through the implementation of the Citizenship Basic Income, a concept that Friedman considered another way to apply the Negative Income Tax.”
Beneficiary receives credit by SMS. January 2019
In the letter, I also summarized some up-to-date information on the subject, such as the fact that today “more than 40 countries are debating, conducting experiments and considering the implementation of Unconditional Basic Income.” I briefly reported on the visit I had just made: “The results so far are highly promising, as I found out in person. Brazil would have all the conditions to carry out local experiments, as indeed has been the desire of several municipalities like Santo Antônio do Pinhal, Apiaí and Maricá. In the City Council of São Paulo, a Law Project of Mayor Fernando Haddad is in process, already approved in the Commissions of Constitution and Justice and Public Administration, to establish, in stages, UBI in cooperation with the state and federal governments.” Finally, I suggested that a Working Group, possibly coordinated by IPEA, to study the steps towards the Citizenship Basic Income. I stated that I had already spoken with both the Perseu Abramo Foundation of the Workers Party and the Fernando Henrique Cardoso Foundation, linked to the PSDB, who have already been willing to discuss basic income with the newly elected government.
The letter, as well as the volumes, were delivered to Marcos Cintra Cavalcante de Albuquerque, current Special Secretary of the Federal Revenue of Brazil, with whom I had a hearing on February 1, 2019. At the same time, I delivered a letter to the then president and future president of IPEA, Ernesto Lozardo, and Carlos Von Doellinger, detailing how this Working Group could be constituted and reporting my dialogue with former President Fernando Henrique Cardoso during the electoral process. “Given that a number of Presidential candidates were in agreement with this objective, we could very possibly meet the various economic teams of the various candidates to work on this subject.” Sérgio Fausto, the working coordinator of the FHC Foundation, suggested that this meeting should be held after the elections in the first half of 2019.
On the other hand, Márcio Pochmann, President of the Perseu Abramo Foundation, accepted the proposal to create a Working Group for this purpose, and two meetings of this group have already been held. I believe it will be common sense for IPEA to coordinate the efforts of these various institutions linked to the parties whose candidates have made proposals to do this.
It is up to the Government to take the suggested steps.
by Daniele Fabbri | Mar 17, 2019 | News
Picture Credit: (NASA/Rawpixel Ltd)
Mark Maslin and Simon Lewis, authors of the book “The Human Planet: How We Created the Anthropocene”, published an article on Apolitical, suggesting that Universal Basic Income (UBI) may be the answer to the threat of mass extinction caused by anthropogenic climate disruption (ACD).
The impact of the human race on earth is so massive that we have entered a new geological era, the Anthropocene, characterized by the changes to our ecosystem brought on by human activity. The planet has reached its limits, and can’t sustain civilization as we know it much longer: pollution, rising temperatures, reduction in biodiversity are interconnected phenomena that are in dire need to be addressed immediately.
As humans are responsible for the situation, Maslin and Lewis re-analyse human history in order to suggest possible solutions: they identify five chronologically ordered types of human society, from hunter-gatherers to consumer capitalists. Each stage relies more on energy consumption and in the diffusion of information and knowledge, which translate in rising natality and productivity.
In order for a sixth, sustainable type of society to emerge, something has to change, and renewables, coupled with new ownership models, will have a pivotal role. Innovation by itself it’s not enough, as it may lead to even greater production and consumption:
“The core dynamic of ever-greater production and consumption of goods and resources must be broken”
UBI may have a role in breaking the link that sees consumption as the reward for being productive at work, and has the potential to reduce our environmental impact. By providing the potential to plan long term, and to retrain, UBI would allow people to avoid environmental damaging work, and to devote more attention to sustainable activities.
“UBI would give people the right to choose when it comes to fulfilling their own basic needs (…) With carefully designed policies that push society towards a new mode of living for a new epoch, we can do what is necessary: reduce human suffering, enable people to flourish and not destroy the life-supporting infrastructure of Earth in the process.”
More information at:
Lewis, S., Maslin, M., “Mass extinction on the horizon: Is Universal Basic Income the answer?”, Apolitical, February 28th 2019.
by Daniele Fabbri | Mar 11, 2019 | Research
Credit Picture: CC(Billy Wilson)
The International Labour Organization published a paper investigating Universal Basic Income (UBI) proposals in light of ILO standards.
