Universal Basic Income: economist Margaret Legum

“It Doesn’t Have to Be Like This: global economics: a new way forward”, by Margaret Legum ISBN: 1901557766 – Wild Goose Publications

Margaret was educated at Rhodes University and Cambridge. She lectured at the LSE and Rhodes.

Pages 66-73

The dole has huge disadvantages. Here I want to mention only one – the regulations and the bureaucracy it takes to assess whether or not a claimant is legitimate. Using a means test is a tricky and unpleasant task for the bureaucrat and a humiliating one for the claimant, for whom lying is a constant temptation and an advantage. How do you assess, let alone prove, a person’s assiduity in seeking work? Means testing of their income is even more fraught with the possibility of corruption and error. Very poor people seldom have the `proofs’ that are required to qualify for the benefit.

In all countries millions in welfare benefits are unclaimed because the documentation needed to claim it is difficult to obtain for all but the experienced scrounger. In all countries it is recognised that targeted benefits are problematic to administer. They also lead to the notorious `welfare trap’ in which people cannot afford to lose benefits by taking a low-paid job, and so spend their lives idle and dependent on welfare.

How, in any case, should we define `work’ in South Africa? If a woman makes R10 a day selling chips outside the station, is she `employed’? We do not have a situation in South Africa where people are mostly in jobs and need to be tided over between jobs. We have a huge informal sector. We have lost a million jobs in ten years: there is more poverty now than when we achieved democracy. It is getting worse, not better.

New Economics suggests by contrast to a dole a Basic Income Grant (BIG), sometimes called a Citizens’ Income. This is an income paid from cradle to grave, unconditionally, to all citizens, as individuals, without a means test or work requirement. It is a right of citizenship. It represents a person’s entitlement to a small part of the fruits of the society in which they live; and their stake in its success. It could be age-related: children getting least, adults more and the elderly most. The BIG of children is paid to the principal carer, usually the mother. It is paid by the most convenient method – electronically through a bank account or in cash through a public outlet like a post office. To receive it the  beneficiary needs only to show an ID of some sort. In that sense it is exactly like the old age pension.

How much should it be? In principle it should be enough to allow people to keep body and soul together, but not enough to discourage them from seeking other income. These are vague terms, and will be differently interpreted.

Amazing as it seems, hundreds of thousands of Africans live on RS40 a month and share it with many people. In large parts of our rural areas pensions are the source of cash income for the whole community. Recent detailed research shows that children who live with a grandmother in receipt of a pension are noticeably heavier and healthier than those who don’t. The same is not true, however, for children who live with grandfathers.

Two widely respected international economists – whose views on the political economy of the world are radically different – both support the idea of a BIG. They are John Kenneth Galbraith, that great economist-populiser-activist, who has done more than anyone to make plain the issues of economics; and Milton Friedman, Thatcherite/Reaganite guru and pillar of the right.

The advantages of a BIG especially, but not exclusively, in South Africa are:

  1. With no means test, the bureaucracy involved in distribution is minimal. Nor is there large scope for corruption as there is when assessment is involved. This is a vital consideration in our country at this time. Our public service is appallingly disabled by our history. Even in a country like Britain, which has had a stable and sophisticated public welfare service for many decades, the experience of dealing with officials to claim benefit is painful, frustrating, time-consuming and dispiriting. I know this from having sat in a queue for the best part of a day to establish my right to a pension a couple of years ago. Had I been desperately poor and apprehensive, had I the care of small fractious children, I know the experience would have stretched my stress-tolerance to its limits.
  2. It deals with chronic destitution, where people have literally no alternative to begging or stealing.
  3. It is an agent of compassion. In South Africa at present only some 23% of welfare benefits are taken up. If everyone received the benefits to which they are entitled, we would still address only 36% of people now living in poverty – meaning living with an income of less than R400 a month per household. Most poor households do not include a potential welfare beneficiary. A BIG is the most efficient way to address poverty.
  4. It ends the state of cashlessness in which many of our communities live. They cannot activate their skills because no one has any cash to buy anything from them. So it can begin a benign circle of local regeneration: employment is created as small amounts of money begin to circulate. An accelerator effect begins to operate.
  5. It can create employment and growth on a wider scale too. In order even to look for work, people need a small cushion of cash. Not only for fares, for clean clothes and a CV equivalent, but also to enable them to take risks. If you have no money you cannot risk borrowing any for a job interview. Other risks may be taken – spending money on training for instance – if it is known that the grant will be regular.
  6. Because it is regular it allows poor people to plan to change and uplift their lives, in a way that one-off payments cannot do. Those of us who have regular incomes, no matter how small, find it hard to understand the disorienting effect of unpredictable income. There is nothing more likely to incline people to fecklessness than the idea that the money now in their hands may be the last for some time. Basic security represents the possibility of responsibility and the ability to plan. It is the sine qua non of the freedom to be an individual.
  7. It allows people to take jobs at lower rates of pay if, for instance, a job offers training or other advantages that make the low pay worth it.
  8. By contrast, it allows people to resist exploitative rates of pay and conditions.
  9. It encourages labour-intensive local production, because people on small incomes support that kind of enterprise.
  10. It does not involve the shame associated with means-tested welfare payments and the inquisition that goes with it. It makes sense of the rights of citizenship.
  11. It reduces the strain on people in employment who have to share their income with so many destitute relatives. We forget that poverty represents a tax on the poor, who must support on their tiny incomes people who have none. We need to shift the burden of that tax to the rich.
  12. It treats people equally. Therefore it narrows inequities of gender, youth or age.The advantage to the rich is that it is likely to cut crime, although deprivation for several generations has probably led to some cultures in which that is unlikely immediately. For some of us it is also an advantage not to have our hearts and our pockets wrung by people who we know have no alternative but to appeal to us.
  13. Since we know that nutrition in children is a massive determinant of a person’s capacity to contribute in adult life and of her/his call on medical services, a BIG would have a benign effect on the economy in the next generation. We have millions of people in South Africa whose intelligence has been stunted for ever by malnutrition in childhood.
  14. In time it would increase tax revenues as it encourages economic growth. There is plenty of research to show how people who escape poverty contribute to economic growth.
  15. It would allow citizens to afford services like water and electricity, now literally impossible for people without cash. Our government has focused on provision of new services, including water, electricity, education and health. But the poor cannot access these services. Their failure to pay is condemned as deriving from `a culture of non-payment and entitlement’. Research shows that this is largely untrue. The result is that these new services risk being expensive failures. Our health budget is a good example. We spend something like 400% more on health than we did under apartheid, but the results are disappointing, because poor health is largely the result of chronic poverty. Education is another example: people without income cannot send their children to school, even if the service is there.
  16. People who save are not penalised, because the BIG is paid to everyone without a means test.
  17. A BIG only gives the poor what taxpayers already get. Tax allowances amount to a government subsidy to people with incomes.

