PDF: BIG_UBI 200819
The idea of a Basic Income Grant (BIG) or Universal Basic Income (UBI) has been around for some time. The motivations for a BIG/UBI are many and varied. There is the old saw about alleviating poverty. This is often the product of utopian dreams but the really big motivations are a bit more pragmatic and interconnected. The Direct Democracy Forum (DDF) intend to focus on the effects of a BIG/UBI on the real needs of all of society rather than the outcomes for any particular sector of society
Is BIG/UBI in use anywhere else? Finland intend implementing a BIG/UBI (they call it a Universal Basic Income, which they intend to be E800 per month) and Canada are in the process of running a pilot scheme, though I don’t know how you pilot a BIG/UBI, but yes, the idea of a Basic or Universal BASIC Income Scheme is catching on fast.
Update on Finland’s experiment. The Finnish experiment was not really for an experimental BIG/UBI but was more along the lines of an unemployment grant (aka The Dole), did nothing to develop the concept of a BIG/UBI, and was cancelled in 2018 OR SO.
For further discussions on the benefits and trials of and for a UBI, see The Case for a UBI Here.
Unemployment: What exactly do you do with the unemployed and unemployable, that is, those for whom there are no jobs in current economic structures, regardless of their skill levels? How many economies in the world can guarantee 100% employment figures. None, I would suggest. Some economies are running unemployment at 25 to 50% of the work force. So what do the unemployed do. Get make-work jobs with the state? Trip over one-another’s feet while trying desperately not to serve their customers, the members of the public who pay them by way of rates and taxes, for their services. This is a public service nightmare. Read on – a BIG/UBI will help resolve this issue in many ways.
Social unrest: The saying about idle hands was never more true than today. Millions of idle hands can get up to an incredible amount of mischief, let alone downright destructive behaviour. Something to be avoided almost at all costs. So how would a BIG/UBI diminish idle hands. Won’t people just be paid to do nothing and won’t this exacerbate an idle hands syndrome? We, don’t think so and address this issue further on in this page. Read on – if you have an engaged and mostly wealthy population (that is a population which is not starved of hope and sustenance), the likelihood of social unrest is diminished.
Stimulate the economy: The traditional method of stimulating an economy is to hand out money to those who know best how to invest it and put it to work, in effect to hand it out to big business, in the belief that they will generate production and employment and therefore stimulate the economy and grow the GDP, and that there would be a trickle down effect, that some of that additional wealth would find its way into the hands of those who most need it through employment. This is Say’s Law and the tricle down effect has been largely discredited.
In effect big business endeavour to retain as much of that money as possible by shoring up management incomes, improving financial reserves to make balance sheets look stronger, improving profits by employing as few as possible as cheaply as possible, which makes their trading results and equity look better and improves shareholder perceptions, important when you wish to be re-elected to a board of directors. The reality is that not much stimulus spending trickles down to those in need.
The DDF believe that bypassing the trickle-down effect and placing that stimulus directly in the hands of the consumer will have a more direct effect on the economy than stimulating the producer. So, we believe we should stimulate the demand side rather than the supply side of the economy. The DDF belief is that the supply side will catch up by responding with increasing production to satisfy increased demand and expand their trade and profits. In short, the supply side will want as much share of the demand-side stimulus as they can get and that they can do through increased trad in the supply of goods ad services.
While the DDF are aware that additional spending, particularly by printing money, can be inflationary, it does not believe the impact of inflation will be significantly greater with demand-side stimulation than with supply side stimulation. Further, the DDF do not intend that a BIG/UBI be funded through money creation or debt. Rather, the DDF believe that increasing TEAL from 1/2% to 2.5% of all bank transactions, by value, will fund a BIG with very little additional inflationary effect when compared with supply side stimulation.