With the ILO Social Protection Floors Recommendation (No. 202) providing relevant guidelines for the discussion on the adoption on UBI, namely:
“(i) adequacy and predictability of Universal Basic Income (UBI) benefits to ensure income security, set at least at the national poverty line; (ii) social inclusion, including of persons in the informal economy; (iii) social dialogue and consultation with stakeholders; (iv) enactment of national laws regulating UBI entitlements, including indexation of benefits; (v) coherence with other social, economic and employment policies, and (vi) sustainable and equitable financing”,
the paper shows how some models of UBI can be in accordance with ILO standards, while others cannot.
The paper consists of five parts:
1) Universal Basic Income: A tool for social justice or a strategy to dismantle social security?
In the complex and variegated scenario of UBI proposals, the paper identifies two main currents, one which sees UBI as a tool for social justice which would grant social security to all, and the other, neo-liberal or right libertarian in its concoction, which seeks to substitute the welfare state with a minimalistic safety net.
The first is designed to reduce poverty and inequality, promoting individual rights and freedom, giving people the opportunity to engage in forms of work not recognized by the market (domestic work, volunteering). It would also reduce the administrative costs of existing social protection systems, and increase workers’ bargaining power providing an exit option. The second is a way to reduce the complexity of the modern welfare state and the degree of involvement it requires from governments. For UBI to be an instrument of social justice, the first current is the one to follow.
UBI impact on poverty and inequality, on growth, on work and employment, and on gender inequality varies depending on how the policy is designed, what its source of financing is, and on which level it set at. It is thus complex to generalize its effects, and even for specific contexts in which experiments have been done it would be an error to imply that local effects would be the same once replicated on a larger scale.
The positive effect attributed to UBI is that of tackling the issues of increased social and economic insecurity, growing inequalities and the existing gaps in social protection coverage. The growing debate surrounding it “reaffirms the necessity and importance to provide every member of the society with at least a minimum level of income security which is essential to the realisation of human dignity”, principles that are at the hearth of the ILO Constitution and the Recommendation No. 202. UBI would thus represent the income component of the recommended social protection floor.
Social protection floors should guarantee “effective access to essential health care and basic income security throughout the life course, to allow life in dignity.” This means that UBI can’t represent the entirety of social protection floor, as a nonmonetary component would nonetheless be required, and that UBI would need to be integrated in the institutional settings of the state.
2) Benefit levels, adequacy and coverage
For UBI to be a solution to inequality and poverty it needs to be set at a level sufficient to meet at least people basic needs, and needs to be financed in a sustainable and equitable way. With Recommendation No. 202 requiring social protection floors to be set at “a sufficiently high level to enable individuals to live in dignity and to ensure effective access to essential goods and services” a possible benchmark is represented by national poverty lines.
UBI proposals vary greatly in the suggested benefit levels, but given that in most of them it would supplant social assistance benefits, following the guidelines set by the aforementioned recommendation, the level should be enough to allow access to a set of necessary goods and services. Proposals built taking this into account are promising, whilst those with benefits level set below the poverty line are not able to fulfill the promises of poverty and inequality reduction.
The amount provided via UBI cannot be uniform through the populations, as it wouldn’t be able to account for those in special need, and if the amount was to be uniform UBI would be required to coexist with other forms of social security benefits safeguarding those with specific needs. UBI would thus need to be integrated in the existing systems, in order not to leave individuals worse off, the paper states.
The paper also recommends that, in order to ensure adequacy over time, attention should be given to adjustments to changes in purchasing power and overall standards of living, as to ensure the adequacy of benefits over time. For UBI to maintain its effects over time, it would need to be indexed to inflation and wages.
UBI, a cash benefit, would nonetheless need to be complemented by effective access to services (e.g.: health, education). If UBI was to be financed via the reallocation of the budget dedicated to such services, it would have detrimental effects.
Even with universalism being often presented as one of the key features of UBI, some proposals restrict its coverage in two ways: 1) depending on the age of the recipient (children wouldn’t receive benefits in some instances, whilst older persons would be subject to different rules); 2) depending on the requisite of nationality, or that of residency after a minimum duration, in order to prevent migration.
