Sunday Nov 18

EXCERPT FROM Why We Need Citizen’s Basic Income: Real World Experiences with Citizen’s Basic Income

In the UK we already have Child Benefit, which functions as a universal benefit for children. We have already discussed the UK’s NHS: a universal, unconditional, nonwithdrawable and highly efficient public service. In this chapter I shall discuss the social dividend (a form of Citizen’s Basic Income) distributed in Alaska, Citizen’s Basic Income pilot projects conducted in Namibia and India, Iran’s cash benefit, and a number of other experiments.

Alaska

Since 1977 the State of Alaska has been receiving royalties from oil extraction on state-owned land at Prudhoe Bay, and about 20% of the royalties have been saved in the Alaska Permanent Fund. When the fund was established in 1976, the state legislature decided that the principal of the fund should accumulate, so that future generations could benefit from what was bound to be a temporary income stream. No decision was made about how income from the fund’s investments should be used, except that sufficient was to be added to the capital to inflation-proof the fund. When in 1979 Governor Jay Hammond2 proposed that some of the surplus interest might be distributed to Alaska’s citizens, the idea was warmly received. The initial proposal was that the dividend received by each citizen should be proportional to the number of years that they had lived there, but a legal challenge on the basis that this would discriminate against recent arrivals succeeded, and the outcome was an equal annual payment to every citizen of Alaska who had lived in the state for at least a year.3 In 2017 the Alaska Permanent Fund had a total value of $58.9 bn,4 and the annual dividend paid in 2016 was $1,022 to each eligible resident.5 The world had its first Citizen’s Basic Income: although in some ways it has not behaved like one because the payments are made annually, so the income does not function as a regular income, and the amount fluctuates with the profits generated by the Permanent Fund, meaning that the dividend cannot be relied upon to provide a firm income floor.6

When he had been Mayor of Bristol Bay Borough, Hammond had tried unsuccessfully to establish a social dividend on the basis of fishing revenues. When he became Governor of Alaska in 1974, he decided to try again, on a larger scale, and for the same reasons: to prevent resources being squandered on public projects driven by interest groups, to help the poor, and to reflect the common ownership of the state’s natural resources. This time he succeeded. The Alaska Permanent Fund owes its existence to the right person being in the right place at the right time. It also owes its existence to public opinion. In 1966 Alaska sold oil drilling rights and spent all of the money. Public perception was that the proceeds had been wasted. Suggesting that a proportion of oil revenues should be saved for future generations was therefore a popular move, and legislators of a variety of political views could support it, so the fund was relatively easy to establish. The dividend, however, divided opinion, and was eventually achieved only slowly by making compromises, and by building a coalition of policy makers. Unlike the Fund, the
dividend is not protected by a constitutional amendment.7 It is protected by the fact that every resident receives it, and none of them would wish to lose it.

The dividend has increased personal income, and therefore consumption, and has thus increased employment. In 1990 it was estimated that for every $1 distributed, 13 Alaskan jobs, mainly in the service and trade sectors, were created. The dividend has had an anti-inflationary effect,8 and it has helped the poor. Alaska is the only state in the US in which inequality has decreased during the past twenty years.9 Whereas in 1980 Alaska’s net income inequality was the highest in the United States, in 2013 it was the lowest.10

Can the model be exported? Such dividends are popular once they are in place. Even with its oil revenues, Alaska is not among the states with the highest per capita income, and it uses only a small and now declining proportion of the interest generated by the Alaska Permanent Fund to pay the dividend.11 If ‘resources’ were to be sufficiently broadly defined to include land values, then most countries could establish resource dividends if they wished to do so. The Alaska model could therefore be tried elsewhere,12 and dividends established elsewhere would be at least as secure as Alaska’s. A change of government can easily lead to the abolition of targeted programmes, but a change of political ethos cannot damage the Alaska Permanent Fund or the dividend. The dividend has no enemies so there is no opposition movement in which a politician can make a home.13

Iran

Iran now has a cash transfer programme that looks remarkably like a Citizen’s Basic Income. In 2010 the Iranian government replaced subsidies on food and fuel with an unconditional cash payment of 455,000 rials per month (about US$40) to every individual.15

