Basic Income and Blockchain part I: What is Universal Basic Income?

Published : 15 February 2019

Increasing automation and the changing labour market are shifting the way working will function in the future. Full-time positions are decreasing, as more and more people choose (or are forced) to freelance jobs, while the developments in robotics and AI will mean more and more jobs will be done by machines. What does this mean for people? More difficulty finding a job. The solution? One of the ideas currently being discussed is the Universal Basic Income (UBI) (you may also see it as Basic Income – BI; or Basic Income Guarantee – BIG), which refers to a regular cash payment given to all individuals unconditionally, on an individual basis, which is not based on means and does not have any work requirements.

Blockchain and UBI
As in many other areas (such as entertainment, voting, or a gig economy) Blockchain technology provides opportunities for innovation and improvement within the area of Basic Income as well.

Besides the “usual” advantages of Blockchain such as security, decentralisation, and immutability, thanks to smart contracts crypto-UBI systems would also open the possibility of automated basic income that no government can control. Moreover, Blockchains can support decentralised identity systems that will be needed for an environment of “trustless trust”. And finally, given the amount of bureaucracy and stakeholders needed to run a UBI pilot in the real world, crypto-UBIs may be easier to implement.

From the crypto side, UBI offers its own advantages – mainly the possibility of mass adoption. After all, it stands to reason that receiving tokens regularly and unconditionally, even if it’s a small amount, will spur the recipients to actually interact with the coins (transfer them, spend them, etc.). In the crypto space, UBI could be considered as an airdrop. And we all know these are popular.

Currently, there are numerous projects which aim to provide a crypto-UBI systems. Dan Larimer who co-founded EOS, one of the top cryptocurrencies and Ethereum’s competitor, has expressed his intentions to implement UBI into his projects. We will present some of the most interesting crypto-UBI projects in our next article.

In order to understand how UBI and Blockchain can be combined, it is essential to understand the features and issues of UBI. Therefore, in this article, we will discuss the features of a Universal Basic Income, and deal with some of the major misconceptions about it.

UBI features and advantages
As explained by BIEN (Basic Income Earth Network), one of the biggest organisations on anything UBI-related, basic income has several characteristics:

  • Periodic: it is paid at regular intervals (for example every month), not as a one-off grant.
  • Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
  • Individual: it is paid on an individual basis—and not, for instance, to households.
  • Universal: it is paid to all, without a means test.
  • Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work (source).

UBI has shown significant promise in decreasing inequality and lifting people out of poverty. For example, in this New Yorker article (also worth checking out for a short history of basic income), we read that $100/year UBI in India could bring down it poverty rate from 22% to less than 1% (!). Moreover, a UBI scheme would also simplify the contemporary complicated benefit systems, and the universal and unconditional character of it would cut down on administrative costs related to tracking and management of the changing working and social circumstances of every participant.

If you’re still not convinced about the value of UBI, or just want to get some quick arguments in its favour, you might be interested in this short paper, which presents numerous 1-minute arguments for basic income (including a utilitarian, pragmatic, Keynesian, and human rights perspective, just to name a few).

UBI vs welfare
Although it may seem like UBI is just a different form of welfare – after all, they are both paid regularly in a given means of exchange (money), there are several key differences.

As explained by Sarath Davala, Vice Chair of BIEN and co-founder of India Network for Basic Income during the last event from Basic Income Berlin (check out their Twitter for more information), welfare is a relict of the 20th century. This is because at that time, especially after the Second World War – the time of high economic growth and few idle hands, welfare was thought to be meant only for those few unable to work. It was supposed to cover exceptions. Welfare was born out of the assumption that capitalism works well, so when people occasionally fall off the working wagon, welfare would be there to help them get back on it. Now, due to a slower economic growth (compared to the previous century), changing labour market, and (soon) automation, the welfare systems are not only vastly complicated, under strain, but often cannot provide the basic income needed for the poorest citizens. And because of these factors, there is a dire need for another social security solution.