With ILO standards requiring states to provide “all members of society with adequate social protection” and with the principle of universality of protection being “at the core of the social protection floor concept, stipulating that everyone should enjoy at least a basic level of social security throughout their life course”, a UBI restricted to only nationals, or not granting sufficient benefits to meet children’s needs, would be insufficient to provide the required protection.
3) Costs, Affordability and Financing
The paper presents two scenarios for the cost estimates of UBI:
- A basic income transfer at 100 per cent of the national poverty line for all adults and children;
- A basic income transfer at 100 per cent of the national poverty line for adults and 50 per cent to children up to 15 years old.
Under scenario I. the global average cost as a percentage of GDP would be around 39.4%, with a cost of 79.1% of GDP for low income countries, 28% for lower middle-income countries, 22.8% for upper middle-income countries and 29.9% for high income countries.
Under Scenario II. the global average cost as a percentage of GDP would be 32.7%, with a cost of 62.3%of GDP for low income countries, 23.1% for lower middle-income countries, 19.8% for upper middle-income countries and 27.4% for high income countries.
One possible benchmark for adequacy of the benefit level supported by Recommendation No.202 is that of national poverty lines, but many UBI proposal are far below them. Even so, an UBI set at 25% of equivalent disposable income is nonetheless deemed unfeasible under the existing fiscal context. In order to provide benefit levels capable of reducing poverty and inequality, new financing sources need to be explored, among them the paper briefly explores:
- The reallocation of public expenditures
- Increasing tax revenues
- Lobbying for aid and transfers
- Eliminating illicit financial flows
- Using fiscal and central bank foreign exchange reserves
- Restructuring existing debt
A mix of the aforementioned would be needed, with an increase in tax revenues being central in order to assure progressivity to the policy. For low income countries, lobbying for aid and transfers may be a feasible method, as the estimate cost for the introduction of an UBI is just 0.68% of the global GDP, 3% of what has been spent by the G20 to rescue the financial sector in 2009.
Regressive proposals are not in line with ILO standards as they would further inequalities. Budget neutral proposals, which rely on cutting existing social benefits in order to provide a modest UBI coupled with social insurance, result in a social net loss which would exacerbate income and gender inequalities.
4) Who would benefit from UBI? Different implementation scenarios
The paper investigates three different scenarios for the implementation of an UBI, in order to find out which one could be beneficial to society to investigate winners and losers.
Only under scenario 1, which assumes the introduction of a UBI set at the level of the poverty line, the majority of the population is found to be net winner, thus reducing inequality.
Under scenario 2 a UBI is introduced in exchange for cuts in employers’ contributions to social security systems. This setting would reduce the capacity for social insurance to redistribute wealth across society. With net losers being among the lower and middle classes, and the net winners being corporations, this scenario is not in line with ILO standards.
Under scenario 3 UBI is introduced in exchange for the complete abolition of public social insurance:
“In this scenario virtually everybody is a net loser; the poorest will not receive anymore social assistance at the poverty line level; the low and middle classes, before covered by a better social protection system, now they will lose their accumulated social protection benefits. Eliminating public social insurance systems by a modest UBI, and promoting individual savings and private provision for those who can afford it, would reduce the potential for both vertical and horizontal redistribution, thereby exacerbating income inequality.”
5) Conclusion: Universal Basic Income in light of ILO standards
While UBI cannot be considered as a solution to all the problems of society, it can potentially act as a useful tool for closing coverage gaps and provide basic income security.
The benefit level should be set at a level sufficient to provide income security to everybody, particularly to those without other sources of income. The benefit should avoid discrimination towards those in special needs.
UBI by itself wouldn’t be enough to provide access to basic services, and it should be coupled with policies granting universal education, health care and social services. At the same time, contributory mechanism will have to remain in place, with public social insurance continuing to provide a level of social protection.
Progressive means of financing are essential in guaranteeing equity, sustainability and that UBI satisfies ILO standards. UBI implementation will need to follow a progressive realization, by setting standards and time frames: this calls for the creation of an ad hoc legal framework and effective governance and administration.
Moreover, “systematically assessing implications for the broader policy context is essential for a UBI to positively contribute to social justice and inclusive development”. UBI cannot be a stand-alone policy, but needs to work in concert with labour market institutions, and the potential interactions that could arise call for further studies.
