Opinion - Universal basic income |02 August 2022

Universal Basic Income (UBI) is a provocative and controversial economic proposal which in theory could be adopted and delivered in many global economies. In some ways Seychelles is a suitable model for UBI. This paper intends to unwrap the basic principles of UBI, place them within the context of likely future economic development which is technologically driven, and consider its suitability – or otherwise – for Seychelles.

In the simplest terms, UBI is a regular payment – made without conditions – from a government to individual citizens. It has been advocated in several forms, and has been the subject of significant public debate – at times leading to referenda – in several wealthy countries. As yet it has not been fully adopted in any country but many economists advocate UBI as an inevitability due to the likely economic impact of robotics and AI. (See paper 6 for more on this).

Let’s begin by considering the five characteristics of Universal Basic Income;

1. Periodic—It is paid at regular intervals (for example every month), not as a one-off grant.

2. Monetary payment—It is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.

3. Individual—It is paid on an individual basis—and not, for instance, to households.

4. Universal—It is paid to all, without means test, although age conditions apply.

5. Unconditional—It is paid without a requirement to work or to demonstrate any willingness-to-work.

At first glance it seems an illogical manifestation of madness and irresponsible governance, with the idea of essentially paying every member of society a monthly stipend for (if they choose to) doing nothing which complies with capitalist expectations. Of course, when we describe a person as ‘doing nothing’ this is frequently far from the truth. In capitalist terms, referencing the act of ‘producing’, an unemployed person might be described as ‘doing nothing’, whereas he or she will in fact often be fully active throughout their day outside the context of productive labour which produces saleable goods and services.

Regardless, UBI has, since first being proposed, been derided and ridiculed. Therefore we have to responsibly examine the pros and cons carefully.

UBI’s critics point out that allocation of funds is standard and, because it is not means tested, it leads to an inefficient distribution of money. In other words, funds are given to those who don’t need them while the most-needy might not receive enough. This is an economic/fiscal concern.

But criticism also comes from moral and ethical positions, with opponents fearing the encouragement of laziness and the promotion of an indolent and non-productive culture.

Advocates respond by noting simple measures which can be put in place to ensure that social grants (which is essentially what UBI payments are) contribute only to economic velocity within that region or nation. For example, payments can be made in a unique and non-transferable currency form in order to ensure that the money is injected through spending into the local economy and is not used for, say, the funding of lavish overseas trips.

In 2020, the Freiburg Institute for Basic Income Studies (FRIBIS) held its first annual conference in order to shed light on the monetary issues of UBI. Monetary aspects are becoming more important due to an increasing economic interest in monetary innovations and major disruptions in central banking and finance and UBI research is being increasingly influenced by this development. In other words, Covid-19 has brought new pressures to bear on both the advocacy and the rejection of the UBI concept. The Institute, a major think tank, reported favourably on the prospect of continued consideration of UBI.

The key arguments for UBI are that it streamlines the bureaucratic mechanisms needed to process multi-faceted benefits such as disability, sickness and unemployment payments. Instead, we have a one stop shop which is more efficient, simpler and cheaper to administer. Then there is the issue of where the money goes, with advocates arguing that it will be spent locally and thereby support the development of businesses and the regional and national economy. The payments will in many cases be added to, for there is no restriction on recipients taking paid work which will greatly add to their spending power, spending which will be taxed through the VAT (or similar) system, and which will sustain the circuit of income and expenditure which drives the UBI model.

The Basic Income Earth Network (BIEN) offers the following in support of the concept:

Many reasons have all been invoked in Basic Income’s favour, including liberty and equality, efficiency and community, common ownership of the Earth and equal sharing in the benefits of technical progress, the flexibility of the labour market and the dignity of the poor, the fight against inhumane working conditions, the fight against the desertification of the countryside and against interregional inequalities, the viability of cooperatives and the promotion of adult education, autonomy from bosses, husbands and bureaucrats.

So, if it is such a great idea why has it not been adopted by the majority of the world’s wealthiest nations? We have to note that presently UBI exists only in proposal form, with prior referenda seeing the public vote against its introduction, and pilot schemes being seen as unconvincing and failing. These proposals differ; for instance, concerning the amount to be paid, the source of funding, the nature and size of reductions in other transfers that might accompany it, and so on.

