Universal basic income is the answer to the inequalities exposed by COVID-19

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Kanni Wignaraja, Assistant Secretary-General, United Nations & Balazs Horvath, Chief Economist, UNDP, Asia-Pacific

Rule number one of crisis management: When you find yourself in a hole, first, stop digging.

In the COVID-19 outbreak frenzy, several countries are considering massive fiscal stimulus packages and printing money, to blunt the concurrent crises underway: the pandemic and the unraveling economic depression.

These plans are essential, but they need to be strategic and sustainable. Because in addressing the current crises, we must avoid sowing seeds of new ones, as the stakes are incredibly high.

It is time to add a new element to the policy packages that governments are introducing, one we know but have abandoned: Universal Basic Income (UBI). It is needed as part of the package that will help us to get out of this yawning pit.

The naysayers, and there are plenty, will point out that it won’t work because no country can afford to regularly dole out money to every citizen. They will argue that we will run unsustainable deficits, which cannot be financed.

This is a valid concern. But the alternative – not strongly addressing COVID-19 repercussions – will result in a greater surge in inequality, increasing social tensions that would cost governments even more and open countries to heightened risk of societal conflict.

The pandemic that began in China has raged across Asia and beyond, exposing inequalities and vulnerabilities of huge populations in the region. This includes informal workers – estimated at 1.3 billion people or two-thirds of the Asia-Pacific workforce – as well as migrants, with almost 100 million dislocated, in India alone. If a large part of an entire generation loses its livelihood, with no social safety net to catch it, the social costs will be unbearably high. Economic instability will follow the flare-up of social tensions.

During these times, when we need to kickstart sputtering economies, the payoff of social stability would be tremendous, making an even more powerful argument for UBI.

So a new social contract needs to emerge from this crisis that rebalances deep inequalities that are prevalent across societies. To put it bluntly: The question should no longer be whether resources for effective social protection can be found – but how they can be found. UBI promises to be a useful element of such a framework.

Countries like the United States and Canada are already making such plans. Alaska, in fact, has been making annual UBI-type payments, to every state resident, for decades. Canadian prime minister Justin Trudeau pledged CAD$2,000 a month, for the next four months, to workers who have lost income due to the pandemic – a short-term form of UBI. Now we need to expand it and make it work in the long-term, and we can.

We must approach it differently from how we have in the past. We should neither view it as a hand-out, nor as a Band-Aid solution to add on to systems already in place. Instead, we should use the current twin crises to re-evaluate where we are “still digging”.

To make UBI fly, we will need fair taxation. Countries will have to work together, exchanging data across borders, to stop people and corporations from evading taxes. Simply put, we must all pay our fair share. With good conscience, we can no longer privatize profit and socialize loss.

Then stop the subsidies, notably fossil-fuel subsidies, which hinder the path to achieving the Sustainable Development Goals – especially climate-change targets. This would benefit us all, while generating financial resources not just for UBI, but also to support affected fossil-fuel companies.

Warren Buffet and Bill Gates, among the richest people on the planet, have both advocated for the rich to pay more in taxes, the lack of which has led to a growing and enormous disparity. According to Credit Suisse’s 2018 Global Wealth Report, 10% of the world’s richest own 85% of its wealth.

Multinationals too are not paying their fair share. Apple, Amazon, Google and Walmart to name just a few, generate mind-boggling profits and pay limited amounts in taxes, after taking advantage of all the wrinkles in tax systems. If the top 1,000 corporations in the world were fairly taxed, it would allow for a modest UBI to be tightly and reasonably dispensed in countries across the world.

Something is simply wrong and broken when governments are deprived of funds they should justifiably have to construct a better state.

Lest the naysayers think this is a theory from the left, the idea of tax competition has been touched upon, for years on end, by the Organization of Economic Co-operation and Development (OECD). Its members include the US, Canada and Western European countries.

This is what its fiscal policy experts say: “To work effectively, a global economy needs some acceptable ground rules to guide governments and business. Such a framework can help business to move capital to locations where it can optimize its return, without impeding the aim of national governments to meet the legitimate expectations of their citizens for a fair share in the benefits and costs of globalization.”

To achieve “acceptable ground-rules” and “a fair share in the benefits and costs” will require global coordination; because if one country begins taxing this way, highly mobile capital will flee to countries that do not.

There is no question that UBI will be hard to get going. It is important to impartially consider the pros and cons, the reasons why it has not been implemented at scale so far, and what modalities would make it workable.

A key complicating factor with implementing UBI – beyond its fiscal cost – is that it would not arrive in a vacuum. It would need to fit into and complement the existing set of social programmes, both insurance-based and needs-based. And rules would be needed to prevent double-dipping of benefits.

Moving to such a system would need to ensure that the incentives to have a job remain intact. That is relatively simple to do: A UBI should be sufficient, to sustain a person at a modest minimum, leaving sufficient incentives to work, save, and invest.

Finally, good arguments can be made for having very selective conditions – for instance, some that relate to public goods, like vaccinating all children and ensuring they attend school. Such selective conditions would not undermine the main purpose of eliminating poverty and allow low-income people to take calculated risks, to try to lift themselves out of poverty.

The alternative to not having UBI is worse – the rising likelihood of social unrest, conflict, unmanageable mass migration and the proliferation of extremist groups that capitalize and ferment on social disappointment. It is against this background that we seriously need to consider implementing a well-designed UBI, so shocks may hit, but they won’t destroy.