Wealth Creation and Wealth Retention for the Wealthy:
What would you rather be? Wealthy in a society of poverty, or wealthy in a society of wealth? Surely you can create and retain more wealth in a wealthy society than in a poor society. The DDF believe that BIG/UBI1 will help to create a society of wealth rather than a society of poverty.
What about Big Business?
There should be almost double the market for goods and services. If you were in any business supplying that market, your probable response would be to invest in expansion of trade and profit. The same is true for all sectors of the supply chain, from street vendors, SMEs up to public companies and conglomerates of all descriptions.
Small and Medium Enterprises (SMEs) will benefit because levels of self employment can readily be stimulated from placing what amounts to capital in the hands of SME entrepreneurs.
Self employment should be stimulated, ranging from home industry to the arts in all their variety to community services employment. If one’s passion is to care for those in need, including but not limited to care of the elderly, child care and animal care, a BIG/UBI can offer a great many possibilities for self employment or community service.
The DDF also believe that there will be a positive effect on families and family structures. If there is no longer a desperate need for both parents in a family to become formally employed in the economy merely to survive, some parents, perhaps even many, might be more inclined to stay at home or engage in home employment, and today there are many opportunities for that, in order to be productive in the economy, earn income and be home care-givers, all at the same time. This does not mean confining women to domestic activities, barefoot and pregnant in the kitchen. Nothing like that is intended. Rather a BIG/UBI will give every South African Adult in every South African home the opportunity to exercise choices about how they live their lives and contribute to society
Then there is also alleviation of poverty. The greatest impact on alleviation of poverty will come from the impact of BIG on employment and self employment. The DDF believe that there is dignity in employment and in service and that many who never had anything but despair in their lives will lift themselves up and engage in some useful activity, if only in skills acquisition, further education and or community service.
2020 update: Who hasn’t heard of the 4th Industrial Revolution. There are becoming fewer and fewer employment opportunities for more and more workers. The formal Public and Private economies are becoming less and less able to employ the world’s workforce. A BIG/UBI will basically fund a third informal economy which can take up the slack and provide employment and meaningful opportunities for economic betterment of all members of society, and provide additional markets for the formal sector.
Who Would Qualify?
The intention is that all adult South African Citizens would qualify for BIG/UBI, from the richest to the poorest, from the most powerful to the most vulnerable, all equally. The question of what the wealthy do with their BIG/UBIs would be a matter for them to decide. Neither the state nor society would sit in judgement, moral or otherwise, of who should or should not qualify and what they do with their grants. Most of us, if we did not need the grant, would have little difficulty finding a home for it, from the local cat’s shelter to a battered children or women’s home or any other such deserving cause, or simply, save it for a rainy day. Your choice.
If you really think you should not qualify for a BIG/UBI and do not wish to receive the BIG/UBI, it will be paid into the Sovereign Wealth Fund on your behalf. Any such payments will be irrevocable, but BIG/UBI will be paid to you should you decide to take up the grants in the future.
Does everyone then work for the state?
No, receipt of a BIG/UBI does not imply employment by the state and the state has no call on a recipient purely from him or her receiving a BIG/UBI. If employed by the state or any other agency, private or public, that employment and any income derived from it would be totally separate from a BIG/UBI.
What would the grant be?
In the United States, an amount of $10 000 per annum has been suggested. That would amount just over $800 per month, a Rand equivalent of about R10 508.33 per month at the time of writing. That would be very nice but we are thinking in terms of about R5 000 per month as a target to be worked up to over time.
What would it cost?
Assuming an adult population of about 34.4 Million receiving R5000 per month, the monthly bill would be 34.4 Million X R5000 or about R172 Billion or R2.064 Trillion (say R2.1 Trillion) per year.
How would it be paid for?
