The Basic Questions about Universal Basic Income
Deepali Srivastava, Strategy and Business, April 10, 2019
California and Sikkim, India, have more in common than you’d think. Tiny Sikkim — best known for its dramatic Himalayan landscapes and ancient Buddhist monasteries — boasts near-universal literacy rates but struggles with high unemployment. California, the cradle of tech innovation, is the world’s fifth-largest economy but one of America’s most unequal states, as measured by income levels. Nowhere is this more apparent than in the city of Stockton, where almost a quarter of the population lives in poverty, struggling in the shadow of nearby Silicon Valley, home to half the world’s tech billionaires. Sikkim and Stockton want to use the same tool to address their problems: universal basic income (UBI).
Stockton’s and Sikkim’s plans are part of a growing body of evidence — including serious global research and discussion, and similar experiments in places such as Scotland and Kenya — that UBIs, or unconditional payments made to all citizens, could soon become a large-scale reality.
Sikkim’s UBI program will be the most extensive ever implemented. But India’s political parties have announced even bigger plans. With the national election set to start on April 11, India’s main opposition party revealed its minimum income plan, Nyunatam Aay Yojana (Nyay), last month, targeting female members of the country’s poorest families and potentially supporting as many as 250 million citizens.
Just weeks earlier, the ruling government launched a more modest income support plan for farmers. Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics and India’s former chief economic adviser, recently wrote in the Financial Times: “The question is no longer if [UBI] will happen [in India], but what form it will take.” California, too, has started exploring ways to expand basic incomes beyond a single city. But before UBI could ever be rolled out to the masses, there are practical questions to address. And finding answers will require the skills and expertise of the private sector, working in collaboration with governments and civil society.
Where will the “free money” come from?
Critics of UBI cite the enormous costs involved. But others, such as University of California, Berkeley, economist Pranab Bardhan, believe UBI is more fiscally feasible in developing countries, where relatively small payments can make a big difference in people’s sense of economic security. There are also ways to manage scale in early stages, for example by narrowing “universal eligibility” to apply to everyone in a certain neighborhood, or to all pregnant women.
Even at a smaller scale, though, questions about how to fund UBI abound. Should it be supported through philanthropy, taxation, or both? Could it be structured as a dividend based on some notion of shared wealth? We are seeing a combination of approaches.
Stockton’s pilot and another initiative in rural Kenya are being funded through private donations. The state of California is now mulling whether tech companies, because they monetize people’s information, should pay a “data dividend” to consumers — an idea backed by Facebook cofounder Chris Hughes. And Alaska, the only state in the U.S. to run a UBI program — and incidentally, America’s least unequal state — provides a model for industry-based dividends. It makes basic income payments to citizens through an investment fund financed by oil money. Sikkim intends to finance its UBI by selling surplus hydroelectric power to other Indian states.
It could prove shortsighted, though, to rely on only a few industries — or a few individuals, for that matter — to finance a social program that aspires to be universal. In his book Winners Take All, Anand Giridharadas asks an important question: Should the hard work of changing the world be left to the business elite? It stands to reason that pragmatic public–private collaborative approaches should be the basis for cautiously scaling up basic incomes.
For example, in addition to funding the pilots in Stockton and Kenya, the private sector is also supporting rigorous research into both programs to answer questions about the effects of UBIs, such as whether or not basic incomes fuel entrepreneurship and what modes and frequency of payments lead to desired social outcomes. It’s also sensible to build on existing programs rather than to attempt a large-scale restructuring of benefits.
For instance, JPMorgan Chase & Co. CEO Jamie Dimon support negative income tax, through which low-income individuals receive payments instead of paying taxes. What if this type of financial support were expanded based on income levels rather than being conditional on employment? It’s an intriguing idea that’s being investigated by Stanford University’s Basic Income Lab, among others.
How can the funds be disbursed securely and equitably?
Scaling UBI would test financial infrastructures, especially in developing countries. It’s no coincidence that UBI pilots in Kenya are off to a promising start. Kenya is home to the innovative M-PESA mobile money transfer service, which facilitates the distribution of payments. But even when the movement of money into individuals’ bank accounts is already set up to be easy and low-cost, disbursing funds digitally raises questions about data protection, privacy, surveillance, and control that would have to be addressed by any UBI program. And the proliferation of new technologies, from facial recognition to geolocation, will only compound these sorts of concerns.
Indeed, India’s nationalized biometric digital identity program, Aadhaar, likely to be used for disbursing minimum incomes there, is already controversial. Supporters see it as a pathway to financial and social inclusion, established by the linking of bank accounts, mobile phones, and public services to a single digital identity for every citizen.
Others have challenged it over privacy rights, taking their concerns all the way to the country’s Supreme Court. Just as Europe’s privacy law, the Global Data Protection Regulation (GDPR), recognizes data privacy as a human right, India’s top court views privacy as a fundamental right. Last year, it put limits on the private sector’s use of Aadhaar.
It’s encouraging to see that businesses are not only committing to higher privacy standards, but also exploring solutions such as decentralized, self-sovereign identities, or ways of handing control of identities back to individuals. Businesses that balance safety and privacy concerns without sacrificing quality and innovation can share that knowledge and expertise with policymakers.
Together, they must carefully put together the building blocks of a UBI distribution network that doesn’t compromise privacy or become a casualty of technical glitches. Although digital transfers could seem convenient, other options — from smart cards to postal money orders — should be on the table, especially in areas where digital literacy is limited.
It is heartening to see that UBIs are now a topic of serious discussion at the intersection of business, policymaking, and academia, including at the World Economic Forum’s annual meeting in Davos and in research by the International Monetary Fund. It’s difficult to argue with the principle of a basic income for all. But before making minimum income guarantees “universal,” it is imperative that the basics are truly covered.