Tuesday, 4 February 2014

Just Give Money to the Poor: The case for a Global Basic Income

Poverty used to be a reflection of scarcity. Now it is a problem of identification, targeting and distribution. And that is a problem that can be solved. (The Economist's briefing on poverty)
Poverty may be the natural condition of human beings, but it is not inevitable. Extreme scarcity, like the ancient scourges of cholera or polio, has been eliminated by our own efforts from most of the world. We could eliminate it entirely if we chose. The world as a whole is now so rich that we could easily afford to simply give every destitute person an unearned claim on our collective economic wealth sufficient to lift them out of extreme scarcity.

The Moral Case

The proportion of the world's population living in utter destitution is the smallest it has ever been. Nevertheless there are still 1.2 billion people living on less than $1.25 per day. That is, on less than what you could buy in your country with $1.25. Less than the price of a coke. Less than what your cat gets spent on it.

Think about that for a moment. Look at some pictures. Is it a fact you can live with? Or do you think there is something deeply and utterly wrong with a world in which one in six people has less purchasing power than a pet cat?

As The Economist's briefing on poverty notes, most of the progress against extreme destitution has been generated by economic growth and the egalitarian distribution of economic gains, not by international aid. But the remaining 1.2 billion will be harder to bring over the destitution line with economic growth alone, mainly because they are further below the line to start with (especially in sub-Saharan Africa) and tend to live in countries with weak economic prospects. Despite the good intentions behind intergovernmental projects like the Millennium Development Goals and numerous development charities, international aid programmes have so far had a negligible influence on reducing destitution and cannot be relied upon to fill the gap. It seems that destitution will go on destroying lives on a massive scale in forgotten corners of the world indefinitely.

Yet there is something we haven't tried yet despite its stunning obviousness: giving destitute people money. $1.25 is a very small amount of money. That is why it is the World Bank's threshold for utter destitution. But the other side of that is that $1.25 is also a trivial piffling amount of money, and the average shortfall per destitute person from that threshold is even smaller. Imagine if the richest 1.2 billion people in the world were twinned with the poorest and each rich person gave 50c per day to their poor twin: destitution would be pretty much eliminated and the rich would hardly even notice the cost.

The idea of a guaranteed global basic income paid for by the rich world can be supported by many different accounts of morality and is thus a natural locus for international moral consensus. For example:

-Many religious accounts of morality identify the alleviation of poverty as a moral duty, and one that is not limited by political borders.

-From a utilitarian perspective, a transfer of consumption power from the world's richest to its poorest would increase the sum total of human well-being in the world. Whether well-being is construed entirely subjectively as hedonic happiness, or as preference satisfaction (the metric preferred by economists), or more objectively as quality adjusted life-years, the result is the same: an extra 50c per day would make a much more significant contribution to the quality of life of the destitute than it presently does for the rich.

-Eliminating destitution is a global moral responsibility, something we all have reason to want - a public good like a stable climate. But it is fair for the costs of achieving it to be borne by the group of people - the world's wealthiest - who are best able to afford it.

-From the personal perspective of the citizens of the rich world, it is the right thing to do (cf Peter Singer). There is no morally significant task, including securing their own material comfort and that of their family, that the world's richest people would need to give up in order to send 50c per day to end someone's utter destitution.

So much for principles. Of course, the main reason why many people reject the idea that they have moral obligations to help strangers in foreign countries is not that they really believe that the further away someone is the less they matter. Rather, they are justifiably sceptical about their ability to help far away strangers. The world's most destitute live in hard to reach rural areas of weak and failing states that are very difficult to operate in. The overall record of international aid to non-middle income countries is positive, but weak and littered with scandalous failures. Haiti is perhaps the most dramatic recent example of failure despite adequate funding and global attention, but humanitarian aid has often been implicated in prolonging wars and deepening destitution in the wake of famines (by shunting everyone into refugee camps) while development aid often feeds government ministers rather than giving poor people the ability to feed themselves. 'Famine fatigue' is a legitimate response to the enduring failure of our sympathy with the world's suffering to lead to any appreciable improvement.

