Basic income (BI) – the idea of simply giving everyone enough money to live off, no strings attached – looks like an idea whose time has come.
As inequality widens and automation eats away at the job market, governments of all colours are seriously exploring the feasibility and repercussions of implementing a basic income.
Experiments are being run in Finland, Canada and Holland. More are on the way, in California, Scotland and Hawaii. But perhaps the most ambitious one is happening in Kenya, run by the NGO GiveDirectly.
GiveDirectly is a non-profit that was founded on the belief that cash transfers are a powerful tool for poverty reduction. Where traditional foreign aid would arrive as livestock, blankets or food, they simply hand over a fistful of notes and let people help themselves.
There’s plenty of evidence about small, short-term cash transfers in the developing world, but much less about what happens when you effectively give people enough to live on, indefinitely: a basic income. So that’s what GiveDirectly are testing—over 12 years, with 26,000 people.
In Kenya, a basic income is $0.75 a day—that’s enough to lift someone out of poverty. GiveDirectly has identified people in poverty and allocated them to various conditions in a randomised controlled trial that will test different durations and frequencies of cash transfer.
The experiment started in September 2017. Here, we publish an edited transcript of a conversation with Jeremy Shapiro, an economist who co-founded GiveDirectly and worked as its director for three years, before leaving to move into academic research on cash transfers.
How did GiveDirectly start?
It was started by myself and three friends doing graduate degrees in development economics. We wanted to know what sort of interventions are most effective in reducing poverty. At the time, I was working on the Graduation Program, which involves the transfer of livestock to low-income people. But what we often saw was people selling the cows and goats and doing something else with that money. They were undoing the program based on their own needs—that’s when I started to think about how cash transfers could address that heterogeneity.
But GiveDirectly wasn’t the first entity to do cash transfers: developing country governments like Mexico have been running them for years. So we already knew that when you give poor people money, good things happen. What was missing was a way that the public could contribute—and GiveDirectly filled that gap.
There are two common criticisms of cash transfers. One is that they are misspent, and the other is that they stop people working. What’s the evidence for these claims?
The first has been thoroughly disproved. There’s a paper that reviewed 19 randomised control trials and found that none showed a substantial increase in spending on alcohol or tobacco. That’s not to say that out of 1,000 people one recipient doesn’t go and get smashed—that happens, no doubt. What it’s saying is that this in no way curtails the positive impact of those programs.
On the second point, in the developing world, there’s good evidence that a dollar a day doesn’t stop people working. In fact, some of them work more, because you can think of financial capital and human capital complementing each other: I can’t farm if I don’t have seeds. But these are small amounts of money. If you look at studies in the developed world, and there were a few in the ’60s and ’70s in North America, there is a modest labour supply response. So any plans for a basic income in a developed economy will need to weigh this against the benefits.
Some people criticise cash transfers as aid by saying they won’t do the big things: building schools, roads, and so on. There’s some truth to that, isn’t there?
Absolutely, but poverty reduction and development are apples and oranges. They’re not synonymous—though they do overlap. For example, health infrastructure can lead to poverty reduction—and by the same token, if you reduce someone’s poverty then they can work better and contribute to growth.
But one important difference is that they target different people. Development produces gains in human welfare five to 20 years out. So implicit in spending on development is a certain acceptance that some people just draw the short straw: they live poor and they die poor. Cash transfers are different: the solve the immediate burden of poverty in a very efficient way. But I would never make the claim that cash transfers are the best path to long-term development.
Are you willing to make any predictions about the results of the GiveDirectly experiment?
My hunch is that the results will be positive. Allow me to be a bit of a cynic, though: I wonder what the point of the experiment is. We already know that cash transfers do good things. And there are cash transfer schemes that are very long-term. I’m a researcher, and it’s always good to have more evidence, but when you think about the resources and efforts being expended, I wonder whether we need any more evidence on cash transfers. We should be thinking about how to fund more of them. The benefit I hope for is that it might prompt a larger conversation about an existing idea.
