Is Universal Basic Income Part of a Just Transition?

In the remote rural village of Dauphin, in the Canadian province of Manitoba, economists tried out an unusual experiment. In the 1970s, they persuaded the provincial government to give cash payments to poorer families to see if a guaranteed basic income could improve their outcomes. During the years of this “Mincome” experiment, families received a basic income of 16,000 Canadian dollars (or a top up to that amount). With 10,000 inhabitants, Dauphin was just big enough to be a good data set but not too big as to bankrupt the government.

The results were startling, including a significant drop in hospitalizations and an improvement in high school graduation rates. After four years, however, money for the experiment dried up, and this early example of universal basic income (UBI) was nearly forgotten.

Today, such UBI projects have become more commonplace. In the U.S. presidential race in 2020, Andrew Yang made his “freedom dividend” of $1,000 a month a centerpiece of his political campaign. Several pilot projects are up and running in California. In fact, at least 28 U.S. cities currently give out no-strings-attached cash on a regular basis (since the recipients are all low-income, these programs aren’t technically “universal”). In other countries, too, basic income projects have become more popular, including a new citizen’s basic income project in the Brazilian city of Maricá. Basic income programs were in place, briefly, in both Mongolia and Iran. Civil society organizations like the Latin American Network for Basic Income have pushed for change from below.

Unlike the mid-1970s, universal basic income must contend with two sets of factors: the weight of old but institutionalized social welfare systems and the demands of new priorities, particularly environmental ones.

“The old welfare systems are based on sustained economic development, on economic growth that creates jobs and fiscal resources,” points out economist Ruben Lo Vuolo, a member of the Centro Interdisciplinario de Estudios de Políticas Públicas in Argentina, at a recent discussion of UBI sponsored by the Ecosocial Pact of the South and Global Just Transition. “They are structured based on the fact that people will have jobs and contribute over the course of their lifetimes and the state will have fiscal resources to cover them. But now the state says that it can’t keep growing and can’t generate jobs as it did before. We’re seeing less growth than in the 1950s or the 1970s but more inequality and more carbon emissions. So, the basis of the social-welfare system has been seriously questioned by climate change.”

This conflict between the logic of the social-welfare state and the imperative to reduce resource use means that “we have to stop thinking about a state that can repair damages and start thinking about one that prevents damages: a state that’s not so concerned about economic growth and then redistribution but redistribution itself,” Lo Vuolo continues. The social welfare state provides compensation to those who have lost their jobs, experienced a health emergency, or needed extra provisions to feed the family. Instead, a new eco-social state should be thinking of ways to prevent those negative outcomes in the first place.

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Key to this challenge of redistribution, of course, is the question of mechanism. Does the state rely on the market to meet basic needs or on other methods of assessing and then fulfilling those needs? One of the chief defects of the market is its focus on short-term outcomes. “With an economy based on market preferences, it is impossible to generate an intergenerational pact that takes on climate change,” Lo Vuolo adds. “If we continue on this path, future generations won’t have a healthy environment.”

One of the chief preoccupations of a social-welfare state is to make sure that those who have sufficient resources don’t receive assistance. This has led to often complex systems of “means testing.”

Universal basic income strategies, Lo Vuolo points out, flip this approach on its head. Instead of focusing so many human resources on ensuring that the well-off do not receive benefits, the universal character of UBI guarantees that no one who needs help is left out. A progressive tax policy, meanwhile, targets sectors where wealth is concentrated to address questions of “unfair distribution” as well as to finance the universal benefits. Such a “sustainable distribution” system has the additional benefit of suppressing consumption among the wealthy even as it boosts consumption among the most vulnerable sectors.

A UBI strategy can’t work, however, if individuals have to pay for public goods like education and transportation. The reduction of a country’s carbon footprint, meanwhile, requires not only robust public systems at the national level but institutions at the global level that coordinate mitigation. However, the track record so far of compliance with global pacts to reduce carbon emissions has been dismal.

The Stockton Example

Stockton is a mid-sized city in California with a population of over 300,000 people. It is located about 85 miles east of San Francisco in the agriculture-rich Central Valley. In 2012, it also declared bankruptcy, the largest U.S. city to do so at the time. In response, the municipal government slashed public services. Unemployment spiked, and the lack of affordable housing led to a sharp increase in homelessness. One in four citizens lived below the poverty line.

In 2017, Stockton chose to participate in an experiment very similar to the one that took place in Dauphin in the 1970s. The Stockton Economic Empowerment Demonstration (SEED), as its name suggests, emphasizes the choices people make and the agency they exercise in making those choices. To qualify to participate in SEED, you had to be a Stockton resident in a neighborhood that was at or below the city’s median income of about $46,000. Participants were selected randomly. One hundred and twenty-five people were given $500 a month for two years. The other participants in the program, by receiving nothing, constituted a control group.

To determine the efficacy of the experiment, researchers asked three questions: how did the additional payment affect monthly income volatility, how did that volatility influence wellbeing, and how did guaranteed income improve participants’ ability to control their future?

