The world's biggest basic income experiment

From Vox

Residents of a Kenyan village learn they will receive UBI payments from GiveDirectly. Oliver Ochanda/Vox

Large sections of my brain that could contain useful knowledge are instead filled up with dumb tweets I saw years ago. One of my absolute favorites was someone identifying himself only as “Side Hustle King,” who would ask his followers, “Would you rather get paid $1,000,000 right now or $50 every month for the rest of your life? I’ll take Option B. That’s what passive income is.”

To save you some arithmetic: Unless you plan to live at least another 1,667 years (which is what it would take to make $1 million in $50 monthly increments) and do not care about inflation, Side Hustle King is mistaken. Option A is far better. It’s a case in point that, sometimes, you should take the lump sum, not regular payments.

GiveDirectly, a charitable nonprofit that sends cash directly to low-income households, has identified another such case, one where the answer was a little less obvious. For years now, GiveDirectly has been conducting the world’s largest test of basic income: It is giving around 6,000 people in rural Kenya a little more than $20 a month, every month, starting in 2016 and going until 2028. Tens of thousands more people are getting shorter-term or differently structured payments.

One of the big questions GiveDirectly is trying to answer is how to direct cash to low-income households. “Just give cash” is a fun thing to say, but it elides some important operational details. It matters whether someone gets $20 a month for two years or $480 all at once. Those add up to the same amount of money; this isn’t a Side Hustle King situation. But how you get the money still matters. A certain $20 every month can help you budget and take care of regular expenses, while $480 all at once can give you enough capital to start a business or another big project.

The latest research on the GiveDirectly pilot, done by MIT economists Tavneet Suri and Nobel Prize winner Abhijit Banerjee, compares three groups: short-term basic income recipients (who got the $20 payments for two years), long-term basic income recipients (who get the money for the full 12 years), and lump sum recipients, who got $500 all at once, or roughly the same amount as the short-term basic income group. Suri and Banerjee shared some results on a call with reporters this week.

By almost every financial metric, the lump sum group did better than the monthly payment group. Suri and Banerjee found that the lump sum group earned more, started more businesses, and spent more on education than the monthly group. “You end up seeing a doubling of net revenues” — or profits from small businesses — in the lump sum group, Suri said. The effects were about half that for the short-term $20-a-month group.

The explanation they arrived at was that the big $500 all at once provided valuable startup capital for new businesses and farms, which the $20 a month group would need to very conscientiously save over time to replicate. “The lump sum group doesn’t have to save,” Suri explains. “They just have the money upfront and can invest it.”

Intriguingly, the results for the long-term monthly group, which will receive about $20 a month for 12 years rather than two, had results that looked more like the lump sum group. The reason, Suri and Banerjee find, is that they used rotating savings and credit associations (ROSCAs). These are institutions that sprout up in small communities, especially in the developing world, where members pay small amounts regularly into a common fund in exchange for the right to withdraw a larger amount every so often.

“It converts the small streams into lump sums,” Suri summarizes. “We see that the long-term arm is actually using ROSCAs. A lot of their UBI is going into ROSCAs to generate these lump sums they can use to invest.”

I visited one of the villages receiving the 12-year UBI back in October 2016, and even then I observed people putting together ROSCAs and making plans to accumulate cash to invest. Edwine Odongo Anyango, a father of two and handyman who was 29 at the time, told me he had formed a ROSCA with 10 friends. “The monthly thing is not bad, but I think a lump sum payment would be better,” he told me. “That way you can do a big project at once.”As you might expect, given how entrepreneurially minded the recipients are, the researchers found no evidence that any of the payments discouraged work or increased purchases of alcohol — two common criticisms of direct cash giving. In fact, so many people who used to work for wages instead started businesses that there was less competition for wage work, and overall wages in villages rose as a result.