Before the reform, 70% of the food and fuel subsidies went to 30% of the population, and resulted in wasteful consumption of energy and foodstuffs, lack of investment, pollution and smuggling to countries that did not benefit from such subsidies.16 When the replacement of subsidies by cash transfers was first discussed, the plan was to provide additional cash to poorer members of society via a means test, and 17 million households completed means-test questionnaires. It was the public unrest resulting from that exercise that led to the abandonment of the means test. As soon as the suggestion was made that the money should be given to everyone (since the wealthy are taxed more than they would receive from the cash transfer), it just seemed obvious. Most of the households that had not applied for the payment then did so. The only requirement was that those who received the cash transfer had to complete tax returns. 96% of the population received the payments.17
In one respect the Iranian cash subsidy (the official designation) is not a Citizen’s Basic Income. The head of the household receives all of the household’s individual entitlements, so although the individual is the claimant unit in relation to the income’s calculation, the individual is not the claimant unit in relation to the income’s payment. The transfer is not truly universal either. Afghan refugees, many of whom have lived in Iran for decades, do not receive the cash subsidy, but do suffer price rises related to the withdrawal of commodity subsidies. Neither is it clear how sustainable the cash subsidy would be if oil revenues were to decline because the total value of the unconditional incomes has been above the savings from the abolition of fuel and food subsidies, giving rise to inflation, and because the language of rights has played no part in the establishment of the scheme, which both the government and the population regard as a pragmatic measure, and not necessarily a permanent one.18 An interesting question is the extent to which a universal payment will itself generate a concept of rights and a broader acceptance of democratic government. The scheme is enshrined in law, and it is possible that the resulting economic efficiencies, new investment, poverty reduction, and particularly income security, will recommend the scheme to both government and public as a longer-term necessity.19

While the cash subsidy does not constitute a subsistence income, it is a substantial start. For a family of five, it comes to something like two thirds of subsistence. If the research opportunity that the Iranian scheme might offer is taken up then we shall have available to us information that we do not yet have on how a Citizen’s Basic Income affects employment, consumption and household patterns.

The Iranian scheme is hugely important. We had thought that the widespread European debate on the benefits of a Citizen’s Basic Income20 might one day result in a Citizen’s Basic Income being established in a European country, so that Europe would be the first continent to see a genuine unconditional and nonwithdrawable income for every legal resident. But it was not to be. Alaska has now paid a Citizen’s Basic Income (an annual one) for 30 years; and now Iran has something very close to a Citizen’s Basic Income. A possible conclusion to draw is that this is one more signal of the end of US-European hegemony. The empire is dying and new empires are taking shape, doing what new empires always do: doing things in new ways, and in ways that the old empires (therefore) refuse, thus hastening their decline.

Nambia

Guy Standing22 started his presentation with the heart of his message: poverty is primarily a lack of money, so what people need is a means of providing economic security that is not paternalistic, is based on rights and not charity, benefits the most disadvantaged, encourages ecological  restraint and promotes dignified work.23 Of the three types of cash transfers available:

• universalistic and unconditional;
• targeted (usually on groups deemed to be the poorest, often by means-testing); and
• selective (for instance: in Latin America, cash transfers are received by poorer families who send their children to school, again requiring meanstesting);

means-tested systems suffer from problems familiar to developed countries, such as unemployment traps, poverty traps and savings traps: so in Africa new methods must be sought. At a BIEN Congress in Cape Town in 2006 much support was expressed for unconditional cash transfers, especially among trades unionists and community and church representatives – and now a pilot project involving two Namibian villages had answered some common criticisms of unconditional transfers: that they would reduce labour supply, would go to the rich as well as the poor, would be wasted on alcohol and other undesirable expenditure, would be unaffordable and would lower incentives to save. The pilot project ran from 2007 to 2009. It built on an existing debate about the possibility of a Citizen’s Basic Income in Namibia,24 and also on the existing Namibian universal pension. It gave to each of a thousand inhabitants of two villages a Basic Income Grant (a Citizen’s Basic Income) of N$100 a month for every man, woman and child (100 Namibian dollars is about US$12). The costs were borne by donors, mostly in the form of voluntary contributions, and the project was carefully watched by potential donors, including the World Bank.

The team organising the pilot conducted a benchmark survey and an evaluation survey. The results were significant:25

