Right time to implement universal basic income

Posted February 27, 2021

Some economists have recognized that economic growth alone cannot reduce poverty. In fact, economic growth tends to increase, not reduce, income inequality between the rich and the poor.

For these reasons, Ben Punongbayan, Buklod political party founder, believes that there must be government intervention in order to effectively reduce poverty to a substantial extent and, hence, his advocacy of implementing a universal basic income.

“Universal basic income” is a term currently used by international economists who have been studying poverty (Punongbayan’s particular reference for this scheme is from a book, Good  Economics for Hard Times, written by the husband-and-wife team of Abhijit V. Banerjee and Esther Duflo, and published in 2020).

The use of the word “universal” is meant to give the basic income to all citizen families in a country, irrespective of their economic circumstances (but would be included as part of the taxable portion of total income). This approach is aimed to remove the opposition to giving assistance only to the poor. By giving an amount of basic income to everyone, every citizen is benefited for the same amount and no one will feel left out.

However, since the initial implementation of such a program will immediately require a lot of money for which sufficient funds may not be available, the authors Banerjee and Duflo suggest a targeted approach to start with. This is the approach that Buklod intends to pursue: to provide basic income to the very poor, with the intent of providing the same to everyone when conditions allow such a comprehensive application.

A similar approach was adopted in China which is described as “minimum guaranteed income” (called dibao in Chinese language) given to China’s poorest citizens (taken from a recent book of Dexter Roberts, The Myth of Chinese Capitalism). Evidently, this program is a success as the poverty incidence in China is now very low. In the Philippines, this guaranteed basic income for the poor will replace the present conditional cash transfer, which is very much inadequate and does not cover all the very poor.

As contemplated by Buklod, the first recipients will be all Filipino families within the official poverty theshold of P129,000 per year for a family of five. Based on the 2018 official survey, there are 3 million families within that threshold.

Buklod plans to start with an amount of guaranteed basic income of a little more than 30% of that poverty threshold, or P42,000 per family per year. For 3 million families, the total annual budget appropriation would be P126 billion per year, an affordable amount that can be given priority in the national budget, especially if the pork barrel allocation is removed from the budget. In any event, P120 billion is not a big amount and a government with strong resolve can make such fund allocation in the budget without sacrificing any other important needs and without creating inflation.

There are concerns, of course, about corruption in the distribution of such basic income. However, corruption can be minimized, if not completely avoided, in implementing the program. There are two main parts in implementing the program. The first is developing a fair list of eligible recipients. There are many ways of doing this. The results of the current 2020 census will be very helpful and so with the existing list of beneficiaries receiving conditional cash transfer.  Setting aside the details for the time being, Buklod will endeavor to develop, with proper and adequate checks and reviews, a fair list of recipients containing only the eligible ones within reasonable time.

The other part is the actual distribution of guaranteed basic income, which should be done monthly. With the use of technology and with the cooperation of the banking system, it will not be difficult to develop an electronic distribution system with the money going directly to the recipients themselves as enumerated in the official list. In this way, there will be no intermediary parties who will be involved in the distribution and, thus, avoid corruption.

As the guaranteed basic income would not be sufficient to meet all the basic needs of the recipients, they therefore need to find and do work to give them additional income. The guaranteed basic income is exactly the way it is described: it is a basic amount that will need to be increased by the recipients through gainful work. 

The employers of those recipients who find work cannot and will not be able to deduct such basic income from their wages. Salaries and wages have their own dynamics governed by demand and supply of labor. Moreover, employers must also comply with the established minimum wage, which, of course, does not include the clearly separate guaranteed basic income.

There are other concerns raised about guaranteed basic income. Some feel that such guaranteed financial assistance may just make the beneficiaries lazy and not look for work; and the money received may just be spent for alcohol and drugs. In their studies and research relating to conditional and unconditional cash transfers, which are like the guaranteed basic income, the authors Banerjee and Duflo found no evidence that cash transfers make people work less.  Based on this conclusion, it may be inferred that the concern for incremental consumption of alcohol and drugs may not be justifiable. In any event, these concerns may be ignored as the greater objective is to take millions of people out of poverty.

There is also a much greater benefit of providing guaranteed basic income to the poor. Such income will certainly be used for the family’s consumption. As such, the expenditures will provide a multiplier effect on economic growth. Guaranteed basic income for the poor will therefore provide a virtuous cycle benefiting Philippine society.

Buklod believes that the Philippines must implement a guaranteed basic income program for the poor to remove them out of poverty and, thus, create a better society which enjoys a continuously improving economic results.

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