And they found one major advantage for monthly payments over lump sum ones, despite the big benefits of lump sum payments for business formation. People who got monthly checks were generally happier and reported better mental health than lump sum recipients. “The lump sum group gets a huge amount of money and has to invest it, and this might cause them some stress,” Suri speculates. In any case, the long-term monthly recipients are happiest of all, and “some of that is because they know it’s going to be there for 12 years ... It provides mental health benefits in a stability sense.”

I think this points to the takeaway from this research not being “just give people a lump sum no matter what.” Ideally, you could ask specific people how they would prefer to get money. For instance, if you were a Kenya politician designing a basic income policy on a permanent basis, you could design it such that a recipient could opt into a $500 payment every two years or a $20 payment every month.

But barring that, long-term monthly payments seem to offer the best of all worlds because they enable people to use ROSCAs to generate lump sum payments when they want them. That enables flexibility: People who want monthly payments can get them, and people who need cash upfront can organize with their peers to get that.

Notice how small these payments are.  Yet they made a difference.   

A basic income in South Africa

From Resolve Global Health

The streets and even the highways are empty, except for the police and military patrols. An eerie stillness has engulfed South Africa’s economic heart, Johannesburg.

It is March 27, 2020, and the country has embarked on one of the world’s strictest covid-19 lockdowns, confining most people to their homes, initially for three weeks. The country, already under a national state of disaster because of the virus, deploys the army in residential areas to enforce the shelter-in-place order.

Under the country’s apartheid government, South Africans of colour were forcibly relocated to segregated and underdeveloped areas called townships. In Johannesburg’s largest Black township, Soweto, self-trained photographer Thando Makhubu had been running a small business. “All our money was from event photography, but then lockdown came, and there was no work,” he says.

Still, Makhubu believed then that covid-19 would pass. “I wasn’t really worried,” he remembers. “We were just watching the news and trying to understand what’s going on.”

Soon, the three weeks of lockdown turned into five. By May 2020, Makhubu had joined the ranks of the roughly three million South Africans who became unemployed within the first three months of the covid-19 epidemic, according to a national survey by local universities. The research found an almost 20% decrease in jobs during the first three months of the outbreak and nearly half of the respondents reported running out of food during the lockdown.

“My bank accounts were drying up,” Makhubu says. “That’s when I realised that life wasn’t the same anymore.”

Unemployment on the rise

The epidemic worsened an already fragile employment situation. South Africa’s mix of historical racial oppression and poorer-than-expected economic growth has fuelled increasing unemployment in the last three decades. In what the World Bank estimates is the most unequal country in its global poverty database, almost half of working-age South Africans are unemployed, government statistics show.

“We’re looking at [a lot of] people whose probability of getting a well-paid job is almost nothing,” explains Isobel Frye, the director of the Studies in Poverty and Inequality Institute, on a recent podcast.

The country runs an extensive social grant programme for at least 17 million children and caregivers, the elderly, veterans and the disabled. Still, without social security for the country’s 11.5 million otherwise healthy yet unemployed, these grants often subsidise entire households. Almost one third of the country experiences daily hunger.

Reviving a decades-old idea

In May 2020, South Africa’s hard lockdown eased, and the country—like more than 200 other nations—extended social security protections in response to covid-19. For the first time in South Africa’s democratic history, the unemployed became eligible for a R350 (US$24) monthly grant.

Nearly 10 million people applied for the money in the first six months. More than 90% of the recipients surveyed used the money to buy food, helping increase the number of families who could regularly afford food, according to a 2021 United Nations University working paper. It helped reduce inequality in the country.

“When they announced the grant, the government said you can apply via SMS, WhatsApp or email and said you must just apply once,” Makhubu remembers. “I applied on SMS, WhatsApp and email. I really wanted to get this money and do something with it because I wasn’t receiving anything.”

The grant, which will run until March 2023, has reignited a decades-old debate about whether South Africa can afford a permanent basic income grant. Some of the country’s best economic minds say it can, but it will almost assuredly mean raising taxes.

“We can afford it, but let’s not pretend we can afford it without making sacrifices,” says Michael Sachs, an economist and adjunct professor at the University of Witwatersrand.