Initially, TEAL would pay for the BIG/UBI but over time it is hoped that a sovereign wealth fund would take on much if not all of that burden. Assuming a GDP of R2.8 Trillion (our guess for the 2017 GDP) and that the Total Economic Activity is 30 times that figure (a relationship we observed in an earlier TEAL exercise in 2011) the flow of money through the banking system would be R84 Trillion. As each Rand passing through the system represents both a deposit and a withdrawal, the actual TEALable amount would be double that (R168 Trillion). R2.1 Trillion is 1,25% of R168T. So a TEAL of 1.25% of the TEALable amount of R168 Trillion will deliver the R2.1 Trillion needed annually for a Basic Income Grant or Universal Basic Income of R5000 per month for 34.4 million recipients. Also see TEAL: The Big Picture.
What about the drunks and drug addicts?
With BIG/UBI in place there might be fewer people without hope and hopefully fewer addicts and alcoholics, but if an individual is determined to waste his or her life, while society may care and lend whatever support it can, at the end of the day, that individual’s life would be his or her own responsibility.
What about those who don’t want to participate in the economy?
The same applies as above. You do what you can to make them have fulfilling lives, but if they don‘t want to play, let them live their lives as they wish.
What about those who are dysfunctional?
They may be dysfunctional but with a BIG/UBI they will no longer be destitute and society will be able to look after their needs better than ever before.
So you give money to people who do not know its value nor what to do with it?
Anyone who believes the bit about the poor not knowing the value of money is ignorant at best, for the poorer you are the greater is your appreciation of money, and as to knowing what to do with money, how best to manage it, yes, some will be easy marks for the unscrupulous, and no, you don’t just abandon them. You mentor and train them through community outreach programs, you help them become better housed and better clothed in an affordable manner and become more sophisticated about money. You show them how to reap the greatest possible benefit from a steady income, and how to grow their wealth, how to invest in themselves and how to live cooperative life-styles. If ever there are practical reasons for families to stick together, a BIG/UBI would be up amongst the most important of those reasons.
Is a BIG/UBI intended to fully provide for everyone’s needs?
No. The intention is that no one on a BIG/UBI should want for the basics of life. If you want more from life, you still have to earn it through the sweat of your brow and the application of your skills, providing something society needs in return for that ‘more’ that you wish for. From that perspective, you still have to earn what you want from life and there is no such thing as a free lunch. What will change is that more people will have more opportunities to earn what they want from life. That is the real benefit of a BIG/UBI.
What then do I pay my employees?
So your employees have BIG/UBIs. So what? You are not in competition with BIG/UBI. Your employees will still want to work for the additional income employment brings them. No one we have ever canvassed has said they would stop working if they had a BIG/UBI. They might put up with less BS and be more picky about their job. The opposite might be equally true of employers who might be more picky about who they employ and what their expectations are from their employees. Apart from that, formal and informal labour markets will probably remain much the same as ever.
What about other social grants?
BIG/UBI is a catch-all social grant. Most other social grants would fall away. For example, one would not receive a BIG/UBI and a state paid old age or disability pension. The state would still be involved in the provision of essential services which are not otherwise supplied by the private sector, so in effect, the state would be the supplier of last resort. Particularly, health care and education could fall under this category, but much would depend on how effectively and efficiently the private sector fill those needs.
It won’t work!
There are no doubt lots of folk who believe it won’t work. We concede that under certain circumstances nothing will work, including BIG/UBI. The economy will founder, income will become minimal and without income, taxes will evaporate and whatever demands society will make on government will be unfulfilled. But in a normally functioning economy where business thrives and prospers, it will work. In fact, there should be a positive feedback loop where BIG/UBI stimulates the economy that in turn stimulates the velocity of money through the economy which in turn generates more TEAL which in turn funds BIG/UBI. The role of TEAL in the long run would be to diminish the percentage levied as money velocity increases and, ultimately, the goal is to hand the funding of a BIG/UBI over to a Sovereign Wealth Fund.
BIG is not the perfect panacea for all of society’s ills, but it should deal with many if not most of those ills, and allow the state and society greater opportunity to deal more effectively with the remaining problems. That is the DDF’s belief.