So, establishing the moral case for a transfer is not enough. We also need a feasible plan. Here's my proposal. Warning - this will get wonkish.

The Logistical Case

The first step is to promulgate the moral consensus I discussed as an international norm. For example by including a new human right to freedom from destitution in a revised UN Declaration of Human Rights (cf Article 25), or by a new global treaty. This is preferable to another Millennium Development Goals type project because it moralises destitution more sharply and is more permanent and universal in its scope. (The original MDG project was only opt in - some countries like China ignored it.)

Second, this human right to freedom from destitution needs to be operationalised into the specific obligations and entitlements it places on different parties.

-Entitlement. Those living on less than $1.25 per day would be entitled to a partial basic income of 50c per day (enough to bring most destitute people over the threshold, though in some places a higher transfer would be required)

-Targeting. Because targeting is expensive in itself, in countries or regions where the median income is below this threshold everyone would automatically have the entitlement.

-National responsibility. The states in which the destitute live would be responsible for facilitating this entitlement and for funding it if they are wealthy enough to do so. This means that upper middle-income countries ($4,000 to 12,500 GNI per capita) with substantial remaining pockets of poverty - such as China, Namibia and South Africa - would be responsible for targeting, funding and and distributing their own citizens' basic income. As countries develop economically - something which the cash transfer programme can be expected to expedite - they will become responsible for managing and funding more of the programme for themselves.

-Rich world responsibility. The remaining annual funding requirements for the entitlement would be met collectively by high income countries (over $12,500 GNI per capita), in proportion to the size of their economies. (This has similarities with the UN/IMF/World Bank funding structures.)

-Management. A new international (UN) agency would be needed to manage the disbursement of funds and the logistical infrastructure, and to commission independent reports by development experts on the effects of the programme (including negative ones).
Third, complex and technologically sophisticated logistical arrangements will need to be established on the ground. The aim of all this complexity is to keep the central mechanism as simple and direct as possible: to eliminate destitution by direct transfers of cash to very poor people. This directness addresses the reasonable scepticism of rich world citizens about the effectiveness and reliability of giving money to foreign governments and NGOs that promise to help people. A promising combination of innovations that is increasingly plausible and inexpensive is the biometric ATM, which would greatly reduce the scope for embezzlement within the programme or theft from the programme's recipients. Such ATMs can also be set up to accommodate illiterate users and to provide simple banking services like electronic transfers and savings accounts, also needed by the poor. (This is not just a first world fantasy. India, for example, already has some biometric ATMs and is also making progress with a universal biometric identification register for all its citizens.)

Costs

The theoretical annual cost of ending destitution by such a transfer from rich to poor would be $220 billion ($600 million per day), but the actual amount this would cost the citizens of the rich world would be a bit different.

First, a significant chunk of the world's destitute live in upper middle income countries which are rich enough and whose governments are competent enough to lift them out of poverty if the political commitment is there. Mexico and Brazil demonstrate this - they have been running massive transfer programmes for more than a decade with great success. (Brazil's enormous programme covers 74 million people, 39% of the population, at a cost of less than 1% of its GDP.) The main contribution here by rich states is to support that domestic political commitment by building and maintaining an international consensus around the right to freedom from destitution. And the most important part of that is to show their own commitment to this human right by adequately funding the global basic income entitlement in the poorer countries.

Second, while upper middle income countries taking responsibility for their own destitute populations removes a hundred million or so from the statistics, a policy of universal coverage in low income countries means that a significant number of people who are not quite destitute will still receive a basic income of 50c a day, including tens of millions of what the World Bank generously calls 'middle class' (people earning more than $2 per day).  That raises the costs that fall on the rich world, but the importance of reaching all the really poor people would seem to outweigh the risk of helping some less poor people by mistake.