At the very least, a monthly basic income grant of R595 ($US41) could halve the number of hungry people, Sachs and others argue in a recent analysis. At most, a cash transfer of R1,300 ($US88) could almost eliminate some forms of poverty while making modest reductions in inequality.

But could it also buy South Africa gains in reducing deadly epidemics of non-communicable diseases (NCDs) like diabetes and depression? The answer lies buried in the many complicated and hidden ways poverty shapes our health and perhaps even our genes.

Hunger and an unfortunate inheritance

NCDs like type 2 diabetes and hypertension are often associated with lifestyle factors and overconsumption, but too few nutrients early on in life can also play a role.

The number of babies that die before their first birthday in South Africa is nearly five times that in the United States, 2019 World Health Organization (WHO) data shows. Dietitian and University of the Free State lecturer Chantell Witten has studied an important factor behind these deaths: the country’s abysmal rate for exclusive breastfeeding, which makes babies more vulnerable to die from conditions like diarrhoeal disease.

Babies who are not breastfed also have a higher risk of developing type 1 diabetes, high blood pressure and obesity, which is a risk factor for type 2 diabetes, the American Diabetes Association warns. For the mother, breastfeeding has been shown to lower the risk of type 2 diabetes, high blood pressure and breast or ovarian cancer.

Although it’s unclear how breast milk protects against NCDs, a 2014 research review posited that it could be epigenetic—meaning nutrition could influence how some genes behave and vice versa, leading to changes that could potentially be passed down through generations . In South Africa, this plays out in a broad context of increasing obesity driven partly by the rise of cheap, high-calorie and high-fat ultra-processed food.

Crucially, hunger may determine whether mothers feel able to breastfeed. As part of a 2020 study published in the International Breastfeeding Journal, Witten interviewed nearly 200 new mothers in poor townships. About 40% lived in households earning less than R2,900 (US$200) a month, and a similar proportion experienced signs of depression.

Witten found that hunger was physically and emotionally painful for these women—something they feared they could transmit to their children through their breast milk. “The minute the mother is aggravated, a baby can feel that—the mums in my study completely internalised this,” she says, describing what women in the study perceived as challenges to breastfeeding babies. “When they were breastfeeding, women would say, ‘I feel hungry. So I'm literally feeding my child my hunger’.”

In some ways, Witten says, the women are right. “Hunger is actually a trauma to the body—it elevates your cortisol, which is the stress hormone,” she explains. “Those stress hormones have been found in breastmilk.” But although cortisol levels in breastmilk can fluctuate depending on the mother’s stress, it is not known what, if any, impact this has on babies.

Still, for many women in Witten’s study, hunger—and their beliefs around it—played a role in their inability to exclusively breastfeed infants. Fewer than one in five women in her research exclusively breastfed their babies for the WHO-recommended six months.

"We live in a country where 95% of households access food through the formal, retail system," she says. "If they don't have money to buy food, we can't expect them to have good nutrition."

The poverty-depression link

By August 2020, Thando Makhubu had received three tranches of the covid-19 grant. The first bought family groceries, but the rest he used to open an ice cream shop out of the family home. The Soweto Creamery now employs five people, and its success garnered Makhubu a mention by name in the President’s February 2022 State of the Nation address.

In the public’s eye, Makhubu has come to represent what might be possible with a small amount of state-provided money in a country with widespread unemployment. “Unemployment isn’t really something I think about—it’s something I see,” he says, sitting at one of the many picnic tables for customers that now dot the family yard.

“Here in the ’hood, we're living in small spaces, we're malnourished, we don't have cars—it's depressing,” he explains. “Some people have lost hope.”

Living in poverty has been strongly linked to an increased risk of depression, says Crick Lund, a professor of global mental health and development at King’s College London. The link, he warns, is more complicated than it seems. The stress of poverty’s harsh realities—hunger, overcrowding, living in more dangerous communities—increases the risk of depression.

But the relationship also runs in the other direction. “If you’re living with depression, you’re more likely to drift into poverty,” Lund says. “You spend more on healthcare, and the disability associated with being depressed means it’s more difficult for you to generate income or maintain an occupation.”

