The Employment Committee of the European Union (EU) has called for all member states to provide a minimum income, or to upgrade existing minimum income schemes.
A minimum income, unlike universal basic income (UBI), is not distributed to all citizens. In most European countries, a minimum income is already provided conditionally, taking the form of various unemployment benefits, child benefit schemes, disability support, pensions, etc.
Now the Employment Committee has recommended that these schemes be overhauled, or, in any cases where they are not already provided, that they be introduced. This is in response to the fact that 25% of people in the EU – nearly 120 million – are currently deemed to be at risk of poverty and social exclusion.
The Committee’s recommendations include setting the amount provided by consulting official figures such as the Eurostat at-risk-of-poverty rate. They also recommend raising awareness among those eligible for minimum income payments, in order to increase take-up of these schemes.
Although minimum income differs significantly from basic income, this initiative could potentially pave the way for the development of some form of UBI in the future.
There was once a town in Canada that essentially eliminated poverty, and at the time no one seemed to know. One filmmaker is doing his best to shine a bright light on the research into this town.
Vincent Santiago is producing “The Mincome Experiment” documentary that looks into the Manitoba experiments in the 1970s, which provided a minimum income guarantee to the entire town of Dauphin. Santiago recently spoke with The UBI Podcast about his project.
“The experiment was completed but there was a change in government in Manitoba and federal level so experiment was never analyzed,” Santiago said.
That is until Dr. Evelyn Forget of the University of Manitoba began digging up these old records. Forget found there was a reduction in hospital visits and instances of mental health issues in the area with a minimum income. Despite worries, there was no large reduction in the amount of work being done, Santiago said.
“The only sector that was affected was the mothers who gave birth and the teenagers who stopped working to finish high school,” Santiago said.
Santiago said any new idea like minimum income guarantee will cause backlash, especially if the research is not explained well.
“Just like when they first introduced universal health care in Canada, there was a lot of opposition,” he said.
In order to explain these results, Santiago said it is important for the basic income movement to focus on public relations. He said his documentary is an important way to show the positive results of minimum income systems.
“I would like to make this documentary to dispel a lot of these misconceptions,” he said.
Currently, Santiago is running a crowdfunding campaign to help cover the costs of production for the film.
A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis, without mean-test or work requirement. A Universal Minimum Income (UMI) would be a UBI set at a level to ensure everyone has at least a minimum income sufficient to keep body and soul together. This would engender personal freedom. If we add to this public health & education, and other targeted benefits for the disabled for example, it would be a wonderful situation. What would it take?
The math is simple. If we have to pay out a UBI at X% of average income, then it will cost at least the same X% of GDP. The proportionality is clear.
Population x Average income
= Total income of country (GDP)
Population x UBI of X% of Average income
= X% of total income of country
We must first establish what should be the target level of Minimum Income. A simplistic definition would be to take a percentage of average income. The idea here is that if on average citizens are earning a certain amount, then a percentage of that average could represent the poverty line. Let’s assume we set the poverty line at 60% of the average income, and target a UMI at that level.
In practical terms, the US average family income in 2015 was $92,673. A UBI of 10% would be $9,267 per family, clearly not sufficient to create personal freedom. Similarly in India, per capita income in 2016 was Rs. 93,231. A UBI at 10% would be a meager Rs. 9,323.
It could be argued that, if average income is calculated by simply dividing GDP by total population, growing inequality and robotisation will distort that average by sequestering income in the hands of the very rich, swelling the perceived average income by increasing GDP while the actual income of an average citizen remains much lower. In order to deal with this issue, the Organisation for Economic Co-operation and Development (OECD) defines relative poverty for developed nations as 60% of the median income level. To calculate the median, we first list every person in ascending order of income. We then find the midpoint, and the income associated with it. Finally, we calculate 60% of this income to work out the relative poverty level.
The US median family income in 2015 was $70,697, or 76% of the average income of $92,673. The relative poverty line is 60% of the median income or $42,418. This works out to 45.8% of GDP (60% * 76%). It is still completely utopian to imagine the US could pay out nearly half its GDP as a UBI.
Suppose we use the World Bank definition of extreme poverty, $1.90 per day. By simple multiplication, for the US to provide a UMI at this level would require $57 per person each month. Not quite enough to survive on, but it would still cost the US government $221bn each year (pop of 318.9 million). In the Indian context, the World Bank’s poverty line is Rs. 28.71 (at PPP exchange rate of 15.11). A UMI would pay out Rs. 10,478 per person per year, for a total of Rs. 13,119 billion a year. This is more than 10% of India’s GDP, and is 61% of India’s entire 2017 Union Budget of Rs. 21,470 billion.
