Monthly Archives: March 2016

Is Basic Income Possible in the World’s Poorest Countries?


Basic income is increasingly becoming big news. Just this month, New Zealand’s opposition Labour Party announced that it was considering a basic income to reduce bureaucracy and to help the population cope with insecure work and structural unemployment. Meanwhile, the Canadian province of Ontario and the Finnish government have lead the way forward with plans to conduct basic income pilot projects and experiments. In June this year Switzerland is set to become the first country to hold a referendum on the idea. And in the UK, shadow Chancellor John McDonnell has stated that the Labour Party could look into basic income in the near future.

The benefits for these nations are clear: an unconditional, universal basic income would greatly simplify the existing welfare state, ensuring that nobody can slip through the social security net while also removing welfare traps that act as a disincentive to finding paid employment. Furthermore, the extra financial stability given to citizens could do wonders in terms of mental health, reducing crime and bringing about a more innovative and entrepreneurial society.

But what about the world’s poorest countries where there may not be a welfare state to begin with? Could they afford to grant every one of their citizens a regular, unconditional payment?

Some developing countries have already experimented with cash transfer programs. These generally involve means-tested grants, given to the country’s poorest families, with certain conditions attached (such as children’s school attendance). Such programs include Brazil’s Bolsa Familia, which provides cash grants to around 13 million families and contributed to a fall in the poverty rate from 8.8% to 3.6% in 10 years.

Although cash transfers have been successful in reducing poverty, several problems have been identified, similar to those associated with the welfare state in more developed nations. The programs typically involve high levels of bureaucracy and administrative costs due to mean-testing.  In some cases, people who should be receiving the grants erroneously miss out, while some people receive them when not intended. There are often poverty traps because a person may not be entitled to the cash transfer if they take on a certain amount of paid employment, meaning there is a disincentive to work. Finally, being a recipient of such transfers can be stigmatising and induce a feeling of shame.

Converting these programs into a universal basic income would deal with these issues. It would remove a large amount of the bureaucracy and administrative costs; nobody who truly needs the grant would be excluded; all poverty traps would be removed, since taking on paid employment would always be worthwhile; and there would be no stigma attached to receiving a basic income as it is given to everybody.

It may be surprising to many people that one country taking a serious look at this approach is the southern African nation of Namibia. A proposal for a Basic Income Grant, with the aim of “eradicating poverty in Namibia by the year 2025”, is due to be submitted to the Namibian government soon for discussion and approval.

A pilot was conducted in 2008-09 in the village of Otjivero, in which a total of 930 residents received an unconditional 100 Namibian dollars a month (equivalent to around $13 or 9 euros). The results were impressive. The level of food poverty fell from 76% to 37% and the amount of children being underweight dropped from 42% to 10%. More people began to make use of the local clinic and HIV sufferers could suddenly afford to get treatment. There was an improvement in school attendance, with non-attendance for financial reasons falling by 42%. Furthermore, there was an increase in economic activity, contrary to the expectations of more wealthy neighbours. The proportion of people engaged in economic activities rose from 44% to 55% with people starting their own businesses such as brick making and baking bread. Other positive outcomes included a reduction in household debt, improved social relations, better cleanliness and personal hygiene, and a considerable fall in economic crime.

The pilot was funded by contributions from various basic income supporters in Namibia as well as by individuals, churches and other organisations in other countries. However, it has been suggested that Namibia could actually afford to implement a modest basic income across the entire country, costing around 3% of GDP, with slight increases in VAT and income tax or by introducing a levy on the country’s natural resources.

In a way, one advantage that countries without an established social safety net have in introducing basic income is that even a small amount of cash would be an improvement on what is currently provided. As the example of the Namibian pilot shows, even a very moderate amount can make a huge difference, especially to the rural poor.

Namibia is far from being the poorest country in the world though. That unfortunate title belongs to the Democratic Republic of Congo, where citizens have an average income of just $394.25 a year and 71.3% of the population lives below the poverty line. A basic income would clearly make a big difference to people living on only slightly more than a dollar a day. So could a basic income be funded even there?

One solution would be to convert foreign development aid into a basic income. The problems associated with foreign aid are well documented. Money donated by wealthy nations all too often falls into the hands of corrupt local leaders and officials. For example, in 2009 Bakili Muluzi, the former president of Malawi, was charged with stealing £7.7 million in aid money. Worse still, the former president of Zaire – now known as the Democratic Republic of Congo – reportedly stole around £5 BILLION – yes, billion –  in aid money donated by the IMF between 1965 and 1997.

Another complaint is that the allocation of aid involves large amounts of bureaucracy and wasted expenditure, which diverts funds away from the people who really need them. For example, in 2011, the UK’s Department for International Development (DfID) spent almost £500 million on consultants. Furthermore, the department has pledged to invest around £735 million over the next few years in the CDC Group, an organisation that focuses on private sector investments in Africa and South Asia. According to Alex Scrivener, a policy officer at advocacy group Global Justice Now, this group has “a track record of ploughing money into dubious ‘aid’ projects like the Garden City luxury housing and shopping complex in Kenya and a luxury hotel in Lagos, Nigeria, which costs $400 a night to stay in.”