He adds that people who are depressed are also more likely to have other conditions. People living with NCDs are also at an increased risk of depression, according to a 2007 research review in The Lancet.

Pairing cash with care

In South Africa, high unemployment triggers an ​​insidious chain reaction where poverty and hunger drive increased rates of NCDs like diabetes and hypertension. These conditions raise the risk of depression, which means people can struggle to earn an income and are therefore more likely to be depressed.

Still, as a recent review in Nature Human Behavior found, cash transfers like basic income grants improve mental health and wellbeing. Emerging research also suggests that pairing cash with a health intervention, like classes on coping skills, might make for an even more powerful tool for mental health, Lund says.

If this happened alongside a basic income grant in South Africa, it would allow health workers to finally reach a large population of men who might otherwise never set foot in a clinic, unlike women and children, who seek healthcare more frequently.

“There is emerging evidence to support pairing a mental health intervention with a cash transfer to yield interacting economic and mental health benefits, particularly for vulnerable populations like unemployed youth,” Lund says.

Economist Iraj Abedian is a former University of Cape Town professor and founder of Pan-African Investment and Research Services Group. He says the question is no longer if South Africa can afford a basic income grant.

"Often, I hear from different quarters: can South Africa afford this?” he says. “I'll flip it and ask: can we afford not to?”

 Even a very small basic income ($40/month) makes a difference.  Too often, basic income advocates ask for large basic incomes to be paid.  Of course, that would be the ideal.  But it makes paying basic incomes much more costly to the exchequer, which in turn means it isn't introduced.  

I've worked with poor people (I volunteer at an op shop (thrift store)) and I promise you that in Australia, even a few hundred dollars a month would make a significant difference to the real poverty I see every day.  It's time for a UBI, here in Australia and everywhere.  If South Africa can introduce a UBI, then very wealthy nations should be shamed into doing the same.

Keep the rate!

In Australia, the federal government is for the next few months paying all unemployed people a "covid supplement" of $550 a fortnight in addition to the dole which is $565.70. 

Many have pointed out that there has been no sympathy or mercy for the poor until the government's own supporters started losing jobs.  "It's not their fault" was one minister's memorable explanation for this sudden change.  The minister may be interested to know that unemployment often isn't the unemployeds' fault, and that before the Covid Crash,  there was just 1 job opening for every 16 job seekers. 

Now there is a campaign to keep these payments after the Covid Crash is over.

Graphic from Australian Unemployed Workers Union.  The data show weekly rates.  "Jobseeker" is the latest official euphemism for the dole.

A living wage

Scotland to try universal basic income

A cartoon by John Darkow

I talked about the universal basic income here.  To recap, UBI is a monthly payment by the state to everyone, aimed at replacing the dole (unemployment benefit), family income support, the old age pension, and disability pensions.  Typically, all income earned outside the UBI is then subject to tax, with the minimum rate set at 25%-33.3%.  This means that anyone whose income is less than 4 times (at 25%) or 3 times (at 33.3%) the level of the UBI is better off.  This low "clawback" rate sharply reduces the disincentives implicit in existing unemployment benefit schemes, where the "clawback" rate is often 50% or more and can exceed 100%.  It also greatly simplifies the rules needed to access welfare, and eliminates the need for a large bureaucracy to administer the rules. 

Both left and right like it, for different reasons.   Like the universal aged pension it should be a powerful tool for reducing and alleviating poverty.  But it will also reduce disincentives to work, and will probably cost about the same as all existing anti-poverty schemes combined, especially if you can reduce or eliminate the huge bureaucracy needed to administer them. 

Universal basic income is, according to its many and various supporters, an idea whose time has come. The deceptively simple notion of offering every citizen a regular payment without means testing or requiring them to work for it has backers as disparate as Mark Zuckerberg, Stephen Hawking, Caroline Lucas and Richard Branson. Ed Miliband chose the concept to launch his ideas podcast Reasons to be Cheerful in the autumn.

