Business Unusual

How long before we have a Universal Income Grant?

A Universal or Basic Income Grant is intended as a cash payment to all citizens of a country to avoid a poverty trap. It was first suggested over 200 years ago. It has been tested as an experiment on many occasions, yet no country currently offers it.

Finland is the latest to run an experiment to give 2000 unemployed Finns 560 euros per month (R8400) for two years. The participants were chosen at random and will not lose the grant even if they get a job during that time.

Here are three factors to consider about whether it may be a good or bad idea:

Political ideology

Capitalist democracies tend to steer clear of welfare options in general and some like the US have tended to keep it to a minimum. Socialist democracies are much more inclined to consider it but typically have other programs in place to address specific social issues and may also steer clear of something that amounts to a no questions asked hand out.

It is a central idea that a grant like this, while not necessarily large, is given without a means test and to all.

Both sides of the political spectrum have acknowledged the idea as having merit, but not one to seriously consider thus far. Switzerland went so far as to have a referendum, but it was defeated with a large majority.

There are two other factors that may increase the appeal of the grant in coming years: the gig economy and automation.

A session at the World Economic Forum focussed on it specifically. The discussion is available below.

Both will reduce job security and automation will reduce some jobs currently availability. The grants could go some way to restore security for an increasing pool of freelancers and help those replaced by machines to retrain or move into new sectors with a safety net.

Practical implementation

Even a small grant to a medium-sized population would be a significant sum to pay each month. Generally, the countries that would need it the most might either not have the funds to pay it or the means to distribute it. Those countries that can afford it may have social programs already in place to deal with those that may be vulnerable. A Catch-22 for those in favour of it.

Using South Africa as an example; the total population is 54 million. Assuming the grant was set at R350 per month, the value of a child support grant, it would be about R19 billion a month or R228 billion per year.

The largest expense item in the South African budget is education at about R266 billion while the current social welfare allocation is about R185 billion.

There are 16 million grant recipients in total. It suggests that we do have the means to cover many of those in need and might even be able to find the funds, assuming a universal income grant would replace a child support grant and any others the total cost would be less, maybe even an affordable sum.

Making it available to all simplifies the administration and making all payments electronic will also streamline the logistics.

It is fair to assume many of those that would not need the grant might set up a regular donation to use their allocation to help others.

However, there is a risk of fraud and corruption.

Impact and effectiveness

The third element to consider is the impact and the conditions that are needed to make it as efficient and effective as possible.

Elections every fvie years and census counts every 10 years are two very large government undertakings. Monthly welfare payments are a significant logistical operation and suggest that a universal payment could be possible.

One of the reasons it is universal is to reduce the administration for managing the system; too much and the cost of the system makes it too expensive to run. Too little control and the risk for fraud, corruption or theft could sink it.

It makes sense that with growing mobile penetration, a mobile payment option would be considered. Depending on what solution can be found, the grant itself might not need to be all cash with free or discounted access to goods or services working just as well.

It suggests that solving some of the most fundamental developmental issues facing a developing country could be addressed with technology as an enabler. In some cases this has been openly embraced. Rwanda is often regarded as a pioneer in seeking digital solutions to age old problems, but I can’t say that an initial momentum for increased access to the internet and associated services by the SA Government has been sustained.

South Africa has an unequal society and it would require an active role by all sectors of society to address it with any means possible. Ignoring it will only make dealing with it later more difficult.

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