As SEED’s Research and Program Officer Erin Coltrera explains, the group that received the universal income had considerably less income volatility. “There is an oft-cited statistic that nearly half of US citizens would choose not to pay a $400 emergency expense with cash or cash equivalent,” she reports. “They might use debt instead. But this has long-term implications because it means that a $400 emergency will cost more over time.” With the additional $500 a month, SEED participants were more likely to be able to handle an emergency with cash.

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As in Dauphin, the Stockton experiment demonstrated clear improvements in mental health. Coltrera quotes one participant: “I had panic attacks and anxiety. I had to take a pill for it. I haven’t taken that in a while. I used to have to carry pills with me all the time.”

The basic income made a particular difference for women performing unpaid care work. “The SEED money allowed them to prioritize themselves in ways they’d ignored, for instance to catch up on their medical care or to center themselves in their own narrative,” Coltrera explains.

One criticism of basic income payments is that they discourage recipients from seeking employment. The SEED project demonstrated the opposite. At the beginning of the experiment, only 28 percent of recipients had full time employment. One year later, that number had grown to 40 percent.

“Recipients were able to leverage the payment to improve their employment prospects,” Coltrera says. “The $500 allowed participants to reduce part-time work to finish training or coursework that then led to full time employment.” One recipient, for instance, had been eligible for a real estate license for a year but hadn’t been able to take the time off to complete the license. The $500 allowed the person to take the time off and complete their license, opening up employment and other economic opportunities.

The money also provided people with more choice. They could choose to stop living with family, for instance, which meant freeing up time previously spent on unpaid care work. “Once basic needs are met,” Coltrera explains, “people could describe small and meaningful pathways to authentic trust, choice, and a sense of safety.”

Critiques of UBI

One of the major criticisms of universal basic income is that it encourages “parasitism.” If people receive money with no strings attached, they will become dependent on these handouts and stop working. “There is this logic that if you’re not receiving remuneration for some activity, then you’re not doing anything,” reports Ailynn Torres, a Cuban researcher with the Rosa Luxemburg Foundation based in Ecuador. As the Stockton case demonstrates, however, the payments didn’t reduce participation in the labor market. And the payments reach people who are otherwise overlooked by the social welfare system, such as those who engage in unpaid household work.

Another critique of UBI is that it’s not a good way to fight poverty compared to targeted subsidies. On the other hand, the social welfare system that provides such subsidies carries substantial administrative costs. Such a system has often fostered clientelism and bureaucracy and created systemic dependency.

A third critique, from the left, is that UBI is not anti-capitalist. “UBI is not a magic pill that will put an end to bad things in society,” Torres concedes. “But because it is universal and unconditional, it helps people without anything. It allows us to rethink different realities and explore the interdependence of rights. And what is more important than sustaining life? UBI is not utopian but a political program that has been shown to be feasible.”

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A final critique involves the overall cost of UBI. “We’ve seen debate on how to finance this,” Torres continues. “Critics say, ’It’s really expensive, we can’t finance it.’ But could you make it possible by eliminating local subsidies and bundling programs together, removing administrative costs and actually increasing benefits? Really, we should turn the question around. It’s not how much UBI costs. It’s how much does it cost not to have UBI.”

Several countries in Latin America are looking into some version of UBI. Uruguay is exploring the financing of UBI through a personal wealth tax. Mexico, too, is looking at progressive tax reforms to cover a universal pension of the elderly and a basic income for children. Argentina instituted an Emergency Family Income program during the pandemic to sustain about 9 million people during the lockdown and economic downturn. According to one estimate, an extended UBI would cost 2.9 percent of Argentina’s GDP. Another estimate, for Brazil, suggests that one percent of GDP could cover the basic income for the poorest 30 percent of the population.

Still, more research is necessary to show how UBI can strengthen community networks, how it can increase access to basic services including banks, and what kind of differential impact it has on different ethnic communities. Introducing more money into Amazonian indigenous communities, where livelihoods are relatively independent of capitalist market relations and people have long fought for the recognition of collective rights, might cause more harm than good, for example. Thus, in culturally diverse countries, especially around indigenous peoples, an intercultural adaptation of UBI according to the collective decisions of recipients might be in order.

Amaia Perez Orozco, a feminist economist from Spain, believes that a UBI can be part of a package deal of socio-economic transformation. Much depends, however, on how it is financed and implemented. The challenge, she notes, is the broader context of ecological collapse, racial inequality, and the greater precarity of life under spreading mercantilization. “Can UBI play an emancipatory role in this context?” she asks.

So, for instance, does a UBI provide people with money to pay for private health insurance or is the UBI embedded in a system of national health care? Does UBI contribute to greater national debt and thus dependency on global financial markets? Is UBI boosting unsustainable consumption and making the hoarding of resources worse? Will men, provided with a basic income, increase their care work or will UBIs reinforce gender divisions and others, based on race or class as the wealthier continue to externalize these jobs?

On the other hand, if UBI reduces material dependency for women, “it could open the way to new jobs, new opportunities for leisure, the option to leave violent relationships,” Ailynn Torres adds. “Women would have more opportunities to negotiate their work conditions.”
*[This article was originally published by FPIF.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.