The objections to the BIG, with responses, are:

  1. It is bad for people to get handouts. People shouldn’t get something for nothing. There should be some reciprocity. Some of us get handouts all our lives – from our parents, our privileged access and our inherited positions – and it helps us to make something of our lives. Of course, some of us get handouts and fall to pieces. But we don’t stop rich people giving their children handouts. Many of us are constantly getting something for nothing. Moreover, in the matter of `handouts’ there is always an implied obligation as a result of a sense of belonging. It is precisely this sense of belonging that very poor people lack, and that would make their citizenship feel real, perhaps for the first time. 
  2. It will cause people to stop looking for jobs. There will be a labour shortage and employers will have to pay too much and become uncompetitive. Research from the University of Cape Town’s SANDRA suggests other-wise. People not only look for jobs more when they are above the destitution level, but they also succeed more.
  3. Let’s remember, too, that there are currently millions more people than jobs. We want to end the humiliation of people having to look for jobs that aren’t there. Perhaps we should be grateful to those people who are content to live on the small BIG and leave the jobs to the rest of us. 
  4. They will drink the BIG away or spend it on the Lotto. The beneficiaries will be the drug barons and the liquor stores. And the men will beat up the women to get their BIG. When the child allowance was first introduced in the UK, the same objection was made to it. Some parents, though few mothers, fulfilled the prophecy. The great majority used it to the benefit of their children. Thus also in South Africa some people will probably abuse the benefit. Should we refuse a right to the most vulnerable because a few abuse it? We know that addicted people have usually encountered deprivation or trauma somewhere in their lives. Moralistic attitudes are not helpful.
  5. Rich people don’t need it, why give it to them? The reasons for the universality are important. They are both practical – the lack of bureaucracy – and in principle, as a right of citizenship and a mark of inclusivity. But there are reasons in South Africa to accept that the rich should not benefit. Some people think it should be seen as a ‘Solidarity Grant’ paid by the rich to the poor. The BIG could easily be clawed back in the income tax of people who pay taxes: the full amount could be added to the calculated tax, so it all returns to the Treasury. That practice was latterly used in the UK in relation to the child allowance. 
  6. People will have more and more children just to get the BIG. Again that objection was used against the UK child allowance and proved groundless. It is a mistake to make laws on the basis of the possibility of abuse by a few. The fact is that the BIG would not give the parents a profit on a child. People have `too many children’ for a variety of reasons, mostly by mistake, hardly ever to do with the bottom line. 
  7. It will put civil servants out of a job. No. It will enable good civil servants to be moved to other jobs that desperately need doing. There is no shortage of work for good public servants. 
  8. The administration would not work. Already we are seeing the pension distribution falling apart. In fact the pension distribution is improving, and it is vital that we continue to improve it. If the whole country were to have a stake in such a system it would no doubt be totally overhauled. It is the kind of thing that might benefit by outsourcing to the private sector or to NGOs because it is easily monitored and does not involve policy judgement. 

Paying for the BIG

Broadly speaking, there are two ways of paying for a BIG. The first is out of regular taxation and the second is to include an alternative system of taxes, which has a great many advantages in itself. These alternative taxes will be discussed in Chapter Three. Here we examine the work of Prof. Mike Samson, Director of the Cape Town-based Economic Policy Research Institute, and also a professor at the Williams Centre for Development Economics in the United States. Professor Samson is one of several researchers who have been examining the cost and revenue implications of a BIG, using the present system of taxation.