“The momentum gathering behind the idea of a UBI can help to spur a discussion on how to respond to existing economic and social changes in a more effective and empowering way based on social solidarity and while ensuring social justice outcomes for all.”
Final remarks
The paper is clear in defining Basic Income and in discussing its potential advantages, clarifying that different UBI designs would bring very different end results.
The paper also provides a comprehensive list of experiments, proposals, and pilots, and does a service by calculating the proportions of national poverty lines that their Basic Incomes represent. This is done calculating the gross cost of UBI, which however says little about its net costs.
Much attention is devoted to proposals that eliminate current benefits, a practice that, as the authors of the paper themselves suggest, is not in line with ILO standards.
Rather than investigating a particular mean of financing and its potential effects, the paper follows a more general approach, and highlights that further studies are needed in order the understand the practical implications of UBI, nonetheless being clear about its potential to be a powerful instrument for the enhancement of social security and the reduction of poverty and inequality.
More information at:
Isabel Ortiz, Christina Behrendt, Andrés Acuña-Ulate, and Quynh Anh Nguyen, “Universal Basic Income proposals in light of ILO standards: Key issues and global costing“, Social Protection Department, International Labour Organization, Geneva, 2018
Citizens Basic Income Trust, “ILO paper on Citizen’s Basic Income and ILO social protection floors” 7th December 2018
by Andre Coelho | Jan 27, 2019 | News
Indian farmer pouring fertilizer. Picture credit to: The National
As indicated before, there is political movement in India in the direction of basic income. Particularly in the state of Telangana, which started the implementation of its Rythu Bandhu (Farmer Investment Support) program in May 2018. Other Indian states, namely Maharashtra, Rajasthan, Madhya Pradesh, Jharkhand, Odisha, and Chattisgarh, have also introduced farm support initiatives, but Telangana conveyed the novelty of unconditionality. Sarath Davala, Vice Chair of the Basic Income Earth Network (BIEN), and coordinator of the India Network for Basic Income (INBI), has written extensively on this matter, as well as contributed with clarifications and specifications on social media.
In a nutshell, the current Rythu Bandhu program in Telangana, features the following characteristics:
1 – It is universal. All farmers with a land property registration are entitled to 4000 Rupees (50 Euros) per acre per season, making it 8000 Rupees (100 Euros) per annum. Cheques or money transfers were made directly to farmers bank accounts;
2 – It is unconditional: no conditions were prescribed. The farmer needn’t even cultivate. It is left to the farmer what he / she wants to do;
3 – It is called Farmer Investment Incentive Scheme. It was not called welfare, but termed as an investment. This means that, unlike conventional welfare schemes, such as loan waivers or crop insurance scheme, it is not intended as a relief after a calamity has hit, but as an investment.
Telangana has also introduced state-financed life insurance for farmers, over 5,8 million potential beneficiaries, and covering a sum of 500 000 Rupees (6190 Euros). The annual premium, paid by the government, is to be 2000 Rupees (25 Euros). Normally, if anyone wanted life insurance, they would have to visit a particular website to buy a policy, but now, the government is implementing these policies themselves.
This first attempt at unconditionality has had its problems, though. The program was criticized for being regressive, since no account was made for redistribution of these benefits to farmers, and so rich farmers were also getting the money from the government. And, since these farmers owned more land, they receive a greater portion of the investment. Another downturn was that tenants, or landless farmers, haven’t benefitted from the program since these do not possess property rights.
To address this last problem, the state of Odisha has announced in December 2018, and will roll out the scheme between February and March this year, pretty much the same as in Telangana but including landless tenants, estimated to cover around 1 million people (and their direct families). Under Odisha’s scheme, there are also available loans (for crop) at zero interest rates. In Jharkhand, Odisha’s neighbour state up North, the farmer assistance plan also disburses a fixed unconditional value per acre of cultivable land, 5000 Rupees (62 Euros) per annum, directed at small farmers (owners of less than 5 acres), for the next 4 years, benefitting over 2 million workers. So, in Jharkhand, rich farmers will be mostly excluded from the scheme. On the border with Bangladesh, in the West Bengal state, the scheme is somewhat more complex. Starting in February 2019, there will be a crop insurance for farmers land, with the state covering its premium. Plus, the same cash transfer as in Odisha will be rolled out, but with spending conditions (on seeds, fertilisers, pesticides, etc.). On top of that, a life insurance similar to Telangana’s, but covering only 200 000 Rupees (2470 Euros). West Bengal state farmer support scheme is directed at an estimated population of 7,2 million small and marginal farmers.