There will also be considerable logistical costs - a biometric identity register of all residents, solar powered ATMs for every village, and so forth. For some countries or parts of countries, like the Congo, getting this logistical infrastructure in place will be especially difficult. However these set-up costs will not increase the annual cost of the programme since payouts can't begin without this infrastructure in place. Much of this infrastructure would be useful for development anyway. (India's federal government is already funding its own universal biometric identity register because it believes its citizens will be better able to claim their existing rights and entitlements from a corrupt and disinterested bureaucracy if they can always prove who they are.)

So a rough estimate for the annual cost of the programme that the rich world would have to pay when it is fully up and running might be as high as $300 billion. That sounds like a big number, and it is, but here are some other big numbers to put it into context.

1. The size of the world economy in 2012 was $85 trillion ppp. $300 billion is a rounding error in that total. It is eminently affordable. Incidentally, if global income were perfectly equally shared everyone would have $12,000 per year to live on ($33 per day). This plan is not egalitarian. It merely proposes providing a top up to the poorest billion or so so that their income reaches at least $450 per year.

2. Estimates for illegal international tax evasion in 2012 run from $190 billion to $255 billion, a substantial chunk of it stolen from poor countries' treasuries. Fix that, and we're nearly there. (Tax avoidance is far greater, of course, and much of it should be illegal.)

3. Total US military related spending in 2012, i.e. over and above the $740 billion official defence budget, was $925 billion. Ending destitution would only cost one third as much as America spends defending itself. To put it another way, just cutting America's military spending to the levels of the height of Cold War paranoia, when the country was facing a genuine existential threat, would leave more than enough for America to pay for the entire project by itself.


Effectiveness

Ending destitution is not the same thing as ending 'deprivation' or even 'poverty'.

Destitution is concerned with individuals' lack of purchasing power, which is only one (important) aspect of poverty. Poverty concerns shortfalls in one's standard of living in a broad sense, which includes such items as reliable access to clean drinking water, sanitation, electricity, and transportation; the determinants of good health; security from violence; primary/secondary education; and so on. As the Multidimensional Poverty Index developed by the Oxford Poverty and Human Development Initiative shows, income destitution does not correlate directly with acute poverty. An important reason for this is that many basic needs are quasi-public goods, in that they are best provided or at least facilitated by governments rather than markets. Affordable access to them therefore substantially depends on whether one lives under a sufficiently competent, motivated and funded government. Since most of the world's destitute people live in poor and badly governed states, introducing a basic income would not in itself mean an end to poverty. That requires institutional development as well, the traditional focus of international development programmes.

Nevertheless, eliminating destitution would make these people's lives go better than they do now and is preferable to a narrow focus on institutional development for at least two reasons: it empowers the recipients rather than treating them like patients, and it reaches dimensions of poverty, such as child labour, that are hard to reach in other ways. For example, one reason even tiny amounts of money can make a big difference to people's standard of living is that poor people's earnings tend to be very volatile from day to day and week to week (on which see the excellent book, Portfolios of the Poor) . A guaranteed basic income, even one that only covers part of what people require, would substantially reduce the uncertainty and mental stress in which the very poor have to live, always wondering where their next meal is coming from.

Beyond theory, there is increasing empirical evidence that just giving money to the poor reduces poverty in the places where variants have been tried, which include parts of India and Indonesia as well as upper middle income countries like South Africa, Mexico and Brazil. (The evidence is summarised in a recent book aptly titled, Just Give Money to the Poor.) Poor people, it seems, are mostly quite capable of spending extra income 'rationally' on meeting their basic needs, and tend to do a better job of it that NGOs and government agencies. Pilot programmes in very poor populations, e.g. in Namibia, show the potential of even tiny direct transfers to improve individual lives and communities: higher enrolment in schools and better nutrition; reduced desperation for income - crime and prostitution.

