Is Universal Basic Income a Panacea to Crises like Covid-19 and Beyond?

By Zahid Pervez.

The Covid-19 pandemic that surfaced during December 2019 in Chinese city of Wuhan has engulfed entire world. Countries have seen daily life disrupted, businesses shut and people scrambling to adjust to ‘new normal’ way of life as the virus continues to batter societies and economies across width and breadth of the world. Apart from being a health crisis, the virus also entails the not less significant crisis of ‘wealth’. The most severely affected segments of society from the economic crisis are the ones who are poor and vulnerable. While affluent countries in western Europe, USA and other parts of the world have announced an array of measures to stabilize economy and support individuals besides enforcing strict lockdown measures; the countries in global south have not been able to effectively undertake either of these. Leaders in low-income countries have been vary of enforcing strict lockdown owing to the apprehension that already vulnerable families who depend on daily wages would suffer the most. Nor do such countries have sufficient finances in national kitty to feed large populations for weeks and months. The half-hearted measures have in turn led to spike in covid-19 patients over the last few weeks in countries such as India, Pakistan, Peru, Mexico etc.

UBI is essentially different from traditional income support schemes in so far as it is not targeted and does not require any means testing or employment.

The main pillar of response to economic hazards of Covid-19 in the UK, for example has been schemes like 80% wages for the furloughed employees under the job retention scheme, support for the self-employed and interest free loans for firms that are struggling to cope with the crisis. The key question is whether such measures are financially adequate, psychologically soothing and fiscally sustainable? What about the administrative procedures and costs?  And more importantly, what alternatives do we have? Universal Basic Income (UBI) is being touted by many in academia as the ultimate panacea to not only present crisis but also beyond. UBI is essentially different from traditional income support schemes in so far as it is not targeted and does not require any means testing or employment. Simply put UBI is an automatic, unconditional and not-withdrawable monthly sum of money transferred to every legal resident adult in a country with a view to afford them decent life above poverty line.

Source: Pixabay

Previously pilots have been carried out in India and Namibia which have shown encouraging results. The most recent and comprehensive study was carried out by the Finnish Government spanning over two years. During the scheme the government randomly selected 2000 unemployed adults and transferred them 560 euros every month with no strings attached. According to the Social Insurance Institution of Finland which has published the findings of the study, the respondents of the survey who received these monitory transfers have expressed greater satisfaction and wellbeing as opposed to the control group which did not receive such money transfers. The wellbeing referred here not only in terms of physical health but also psychological and mental health. The study also suggests that since the recipients of such grants do not have the fear of losing income support if they take up employment, healthy beneficiaries are more likely to find jobs to top up their income, thus being more productive members of society rather than being idle and sluggish. The study previously carried out in Andhra Pradesh India also highlighted that transfers under UBI were used by the landless recipients to get out of debt trap in rural areas and helped them start up self-employment initiatives.

The idea appears too utopian to be implemented in developing countries.

The Finnish study was being eagerly observed and many in academia and policy arena in the western countries have looked up to the UBI as possible solution to administratively complex and cost incentive income support schemes. Polling conducted by the European Studies Centre, at St Antony’s College, University of Oxford, asked more than 12,000 people their view on the policy between 5 March and 25 March. The researchers found that 71% respondents, all from the UK and EU, supported its introduction. The first minister of Scotland Nicola Sturgeon in May also stated that given the economic catastrophe brought about by the pandemic, the time has come to introduce such scheme. She is not alone in this assertion; similar opinion has been echoed by many peers and MPs, 170 of whom wrote a letter in early March for adoption of such policy in response to the pandemic.

Source: Pixabay

While developed countries can explore UBI as a possible response to the pandemic and beyond, the concern remains for the low-income countries that have large swathes of populace living under the poverty line. The idea appears too utopian to be implemented in developing countries. The financial feasibility and budgetary support for such an ambitious scheme would require enormous effort from politicians and public finance managers in realigning large sums from current and capital expenditure to finance UBI – a massive opportunity cost in itself. The low tax to GDP ratio, large informal economies and current account deficits can further aggravate any possible prospect of UBI being adopted in low income countries.

The world will get over the pandemic sooner or later, but it will leave many unanswered questions the leaders and researchers will need to find answers to in years to come.

Zahid Pervez is a current student of the MA Governance, Development and Public Policy at the Institute of Development Studies. He has a degree in English Literature from Punjab University in Lahore, Pakistan. Zahid is a mid-career civil servant belonging to the Pakistan Administrative Service having more than 10 years’ experience at various assignments both in districts and secretariat. His academic interests include local democracy, accountability and public financial management.

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