Universal Basic Income: a thoroughly researched, evidence-based policy

Image: President Richard Nixon bowling (source)


Poverty--by definition--is a person or family with not enough money. If poverty is simply not having enough money, what if we just gave people free money? Wouldn't that solve the problem of poverty?

Today, this proposition sounds completely absurd. No politician or commentator in the mainstream could even mention it and be taken seriously. This is the kind of proposal that could end a career. Yet, decades ago, this idea was so mainstream that the likes of Richard Nixon and Milton Freeman were in support of it (this is a useful reminder of just how conservative our country has become). Yes, as Nixon was escalating in Vietnam, he represented the political center by advocating a universal basic income.

The idea has many names, among them Universal Basic Income (UBI), Guaranteed Annual Income (GAI), or (as Nixon would have known it) the negative income tax. It also takes several different forms: some proposals would pay everyone the difference between their earnings and a poverty line--for example, if the poverty line was $20,000 in a year and your family only made $16,000, the federal government would write your family a check for $4,000. Others aim to keep things administratively very simple and would direct deposit a set amount of money in the bank accounts of every single citizen* (for most people, these benefits would be offset by increased Social Security taxes to pay for the program). In whatever form, a UBI is a guarantee that you and your family will never be impoverished.

A hallmark of all UBI proposals is unconditional cash transfers--that is, recipients are not expected to do anything in order to receive cash benefits. Again, this makes the program administratively very simple, but it also grants people security. That security has its own rewards (which I will elaborate on in a future post). (Even conditional cash transfers in developing countries are often considered utopian nonsense--yet they work).

It's crazy to think that a UBI would improve health or educational outcomes. And it's equally crazy to think that a UBI would not cause people to stop working. Yet that is exactly what research on UBI's has found. Decades ago, when UBI was a serious policy proposal, extensive research was done. Very well designed studies (randomized controlled trials) found downright incredible results. From a review:

The first experiment was conducted on an urban population in New Jersey and Pennsylvania between 1968 and 1972. A second experiment was conducted in Gary, Indiana to examine the effect of a GAI on single parents. A third experiment was conducted in North Carolina and Iowa to look at the effects on rural populations. The final experiment was the Seattle-Denver Income Maintenance Experiment (SIME-DIME) which had access to a much larger experimental population...

In North Carolina, children in experimental families showed positive results on elementary school test scores. In New Jersey, data on test scores was not collected, but a positive effect on school continuation rates was found. In SIME-DIME there were positive effects on adult continuing education (Levine et al. 2005: 100). These results are all the more remarkable when juxtaposed to the academic literature that shows it is very difficult to affect test scores, dropout rates or educational decisions by direct intervention.

Inconsistent attempts were made to collect health data, specifically on issues such as low birth weight which can be associated with significant deficits in later life. The Gary, Indiana study found positive effects on birth weight in the most at-risk groups (Levine et al. 2005: 100).

Kerala, India, and the moral bankruptcy of the neoliberal development project

Image: Bangladeshi sweatshop workers (image from The Institute for Global Labor and Human Rights must-read report on Bangladesh's sweatshops)


The neoliberal theory of development is that sweatshops are good. Poor countries have to leverage their only comparative advantage--cheap labor--in order to bring foreign investments into their country. Bangladesh is certainly not going to beat the first world at software or aerospace engineering, so they should focus on what they can beat the first world at: providing low skill manufacturing at third world prices. Sweat shops are evil, but they're a necessary evil. Only when enough foreign investment enters a country can countries like Bangladesh lift themselves out of poverty. This generation may not have access to an education, but maybe their children will for their sacrifices. This is the path of industrialization the United States, England, Germany, etc took and it is--regrettably--the only way. The real world doesn't care about morality; it's time for Bangladeshis to roll up their sleeves and do what needs to be done.

The problem with the neoliberal development narrative is that it's entirely wrong. A Worker Rights Consortium report found that most countries pursuing this exact policy have seen their workers get poorer, not richer. If the neoliberal development strategy actually worked, the purchasing power of workers should rise slowly, not fall. But it doesn't work. It never did.

The intentional oversights of the neoliberal model are incredible. Child labor doesn't end by workers allowing themselves to be exploited; it ends when a country's political system is motivated by voters to enact--and enforce--a ban. Occupational health and safety regulations aren't gifts of the free market; they're the result of collective bargaining and direct government intervention. Universal primary public education doesn't happen because of an influx of foreign investment; it's the result of mass movements forcing changes in government policy. What, exactly, is the mechanism by which foreign money, flowing directly into the hands of the factory owners who pay their workers 20% of a living wage, results in widespread improvements in education, utilities, or workplace safety? It's certainly not going to help the next generation get an education--not when 9-year-olds are among massive ranks of child laborers.

Neoliberal development theory conveniently overlooks stories that don't fit the model. The monetary gains of Japan's rapid industrialization was shared equitably among the entire population; they now lead the world in health and quality of life indicators. Japan's rapid industrialization didn't occur by allowing their workers to be exploited by foreign capitalists. Rather--even though rural, backwater Japan had no comparative advantage in technology or manufacturing--they realized the potential and used direct government intervention to target these industries for growth. They didn't wait for the market to take it's "natural" course; they used industrial and trade policy to benefit their high tech industries, rank-and-file workers, and to educate the next generation of engineers and scientists. Japan succeeded because of their flight from the neoliberal model, not in spite of it.

It's difficult to--as Nicholas Kristof of the New York Times does--take the neoliberal model seriously:

But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough.

Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children...

Seriously? An "escalator out of poverty"? From the Worker Rights Consortium report cited above:

On average, prevailing straight-time wages—pay before tax deductions and excluding extra pay for overtime work—in the export-apparel sectors of these countries provided barely more than a third—36.8 percent—of the income necessary to provide a living wage...prevailing wages in 2011 for garment workers in China, Vietnam, and Indonesia provided 36 percent, 22 percent, and 29 percent of a living wage, respectively. But in Bangladesh, home to the world’s fastest-growing export-apparel industry, prevailing wages gave workers only 14 percent of a living wage.