But it is in Scotland that four councils face the task of turning basic income from a utopian fantasy to contemporary reality as they build the first pilot schemes in the UK, with the support of a £250,000 grant announced by the Scottish government last month and the explicit support of Nicola Sturgeon.

The concept of a universal basic income revolves around the idea of offering every individual, regardless of their existing benefit entitlement or earned income, a non-conditional flat-rate payment, with any income earned above that taxed progressively. The intention is to replace the welfare safety net with a platform on which people can build their lives, whether they choose to earn, learn, care or set up a business.

[Read more here]

Margaret Thatcher: "Poverty is a personality defect"

Who else but Margaret Thatcher could say something so wrong?

Rutger Bregman gives an entertaining and informative speech about poverty.   He ends with "Poverty is not a lack of character.  Poverty is a lack of cash."  The video is only 15 minutes long but it is revelatory and fascinating.  Oh, and he proves The Iron Lady wrong.

The S-word

In a blog post on the basic income (or social wage), I showed this chart:

What has happened over the last 35 years in the USA is that the incomes of the poorest half of Americans have stagnated or fallen in real terms.  What happened in the 20s and 30s is happening again--hoi polloi are deserting mainstream parties and embracing non-centrist parties, in the US, Trump and his fascist hangers on on the right and Sanders and socialists on the left.

For the first time in decades ordinary people are questioning the whole neo-liberal consensus. In the past, you could assume that the rising tide of economic growth lifted all boats.  It was a simple equation: higher overall GDP growth was tantamount to raising living standards for everybody.  So we should all be in favour of measures which raise growth.  And for a long time we were.  We swallowed measures which added to growth even if they hurt some sectors of the economy because we accepted the underlying premise.  

The problem is that it can no longer be taken as given that growth will benefit everybody, or even more than half the population.  And if rising GDP all accrues to the richest, why should we as a society support all the apparently axiomatic tenets of neo-liberalism: free trade, tax cuts, reductions in government spending, breaking the unions, embracing multinational corporations, slashing unemployment benefit, etc, etc?  Worse: in the OECD, between 1980 and 2007, real GDP growth averaged 2.9% per annum.  Then came the GFC, during which OECD real GDP fell over 5%.  Since the low point in 2009, growth has not returned to its previous trend line.  Not only has there been no rebound, a typical response after previous downturns, but the new growth rate is only 1.8% per annum, not much better than half what it was before the GFC.  And the GFC itself can be blamed on neo-liberalism.  How can neo-liberalism be so great if (a) most of us are no better or actually worse off and (b) overall growth is pretty anaemic too?

One of the puzzles of the US, for outsiders, is why the poor in the USA do not embrace the Left.   Religion plays a part.  The naïve belief in the American dream, even though more than ever, children belong to the same class as their parents.  Plus, the left option they have, the Democrats, isn't particularly left-wing, in fact.  And the Left is now so identified with identity politics.

This interesting article in the Guardian discusses how for the first time in decades, socialism is gaining ground among young people.

At the heart of the ideas flooding into that space is a debate about the role of the state after decades of conservatives painting government as oppressive and a burden keeping good Americans down. 

The campaign over healthcare, the anger sparked by the rapaciousness of big banks bailed out by the taxpayer, and a belief that only the state has the strength to reverse deepening inequality is breathing new life into the old idea that the government is there to control capitalism, rather than capitalism controlling the government.

If that takes hold among a wider group of millennials, it will represent a seismic shift in the way many Americans think about the pre-eminent role of the state and capitalism in their lives.

To an older generation of leftwing activists, that sounds a lot like the New Deal – President Franklin Roosevelt’s bold attempt to remake the American economic system and rein in the forces of capitalism in response to the Great Depression of the 1930s. The Works Progress Administration, which provided jobs to millions made unemployed by economic collapse, was at one time the single largest employer in the country. A raft of legislation addressed pay, working conditions and housing. Roosevelt also introduced banking regulation that stayed in place until the 1990s. Roosevelt saw the reforms as laying the foundations for the kind of social democratic society the US helped build in western Europe after the second world war.