The essential proportionality of a UBI as a percentage of per capita income, requiring the same percentage of GDP to finance it, creates the dilemma facing UMI. If we wish to achieve a minimum income level, then targeting seems unavoidable. We may decide to keep goal of universality (everyone receives UBI) while giving up the goal of minimum income (the amount is enough to live on). Even then, it is clear that for any meaningful level of UBI, there needs to be substantive discussion of the financing source. Even a UBI of 1% of per capita income, a small amount for most individuals, would require 1% of GDP to finance, a very significant amount for any government. A UBI of 10% of GDP would likely require an entirely new financing mechanism.
In view of this simple mathematical challenge, the Basic Income movement would be well advised to pay closer attention to the funding mechanism. The success of UBI depends on the practical and political feasibility of the funding mechanism. And if such a mechanism is found, we would still have to explain why universality is preferable to targeting. It is likely that the only successful UBIs will be those where universality is a logical, political or legal necessity. This has been the case with the two most significant examples of UBI, Alaska’s Permanent Fund Dividend and Iran’s UBI in lieu of fuel subsidies.
About the author:Rahul Basu is a member of the Goenchi Mati Movement, which asks for minerals to be treated as a shared inheritance. Mining is the sale of the family gold. For fair mining, there must be zero loss mining, saving all mineral money in a permanent fund, and distribute the real income only as Citizens’ Dividend.
Europe has received a lot of attention for its recent moves toward experimenting with a basic income policy. What has been lost in this focus are the developments that are taking place in the rest of the globe, including the world’s second biggest economy: China.
Cheng Furui is one of the organizers of the China Social Dividend/Basic Income Network, and has done extensive research on China’s social safety net. In the interview below, she said a basic income would resolve many of the problems facing China’s current welfare program.
As the international economy faces increasing automization, Cheng said basic income is a potent answer to this issue in China.
“I believe that basic income and China’s status quo are aligned because it is in accordance with the essence of both socialism and the market economy,” she said.
The full length interview is below:
What is different between Universal Basic Income and China’s Minimum Livelihood Guarantee (Dibao)？
Dibao is China’s Minimum Livelihood Guarantee program. Anyone with an income below the minimum can receive a supplementary income up to the standard. In this way, Dibao is unconditional: no one can take away someone’s right to the Dibao income. The Dibao only provides a grant to those that are below the Dibao income standard. Thus, the government must conduct strict evaluations of recipients’ economic situations, which creates a lot of implementation problems and issues of abuse. By contrast, Universal Basic Income provides the grant to every person, regardless of income. Moreover, China’s Dibao benefit has a large discrepancy across different regions, consistent with the regional economic inequality that China already faces. Here is more information for reference: China’s MCA.
How do the Chinese view basic income? Do the Chinese generally understand about this policy?
Most Chinese don’t know about the basic income concept. Nonetheless, there are some places that are currently carrying out this policy, although they do not call it basic income. The areas that are implementing basic income all have different situations. The differences are not just regional, even neighboring areas have large differences depending on the community members’ organizational depth and shape.
Why should China implement basic income? What type of impact would it have?
The foundation for China’s implementation of basic income comes from China’s public ownership system itself. State owned enterprises, urban land, and mineral resources already exist, much like Alaska in the United States. Every person should have a share of public resources. This relies on the profit from the public resources being utilized as a basic income revenue, not only does everyone receive equal payment. This means the government does not have to collect more taxes from the rich only to give back to every person.
Chinese history applies the profit from publicly owned resources to supplement the country’s public finances, therefore lowering the private sector’s tax rate. In turn, conducting large scale investment in service sector and infrastructure development, including constructing railroads, and the systems that support the economy such as education and healthcare. These systems provide benefits to the vast majority of people. During China’s period of urbanization and gradual improvement of infrastructure and even completion of these projects, the profit of public resources perhaps can be used as a benefit to each person. Certainly, this will lower society’s overall wage rate or working hours. Simultaneously, some places have collective ownership of resources, and most of Chinese social dividends come from these resources.
What is the status of China’s basic income movement?
The basic income concept is currently only being discussed among Chinese academics and there are currently few researchers of the policy. However, the general public is already exploring implementation of basic income, also it is genuinely that every person in those areas can enjoy the local basic income. For example, much of the revenue for basic income programs is contributed by the collective organizations’ dividend bonus.
Since the founding of the People’s Republic of China, rural China has implemented collectivization of land, the household farm quota system allows the individual to use the land for production, but they cannot sell the land to others. During the movement toward urbanization, one part of the land was acquired by the government. Some of these collective resources that were taken were compensated with urban-based resources, in turn producing new benefits. From there, it produced social dividends within these communities. Looking at the entire country, this was not a rare case.
