Campaign ahead of the referendum on national basic income in Switzerland 2016 where the people voted no. Photo: Michael von der Lohe, Flickr

Analysis

Universal basic income for low- and high-income countries

Citizens' salaries (also called basic income) are predicted to be able to alleviate economic decline and lead to favorable outcomes. Basically, it is about society offering residents an unconditional financial security, sufficient to cover basic needs. But will basic income achieve similar effects in low- and high-income countries? And if not, what differences are there to consider? There are many indications that low-income countries may find it difficult to reform poverty reduction, from aid to a reliable welfare system, while high-income countries have a much better starting point for using basic income for their own purposes.

In 2020, the idea of ​​basic income received attention as a result of Spain and South Koreas experiment. The experiments, which varied in conditions, were based on the basic idea that each person is entitled to a given amount on a monthly or annual basis. Recurring payments without conditions may seem controversial - but after covid-19's progress and one global increase in unemployment and poverty, the discussion about universal basic income has become more relevant than ever. Advocates mainly emphasize the benefits for high-income countries, as the costs are considered too large and administratively complicated to be able to function elsewhere. Despite this, there is an interest in developing a basic income in low-income countries as the idea is based on moral obligations such as eliminating poverty and social misery. 

Dauphin and Winnipeg - Canada 1974

An experiment for what can happen in countries with different economic and social conditions can be found in Canada. With 2128 participants, the mincome experiment was among the first of its kind on that scale. Families from Dauphin / Winnipeg were selected on a random basis and matched against control groups. In the later stages of the experiment, payments were directed to the most economically disadvantaged in Dauphin. Residents received annual payments over a 5-year period that averaged 16 Canadian dollars (000 Swedish kronor or 110 kronor / person) for a family of four people.

Hospital stays decreased, education was affected

The results showed two significant effects, in addition to the positive effect on residents' income security. Hospital stays had decreased (by 19 percent per 1000 inhabitants compared to the control group) and school attendance in agricultural-based Dauphin had gained momentum. The students were also more willing to complete their studies. The relationship between income and education in an agricultural economy is reflected in the reality where children, especially from low-income countries, tends to exhibit higher school absenteeism in favor of family income. Regular payments therefore mean that children who would otherwise have had to work can now go to school. A similar effect, albeit smaller, will occur in high-income countries whose citizens are experiencing relative poverty, that is, the lack of income to be able to assimilate to the average standard of living in society. 

Basic income circulates in society

Most notable was that even the students who were not allocated the basic income saw similar effects as those who received the payment. Much speaks for a so-called social multiplier effect, which is expected to happen when individuals' purchasing power increases and circulates in the local economy through consumption. The magnitude of the effect, on the other hand, can vary between low- and high-income countries. Dauphin, which was a traditional farming community, was relatively isolated from other local communities and had low population mobility. This is reminiscent of the generally low mobility we see today in low-income countries, where many live in rural areas. In contrast, high-income countries show high mobility due to a greater degree of urbanization. The multiplier effect is therefore expected to have the greatest impact where incentives and the opportunity to migrate or commute between locations are lacking. An exception to this is when incentives exist, but are actively controlled - which happened in South Korea when the municipality created a basic income-based currency which could only be spent locally. 

Low-income countries find the greatest challenges

The potential of basic income in low-income countries has been demonstrated in countries such as Kenya, Namibia and India, but the step from small-scale experiments to national projects is large. Corruption and abuse of power are the first question marks for low-income countries. How can basic income be adapted to countries that, compared with high-income countries, are significant more likely to fall victim to corrupt rulers?. Abuse of power can admittedly be reduced through a decentralization of power, where executive functions are spread between authorities, similar to a traditional welfare state. But, problematically enough, the idea of ​​a universal basic income requires that power is centralized under an authority to function - which may increase the risk of misuse of resources.

Assume now instead that corruption and abuse of power rarely occur and that resources are managed optimally - how will this be financed? In high-income countries, the answer is obvious: taxes, taxes, and more taxes - especially via citizens' income. The formal sector gives rise to progressive tax, negative income tax, property tax and VAT, the list can be made long - but is hardly the answer for low-income countries that are drawn with large informal sectors. In an informal sector, it is difficult to know what people do and earn. Their economic activity can therefore not be taxed and contribute to welfare to the same degree. In a society where a nuanced taxation system is not available, Even the most altruistic rulers will find it challenging to pay for progressive ideas as a basic income. 

Some critics also claim that the universal function of basic income does not reach absolute income disparities in either low- or high-income countries, and argue that people perceive absolute income disparities as important for social cohesion. The alternative is then a targeted basic income towards the very poorest in society that we saw in Canada. This is difficult enough in low-income countries with large informal sectors, as the targeted basic income requires that the state can measure economic activity to determine the right to payments. A perhaps bigger problem, common to low- and high-income countries, is that a targeted basic income leaves the basic idea of ​​universal payment. In practice, this means that the individual is deprived of the right to payments after exceeding a certain income ceiling. In this way, the individuals who are in the transition risk initially receiving a lower income and falling into a welfare trap.

It remains to be seen how the basic income will be adapted to low- and high-income countries different conditions, and whether the idea will be able to be realized on a national scale and for a longer period of time. There are many indications that the conditions are best in high-income countries. One thing, however, is certain. The basic income as a recurring, reliable payment, creates a buffer and gives people the opportunity to get out of the poverty circle - regardless of the economic conditions in which the country is located. 

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