Universal Basic Income: a short or long term solution to Covid-19?

The Worldbank has stated that in a world riddled with fears about artificial intelligence, exhaustion over complex bureaucracies, and resentment toward politics, the transparency and simplicity of a Universal Basic Income is alluring. With Spain being the first to implement a nationwide UBI as a response to Covid-19 and with the UN proposing a UBI for poor and developing countries, this may be the time UBI moves from the theoretical to the practical realm.

Suffering from economic stagnation since the 2008 crisis, Spain was among the countries that were hardest-hit by Covid-19. As a result, one quarter of all Spaniards are at risk of poverty or social exclusion. As a Universal Basic Income (UBI) had been discussed for some time in Spain, it came as no surprise that it was the first country to introduce a UBI on 29 May. The EU Observer notes that the measure aims to help 850,000 families, accounting for about 2.3 million people, by providing them with a guaranteed income that varies from €461 to €1,015. The estimated costs are €3bn per year.

The Spanish programme being the first to be rolled out nationwide, in contrast to trials which had been limited to a few hundreds or thousands of people, economists around the world are watching closely to see what impact the scheme will have. As a Worldbank report on UBI recently stated, “in a world riddled with fears about artificial intelligence, exhaustion over complex bureaucracies, and resentment toward politics, the transparency and simplicity of a UBI is alluring”.

Along the same lines, the United Nations Development Programme issued a paper explaining the potentially devastating costs of job losses in the developing world, where social assistance or insurance protection is often lacking, due to the measures taken in response to Covid-19. The costs of the Temporary Basic Income (TBI) that the UNDP proposes for vulnerable people in 132 developing countries will amount to between 0.27 and 0.63 per cent of their combined GDPs, depending on the exact choices that will be made. “In per capita terms”, the UNDP explains, “[developing] countries are spending an average of US$7 in social assistance or US$9.5 if social insurance and labour market programs are added, which is in stark contrast with the corresponding averages of US$121-123 recorded by high-income countries”.

The paper states that 1.07 billion poor and 1.71 billion vulnerable populations in developing countries experience urgent financial difficulties. Obviously, vulnerability thresholds differ depending on a region’s living standard criteria, and the authors use the following minimum amounts to group poor and vulnerable people: $13 for Europe, Central Asia, Latin America and the Caribbean; $5.50 for countries in East Asia, the Pacific and the Middle East and North Africa; and $3.20 in South Asia and Sub-Saharan Africa.

This is an important time for UBI. While the Worldbank notes that a book has been published on the subject every month since 2010, this is the first time UBI is no longer merely a theoretical model but is being implemented – possibly in a majority of countries in the near future. The real test, however, will be whether these schemes endure even after the pandemic is over.

Author: Olivier Vonk

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