Inequality and Basic Income


(A critical account of Universal Basic Income)

India’s GDP is growing quite well, however, benefits of India’s economic growth must trickle down much faster to people at the bottom of the pyramid: to poorer farmers, landless rural labour, and hundreds of millions of workers living on the edge in low-paying, ‘flexible’ forms of employment with no social security. India needs to do much better to improve overall human development, in which it continues to be compared with countries in Sub-Saharan Africa. Even its poorer sub-continental neighbours are improving health and education faster. There is a need to address the persistent informality and small scale of enterprises that are providing most of the employment in the country.

Is privatisation a solution?

One of the proposed solutions is more privatisation of public services. As U.S. President Ronald Reagan said, “government is not the solution, it is the problem”. However, the private sector is structurally not designed to provide affordable public services equitably. Milton Friedman, who too is often cited, said, “the business of business must be only business”. Businesses must be run with a profit motive. They cannot take on the burden of subsidising citizens who cannot pay for their services.

Why a basic income is proposed?

Structural forces within the global economy have been driving down wages and creating insecure employment while increasing the mobility of capital and increasing incomes from ownership of capital. Thomas Piketty and Oxfam have also drawn attention to increasing economic inequalities around the world. ‘Industry 4.0’, which has not yet spread too far, is expected to worsen these problems. An economic consequence of declining growth of wage incomes will be reduction of consumption. Which will create problems for owners of capital and automated Industry 4.0 production systems. For, who will buy all the material and services that these systems will produce? Therefore, the universal basic income (UBI) has appeared as a silver bullet solution. It will be an income provided to everybody by the very state that the capitalists say should get out of their way, and to whom they are unwilling to pay more taxes.

Will UBI help in solving problems?

The beauty of a ‘universal’ basic income, its proponents say, is that it avoids messy political questions about who deserves assistance. It also side-steps the challenge of actually providing the services required: education, health, food, etc. Just give the people cash: let them buy what they need. However, if the cash will not provide citizens with good quality and affordable education and health, because neither the government nor the private sector is able or willing to, this will not solve the basic human development problems that must be solved.

A simplistic UBI will not solve the fundamental problems of the economy. An unavoidable solution to fix India’s fundamental problems is the strengthening of institutions of the state to deliver the services the state must (public safety, justice, and basic education and health), which should be available to all citizens regardless of their ability to pay for them. The institutions of the state must be strengthened also to regulate delivery of services by the private sector and ensure fair competition in the market. The building of state institutions, to deliver and to regulate, will require stronger management, administrative, and political capabilities.

Inequality and its impact

Economic inequality matter because it increases social and political inequalities. Those with more wealth change the rules of the game to protect and increase their wealth and power. Thus, opportunities for progress become unequal. This is why economic inequality must be reduced to create a more just society.

In the present economic system, people at the top can make more profits by driving down prices and wages for people at the bottom. They may then recycle a small portion of their profits back as philanthropy, or corporate social responsibility. Or, if they were willing to, which they are not, pay the state more taxes to provide services, and even a UBI, to people at the bottom. Tiny enterprises have very little clout compared with large capitalist enterprises; and individual workers have little power compared with their employers. Therefore, terms of trade remain unfair for small enterprises, and terms of employment unfair for unorganised workers.

The solution is the aggregation of the small into larger associations, cooperatives, and unions. Aggregations of small producers, and unions of workers, can negotiate for more fair terms.

Universal basic capital

A better solution to structural inequality than UBI is universal basic capital, or UBC. In this alternative approach, people own the wealth they generate as shareholders of their collective enterprises. Amul, SEWA, Grameen, and others have shown a way. Some economists go further and also propose a ‘dividend’ for all citizens, by providing them a share of initial public offerings on the stock market, especially from companies that use ‘public assets’, such as publicly funded research, or environmental resources.

To conclude, three better solutions to create more equitable growth than the ones on offer are:

  1. Focus on building state capacity beginning with implementation of the recommendations of the Second Administrative Reforms Commission.
  2. Strengthen the missing middle-level institutions for aggregation of tiny enterprises and representation of workers.
  3. Developing better ideas for UBC than UBI.


(A case for UBI)

Does minimum/universal basic income help?

A pilot project conducted between 2010 and 2013, covering 6,000 beneficiaries in Delhi and Madhya Pradesh, yielded encouraging results. It confirmed that at high levels of impoverishment, even the smallest income supplement can improve nutrient intake, school enrolment and attendance of female students, and reduce incidence of indebtedness. This evidence challenges the commonly held views that welfare payments are an affront to the dignity of the beneficiaries and that they are used for questionable purposes, such as for buying alcohol.

Why UBI?

The reforms since 1991 have largely bypassed agriculture and other segments of the economy that engage poor and rural Indians. While incomplete economic liberalisation and technological advances have led to growth in national income, all individuals have not gained equally. The disproportionate share of gains from the reforms have gone to middle-class and rich Indians. This unevenness in development calls for a superior economic growth model. Until that happens, redistributive policy interventions such as income transfers can improve equity.

Besides equity, there’s also an urgent need to address rural distress, which is largely a consequence of policy failures such as ineffective procurement and perverse trade and pricing policies that have in times of bumper harvests led to gluts, depressed market prices, and aggravated farmer losses. So, it is only fair that the government pays reparations to farmers in some form.

Advantage of UBI

The advantage of a minimum income guarantee is that it will also cover the urban poor, who are not covered in these schemes. While job guarantee programmes, such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, lock up beneficiaries in low-productivity work, income supplements allow them to continue to look for better employment options.

Opening up fiscal space

  • Income supplements can be transferred into Jan Dhan or Post Office accounts. Beneficiaries can be selected through the Socio-Economic Caste Census (the last round was conducted in 2011, the results of which were released in July 2015).
  • In 2017-18, the Centre and the States collected more than Rs.5 lakh crore through various taxes, royalty payments and dividends from producers and consumers of petroleum products. Streamlining distortionary and demerit subsidies, such as on urea (Rs.70, 000 crore annually), can open up significant fiscal space.
  • If the wealth tax that the government had abolished in 2015 is reintroduced as a fair and easy-to-collect levy on the super-rich, selling politically to the middle class an income support scheme for the poor will be easier.

Taxpayers must realise that agri-prices, and therefore farm incomes, are not free market-driven. They are kept artificially low, through pricing policy instruments, so that inflation does not erode the rest of the population’s purchasing power.

Source: The Hindu and The Hindu

Categories: POINT IAS

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