In recent years, there has been renewed interest in the concept of Universal Basic Income (UBI), especially as relates to its use in the Global South as a development tool. As new and increased attention is turned to the potential of UBI schemes, it is worth briefly examining the history of UBI, exploring recent studies on the concept, and finally considering its viability and usefulness as a mechanism for international development.
There is no agreement over when the theory of UBI came into being. Some attribute it to the Renaissance era English statesman Sir Thomas More, others to radical socialists from the turn of the 19th century such as Thomas Spence and Charles Fourier, and there is even an argument for crediting Neoclassical economist Milton Friedman for its inception. Regardless of the exact origins, it is apparent that many notable thought leaders have considered the merits of providing a basic income to allow all persons the ability to meet their basic needs.
Precise definitions of UBI may differ, but the general consensus is that it consists of a system of regular and unconditional cash payments which are made to all individuals within a given community or state, regardless of other income or wealth. There are no current examples of UBI being implemented on a national scale, although Mongolia and Iran have experimented with it for short periods in the past. Up until fairly recently, the high point of interest in UBI had been in the 1960s and 70s. There were numerous trials in the United States; for example, the Richard Nixon-backed Family Assistance Plan – which contained unconditional cash transfers to poor families regardless of employment status – was debated through Congress, but the plan was scrapped amidst a hardening of conservative rhetoric against social welfare, and UBI faded from the mainstream.
In the aftermath of the 2008 financial crash, UBI proponents reemerged. Following widespread international press attention of a 2016 referendum in Switzerland on the subject and the launch of a large-scale pilot study in Finland, the theory was unquestionably back in the intellectual and public discourse. The Finnish study – which ran from 2017 to 2018 and provided 2,000 randomly selected unemployed people with a regular monthly income of €560 – produced mixed results for UBI supporters. On the one hand, to the disappointment of proponents, recipients had no statistically significant increase in the proportion of employment compared to the control group. However, it did lead to clear increases in happiness and life satisfaction, with the proportion of those who self-identified with depression 45% higher in the control group than those who received the payment. This finding, combined with researchers’ claims that the removal of welfare benefits for those who received the scheme could have impacted the results on employment, has sustained optimism around UBI’s prospects within the Western world.
UBI is a somewhat newer idea when it comes to the development sector. Historically, there has been a greater focus on in-kind transfers rather than cash, with the provision of specific goods and services – such as food, medical supplies, livestock, schools, and hospitals – believed to be more beneficial than cash alone. Although this view remains prominent in many circles, the increased accessibility of cash transfers due to electronic payments has contributed to a rise in what are termed Unconditional Cash Transfers, or UCTs. The World Bank identified 552 million people in the developed world who received a government cash transfer in 2018 alone. UCTs are distinct from UBI models: whilst they are unconditional, rather than being sent on the condition of being spent on specific things (e.g. schooling or healthcare), they target specific groups rather than being paid universally. One example of a UCT being implemented on a national scale is the Social Cash Transfer Program of Malawi, which provides cash transfers of between $3 and $7 per month to ultra-poor and labor-constrained households. The program has been linked to poverty reduction and also improvements in mental health, with a 2019 study showing recipients had a 15% lower probability of having depressive symptoms than a control group. Despite their differences, both concepts represent a shift to the view that cash transfers are an effective means of development and poverty reduction. Indeed, the recent blossoming of support for UBI in the Global South owes much to the prior success of UCTs.
At the forefront of the research into UBI in the developing world is the non-profit GiveDirectly, which is conducting a massive pilot project in Kenya. The project, which began in 2017, is giving monthly grants – equivalent to $0.75 per adult per day – to 44 villages for 12 years. They are comparing this subset to other treatment arms including 80 villages receiving the same monthly amount but for only two years, 71 villages where recipients received the same amount as the short-term basic income group but as a lump sum, and a control group of 100 villages. An initial report, published in December 2020, looked at the effects of the project during the COVID-19 pandemic. It found that recipients of UBI were 4.9-10.8% less likely to report experiencing hunger during the last 30 days and 3.6-5.7% less likely to have had a household member sick over the same period. This was all despite recipients having seen greater losses of income during the COVID shock as compared to the control group. The report posited that this was likely due to the fact that, prior to the pandemic, UBI had “induced recipients to undertake relatively risky income-generating activities, knowing they could still hedge risks to their most basic needs.” Therefore, even when the aggregate shock of COVID-19 had affected the income of UBI recipients more than those of the control, they still maintained better health and well-being outcomes.