Other states, like Maharashtra, Rajasthan and Madhya Pradesh, have also announced and are implementing policies to help farmers, namely in-kind benefits and loan waivers. But, overall, and according to Sarath Davala, is it a very positive thing to “see a shift from many conditionalities to unconditional”. However, he points out that these policies should not be lightly called “basic income”, as they depart in several ways from definitions of basic income (as, for instance, that of BIEN). Telangana’s policy is neither individual (it is family-based), nor universal (only for farmers, and not even for all of them), nor basic (not enough to cover individual basic needs). However, it does go a step further as far as the unconditional part is concerned.
The State Bank of India (SBI) has also taken an interest in unconditional cash transfers to farmers, although at the expense of the universal basic income (UBI) policy, as presented in a recent report. The SBI confirms that unconditional cash transfers will have a more “meaningful impact” on farmers, than conditional policies applied up to now. However, it advices against UBI, stating that a “cash transfer scheme is always a better option than a UBI scheme. Many countries have found that UBI does not address the structural problems and is at best a solution in interregnum”. It remains unclear, though, how did the SBI found that one policy is superior to the other, in the lack of real UBI implementation around the world. Also, the SBI does not mention which “structural problems” UBI was found not to solve, and in which countries.
More information at:
André Coelho, “India: Telangana, unconditional cash transfer to farmers and more“, Basic Income News, January 21st 2018
Sarath Davala, “Why Narendra Modi May Answer Farmers’ Distress With a Basic Income Plan“, The Wire, January 11th 2018
Anshuman Kumar, “Farmers gain as schemes bring direct benefit to parties“, The Economic Times, January 18th 2019
“Unconditional cash transfer to farmer better option: SBI report“, The Economic Times, January 22nd 2019
by Daniele Fabbri | Jan 1, 2019 | Research
Credit Picture to: The Open University
A new paper, “Myth-Busting? Confronting Six Common Perceptions about Unconditional Cash Transfers as a Poverty Reduction Strategy in Africa”, based upon evidence collected in eight Sub-Saharan Africa (SSA) over a decade, presents evidence in favor of Unconditional Cash Transfers (UTCs) in Low and Middle Income Countries (LMICs).
Using experimental and quasi-experimental evaluations of large scale UTCs in SSA, conducted in collaboration with the Transfer Project, which sees the participation of UNICEF, FAO, The University of North Carolina, national governments and local research partners, the paper collects evidence regarding six common misconceptions about UTCs and refutes them: 1) UTCs induce higher spending on alcohol or tobacco; 2) UTCs are fully consumed (rather than invested); 3) UTCs create dependency (reduce participation in productive work); 4) UTCs targeted to households with young children increase fertility; 5) UTCs lead to negative community-level economic impacts (including price distortion and inflation); 6) UTCs are fiscally unsustainable.
1) UTCs induce higher spending on alcohol or tobacco
A common argument against UTCs is that they would lead to spending on superfluous goods, as alcohol, tobacco, or drugs, which are sometimes called “compensatory bads”.
The argument is largely based upon anecdotal evidence, spurring from the fear that cash would be administered improperly and wasted, and would lead to the prioritization of in-kind transfers. The paper found that as the household expenditure allocated on food and other items increased, spending on alcohol and tobacco didn’t.
2) UTCs are fully consumed (rather than invested)
Being transfers unconditional, the fear may arise that they are immediately consumed, and that they do not stimulate longer term planning and investment in productive activities and human capital.
Noticing that the cash transfers were administered in locations where the populations is well below the poverty line, it shouldn’t come as a surprise that much of the transfer is used to cover basic needs, which in turns ensures the maintenance and a form of stimulus to human capital development.
Even as the role of direct expenditure is substantial, the paper finds that UTCs have positive effects on the productivity indicators chosen as representative of investments, stimulating crop and livestock activities.