Eliminating destitution by directly transferring a basic income to each poor individual also has advantages for residents of the world's unluckiest countries exactly because they are so hard to help in any other way. In his brilliant book, The Bottom Billion, about the persistence of poverty in the modern world, Paul Collier identifies 4 key 'traps' afflicting around 60 countries: conflict; incompetent governance; the natural resource curse; and being landlocked with poor neighbours. These traps are why one cannot rely on future economic growth to eliminate destitution any time soon. They also limit the scope for international development aid to lift substantial numbers of people out of destitution. Aid programmes run by foreigners cannot engage effectively with the politics of economic reform in such countries, and they are too small in scale to have much direct effect on economic development. Their successes, which are real, tend to be very focused programmes within their organisational and financial capacity, like providing childhood vaccinations or mosquito nets in countries where annual government health spending per person may be as low as $2.

Because the basic income programme doesn't work through endogenous economic growth, it bypasses all these traps - except for the conflict trap - without solving them. Yet even with regard to the conflict trap, although up to 1.5 billion people live in countries with significant political/criminal violence, the number who live under really anarchic conditions is much smaller. For example, though we hear all the time about the dreadful chaos in the Congo, most of that is limited to the provinces bordering Rwanda and Uganda. Most of the 75 million population live in areas peaceful enough to roll out the cash transfer programme. Generally speaking, the logistics of the basic income programme should be feasible wherever you can buy a cold bottle of Coca Cola, i.e. nearly everywhere.

Deprivation is a yet broader category which includes (besides poverty and destitution) suffering from significant injustice, such as discrimination on the basis of gender, race, sexuality, caste, religion, etc; bondage slavery; and the lack of civil, legal, and political rights. For example, women and Shia in Saudi Arabia might seem to be doing quite well in terms of income and basic needs, but nevertheless be living very deprived lives. A basic income doesn't do anything directly to combat systematic injustice. Dealing with that requires domestic political mobilisation for which international involvement cannot substitute (the most the international community can really do, except in urgent cases like Libya, is to promote international human rights norms and publicise the misconduct of odious regimes).

Flexibility

I proposed a partial but global basic income, yet the basic idea can be scaled up or down.

First, even without global agreement a single rich world country could twin with a poor one of a similar size - the Netherlands and Malawi say - and roll out a bilateral direct cash transfer programme (at a cost to the Netherlands of around 0.4% of GDP). That could function as a pilot programme to work out its logistical kinks and full economic implications. It would also be a helpful demonstration to the rest of the world that good intentions can help people. I believe the main block on effective global action against poverty is not the amorality of rich world citizens or politicians, but cynicism that anything we try can make a positive difference. If I am right, establishing that direct cash transfers really work would dissolve that cynicism and international support would increase rapidly.

Second, the amount of money can also be scaled up. Indeed, once it is clear what a difference an extra 50c per day can make to people's lives, the rich world may well become more generous and more ambitious, perhaps adjusting the programme to target the $2 instead of $1.25 threshold. There could be helpful indirect consequences of such generosity for economic and political development.

50c per day is only a partial basic income since it is merely aimed at topping up the meager income people can already get hold of. It is not enough to live on by itself. But at higher amounts - say $1.50 per day - a guaranteed universal basic income would have many of the benefits of a social insurance system for countries unable to organise one. It would cover the minimal subsistence needs of those unable to work because of illness, disability, old age, or simple unavailability of jobs from one day to the next. This would remove the vulnerability to circumstances which forces poor people to live from day to day, allowing them to escape the excruciating uncertainty of destitution, to smooth their consumption spending, and to make longer term plans for themselves and their families.

A full basic income can thus enable people to break out of the cycle of poverty. Parents would be able to afford to send their children to school to learn the skills they will need for employment in a non-subsistence economy. More people may be willing to take economic risks as entrepreneurs, for example by growing higher yield but less drought resistant crop varieties, if they know that failure will not wipe them out. And so on.