These initial findings suggest that UBI may be a positive tool for development, but it is important to discuss its potential disadvantages. Firstly, there is the old adage that if you give cash to people in poverty they will spend it on so-called ‘temptation goods’, such as alcohol or cigarettes, rather than productively. Yet this is not borne out by the evidence; for example, a 2017 study found cash transfers had, on average, reduced expenditure on temptation goods by 0.18 standard deviations. Another common criticism of UBI is that it may disincentivize work. The argument is that if people can attain a minimum standard of living without working, they may choose not to work at all. Yet, as the Finland and Kenya studies illustrate, whilst UBI has not been shown to increase levels of employment, it hasn’t been shown to encourage idleness either. In fact, the security of income that UBI provides has led to people pursuing new and less certain forms of income generation which may result in further economic growth and development. Indeed, in a 2019 review of the research towards UBI in the developing world, the authors argue that whilst it may not be the most effective means for promoting growth, “the costs of UBI are relatively low, in the sense that the fiscal outlay goes towards progressive transfers, which have intrinsic value, unlike the costs of many interventions (e.g. training), which represent a pure opportunity cost.” Moreover, alongside encouraging growth, UBI has consistently been shown to encourage quality of life. In addition to positive data from Finland and Kenya, a 2019 study in Indonesia found that cash transfers reduced suicide rates by 18%.
Perhaps the greatest criticism of UBI is its cost. Implementing UBI on a national scale would be hugely expensive and consume a large proportion of the already strained national budgets of the Global South. Therefore, it is often argued that targeted basic income would be more cost-effective at eliminating poverty, as this would give transfers only to those below the poverty line. However, targeting is not without its drawbacks. Both exclusion errors (excluding poor households that are deemed ineligible) and inclusion errors (including non-poor households that are considered eligible) are difficult to avoid through targeted cash transfers. A 2018 study in Indonesia and Peru found that to reach 80% of genuinely impoverished people (i.e. an exclusion rate of 20%), there will be an average inclusion rate of 22-31%. Additionally, even if targeted cash transfers were accurately calculated for household income, individual-level poverty may not be taken into account. Indeed, a 2017 study using nutrition and wealth data from 30 countries in Africa showed that around 75% of undernourished children and underweight women were not in the poorest quintile of households. Thus, a universal approach seems attractive given that it eliminates the administrative cost of targeting, encourages entrepreneurship by removing the risk that increased earnings would lead to leaving the scheme, and seems particularly suited to the developing world, where poverty is coupled with high levels of income insecurity.
Yet, it is important to recognise that whilst there are numerous advantages of UBI, it is not a panacea for international development. Much of the work IIRR undertakes is linked to capacity building and providing people with valuable skills, which cash transfers cannot accomplish. Although one of UBI’s advantages is that it gives recipients the dignity of being able to choose the best intervention to help them escape poverty, technical expertise is still required for capacity building and the construction of critical infrastructure. Therefore, UBI may be better implemented within a broader framework of other development practices.
In fact, this is precisely what IIRR is attempting to do. In June 2022, IIRR Kenya partnered with impactMarket, an innovative firm leveraging blockchain technology to enable any vulnerable community to implement poverty alleviation mechanisms, such as UBI, through the crowd and donor financing. Under the partnership, a pilot UBI scheme is being pursued in Samburu, northern Kenya where 50 beneficiaries will receive $7 per week for two years. A key aspect of the partnership is increasing access to credit in the pilot areas, as just 8% of Kenyans had a bank loan in 2016. The scheme offers exciting possibilities for scaling after this initial period, and UBI is an area that IIRR is eager to explore further in the future.
While further study is undoubtedly needed before widespread implementation, UBI appears to be a highly promising development tool. It reduces poverty, boosts entrepreneurship, and improves life satisfaction. Whilst expensive, the positive effects may well outstrip the costs. With that said, traditional forms of aid including in-kind transfers and technical expertise will remain important. A holistic and integrated approach, such as the one IIRR takes towards rural development – which incorporates UBI amongst other development tools – appears to hold the best chance of eradicating poverty, achieving sustainable development goals, and increasing well-being.
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