Giving Everybody a Universal Basic Income to Reduce Poverty — What Could Go Wrong?
A universal basic income (UBI) is defined as a monthly cash payment to every citizen of a nation. The amount of cash varies depending on who proposes the idea, but the general gist of it is that the monthly payments should allow a person to be able to afford the necessities for life, but not so much that people can live comfortably above the poverty line. While the idea of a universal basic income has been an idea that has gained traction around various times in US history, there has never been a large-scale test of a permanent UBI. Nevertheless, UBI has continued to come up time and time again in the United States as a method to decrease the poverty rate and close the inequality gap.
To fund such programs, modern implementations of UBI typically suggest one funding source be taxing the wealthiest individuals in a society. This taxed money would then be redistributed to everybody in the country, thus closing the gap between the rich and the poor. In particular, amidst the pandemic, new conversation on whether UBI, a previously pipe-dream idea, could become a reality. According to the Washington Post article “The Pandemic Strengthens the Case for UBI”, Andrew Yang’s conception of a UBI went from being dismissed as a silly idea to becoming the blueprint for US stimulus packages that were implemented in order to help struggling citizens during the pandemic. Even if the pandemic stimulus packages weren’t perfect, they showed that partial implementation of a UBI during the pandemic was feasible and could serve to help struggling Americans. With the recent uptick in popularity surrounding UBI, it is natural to ask, if this has been implemented in the US, could it be implemented in poorer countries to reduce poverty and close inequality gaps around the world? While some argue that a UBI implemented in poorer countries could solve poverty in countries around the globe, I argue that poorer countries should instead focus their efforts on industrializing and developing their economies because it is a more effective solution to reducing poverty.
It is logical to assume that if a partial UBI could work in the US, it could also work if poorer countries implemented a UBI of their own in order to fight poverty. As such, there have been tests on how a UBI could help people in poorer countries. According to the Vox article titled “UBI Map”, there have been multiple instances where private entities have funded cash transfers to people in poorer countries. The article found that “getting a basic income tends to boost happiness, health, school attendance, and trust in social institutions, while reducing crime”. While the benefits of this UBI program sound great, the article acknowledges that these have only been small-scale interventions that are temporary in nature that has yet to be given to every citizen of a nation indefinitely. Therein lies the problem — the cost of a full-scale UBI.
While some might argue that UBI does in fact help poverty around the globe, these people tend to ignore the costs associated with implementing such systems. UBI is an immensely costly program to run indefinitely on a national scale, and if these nations run out of funds then there can be no UBI. Even rich nations have struggled with implementing a partial UBI. This has not been clearer as a result of the pandemic, as the United States needed to allocate 2.2 trillion US dollars in order to help fund relief efforts as part of the CARES act. A portion of the CARES act involved “one-time payments [consisting] of $1,200 per adult and an additional $500 per child under the age of 17. No payments were made to individuals earning more than $99,000 or married couples earning more than $198,000,” (Baket et. al, 2020). We can see that this implementation of pandemic relief is only a partial form of UBI. This program was only given to a certain subset of the population and was only to help these people through the pandemic. Yet, the cost was astronomical — two trillion USD. It is impossible to ignore the true costs of a true UBI even in a prosperous and modern economy like the United States. According to a UPenn study, “…before taking dynamic effects on economic growth into account, implementing an annual $1.5 trillion dollar UBI — -approximately the cost of giving every adult $6,000 per year — -would ramp up spending levels by over 40 percent.” An increase in spending of 40 percent would be a large consideration given our federal budget is already stretched very tightly. If the US would have trouble paying for a full-fledged universal basic income, how can we expect poorer countries to do the same?
In poorer countries, most people live in poverty, as opposed to rich nations where a minority of people live under the poverty line. While the Vox article lists many benefits of a basic income as a little money can go a long way for those who are in poverty, the article only lists small-scale efforts where a very small fraction of the population receives a basic income. Therefore, if proponents of UBI were to suggest a global UBI, could these poorer nations even pay for a UBI? Some of these proponents correctly argue that UBI is financially feasible in certain poorer countries. However, I question whether these funds could actually be collected and distributed. Many people in these poorer countries live in such poverty that they would not be able to contribute to UBI in the form of taxes. As such, these countries will have to resort to taxing the rich if they want any hope of funding a UBI.
Unfortunately, for most poor countries, governments are sometimes corrupt and will commonly accept bribes from the rich. In poor countries with corrupt governments, money speaks. Yet, the funds where UBI would draw from would be these precise people who have power. “The feasibility of implementing UBI would therefore depend upon how agreeable the tax-paying individuals are to an increase in marginal tax rate. Considering that only certain individuals in developing countries contribute to tax revenue, the amount of increase in marginal tax rate needed to cover UBI may be too high to be politically feasible. As a result, welfare state may settle for a lower marginal tax rate that will not be enough,” (Flores, 1). Basically, because these wealthy people are the ones who are going to be taxed, they will likely not agree to pay even more in taxes to fund a UBI. Therefore, these wealthy individuals can bribe government officials or heavily disincentivize the government to increase taxes to ensure UBI will never see the light of day. Therefore, even if UBI sounds like a great idea on paper, it is unlikely to come to fruition due to conflicts of interest in these poorer nations. UBI does not only face massive issues surrounding funding, as there are problems with the fundamental nature of cash transfers to the poor to eliminate poverty.