The basic income transfers will also have major macro-economic effects. The poor countries receiving international transfers in dollars would see their economies increase by up to 50% as their residents gain a bigger claim on the world's economic production. That increase in aggregate consumer demand may be expected to generate a corresponding increase in the capacity of the economy to supply things to buy - like food and shoes - and all that follows from that, such as jobs in making, moving and selling those products. This is not yet sustained economic development, but important steps in the right direction.

Finally, there is a link to democracy. Once people are lifted out of extreme destitution they are also liberated to some degree from the domination of circumstances and thus able to pay more attention to the institutions, people, and ideas that rule their lives, from local schools to national politics. That is a necessary beginning for the general recognition of their political right and power as citizens to participate in the collective government of their societies.

Conclusion

The world is now so rich that the persistence of utter destitution among a sixth of the world's population has become both ridiculous and shameful. Economic growth cannot be relied on to end that destitution anytime soon. It requires action, and not just the usual demands that underequipped aid agencies and poor country governments achieve the impossible. Giving people money is not only the most obvious way of solving the problem of destitution, it is also the most effective. Destitution is a greater scourge than smallpox or polio. If we can find the international commitment and organisational capability to eliminate those burdens on humanity, surely it is time to banish destitution too.

15 comments:

  1. I agree both intellectually and emotionally with your conclusions, however there's no mention of the effect of successful transfer upon the economy of a poor nation. Increasing purchasing power must increase prices, blotting up some of the new "wealth" as more money chases the same goods. Might it not be better to transfer public goods, donate infrastructure, and boost education?

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    1. 1. Increasing purchasing power only increases prices if the supply of goods is somehow fixed. But one thing markets are good at is responding to effective demand by increasing supply.

      Theoretically there is no difference between sending a sack of rice to an individual in Africa and giving them the money to purchase it themselves. However, in the real world sending food in response to need has numerous well-documented inadequacies: it is extraordinarily expensive to set up a parallel non-market logistical operation to get food in; middle-men and thugs have a huge incentive to steal the food and export it to wherever it can receive the best market price; targeting and distribution to the most needy individuals is difficult and associated with concentrating the population in camps removed from their livelihoods; its distribution in lumpy occasional batches has the characteristics of 'dumping' thus undermining the sustainability of local agriculture.

      2. My proposal is not mutually exclusive with traditional institutional development efforts. For example, the World Food Programme has largely dropped its focus on moving food to starving people and turned to developing the infrastructure for a robust agricultural economy (warehouses, roads, knowledge of best practice, etc). That kind of work supports the supply side of the economy and complements the basic income proposal by ensuring that people have things to buy with their additional income.

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    2. OK...I'm convinced so far. Have you an estimate of how many biometric "cash-cows" it would take to do the job? Their cost, distribution, administration and servicing would be ongoing expenses. That requires employment (a good thing) - and is the U.N. in a position to undertake such a major additional program? Beyond that, would some of the "governments" allow messing with their subjects without ongoing emolument?

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    3. Obviously I'm in no position to say how many ATMs etc. would be required. But given that most of these countries have managed to set up mobile phone systems which have logistical and technological requirements of a similar level, it seems feasible to me.

      Even in fake or non democracies, governments are generally dependent on popular support for their legitimacy (in fact more than governments in democracies - China's politburo would never survive Obama's disapproval ratings, let alone that of Congress). I think holding up their people's basic income entitlement to try to extort an extra palace or whatever from the rich world would be a rather dangerous stunt for such governments.

      What can we do about actively evil totalitarian police states like N. Korea and Eritrea where public opinion scarcely exists? Whatever we should be doing anyway. Very few of the world's 1.2 billion destitute live in those countries so we don't have to wait until that problem is solved to start addressing destitution.

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  2. Refreshing and enlightening. This approach could dove-tail with individual countries establishing a universal basic income.

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  3. Exactly what I have been thinking, (albeit not in as much detail as you); giving everyone a living wage, and wondering what the world would look like. Would some trades, like poaching which threatens the very survival of some species, be discouraged? Would there be less 'evil' if there were less desperation?