Where there is a need for evidence for cash transfers is in the developed world. Can lessons from experiments like those in Kenya be transposed to a developed country?
I’d say it’s 0% applicable. A few basic income-like pilots are happening in the developed world, and in news articles, they are often cited alongside the GiveDirectly experiment. But the contexts are incredibly different. Thinking about the world I know best, the US, you’re talking about an entirely different level of resources, and a country with an existing and convoluted safety net—which is grossly inadequate in some ways, but still, many billions of dollars are doing something through it.
But what do you think about a basic income in the developed world?
I’m generally a fan of the idea. A basic income would remove the complexities and overheads of current social safety net programs—and that’s a good thing. I also think that, like in developing countries, giving poor people cash will do good things.
On the flip side, though, there is more evidence of a labour supply response. And that is a cost—I don’t think you can be ideological about that. You just need to ask how big is it and how does it stack up to the benefits. The answer might be to set the level such that it covers the basics of life, but not much more.
But there’s another side to the labour response, too. I think most people can point to someone they know who is trapped in a job where they’re miserable and unproductive. Perhaps they’re trapped by their mortgage, or their healthcare. In those cases, a basic income could actually free up the labour market to be more efficient by allowing people the flexibility to move around.
If you were going to install a basic income, where would you draw the lines?
If you want to reap the full benefits of a basic income, it should replace much of the welfare state, because you want to get rid of the overhead costs. That said, there’s are some programs that address a “market failure” and there are some problems that cash doesn’t fix. So some programs should remain.
In terms of the level, you have to ask: what is an acceptable life in this country? You want to balance what enables someone to live as a dignified, autonomous human being with the economic incentive to work. This may take some experimentation.
And finally, in my mind, it should be universal. But you get into a bit of semantics here. You can say we’re not going to have a universal basic income, it will only go to poor people, or you can say it will be universal, even Bill Gates will get it, but we’ll tax it right back. The outcome is the same. I actually prefer the second option, the reason being it’s harder and more problematic to identify poor people, while it’s much easier to identify rich people and increase their taxes.
Can we afford it?
I’ll point out the obvious: there’s incredible inequality in the US. If you were to take all the billionaires in the US and tell them, ‘when you die, you can leave $500 million to your kids’ – which seems like a reasonable price for being born – and the rest of it goes as a one-off tax into the UBI fund. If you just invested that at a reasonable return, you could pay every low-income family something like $6,000 or $7,000 a year in perpetuity. That’s shocking. You’re talking about 500 people who could put a huge dent in poverty for 80 million others. The wealth to do something about poverty is surely here in this country.
How do you think it could affect the economy?
Take Milton Friedman’s theory of monetary economics. It’s all about the supply of money. So in theory, if it’s just redistributing money by taxes or rebudgeting, you really shouldn’t see much of an inflationary effect.
But then you might think: rich people don’t actually spend this money, whereas poor people would. They’ll buy clothes and cars and that will cause inflation in those goods. But another way of looking at that is as an economic stimulus. If you create demand, that in turn creates supply and that drives the price back down.
It’s also not the case that we are an isolated economy. If all of a sudden we had a UBI and low-income people who weren’t buying vegetables and clothes are suddenly buying them, well then Target is going to order some more clothes and the shipments of bell peppers will increase. On the other hand, if government were to print or borrow money for UBI, there would be an inflationary risk
There’s a new wave of experiments in the developed world. What outcomes should governments be keeping an eye on?
One thing is the labour supply response: does this cause a lot of people who would otherwise have worked to drop out of the labour market? Another thing I’d be looking at is whether it freed people up to make transitions in their lives. That’s a big issue, particularly with automation—is there evidence that a basic income enables people to more efficiently manage these economic dislocations. Are they able to start small businesses themselves, can they take the time to learn a new skill before rejoining the labour market—I think that would make a compelling counterweight to the concern about labour supply responses.