Universal Basic Income vs Income Guarantee

Image Credit - Abby0427 Yoga

With Modi's farmer scheme (PM Kisan) and then Congress follow up with 72k per annum for poor (NYAY), a lot of debate has ensued on the efficacy of income guarantee as a tool of public welfare. There are many who argue the time has come for India to start giving some form of Social Security to its citizens while some others argue the exchequers (in)ability to do so. The financial debate aside, one major aberration I see is the conflation of the terms 'Income Guarantee' (IG) and 'Universal Basic Income' (UBI). I am no economist but I have keenly read about the UBI experiments in Scandinavian countries, libertarian geeks on the subject [1] [2] [3] [4] [5] [6] [7] and the recent UBI proposal by the American Presidential candidate Andrew Yang.

On the basis of this reading, I was able to conclude at least on one thing - IG and UBI are different concepts. UBI is supposed to be Universal - even an Akash or Mukesh Ambani, heck even Nirav Modi and Vijay Mallya, would get their UBI irrespective of their economic, social or even criminal status; taxpayers would get it, the non-taxable citizen will also get it; poor in villages will get it, poor in urban India would get it; most importantly middle class - lower middle class and upwardly mobile middle class - everyone would get it. 

The basic premise of UBI is that when people are assured minimum income support, it empowers them to make positive choices about their lives, their livelihood and their consumption preferences. Take some simple examples: 

• If a student of art, passionate about arts, knows that s/he is assured of a minimum sustenance income even if her art doesn't sell, s/he won't be forced to take up that job in the advertisement firm and instead pursue a slightly longer but fruitful journey to become a classic artist himself / herself. In short, UBI gives youth the freedom to pursue whatever they want to do in life, without the compulsion of what earns them their livelihood. 
• If a farmer knew that they have minimum income support, whether the crop makes it or fails, they can chase a cash crop over the staple one or they can pursue fertilizer & pesticide less organic farming over fertilizer & pesticide supported "high produce" farming. This choice by the farmer is because they can now risk the crop getting spoilt but at the same time, they also bet on the upside of higher prices due to the growing interest of the urban population in organic foods. In short, UBI helps producers make a choice to chase healthier alternatives for society over the more 'efficient' or 'remunerative'. 
• If an experienced professional knew that he is assured a minimum income and that his family - his ageing parents and his children - will be able to afford a good life, good education and necessary healthcare whether or not he keeps earning his monthly paycheck, he might quit his job (which he hates!) and take up his passion in social work, join politics and either way help the community. In short, UBI provides society free up qualified human capital for its social obligations.
• If the head of an independent news journal is assured of minimum income, s/he does not need to rely on Government grants or private funding to make ends meet. S/he can then pursue stories which matter rather than chase 'masala' stories or celebrity news. S/he already is freed from the need to get access to broadcast media, thanks to the Internet in general and YouTube in specific. In short, UBI helps media become independent of the biases introduced by its funding sources.
• The biggest of all, if a poor man is assured of minimum income, he will never force or condone his children into begging or stealing because he knows that he can afford not to equip them with life skills like these to survive! Their life and liberty will be assured by UBI. In short, UBI can be a game changer for law and order and bring down common sins without the state making any active intervention. 

Now let us look at IG - we needn't go very far, MNREGA is a living example of IG already in place to measure how it impacts society. IG by its definition is NOT universal and is directed towards a certain specific section of society. It might be farmers, or poor or people with disabilities or socially disadvantaged communities etc. 

The biggest challenge with IG is the identification of beneficiaries requires the state to get access to large amounts of specific data about citizens - this need comes into severe conflict with the privacy of individuals which is an essential element of liberty. For example, because you want only the poor to get subsidies on cooking gas (LPG), you need to capture income data of ALL citizens and link it to the national identity or some such database. The unintended fallout of this is tax terrorism where the tax department uses this same dataset to harras people. To tackle this different problem in itself, government or judiciary must enact other laws to protect citizen liberty and spend even more money (than the one allocated for this subsidy itself) to ensure that data intermingling or misuse is prevented. If these safeguards are breached, this may result in either harassment of citizens or litigation between the state and the citizen wasting umpteen number of productive hours of everyone involved.