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    1. Quite possibly, especially if the basic income was targeted at the 2 dollar a day 'middle-class' level.

      I think there is a significant difference between the ethical life that is possible under conditions of absolute scarcity (destitution); moderate scarcity; and moderate abundance (middle-class in the rich world). In particular, to be destitute means routinely facing tragic choices - choices between evils rather than between goods - such as which child gets to eat today. Moving people from absolute to moderate scarcity should reduce the tragedy in their lives.

      I'm not so sure about your example of poaching though. I see the moral issue there in terms of the political legitimacy of excluding some parts of the natural world from the economy, rather than desperation per se. Modern (generallly Western) environmentalists' concern for protecting charismatic megafauna imposes unrecompensed costs on many poor people who happen to live near them, not only by banning poaching but also by excluding them from large areas to protect their habitats. We should not make foreign poor people pay for our values.

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  4. I admire the idea and would contribute without question, however, my main concern would be the possibility of an increase in localized crime. I fear the outcome could encourage the growth of more localized crime groups preying on the persons receiving the benefits, even with biometric ATMs.

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    1. That is possible, though by this logic the rich world should be overrun with gangsters lurking next to ATMs.

      It would be less likely if people could go to any ATM to access their money at whatever interval they chose, thus reducing the ability of local gangsters to impose a 'tax' on everyone using a village's machine.

      But I think that in general people resist having money directly stolen from them more strenuously than they resist having development funds redirected into the pockets of political cronies before ever reaching them. Thus, even with some level of gangsterism, ATMs still seem an efficient way of reducing destitution.

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  5. I agree wholeheartedly with this proposal however, how could it be assured that the money given is indeed spent towards basic needs and long-term investments, most especially in developed nations where substance abuse is prevalent among those below the poverty line. In these cases wouldn't the money given end up funding their addiction.

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    1. There is quite a lot of empirical evidence about how the very poor spend their money and any additional income they receive from schemes like this, and it seems they are pretty rational about spending it efficiently on their immediate basic needs. That shouldn't be surprising, but there is a pernicious belief that the poor are stupid or vicious and that's why they're poor. On the contrary, surviving poverty requires enormous and constant mental effort and emotional strength.

      Nonetheless, that effort takes its toll. Poverty is extraordinarily stressful and that is associated with making bad long-term decisions and self-medication, which can be self-reinforcing. The demands on the poor force them to focus on narrow and immediate problem solving - securing their basic needs for the day - at the expense of everything else. A guaranteed basic income addresses these sources of stress by reducing the effort that the poor have to invest in mere survival: 1) increasing their consumption budget (no more having to ask yourself 'Which child should I feed today?') and 2) reducing uncertainty about future income (and thus making longer-term planning feasible).

      NB My orientation in this post is towards absolute poverty, but relative poverty is also extremely stressful (see e.g. The Spirit Level) and many people have argued the benefits of a basic income in ending rich world poverty (rather higher than 50c per day).

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  6. Wealthy people like poverty, or least insecurity. The worst thing that can happen to a businessman is to have comfortable employees who can quit when they like.

    As long as you have the profit system you will get this contradiction between rapid technological growth and rising living standards and continuing economic insecurity,with little or no savings, even in developed countries. It's baked in.

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  7. Really enjoyed this post. Thanks for working on this - I think it is a very interesting and important suggestion.

    You may well already know about them, but some of the comments made me think you would be interested in the work of GiveWell.org (and perhaps givingwhatwecan.org) - especially regarding claims of effectiveness - for example your claim that "Giving people money is not only the most obvious way of solving the problem of destitution, *it is also the most effective.*"

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    1. Nick, I'll let you get away with your plug. But as you must have realised - if you actually read my essay - what I am arguing for is entirely different from if not opposed to the Give Well project of channelling money to more efficient NGOs.

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