The Strategist

"A feasible idea": World Bank introduces paper on universal basic income

03/04/2020 - 08:53

A group of economists under the auspices of the World Bank Group issued a report systematizing the current state of the idea of “universal basic income”. Eventually, they concluded that the basic income and its analogues are practically feasible; it is more complicated and significantly more expensive than existing models as a means of improving the social protection. Perhaps, the idea does not have most of the negative consequences attributed to it by critics for the labor market, but it loses in efficiency to almost all alternatives in combating poverty and is not a universal way to solve most of the social problems. At the same time, the practical implementation looks much more complicated than it seems in a detailed analysis.

Universal basic income is one of the most popular big ideas of the beginning of the 21st century in the world. The report “Exploring Universal Basic Income” was released by a team of researchers organized by a group of the World Bank (WB) and edited by four WB economists. The paper’s main objective was to systematize data and works around this idea in its various implementations, analyze pilot projects in this area, and model, including the tax consequences of introducing the basic income into ten world economies, as well as a forecast for the further development of this idea.

Despite its aura of a “new” social solution, the basic income is an extremely old idea (the authors attribute its appearance to “at least the 17th century”). Its discussion, active since the end of the 20th century, has been associated with the crisis of social policy in a number of large economies. 

The two largest experiments on the introduction of the basic income on a national scale are known mainly to specialists.

This is the experience of Mongolia, which de facto introduced the basic income by universalizing children's benefits since 2010. The program started with a declaration of payments of about $ 89 per citizen per month; at the finish of the program, payments amounted to $ 7-17. Its implementation increased the state debt of Mongolia from 31% of GDP to 48%, reduced poverty in the country by a third and lost political support in 2012. In addition, there was the experience of Iran in 2010-2015. Under the scheme of replacing consumption subsidies with cash payments in 29% of median income, 92% of the population received about $ 400 per month for a household at the start. Later, the program was curtailed due to macroeconomic destabilization and the impossibility of the Iranian government index UBD (it lost 80% of purchasing power), as well as sanctions.

The report  covers a much wider range of programs of this type, including a program of minimum guaranteed income, that is, compensating surcharges to household incomes below the threshold value (for example, the Di Bao program in the PRC, or poverty reduction programs in the Caucasus and Turkey) .

The paper’s authors state that the assumptions about "labor incentives" are not generally confirmed in relation to the basic income projects in contrast to MHD.

Simulation of the introduction of the basic income shows that the proposed scheme is on average 60% less effective in combating poverty than existing programs. The authors do not exclude the basic income’s political feasibility, only stating very great difficulties both with public support for such reforms (they are much more complicated in this regard than they seem) and with configuration of the tax burden for their financing. Universities in solving social problems from UBD, as the authors show, cannot be expected: this scheme solves some problems in theory, but aggravates others. “Neutral” (not accompanied by a sharp increase in tax redistribution) basic income is possible only in relatively rich countries. In general, UBD is poorly compatible with existing political and budgetary models, although the peak of interest and the number of “pilots” of UBD in the world will obviously not pass, in many respects this is the reason why there is no “unconditional income” now country of the world.


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