.

Aid Career Masterclass: Brisbane - Final Places Available  Learn more

Universal Basic Income: Where’s The Evidence?

Monday, Oct 01, 2018
by Humanitarian Institute

UBI

Special series: Bits and Atoms Author: Nik Dawson


Distorted history

The concept of a guaranteed income is not new.

In 1795, a group of magistrates in the English village of Speenhamland devised a plan to alleviate rural inequality caused by rising grain prices.(1) Poor men and their families received wage supplements to cope with the inflated costs of living. The top-up wages varied according to the number of children and the price of bread. Instead of fixing minimum wages, all poor households in the area received a living wage, regardless of whether they worked or not.

The Speenhamland system was a reflection of the times. The French Revolution sent a cautionary warning across Europe of the effects of social discontent. As the price of grain continued to rise in England, so too did the threats of social upheaval. The Speenhamland system was, therefore, a means of placating the rural poor by providing a subsistence wage to meet the soaring costs of living.

Interest in the new welfare model caught on throughout Southern England. Prime Minister William Pitt even tried to institute it as national policy.(2) Everything appeared to be going well; hunger was alleviated and threats of revolt subsided. A new perspective on welfare was emerging; giving poor people money unconditionally was good for the poor and for society.

Then the tide of intellectual opinion began to shift. Some of the most influential minds at the time voiced objection. Thomas Malthus, a scholar of political economy and demography, claimed that the Speenhamland system would encourage irresponsible procreation by the poor, contributing to untenable population growth.(3) Economist and friend, David Ricardo, believed that the welfare system would discourage work.(4)

And even Karl Marx asserted in Das Kapital that a guaranteed income would lower wages as it removes the pressures to pay workers a decent wage because subsistence costs had already been covered.(5)

In 1830, economic conditions worsened and thousands of agricultural workers took to the streets, demanding a living wage. The British government launched a national inquiry into agricultural working conditions, which included an assessment of the Speenhamland system. The 13,000-page report found the Speenhamland system to have been a complete failure.

The population had exploded, wages had fallen, and anti-social behaviours had increased. And the Speenhamland system contributed to this disaster.

Critics were quick to dismiss it as a failed social experiment and promptly reversed welfare policies. The Speenhamland system was dismantled in 1834 and so began the era of ‘workhouses’, one of the more senseless forms of slave labour in the name of ‘public assistance’.

But as time marched on, the accuracy of the report came into question. A century-and-a-half later historians found a litany of inconsistencies in the report that brought down the Speenhamland system. The text had been written before data had been collected, survey data was significantly incomplete, and almost none of the survey respondents were beneficiaries.(6) The report that had caused an about-face in welfare policy was largely an ideological fabrication.

Since then, national welfare policies have erred on the side of ‘active’ and conditional measures. That is, providing welfare assistance predicated on certain conditions, such as participation in mandatory training, community service, and job search requirements.

President Nixon’s backflip

In 1969, guaranteed income reemerged as President Nixon was preparing a bold poverty-alleviation plan. His proposed policy was to unconditionally give every poor family of four in America not earning an income $1,600 per year (approximately US$11,000 today), plus food stamps. The income would progressively decrease as household earnings increased. The programme had broad support from the right and left, even with conservative economist Milton Freidman.(7)

Then support began to spiral. Just before the Bill was put to the Senate an adviser to Nixon presented him with a memo detailing the failures of the Speenhamland system, based on the problematic report. Nixon panicked and concerns spread that such an approach would discentivise the poor from working. The plan was killed in the Senate and work requirements became a mandatory condition of the welfare reforms.

Blog Middle4

History rhymes

Fast forward to today, the looming threats of labour automation have resurrected discussions of a guaranteed income. This time under the guise of a ‘Universal Basic Income’ (UBI). And support has once again come from an ideologically diverse group of high profile figures. Technology entrepreneurs, such as Elon Musk and Mark Zuckerberg, see it as a necessary means to manage the coming structural changes to industry.(8)

Progressive scholars, like David Graeber, view it as an opportunity to improve the social safety net and equality of opportunity, which would encourage risk-taking and the pursuit of passion.(9) Whereas intellectuals on the right, such as the Adam Smith Institute, advocate for a UBI on the grounds of individualism, claiming it could replace expensive and inefficient welfare programmes.(10)

All of this presumes that this wide and growing group of advocates agree on what UBI is.