3) UTCs create dependency (reduce participation in productive work)
A common perception that is based upon the longstanding discourse on welfare dependency, fears that gave birth to the concept of workfare in the sixties and that grew under Reaganism and Thatcherism.
The idea is that poor families receiving cash transfers would become lazy and lose the incentive to work, when it isn’t laziness in the first place to create poverty. The allegations of welfare dependency thus stem from a sort of moral high ground, the implication being that poverty is somehow “deserved” and that the poor are not willing to work in order to better their condition once they receive the transfer.
We have seen formerly that UTCs influence investments, it is thus certain that they do affect household decision making in labor allocation, i.e. how receivers participate to the labor market; but labor force participation rate as exemplified by the chosen indicators showed no significant impact of transfers on labor supply.
4) UTCs targeted to households with young children increase fertility
Policymakers often sustain that Cash Transfers conditional to motherhood and having young children will have the unintended effect of increasing fertility rates.
The concern is even more severe for SSA, the last region to start experiencing the demographic transition.
Given that Conditional Cash Transfers (CCT) are the instrument of choice to foster higher fertility rates in OECD countries, the implications for their application look unavoidable; nonetheless the study found no instance in which a government UCTs increased fertility in SSA. Rather, the evidence suggests that UTCs have in some instances increased birth spacing and delayed pregnancies among young women.
5) UTCs lead to negative community-level economic impacts (including price distortion and inflation)
This fear stems from the idea that isolated cash injections would have a one-sided effect and only stimulate the demand side, whilst having no impact on the supply side. This would lead to detrimental effects, namely price distortion and inflation, devaluating the transfer and affecting also non-beneficiaries, which would find themselves facing higher prices.
The study found no evidence of inflationary effects, which can be explained by three factors: the relatively small share of UTCs beneficiaries (20% of the households); the sum of the transfer, which while substantial for the poor recipient it’s just a tiny proportion of the total cash flow of the community; the supply side is elastic, and there is enough market inter-connectivity for production to match increases in demand.
Theory suggests that UTC could be used to overcome market failures, functioning as a stimulus to pro-poor productivity and having net positive impact on local economies. Positive spillovers should manifest and affect non-beneficiaries, as a result of the stimulus to aggregate demand.
Local economy simulations indicate that UTCs generates positive effects on the local economy, with every dollar injected in the economy via the transfer causing nominal multiplier effects ranging from 1.27 in Malawi to 2.52 in Ethiopia.
6) UTCs are fiscally unsustainable
Once UTCs end their experimentation phase and are institutionalized, there is diffused concern that the administrative costs are too high. The fear is that the medium or long-term maintenance of the programs is fiscally unsustainable, and supposedly high administrative costs have been cited as one of the main reasons for not adopting UTCs.
The cost-transfer ratio (CTR) is the indicator generally used to measure the cost-efficiency of the programs. The CTR depends largely on the time at which it is measured; at the beginning of the programs there are large, fixed, start-up costs which weigh heavily on the ratio, representing a large part of the total costs in the first period. The start-up costs combine with the lack of economies of scale, which require times to be attained.
Using estimates of the CTRs for the programs of the Transfer Project, accounting for the scale-up effects and correcting for the start-up, lump sum costs, the study found that cash transfers at scale as a percentage of current spending and GDP are feasible and fully within the cost considerations of any national government. The expenditure for UTCs as a percentage of general government expenditures would have an average of 4.4 percent across countries, but could decrease of the 37% if the program was limited to the rural areas.
“…we have drawn on cross-country evaluation data to summarize evidence on six common perceptions that we believe hold back political acceptance of such programs. While the political context is such that these perceptions will need to be tested in each specific program in order to be fully internalized, we hope that the growing body of evidence, including that presented inthis paper, will permit more evidence-based rather than ideologically-based debates around cash transfers in LMICs”
More information at:
Sudhanshu Handa, Silvio Daidone, Amber Peterman, Benjamin Davis, Audrey Pereira, Tia Palermo, Jennifer Yablonski, “Myth-Busting? Confronting Six Common Perceptions about Unconditional Cash Transfers as a Poverty Reduction Strategy in Africa“, The World Bank Research Observer, Volume 33, Issue 2, 1 August 2018, Pages 259–298