“Young people who say that they’re socialists, or look favourably on socialism, they’re thinking about a kind of New Deal government or democracy against markets,” said Frances Fox Piven, coauthor of a widely debated radical plan in the 1960s to alleviate poverty and create a basic income, and more recently the target of a vilification campaign by Fox News.

“What the New Deal represented was government efforts to regulate an unbridled capitalism and to supplement the distribution of income under markets with government programs.”

Piven, a City University of New York professor, sees a shift in thinking among some younger Americans reflecting a time before politicians conflated democracy with the free market and government with private business.

“The New Deal is the clearest and boldest period in the wake of real collapse in capitalist markets. You could just call it economic democracy,” she said. “What they got right was the imperative of regulating the economy. That development was cut short by the second world war and the urgency with which the government turned to big business to cooperate in the war effort and gave a lot of licence to big business. It stopped the New Deal in its tracks.”

[Read more here]

If those who support neo-liberalism want hoi polloi (the 99%)  to vote for them, they will have to persuade us that neo-liberalism is good and that it will improve our standard of living, not theirs.  So far, they are failing.

The basic income

Although expanding free trade has been good for the world as a whole and for developing countries like China, India, Brazil, Mexico and so on, it has been bad for the working class in developed countries.  Real incomes for the already rich in rich countries have risen.  Real incomes in poor countries have risen too, by as much in percentage terms.  But the bottom half of the income pyramid in developed countries has had virtually no growth.  And these calcs were made before the GFC.  Since then, the real incomes of the bottom 2/3rds of the population in developed countries have stagnated, even as real GDP has risen, and the incomes of the top 3rd/quarter/one tenth have risen, extending the 1988 to 2008 trend.

You can see all this in the graphic  below.

Source

It is these people who voted for Trump, for Brexit, for Pauline Hanson's One Nation Party and will probably vote for right-wing populists in Europe's upcoming elections this year.

Opening up world trade has undoubtedly been good for world growth.  Higher growth in China, India, Brazil, Mexico etc., has lifted billions of people out of abject poverty, and that's a good thing.  But there have been losers, and they are angry.

So how do we make incomes more equal in developed countries, without tearing up trade agreements and without reducing growth rates?

One answer is the social wage or basic income.  I did my thesis on the negative income tax, which is pretty similar to the social wage.  How it works is simple.  The state pays everybody a monthly or fortnightly income.  This replaces the dole (unemployment benefit), the old age pension, disability pensions and family income supplements.  Everybody pays income tax, and income tax starts cutting in at zero income instead of having some tax-free minimum, so that for every dollar/pound/euro earned, the net payment (social wage less tax) declines.  Now in some developed countries, if you are receiving the dole (unemployment benefit)  this "clawback rate" is 100%.  In Australia it is 50%. In some cases, the cumulative loss of benefits can exceed 100% of earned income, and that's before you account for the cost of clothes to work in and transport fares to get to and from work.  This is a massive disincentive to work, especially when a lot of the work available these days is part-time.

Plus you need a whole department to administer the dole, the old age pension, disability benefits and family income support.  The rules of the negative income tax are simple, and most of the complex bureaucracy that is required to determine who is entitled to get support and how much they are entitled to can be eliminated.

How much would it cost?  In the analysis I did in my thesis 40 years ago, to lift all South Africans above the poverty line it would have cost 7% of GDP.  But in developed economies it would cost much less, because they already have a whole panoply of welfare measures, which it would replace.  And most of the analysts who have looked at the social wage reckon that its effect of incentives would actually increase output and incomes so that it paid for itself.

A basic income would be only one tool in the toolbox to reduce developed country inequality.  Others might be: a higher minimum wage, a wealth tax, greater educational equality, and in the USA, a decent public health system.  But a basic income would be a big first step on that road.

Some further reading (and watching)

Why we should give everybody a basic income:





Finland trials plans of basic income for the unemployed.

The basic income