The Universal basic share

UBS is a commitment that is expressed, not as a sum, but as a share of gross domestic product


Photo: Hindustan Times
Photo: Hindustan Times

Universal basic income, or UBI, is in the news these days, along with Brexit and Donald Trump. Unlike these, though, the UBI is a genuinely cool idea: Give everyone a basic amount to spend, and let them do what they will with it.

But it’s expensive: A little payout multiplied by the population is a big payout. Try giving everyone in the US$10,000 each annually, and you will spend in excess of three-quarters the annual federal budget.

Nevertheless, the idea has found serious purchase in Europe: The Swiss even voted on it in June (though it didn’t pass), and Finland and the Netherlands are planning to try out UBI by following a group of lucky recipients around.

You would think that the UBI is a good idea for rich countries. But there is also a prima facie case for trying it in a country like India, which one way or the other has been making large transfers for decades. Just the public distribution scheme for foodgrain represents a subsidy of around 1.4% of the gross domestic product (GDP), but if you add to this the subsidies on fertilizer, transportation, water, electricity and other goods, we are up to well over 4% of GDP. Then there are the so-called “revenue foregone” through various exemptions, chiefly via relief on excise and customs duty, that will take you into the region of 6% of GDP. And there are still more subsidies at the state level, and implicit subsidies via submarket pricing of public-sector goods. These subsidies are often greatly lamented, largely on the right, by individuals who blame them for all sorts of bad outcomes: corruption, bad targeting, paternalism. A common response is: Why not just hand out plain unvarnished, and presumably untarnished, cash instead to everyone, and be done with it?

In short, talk of a universal cash payout that replaces a system of multifarious, nefarious transfers has long been in the Indian air. But, of course, there is a herd of elephants in the room:

1. The promise of a UBI can be inflated away. Who’s going to make sure this thing is properly indexed to rising prices, and what if it’s not? An unsympathetic government can erode all the promises and make them vanish into thin air in a matter of years.

2. The commitment looks truly large. Our poverty line works out to around Rs13,000 per year per person. A pittance? Yes. But multiply by India’s population of 1.25 billion and you’re at around 12% of India’s GDP. If you want to cut that back to Rs10,000 per year, it’s 9% of GDP. So there you have it: 9-12% of GDP to bring every man, woman and child up to speed, or at least walking pace.

3. For my third and largest elephant, let’s go back for a moment to this whole automation business. Some years ago, in an essay on Thomas Piketty’s book, Capital In The Twenty-First Century, I observed that “to avoid the ever widening capital-labour inequality as we lurch towards an automated world, all its inhabitants must ultimately own shares of physical capital...the deepest of all long-run policy implications lies in pondering this question”.

The operative word is “shares”: Even with indexation, the UBI is a fixed commitment. What happens as national income or profits continue to rise in an automated world? Is no share to be passed on to the population? Must we be reduced to annual debates about how to adjust the UBI? One can imagine that such debates would constitute a continuing sequence of nightmares.

I’m going to propose a simple amendment of the UBI that holds out serious hope of dealing with all these issues and more. I’m going to call it the universal basic share, or UBS. It is a commitment that is expressed, not as a sum, but as a share. Specifically, I propose that we commit a fixed fraction of our GDP to the provision of a universal income for all.

Consider six merits of this proposal: (A) It is country-neutral. It can be introduced in every country, rich or poor. It scales up or down with country-level income. (B) We can start small. In the Indian example, the numbers do not have to be at Rs10,000 to begin with. But over time, they will get there. In this sense, the proposal takes (some) care of the debate that we “cannot afford it.”
(C) The UBI commits a government to pay out a fixed sum, come hell or high water. In contrast, the UBS insulates against shocks to the fiscal system that are correlated with GDP shocks. (D) The UBS does not need to be indexed at all. It will move with nominal gross domestic product. (E) The UBS will create an incentive for a majority to demand a better tax collection and auditing system. (F) And, most importantly, the UBS allows everyone to share in the prosperity of a country. It is our protection against unbounded inequality as we move into an increasingly automated universe.

After I wrote this, I was made aware of several antecedents. Robert Shiller’s proposal to issue “trills”—a government-issued security that would pay a share (in trillionths) of GDP—is a relative of the UBS, though under the UBS we would give citizens rights to a share instead of access to buying them. The Alaska Permanent Fund, which paid out as a citizen’s dividend based on its wealth of natural resources, has inspired plans and collective action for a permanent fund based on iron-ore mining in Goa (plans that have been wisely backed by the Supreme Court, might I add). By tying all of national income to a fund, a UBS takes the next logical step.

To implement a UBS, the most important thing is to get the share right. Let me illustrate using India. The Central government’s expenditure share as a percentage of GDP is a bit shy of 14% in 2014-15. But Central and state expenditure combined is double that: around 27% in 2014-15. For revenue foregone and other implicit subsidies, which we would need to take back, add another 6-10%. That gets us to about 35%. So to access 9% of GDP as UBS, we would need to contribute 25% of government expenditure, inclusive of all subsidies, to the cause. I have no clue whether we have the political will to pull off something like this. But remember, it’s a share that is being committed. At Indian rates of growth and with an improving fiscal system, we can get the resulting numbers to double in 10-12 years, and double again a decade after that. If we want to start small, the UBS allows us to entertain that thought.

Hey Switzerland, want to try again?

Published with permission from Ideas For India (www.ideasforindia.in), an economics and policy portal.

Debraj Ray is Julius Silver professor of economics at New York University.

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