So, what is Universal Basic Income?

As an overview, Bridgewater Associates, an investment management firm, define UBI as a cash transfer that includes the following characteristics:(11)

  • Universal: everyone receives a cash transfer, regardless of employment and earnings status; 
  • Unconditional: there are no limits on how the cash transfers are to be spent;
  • Basic: the amount of the cash transfer will cover the subsistence needs of people in a particular society;
  • Long-term: the cash transfers will continue over a long-term period, such as the adult life of an individual.

It is important to note that there are still inconsistencies with defining these characteristics. Does ‘Universal’ mean that all of the world’s adult population will receive a basic income, or just populations at national or provincial levels? And what constitutes ‘Basic’? Is it an income level consistent with the national poverty line, or does it also include services like education and healthcare? The extent of UBI varies significantly among its advocates.

Where is it being trialled?

Other than some oil-rich countries in the Middle East that transfer oil dividends in the form of public employment subsidies, such as Saudi Arabia and Kuwait, there are only isolated studies. Finland launched a pilot version of a basic income in January of 2017, where a random sample of 2,000 unemployed people were given €560 per month with no obligations. The Finnish government, however, has elected to discontinue the trial at the end of 2018, leading to questions of its efficacy.(12)

Other trials continue. Cities in Canada, Scotland, the Netherlands, Iran, and the US are all in the early stages of running pilot programmes to test the effects of the policy. For example, in 2017, the Silicon Valley startup incubator Y Combinator began funding a multi-year study to test the effects of basic income in Oakland, California.(13)

All of these trials will take up to a decade to conclude and properly assess.

Knowledge Bank v6.0

What’s the evidence?

Despite impassioned claims of UBI’s benefits, there have been no true case studies of its implementation. The evidence that UBI proponents regularly call upon are actually examples of unconditional cash transfers to the poor. They are not universal and they only serve a segment of the population.

That said, unconditional cash transfers to the poor have shown encouraging results. In developing countries, they have resulted in:(14)

  • improved employment outcomes; 
  • increased investment and saving rates; 
  • no increase in the consumption of ‘temptation goods’ (alcohol, drugs etc.); 
  • general improvements in health and education outcomes; 
  • increases in entrepreneurial activity; and 
  • a notable decline in child labour.

GiveDirectly, a philanthropic organisation that facilitates direct transfers to poor people in rural Kenya, is currently conducting the largest randomised control trial of basic income in history.(15) While the programme is still in its early stages, early qualitative results are encouraging and reinforce the findings mentioned above.(16) The benefits in developed countries have been less apparent, but there are still signs of positive effects on economic and general wellbeing, with only a modest reduction in work effort (5-10% less).(17)

Conclusion

While UBI is an interesting concept to consider, it is far from obvious that it is the optimal welfare policy. The evidence that does exist relates specifically to unconditional cash transfers to the poor (particularly the very poor in developing countries), which does not satisfy the ‘Universal’ characteristic of UBI.

This evidence, however, could provide grounds for a new approach to foreign aid, philanthropy, and how aspects of welfare are distributed, but it is not the same as UBI.

Additionally, a UBI presupposes that giving money unconditionally to people is always better than directing resources to targeted programmes. These broad assertions are more ideological than factual. There are a range of active and targeted measures that are proven to have positive outcomes on welfare, such as job search assistance and targeted training programmes for unemployed populations.(18)

And the costs appear prohibitively expensive.

Recent economic modelling found that even if all social spending (ex-healthcare) were removed to fund a UBI, advanced OECD countries would struggle to provide their citizens with a poverty-level wage.(19) This is even the case under scenarios where basic income payments would progressively decline to zero once citizens began earning US$120,000 pa. (technically not a UBI, but a Negative Income Tax)

Regardless of costs, I don’t believe UBI is a viable option.