The second challenge with IG is leakage - with all the "data-driven", "targetted", "direct account transfer" methods of IG programs - there are ways of gaming the system. Insiders and outsiders collude, mafia grows its tentacles into the system and even politicians abet syphoning of funds from these schemes into the coffers of the undeserving. Again, one can blame the system for these problems - but these are inevitable - almost like increasing entropy of the universe and the only way to eliminate these problems would be to stop these schemes altogether.

Further, let us evaluate the scenarios described above for UBI - would IG help any of these? 

• IG may never allow students to pursue their passion - because by definition, IG will only be given to students who are so poor as to struggle to get educated in the first place. There is a positive - as a scholarship - they may help those students get educated who otherwise would possibly have refrained from education and got a job at an early age - but once this education is completed, they would again be back in the same saddle of family or personal responsibilities and need to take up the best paying job with maximum guarantee of livelihood.
• IG will help poor farmers, but it will never promote the farmer to take risks. A farmer coming from a small and marginal family having combined land holding/ownership of upto 2 hectares is so poor that even with subsistence income of 6000 per year, he cannot afford to take a risk with his crop failing a season. 
• IG will not apply to any professional earning a decent income. It cannot prod them to quit their job because IG being conditional, will make it difficult for them to become eligible given their qualifications and social status. No professional will afford to quit their salaries job because they are not assured of themselves, their parents or their children getting income support given its targetted nature.
• IG will similarly not apply to journalists or their likes - they would fall into the same bracket as the professionals 
• IG would indeed apply to the poor man, but he would have a painful awareness that if ever his children educated themselves and started earning a salary, they will stop getting this support. And so, the poor man knows that he gets this only until they are poor enough. This will be a disincentive to outgrow their current conditions. It is similar to how SMEs often pay their employees less than the minimum income tax bracket and try not to exceed their pay above the minimum slab. 

The last part of an IG scheme is what the initial years of MNREGA demonstrated [8] - skewing of labour markets. Farm labour became expensive and also scarce leading to a shortage of labour and hence this also led to inflation in food items. Another fall out of the scheme was that many self-help groups (SHGs) disintegrated - since people got an easier option of employment in the form of NREGS, it appears that they do not want to make efforts for building SHGs and other community-based organizations.

In essence, IG, unlike UBI, can only provide temporary succour to those affected. IG is a good scheme if one is dealing with a time-bound crisis - like those impacted by a natural disaster but it fails all tests of fulfiling the constitutional promise of "JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all FRATERNITY ".

In fact, IG will only contribute towards decreasing fraternity because of the have-nots (those classified as privileged) would resent the haves (the disadvantaged eligible for IG) for getting a subsidy here or an income there without 'having to work for it'; while the haves would anyway resent the have-nots for their economic or social status.

UBI, on the other hand, is completely different - since it would apply to everyone, it will promote fraternity, and it anyway will be aimed at enhancing social JUSTICE, LIBERTY of individuals and being universal it promotes EQUALITY among people. Also, the ill impacts of an IG scheme such as skewing the labour markets or disintegration of Self-Help groups will not happen for UBI since UBI would be universal. If a poor farmer would get his/her share of UBI, so would their employer and the consumer. Overall, it will lead to higher consumption, better standard of living but no relative change in how markets would function.

To close, I am not arguing that we shouldn't have targetted income guarantee schemes until we can roll out a UBI for all citizens. But I would certainly urge that an excess of IG schemes without considering UBI would only indicate crony publicity and populist measures with no serious intent to provide for constitutional guarantees.

Economists, politicians and society at large needs to consider a breaking point where all IG schemes would be closed and converted into a single UBI scheme which would be non-discriminatory, untargeted and hence universal in its application. UBI can usher in a new age of happiness in people's lives while IG can only help reduce unhappiness. It's a choice which shouldn't be too difficult for anyone sincere enough to make. 

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