In BIEN News, I recently introduced these types of cases. China is putting into effect the policy of ‘separation of three land rights’ (ownership, contracting right, and operating right), which will promote the land right equity investment Recently, our main work has focused on excavating the essence of these cases, evaluating the likelihood of wide-spread promotion of this policy. Under the recent pessimistic economic environment, we want to offer a feasible path forward.
Does basic income suit China currently? Does it fit with Chinese culture?
I believe that basic income and China’s status quo are aligned because it is in accordance with the essence of both socialism and the market economy. However, Chinese culture encourages labor and looks down upon laziness. With the development of automatization, machines will continue to replace human labor. As a result, Chinese people will start to rethink this issue. If a basic income is put in place, after it is implemented it is feasible that the entire country will uniformly cut down on the weekly work schedule. Previously China had a six-day work week, and now it has been cut down to five days. In the future, it is possible it can be reduced to a four-day work week.
Additionally, China’s various regions have had drastically different levels of development, and the cost of living differences are also quite large. The social security system has not yet achieved nationally uniform administration. Public resources and financial data also need to be gradually made more transparent. This lack of transparency has impeded the ability to evaluate the potential impact of basic income.
About the interviewee:
Cheng Furui is doing her Post-doctoral program in Chinese Academy of Social
Science. She got her PhD in Tsinghua University. Her research interest is social
policy. “Social Assistance and Poverty Alleviation Divergence: A Capability
Approach” is her $rst published book based on her doctoral dissertation,
which explores Chinese social safety net in details. She is a voluntary news
editor of BIEN now. She is also one of organizers of China Social
Back in the 1990s, China started experimenting with a minimum income guarantee that topped off incomes to a minimum level set by local governments. China called the program dibao, meaning minimum livelihood guarantee, expanding the program nationwide in 2007.
In Beijing the urban monthly dibao standard is 1050 RMB ($161.50 USD) and the rural standard is 800 RMB ($123.04 USD). For urban residents, this is about five dollars USD a day.
However, even this paltry amount often does not make it to those in poverty.
A report by the World Bank found that for every 10 RMB spent on the dibao, only 1 to 2.4 RMB reached individuals in poverty (cited by the Economist). The World Bank also found the dibao program only lowered the poverty gap by 6.5 percent.
Corruption and inability to determine households’ poverty status have plagued the program. According to Lu Yang in the Indian Journal of Labour Economics, based on 2010 survey data only 21 percent of poor households were able to receive the dibao, while more than half of dibao recipients were above the poverty line.
Many local governments go to great lengths to investigate whether dibao households are secretly hoarding wealth, visiting recipients’ homes and observing whether the household has too many “high quality” products to qualify.
Others are concerned with the dibao’s effect on the poor’s effective marginal tax rate. Higher effective marginal tax rates lower the likelihood that a household member will seek work.
If a household’s average income per person goes above the dibao standard, they could sacrifice the entirety of the benefit. Each household member raises the household’s dibao standard by 100 percent. For example, in Beijing where the standard is 1050 RMB per month, a two-person household would face a 2100 RMB dibao standard. In turn, larger households are more susceptible to the problem of high effective marginal tax rates.
In some instances, it is possible that a household will have a 100 percent effective tax rate due to the dibao benefit. In these cases, the household will have the same income regardless of whether a household member chooses to work or not. Based on data from an essay in Population and Development a family of three in Tianjin with one household member employed would have the same income as an identical family that does not work at all. Clearly this has the potential to undermine labor participation if the drop off is this steep in reality.
China plans to lift 70 million people out of poverty by 2020. Such a massive undertaking requires a robust social welfare system. As it stands, the dibao program is not equipped to do this heavy lifting.
However, the dibao does provide a starting point for China to experiment with universal coverage.
The 2014 World Bank report conducted economic simulations that demonstrated expanding dibao coverage was more effective than increasing the benefit size at lowering the poverty gap.
Like the dibao, the central government of China could initiate pilot programs that universalize the dibao cash transfer, eliminating the income and wealth requirements to qualify for the dibao benefit.
Universalizing the program would potentially address many of the issues plaguing dibao, such as the high effective marginal tax rates and low rate of impoverished individuals that receive the dibao.
China’s economic miracle successfully lifted the most individuals out of poverty in world history. To do so, China undertook some dramatic reforms that completely reshaped Chinese society. Now in order to completely eradicate poverty, China may want to take yet another drastic step with a universal basic income guarantee.