• Household poverty dropped. In November 2007, 76% of residents of the two villages fell below a food poverty line. Within a year, this was reduced to 37%. Those households that were not joined by family members from outside the project villages (an understandable migration) saw poverty levels reduced from 76% to just 16%.
• The proportion of people engaged in economic activity rose from 44% to 55%, often through own-account work of various kinds: and especially through such initiatives as the tending of vegetable plots and the building of latrines, which directly led to an increase in the community’s health.
• Far from leading to idleness and a decrease in economic activity, the economic security that a Citizen’s Basic Income offered to people gave them the confidence to take the economic risks necessary for new productive activity.
• Child malnutrition fell. Children’s weight-forage improved in just six months from 42% of underweight children to just 10% by the end of the project.
• Before the pilot project, almost half of the villages’ children did not attend school regularly. Pass rates were at 40%, and drop-out rates were high. This was mainly because parents had to pay fees for their children to attend school. By the end of the project, 90% of parents were paying school fees, and most children now attend school. Drop-out rates fell from 40% to almost zero during the project.
• The clinic, like the school, is funded by attendees’ payments. During the project, residents could pay the attendance fee, use of the clinic increased sixfold, and the income of the clinic increased five-fold.
• During the first year of the project, average household debt fell from N$1,215 to N$772. Savings increased, as did ownership of livestock.
• Crime rates fell by 42% during the project. Theft of stock fell by a similar amount, giving people the confidence to invest in assets.
• The Citizen’s Basic Income gave to women a new economic independence, and paid-for sex was reduced accordingly.
• There was no evidence that the Citizen’s Basic Income led to an increase in alcoholism.
• Administrative costs were just 3–4% of the total outlay.26
• The villages of their own volition elected an advisory committee of 18 residents, and among its achievements were the opening of a post office, the establishment of savings accounts, and the closure of shebeens on the day of the monthly distribution of the grants.
• New shops were opened.
• The number of people experiencing daily food shortages fell from 30% to 12% of the population in just six months.
• The number of people who rarely experienced food shortages rose from 20% to 60% of the population.
• Economic activity rose fastest among women.
• Average income rose in every earnings quintile, and proportionately more for lower quintiles.
• Average income rose a staggering 200% in the lowest quintile excluding the N$100 (US$12) Citizen’s Basic Income, because people could now purchase the means for making an income, and they did.
• Low-wage employment was in many cases replaced by better-paid self-employment.

Following the end of the two-year pilot project, additional small unconditional grants had similar effects.27

The pilot project passed all of the tests: it was based on rights, not charity; it was not paternalistic; it benefited the poorest most; it promoted dignified work; and the kind of activity that it promoted cared for the environment: and the project refuted the critics of unconditional cash transfers. Far from encouraging dependency, the Citizen’s Basic Income increased enterprise; far from leading to waste of resources, it encouraged productive use of resources; and far from being unaffordable, the level of Citizen’s Basic Income employed in the pilot project would, if extended to the country as a whole, cost just 2.2% to 3.8% of GDP, and the increased economic activity generated by the Citizen’s Basic Income would by itself pay the entire cost.

Additional findings of the pilot project were that the Citizen’s Basic Income was not inflationary; that women’s economic status had risen relative to men’s; that the Citizen’s Basic Income was more effective than conditional transfers partly because it could not be removed by a local bureaucrat if someone upset them, as a conditional cash transfer could be; that because unconditional payments limit the power of bureaucrats, more of the money reached the poor; that in the context of today’s more flexible employment markets, trades unions are more willing to support a Citizen’s Basic Income; and that surveys in Africa have found that 80% of people favour unconditionality.

Standing speculated that one reason why policy makers in Africa and elsewhere do not like the idea of a Citizen’s Basic Income is that the scheme is emancipatory:28 it allows people to make choices for themselves, and it does not allow policy makers to interfere in people’s lives by imposing conditions on cash transfers.

The most vigorous, and to some extent hostile, questioning at the seminar came from people who worked for non-governmental organisations committed to providing goods and services in Africa and elsewhere. Is it not better to build schools for people than to give them money? Well, no, not necessarily: because if they are given the money then they will build the kind of school that they need, not the kind that someone outside the situation thinks that they need. The main achievement of the pilot project was that it proved that people do not waste money– they invest it wisely: in their children’s nourishment, health and education, in income-generating activity, and in the infrastructure that their community needs.

After the end of the pilot project, Namibia’s government showed no interest in the results, and the Prime Minister dismissed the Citizen’s Basic Income idea: ‘We can’t dish out money for free to people who do nothing.’ Initially the trades union movement followed the government’s lead and withdrew from the alliance that had sponsored the pilot project. A vociferous public reaction provoked trades union re-engagement, and for the first time the movement found itself in opposition to the government. Subsequently more interest has been shown, and in 2015 the Namibian president included a Citizen’s Basic Income in his anti-poverty strategy: but so far nothing has come of that stated interest.29

Malcolm Torry has been Director of the Citizen’s Basic Income Trust since 2001. He is also a Visiting Senior Fellow at the London School of Economics. Why We Need a Citizen’s Basic Income is available from Policy Press at www.policypress.co.uk

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