Future Development Reads: A new social compact—digesting the pros and cons of universal basic incomes

This week has featured a series of blogs on universal basic incomes in both developing and developed countries. We round off the week with a series of readings from the growing literature on the subject.

There seems to be at least one point in common in what follows. Almost everyone starts from the premise that there needs to be a new social compact between the state and its citizens to respond to the various forces that globalization and technology appear to have unleashed. Consensus stops there, however. Proponents and opponents of universal basic incomes have very different ideas as to how to design and construct this new social compact. There are also differences in views as to whether UBI is more appropriate for rich countries or developing ones; whether it reflects a leapfrog technology or a moonshot technology as one author puts it.

Nonetheless, it is clear that scholars from across the political spectrum are intrigued by the idea of UBI in developed countries.

Former President Barack Obama acknowledged that the UBI debate is one that should be happening over the next 10 or 20 years, partly in response to job losses through automation. Kemal Dervis, vice president of the Global Economy and Development program at Brookings, argues that a mixed system that balances the portability and choice offered by a UBI scheme with social policy guidance in a standard public delivery system could be optimal.

The Cato Institute also endorsed UBI as a way of fostering the libertarian idea of individual empowerment as a preferred mechanism to public service delivery. Charles Murray, fellow at the American Enterprise Institute, thinks it can limit the growth of current welfare entitlement programs, reducing overall cost. Tim Worstall, senior fellow at the Adam Smith Institute, thinks the same but calls for a pilot first.

There are already experiments underway in the developed world on different UBI designs, and early results from at least one, in Finland, are positive about the effects on stress and happiness (the new metrics of well-being in a developed economy).

The issues in the developed country cases revolve around costs, whether to replace or supplement other social programs, and what to do with other programs. For example, Charles Murray argues that a UBI would eliminate the need for a minimum wage, and ascribes purported efficiency gains from eliminating labor market distortions to the UBI.

There is also support for a UBI in developing countries, although more caution as well. The main argument is framed around improved effectiveness. Martin Ravallion, the Edmond D. Villani Chair of Economics at Georgetown University, and others worry that alternative, targeted programs cannot be effectively implemented in a developing country context. In India, where social programs have long been plagued by corruption and inefficiency, the prospect of reduced leakage by combining a UBI with new technologies like digital identification systems is attractive. Arvind Subramanian, chief economic adviser for the government of India, has floated the idea.

But there is more caution in the developing country case. The World Bank notes that because context differs across countries, so will program design. Indians (and they wouldn’t be Indians if they did not argue) have also come out strongly against a UBI as leaving untouched the core issues of providing the infrastructure requirements for basic needs (e.g., roads and sanitation) and public services (e.g., education and health). Their argument: giving cash will not permit the poor to purchase these services because they’re in such short supply.

(Tribute to Paul Romer of the World Bank: the word “and” appears 15 times or 2.6 percent of the total word count in the article above.)