Other grants awarded by DfID include £6 million to the University of Cape Town to investigate mental health issues in southern Africa and £3.9 million to the American group Search for Common Ground to “support the electoral cycle in Sierra Leone”.  While both are likely worthy causes, this money could surely be used more effectively and transparently by eradicating poverty directly in the form of a basic income.

For example, the Democratic Republic of Congo, the world’s poorest country, receives $2.859 billion in international development aid a year. If this aid was distributed in the form a basic income, rather than through other bureaucratic projects, it would be enough to provide every citizen with a monthly payment of $3.53. Although this may not sound like much, considering that a huge proportion of the population lives on less than a dollar a day, even a few extra dollars a month could make a significant difference.

Another major recipient of international aid is the Ivory Coast. Corruption and a lack of transparency are a big problem in this country, meaning that foreign aid often doesn’t reach the around 42% of the population living below the poverty line.  The country receives over $2.6 billion a year in aid, which, if converted into an annual basic income, would amount to almost $130 for each of the country’s 20.3 million citizens.

To eliminate corruption and ensure greater transparency, the payment of a basic income in such countries could be overseen by an international organisation. It could even be administered using mobile banking, as is already being done by one organisation called GiveDirectly, which provides direct, unconditional cash transfers to some of the poorest families in Uganda and Kenya. A Huffington Post article explains the organisation’s approach:

Once GiveDirectly has selected a village based on publicly-available poverty data, it uses an ingeniously simple method to identify who will receive money: it enrolls households who live in homes built with thatched roofs and mud floors (as opposed to corrugated metal roofs or concrete floors). The use of organic materials is a reliable indicator of severe poverty — easy for members of the community to understand, and for GiveDirectly’s staff to audit… 

The money is then delivered electronically. Recipients typically receive an SMS alert and then collect cash from a nearby mobile money agent. (If they are among a dwindling minority in Africa that doesn’t have a mobile phone or SIM card, GiveDirectly helps them buy one using a portion of the cash transfer.)”

Payments are made using mobile phone banking to reduce the potential for corruption and also to make use of the fact that a person living in sub-Saharan Africa is 60 times more likely to have access to mobile banking than a European.

At a time of austerity in many western countries, people more than ever want to know that aid money is being spent effectively and efficiently. According to GiveDirectly, for every $100 dollars it receives in donations, $91 reaches the poor. Using their method to fund basic income programs would ensure greater transparency and put more of the money directly into the hands of those who need it most instead of it being wasted on consultants.

Another option that may be available to some developing nations is the elimination of subsidies. This was the approach that was taken in a pilot in rural India in which participants were given the option of substituting food subsidies for monthly cash payments of 200 rupees.

India’s subsidy program has been criticised by the Citizens Income Trust as being incredibly inefficient and wasteful:

Altogether, subsidies eat up 7% of GDP. They do not work. The system is wasteful, inefficient, market-distorting, regressive and deeply corrupt. Rajiv Gandhi famously said that 85% of subsidised food did not reach the poor. The Deputy Chair of the Planning Commission said in 2009 that only 16% of it reached them. Others have estimated that for every Rupee spent 72% is lost in transit.”

It has been suggested that, if India were to remove its myriad of subsidy programs for things like food, energy and fertilisers, it could provide every individual with a basic income of 200 rupees per month – an amount which the pilot project showed could have very positive effects.

Lastly, we should look at the amount of tax avoided in developing countries. According to Oxfam, multinational corporations managed to avoid paying $11 billion in taxes to African countries in 2010. Just last year, a Guardian article stated that Africa loses over $50bn a year in “illicit financial outflows as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments to some of the world’s poorest countries”. This amounts to $45 a year for every single person in Africa. If it could somehow be tapped into, this money would clearly go some way to helping fund a universal basic income in the countries worst affected by corporate tax avoidance.

So could basic income be implemented in the world’s poorest countries? Well, it certainly isn’t impossible. If international aid could be converted into a basic income then even the world’s poorest country, the Democratic Republic of Congo, could fund a very modest basic income. For other developing nations there is the option of replacing conditional, means-tested cash transfers and subsidies with unconditional, universal payments, or possibly increasing certain taxes like income tax and VAT. Reform of global tax rules, enabling poor countries to collect the tax revenue they are owed, would also be a great help.

However, it will also require governments and aid organisations acknowledging that the idea of basic income works and that removing paternalistic conditions, eradicating means-testing and simply giving money to everybody is the best way to eradicate poverty. Convincing them of this will not be easy, but if it can be achieved then basic income really could become the key to eradicating poverty and giving dignity to people around the world.

Photo credit: United Nations Photo via / CC BY-NC-ND