While the idea of handing people money may sound like an easy way to solve global poverty, there has been no widespread proof that this actually works. We can learn from history to see how modern first-world countries primarily gained their wealth. These modern nations became truly wealthy because of the industrial revolution and later some countries used their power to exploit other nations to gain even more wealth. According to Bob Allen, “the rise of the west, therefore, comes down to the invention and utilization of labour saving technology,”(Allen, 6). However, the crux of the matter is that these wealthy nations industrialized, and used their newfound productivity to snowball into gaining more power and wealth. With industrialization, output and productivity increased manyfold, allowing these countries to produce more products at a cheaper cost to producers. However, UBI is at odds with this conventional road to riches. Giving poor citizens more money isn’t going to build up a nation’s infrastructure or develop their economy to industrialize.
Since it is the citizens receiving money under a UBI in poor countries, infrastructure will be neglected because governments and larger organizations are required to build up infrastructure. Citizens who are in poverty would find it absurd to donate the UBI money that they need for necessities in order to fund industrialization. When people are barely surviving, why should they fund a goal that won’t have a instant and direct impact on their well-being? However, this is exactly what countries need to do in order to escape poverty. According to Felipe et. al, “to escape this situation, these [poorer] countries need to implement policies that would help them accumulate the capabilities needed to manufacture and export more sophisticated and better connected products,”(Felipe, 2). Therefore, the key for these poorer countries to escape poverty is to industrialize and produce more sophisticated products. Instead of producing agricultural products, these countries need to industrialize and produce goods more similar to advanced economies. However, in the long run, ordinary citizens aren’t likely to look at the big picture and donate their scarce financial resources for a benefit that won’t be realized for many years. In order to get these poorer nations out of the rut they are in, a larger organization like a government or non-profit needs to pool funds in order to help these nations to industrialize. Therefore, UBI will actually do little to help poverty in the long run, and instead, a different method to reduce poverty should be used.
However, some might argue that UBI is simple to implement, but the task of rebuilding infrastructure and industrialization is hard and isn’t certain to reduce poverty. However, it has been shown throughout history that countries can escape poverty through industrialization instead of UBI. Take the Asian Tigers, which are four countries that from the 1960s to 1990s were transformed by rapid industrialization and were able to escape poverty. The Asian Tigers — South Korea, Taiwan, Singapore, and Hong Kong — ascended from poverty to become centerpieces of the global economy. According to “The Lessons of East Asia”, the factors that led to these countries’ ascent in the global economy were “outward orientation, macroeconomic stability, and investment in people. These economies were not always blessed with this triad. They developed institutions and policies that delivered it,” (Leipziger & Thomas, 28). It is clear from their study that these countries developed institutions and policies that helped them industrialize. The investment in people was the priority that these nations put on education, not giving everybody cash transfers. TSMC, the major semiconductor manufacturer that produces a majority of all the world’s high-end computer chips like those in laptops and iPhones, did not come about because of a UBI. Instead, a focus on education in Taiwan led to TSMC having a large intellectual base from which they could hire. Therefore, if other countries want to escape poverty, then they should try to learn the lessons from the Asian Tigers. While following in the footsteps of these successful may not lead to surefire success, it provides a much better chance for poor countries to escape poverty. While success is not guaranteed, there are many crucial steps that the Asian Tigers took in order to better their chances — namely developing institutions and policies that helped develop their economies.
Some may argue that there have been countries that have tried to follow in the footsteps of the Asian tigers and failed, such as the Philippines. They are right, there is no secret to escaping poverty and becoming a prosperous nation, or else every nation would be rich. Looking at success and seeing what they did provides struggling countries the best chance they have to escape poverty. While UBI sounds like an attractive and easy idea to reduce poverty around the globe, it does little to fundamentally change why these countries continue to be poor. In fact, UBI could be detrimental to these nations because it is unaffordable for most and distracts these nations from doing what actually can help reduce poverty in the long term.
While a universal basic income is commonly thought of as a means to help alleviate poverty on a global scale, it is the wrong way to approach the problem. It is undeniable that the glamour of a simple solution such as UBI makes it an appealing method of tackling poverty, but it deceptively redirects people’s attention away from the solutions that can really make a difference in the long term.
Sources:
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020109.pdf
https://www.levyinstitute.org/pubs/wp_644.pdf
https://cdn.dal.ca/content/dam/dalhousie/pdf/faculty/science/economics/boballen.pdf
https://thestandrewseconomist.com/2020/06/27/universal-basic-income-for-developing-countries
https://www.washingtonpost.com/world/2020/04/09/pandemic-strengthens-case-universal-basic-income/
https://www.vox.com/future-perfect/2020/2/19/21112570/universal-basic-income-ubi-map