The country with a system closest to universal basic income is Norway. Norway is a welfare state, ensuring that all Norwegian citizens residing in the country have access to certain fundamental goods and services, including access to education, universal health care, and income in the form of social security or benefits. However, Norway has specific conditions to be met to receive these benefits from the government, such as requiring citizens to try and find a job, be law-abiding, participate in elections, and pay taxes (which are among the world’s highest).

Critics often fall back on matters which fuse economics with psychology, one main argument against UBI being that it mitigates or removes the incentive to work, adversely affecting the economy and leading to a labour and skills shortage.

And, as indicated, where pilot schemes have been initiated the outcomes have not led to UBI being adopted or re-piloted with more people.

In Finland (pilot terminated in 2020) the basic income (given to people aged 25-58 at the rate of $636 per month) was below what unemployment benefits pay, which is 32.40 euros a day, or almost 1,000 euros ($1,135) a month — subject to income tax of about 30 percent. The basic income was tax free, but barely enough to live on for someone paying rent, so it kept pressure on the recipients to join the work force.

The pilot, which involved 2000 unemployed people, saw recipients become less stressed, healthier and more confident in the future than a 5,000-member control group of unemployment benefits recipients. But the final report confirmed that the basic income had not increased employment among those participating in the two-year trial, with the main benefit being that their general well-being increased.

Proponents of the scheme say it can empower people to start new businesses, knowing that they would continue to receive monthly income no matter how well their new venture does. It can also encourage people to try a new job without the fear of losing their unemployment cheques or having to go through the paperwork of reapplying for benefits.

Could UBI work in Seychelles?

Our immediate response, individually and collectively, might well be ‘no way!’

However, just as Seychelles has customised (and reduced in scope and cost) other international schemes across a number of domains, it might be interesting to explore any way in which modified adoption of aspects of the concept could make a contribution to our society.

One Council member points out that there have, in addition to schemes considered by rich nations, also been attempts to deliver modified versions of UBI in countries such as Kenya, Uganda, Malawi and Rwanda. In Kenya, GiveDirectly distributes cash to poor households in all of the forementioned nations, as well as Morocco, Liberia, Togo, DRC and the USA. Beneficiaries have been able to increase their consumption of food, medicine and education as well as invest in livestock, furniture and home improvements without seeing the negative externality of increasing alcohol and drug use.

This NGO declares its income source as follows:

‘Our programmes are funded by individual donors, foundations, businesses, and institutions’.

But not governments.

Whether this would work here is questionable, and some people will say that if we give an addict more cash, he will certainly spend it on more drugs. Yet there are studies to show that generally the opposite is true. Indeed, could UBI be a weapon in the fight against drug addiction?

Or can we learn little from countries where life is undeniably harder than life in Seychelles, even for the most ‘disadvantaged’?

If UBI would not work in Seychelles at the present time this does not preclude its introduction at some point in the future. We can ask what might need to happen and what economic and social changes might need to transpire in order for such a system to be viewed positively?

The changing nature of the world of work could make the UBI concept more credible in the future. Since there is unlikely to be enough work for every member of the labour force once the full impact of new technology is felt, the prospect of paying all age-eligible Seychellois citizens a basic income gains traction.The alternative would be to deliberately decline or block new tech innovations in order to protect the jobs vulnerable to robotics, AI and the like. However, to do so would isolate Seychelles from cutting edge developments. In the end it would be a King Canute exercise – futile in the face of the inevitable importation of new tech systems and resources. Additionally, recipients of UBI would make purchases of goods and services, almost all of which will generate VAT and additional indirect tax revenue for the government, thus reducing the net cost of the provision.

When we envisage essential modifications to the education system – largely in response to technical innovation and future potentials – we can identify new curriculum components such as the teaching of skills relating to positively curating time, creative, lateral and analytical thinking skills etc which could be complementary to UBI.

Perhaps the biggest challenge to UBI in Seychelles would be a deep-seated antagonism constructed around an aversion to ‘something for nothing’. Indeed, this position was passionately articulated by several Council members when UBI was discussed. This may in part be attributable to perceptions of local workers and the fear that were they to be included in a UBI scheme they would cease to make any meaningful contribution to society, economically or otherwise, and would constitute a cohort that is parasitic rather than symbiotic. There is the corresponding fear that some recipients of UBI would spend the money on drugs and/or alcohol, worsening national addiction statistics which are already exceptionally bad.

Contributed by the Mahé Council Think Tank

Disclaimer:

The views expressed in this opinion piece are those of the author(s) and do not necessarily reflect the views of the Seychelles NATION newspaper.