The evidence is not established and doing away with all targeted measures dismisses a lot of great progress.

Where I am intrigued and optimistic, however, are the growing incidences of unconditional cash transfers for the poor. The evidence is encouraging and there’s potential for these measures to become a growing part of national welfare policies. The current pilot schemes will provide the evidence base to assess their suitability for future policies.

But implementing a UBI in the absence of strong evidence is politically and economically unrealistic.


Free Membership v6.0

Endnotes

1. Speizman, Milton D. 1966. “Speenhamland: An Experiment in Guaranteed Income.” The Social Service Review 40 (1): 44–55.
2. Craig, Sheryl. 2015. “Pride and Prejudice: The Speenhamland System.” In Jane Austen and the State of the Nation, edited by Sheryl Craig, 48–71. London: Palgrave Macmillan UK.
3. Malthus, T.R., 1872. An Essay on the Principle of Population.
4. Ricardo, D., 1891. Principles of political economy and taxation. G. Bell.
5. Marx, K., 1867. Das Kapital, Band I, English translation by Ben Fowkes of the 4th edition (1894).
6. Rutger, Bregman. 2018. Utopia for Realists: And How We Can Get There. Bloomsbury. pg. 87.
7. Friedman, Milton. 2002. Capitalism and Freedom: Fortieth Anniversary Edition. First Edition. University of Chicago Press. pg. 192.
8. Clifford, Catherine. 2018. “Elon Musk: Free Cash Handouts from the Government ‘will Be Necessary’ If Robots Take Humans’ Jobs.” CNBC. Reuters Pictures. February 7, 2018. https://www.cnbc.com/2018/06/18/elon-musk-automated-jobs-could-make-ubi-cash-handouts-necessary.html.
9. Graeber, David. 2018. Bullshit Jobs: A Theory. 1 edition. Penguin Books Ltd.
10. Weber, Emma. n.d. “Nine Arguments against Basic Income Debunked.” Adam Smith Institute. Accessed September 28, 2018. https://www.adamsmith.org/blog/nine-arguments-against-a-basic-income-system-debunked.
11. Dalio, Ray. 2018. “Primer on Universal Basic Income.” https://www.linkedin.com/pulse/primer-universal-basic-income-ray-dalio/.
12. Weber, Emma. n.d. “Nine Arguments against Basic Income Debunked.” Adam Smith Institute. Accessed September 28, 2018. https://www.adamsmith.org/blog/nine-arguments-against-a-basic-income-system-debunked.
13. “The First Study of Basic Income in the United States.” n.d. YC Research. Accessed September 27, 2018. https://basicincome.ycr.org/.
14. Hagen-Zanker, Jessica, Francesca Bastagli, Luke Harman, Valentina Barca, Georgina Sturge, and Tanja Schmidt. 2016. “Understanding the Impact of Cash Transfers: The Evidence.” ODI. https://www.odi.org/sites/odi.org.uk/files/resource-documents/10748.pdf.
15. “GiveDirectly’s Basic Income Guarantee.” n.d. GiveDirectly. Accessed September 27, 2018. https://www.givedirectly.org/basic-income.
16. Douillard, Austin. 2017. “US / KENYA: New Study Published on Results of Basic Income Pilot in Kenya | Basic Income News.” BIEN. March 27, 2017. http://basicincome.org/news/2017/03/us-kenya-new-study-published-results-basic-income-pilot-kenya/.
17. Widerquist, Karl. 2005. “A Failure to Communicate: What (if Anything) Can We Learn from the Negative Income Tax Experiments?” The Journal of Socio-Economics 34 (1): 49–81.
18. Card, David, Jochen Kluve, and Andrea Weber. 2018. “What Works? A Meta-Analysis of Recent Active Labor Market Program Evaluations.” Journal of the European Economic Association 16 (3): 894–931; OECD. 2018. OECD Employment Outlook 2018. Paris: OECD Publishing.
19. Dalio, Ray. 2018. “Primer on Universal Basic Income.” https://www.linkedin.com/pulse/primer-universal-basic-income-ray-dalio/.


© 2018 Humanitarian Institute. All rights reserved.