The Financial Express

Income in the time of Covid-19 pandemic

Rethinking the idea of universal basic income

Muhammad Mahmood | Published: April 04, 2020 20:31:31 | Updated: April 10, 2020 21:34:19

Women living below the poverty line will be empowered by UBI.            —Photo: Reuters Women living below the poverty line will be empowered by UBI.            —Photo: Reuters

The title of the article to many readers may resemble Gabriel Garcia Marquez's "Love in the Time of Cholera".  That may be so, but the issue here is no fiction writing but a very serious issue about how people can survive through a global catastrophe that has befallen us on this planet we call earth. Now at a time when we are locking ourselves down to protect ourselves from the deadly coronavirus; there naturally arises the question how we are going to weather through this health crisis financially.

But for the vast majority of human population, in particular in poorer countries like Bangladesh, the situation is even much grimmer. For a very large section of the population, they have no idea where just the next meal let alone any other necessities of life will come from because they have no income or income support. This is not because they do not want to work to earn their living but there is no work as the economy is being shut down. If the coronavirus does not kill them, hunger will do that now. To escape the hunger they are flocking back to villages which they left to escape rural poverty and destitution to live on the edge of urban areas just to eke out a living from one day to the another working in the informal sector  on hourly or daily basis without protected by the minimum wage or any social security legislation.

The Covid-19 pandemic has sent the economies of the developed world like the US and the EU (European Union) into a tailspin. Layoffs in these countries are taking place at an unprecedented scale, in waves after waves. They are producing less, spending less and consuming less. In fact, even without any published statistical evidence, this is the time everybody can see all around them that economies have come to an almost halt. It is more than recession that these countries are facing, in all likelihood heading towards a depression. All these economies are in lockdown. All efforts are now directed towards getting the virus under control.

More disturbing is the US (accounts for almost one quarter of global gross domestic product or GDP) growth and employment outlook. Goldman Sachs very recently predicted that US GDP would contract by 3.1 per cent and unemployment would rise to 9.0 per cent this year. This forecast spike in the US unemployment rate will take place from a historically low 3.5 per cent in February this year.

As for the Eurozone, the picture is even far more pessimistic as many Eurozone observers expect a 10 per cent decline in its GDP this year. The European correspondent of Financial Times wrote last week that the coronavirus-induced  effect on the Eurozone would be an economic shock, a corporate solvency crisis and a political crisis all folded into one. In fact, whole of Europe is almost certain to slump into recession. Also, the major economies in this region have been performing very badly even towards the end of 2019. Major European economies like Germany, Italy, the UK, France, Spain and others are  facing serious stress right at the moment as a consequence of the pandemic.

WHEN THE GLOBAL ECONOMY IS GOING TO FUNCTION AGAIN: It is all guessing now when it comes to make any prediction on when the global economy is going to function again. Some are suggesting by the second half of this year enabling the people to return to their normal lives.  But again this is also guessing, we have no strong evidence to support that idea and health scientists are quite clear about one thing - we might have to live with social distancing for quite a while. Also, there will be no economic turnaround in any form or shape until the health crisis has been solved. The global economy is really in an uncharted territory. There is also a fear that even when the crisis passes, there is a reasonable degree of probability that the recovery path might be lopsided with slow output growth with accelerating prices (inflation) leading to stagflation.

The preliminary assessment report of the International Labour Office (ILO) on the impact of coronavirus indicated that the economic and labour crisis created by the Covid-19 pandemic could increase global unemployment by 25 million. The report further added that falls in employment also mean large income losses for workers to the tune of between US$860 billion and US$3.4 trillion by the end of 2020.

Also, it estimates that between 8.8 and 35 million working poor worldwide (e.g. these are the people who are in employment but live in poverty-like daily and casual wage labourers as in the informal sector in Bangladesh). The report provided a very stark warning that certain groups of people such as low-paid workers, youth and older workers women and migrant workers will disproportionately be affected by job losses due to the lack of social protection and rights. The report also pointed out women tend to be over represented in low-paid jobs (e.g. Bangladesh female garment workers are a case in point) in affected sectors.

The ILO recommended that measures which include extending social protection, supporting employment retention (e.g. short-time work, paid leave and other assistance and subsidy measures and financial and tax relief for micro and small and medium  enterprises or SMEs).

UNIVERSAL BASIC INCOME (UBI): As the Covid-19 pandemic has already caused global economic disruption and massive unemployment, a great soul-searching is now going on how to go through this current crisis and prepare ourselves to withstand any such calamities in the future. There is a growing rethinking of a fairly old idea, which could be traced back to the very end of the 18th century, among present-day economists to ensure that all people in a society are able to meet their basic needs regardless of the circumstances they are in. Such a policy will insulate people from  financial deprivation. The virus is jeopardising people's very livelihood and  millions of people are experiencing that now across the globe.

The idea of universal basic income (UBI) has turned into a major discussion point by policy makers around the world to respond to the economic fallout from the Covid-19 pandemic. The virus has exposed the fragility of a labour market characterised by self-employment, zero hour contract and the growing gig-economy (a free market system where organisations and independent individuals enter into short-term work arrangement).

Many MPs in the UK and political leaders and academics around the world including in the US are now calling for a universal basic income to help deal with the crisis. British Labour MP Apsana Begum twitted "I have joined 150 MPs across different parties in writing to @RishiSunak calling for an emergency Universal Basic Income. At this time, direct payments are the only way to guarantee real financial security to workers.''

 As ILO Director-General Guy Ryder pointed out "This is no longer a global health crisis, it is also a major labour market and economic crisis that is having a huge impact on people''. It is not only politicians who are calling for UBI in the US and the UK and many other countries, charities and think tanks are also proposing to pay people a basic income to withstand the blow of Covid-19. This could help 25 million workers at threat of the pandemic.

It is quite fascinating indeed to observe how an idea while floating around for a long time but has remained beyond the bounds of plausibility, can suddenly become the centrepiece of discussion as a means to ride out a global crisis that we are facing now. This is the time to try some new ideas to deal with the crisis. Ideas seemingly look impossible, may become a possibility at the critical juncture of a nation's history like now. 

Universal basic income (UBI) is the idea that all citizens should be paid  a monthly allowance that allows them to meet their basic needs. This payment is made unconditionally without any work or activity test. It is obviously clear that a floor is to be put so that no one falls into poverty. Most UBI has three basic features: (i) universal - it is paid automatically to all individuals without any means test; (ii) unconditional - without any condition attached such as  job search and (iii) adequate - sufficient to protect citizens from poverty.

UBI can achieve the same redistributive outcome as what is known as negative income tax. A negative income tax results in people earning below certain threshold receive money from the government instead of paying it.  This is reversing the direction of taxation and pumping back that money into the economy.

Supporters of UBI emphasise that the new wave of technological change may permanently severe the link between economic growth and job growth. Therefore, it will no longer be possible for governments to deal with unemployment, underemployment, insecure jobs and stagnant income by promoting growth. Even those who remain employed will find themselves disempowered. Increasing concerns about the future nature of work has further added to the idea of UBI back on the agenda.

There is now a growing fear that collective bargaining as a process of safeguarding workers' interests is on the way to be marginalised with increasing automation and gigification of jobs. Membership of trade unions has been on the decline over the last three decades in all industrialised countries. Therefore, UBI is a strategic option for working people around the world to safeguard their economic future. The singular focus on GDP as the guide to measure prosperity is also of questionable merit as it does not reflect quality of life and the environment which now define economic success of a nation.

Supporters of UBI also argue that all wealth is socially generated as education, training, healthcare, legal system, infrastructure have all contributed over many generations to achieve that. Then logically every member of society has a right to share that wealth. There are also suggestions that to fund UBI new taxes on income, carbon, estates and pollution and others be imposed and that will itself balance the book.

UBI AT THE FIRST GLANCE MAY APPEAR TO BE IDEALISTIC, LEFTIST IDEA, EVEN UTOPIAN BUT THERE IS RIGHT-WING POLITICIANS AND ECONOMISTS AMONG ITS SUPPORTERS: But there has also been strong opposition to introducing UBI. The most common line of argument is always that receiving money for nothing undermines work ethic. They also see it as a model of waste and unearned rewards to incentivise to be unproductive.  That is bad for people's self-esteem and self-worth. Also the concept of "moral hazard'' - the idea that people behave  more profligately when they are shielded for consequences of their deeds and actions. In fact, this is the guiding doctrine of the right to oppose UBI or for that matter any welfare payments. But Nobel Laureate Joseph Stiglitz disagrees with those propositions and points out that there is certain dignity from work and for most people there will be a real desire to work. Unfortunately, UBI is unlikely to be a silver bullet for unemployment.

UBI at the first glance may appear to be idealistic, leftist idea, even utopian but there is right-wing politicians and economists among its supporters. Milton Friedman is regarded as the Philosopher Guru of an extreme free market type of economy, yet he saw benefits in state intervention in situations like economic depression and war. More surprisingly, he was very favourably disposed to UBI or cash grants on a permanent basis. From his perspective a cash grant is far more preferable to interventions in the labour market like minimum wage or job guarantee. As for the rich, UBI will lessen their guilt feeling because it provides a floor for all as they in their usual form go on accumulating more wealth without any guilt feelings.

This right-wing support for UBI makes many on the left very wary of UBI. Many on the left  have justifiable fear that as UBI replaces a whole host of other forms of services and benefits, the recipients will be forced to buy those services like health care, education, even pension provisions from private providers from the market place. This is a scheme, from their perspective, to cause transfer of public wealth to private businesses, thus accelerating the marketisation process of a democratic society. Also, there is a fear that while UBI is designed to be a floor on income, it can easily become a ceiling. Thus making many UBI recipients pushed into a low-income or poverty trap.

But the main concern now is that the UBI programme still remains an idea, untried on a national scale. Many experts argue that while the introduction of UBI is challenging, it is possible and will require a longer timeframe.  Still questions linger if a country can afford and find ways to implement UBI, should that country go ahead and do it? The answer is a clear yes.

The case for UBI rests on redefining equality in the age of rising income inequality and continuous rapid concentration of wealth in the hands of one-percenters. The Covid-19 pandemic may prompt policy makers to consider introducing UBI now, but UBI must not be introduced as an emergency stopgap arrangement, rather as an ongoing programme. That will require entering into a new social contract to drive the nation's future towards an egalitarian society.

Muhammad Mahmood is an independent economic and political analyst.


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