Other differences relate to the last two features of UBI. While welfare is means-tested (it depends on your resources such as income) and conditional (you usually have to fulfil some conditions to receive welfare, e.g. regular meeting with a job centre), Basic Income would be given to everybody, without them having to fulfil any requirements.

UBI issues
Now that it is clear what UBI is, and how does it differ from welfare, let’s take a look at some of the issues of UBI.

But firstly, let’s deal with one major, prevalent misconception about UBI: Basic Income will disincentivize people from working, right? This argument is a classic. Since the Basic Income would provide the fundamental funds needed to survive, then people would stop working, or would be less inclined to find work, right? Nope. In fact, nothing could be further from the truth. For one simple reason: people will always want to improve their lives. One study in Germany suggests that Basic Income would in fact increase the labour supply by closing the unemployment trap of the current social system (Gilroy, Schopf, and Semenova, 2012). In order to confidently support this statement, a long-term UBI project would have to be conducted, and unfortunately at this point in time, there are only a few, short-term UBI projects currently in effect (you can check out the latest overview of UBI experiments on BIEN’s site here).

Now that it is clear how valuable UBI can be, let’s take a critical look at it and focus on its major issues.

Very costly
This is a major issue to discuss. UBI is great, but it has a price. Some studies estimate that in order to provide granting a basic income in the United States equal to $10,000 to every adult citizen (and $2000 to every eligible child) would cost an estimated $1.9 trillion (yes, that’s trillion with a ‘t’!). So it’s VERY expensive. How to pay for it? Taxes are often suggested. But even a modest UBI would require taxes to reach 50-60% levels. And that’s hard to swallow for just about anybody. Others have suggested closing tax loops and restructuring the current welfare systems. Another study argues for a Negative Income Tax (NIT) – a system with refundable tax credits guaranteeing taxpayers a certain minimum income, where people with no income receive the full benefit in cash. Moreover, it works in such a way that the more you earn, the lower NIT would you receive. One major upside is the fact that NIT was estimated to correspond to a $826 billion increase in taxes, compared to an $1.69 trillion in the case of UBI. And NIT is not even the cheapest alternative. Another system shortly mentioned in the paper is direct job creation and conventional transfer benefits, which were estimated to cost less than than $100 billion a year.

One study that evaluated the macroeconomic effects of three different, much smaller, UBI schemes ($250 per month for each child, $500, and $1,000 for all adults) found that funding even the most expensive of the three with federal debt would be offset by an economic expansion of 12.56% over the baseline after eight years. After that the stimulative effects of the program decrease and GDP growth returns to the baseline forecast, but the level of output remains permanently higher. So UBI could be affordable, but the grants would be relatively small.

The issue of costs is still very much open within the context of UBI. As can be seen, compared to some of the alternatives, UBI would be extremely expensive. Or, if affordable, the benefits would be much lower (perhaps lower than needed). Therefore, any talk of UBI’s implementation has to include a discussion about the sustainability of the programme.

Issues with marrying it with other benefits
This issue may not seem as drastic as the one related to the costs, but it may affect how many projects actually become a reality.

It is a lengthy and very bureaucratic process to convince municipalities to grant exceptions to recipients of a UBI, so that he or she may still receive their current, conditional benefits along with the basic income grants.

No definitive results yet
Although the results of UBI pilot studies have been quite positive, it has to be said that these results are not definite. This is due to the structure of the pilots, which may not be representative of the whole population. In detail, as explained in for example this article about a BI study in Finland, it has to be acknowledged that the study, and most of the other UBI studies, focus only on the unemployed sector of the society, and a small percentage of it at that. Very recently, the preliminary results of the study were released (full report of the first year is expected this spring, while the results of the whole study are estimated to arrive in 2020). The preliminary results were at times described as disappointing by the media, given that the study left the participants “happier but jobless”. However, while these pilots do give us some suggestions on the potential effects of UBI, their results are far from definitive. In fact, as argued here, “UBI has many complex economic, political, social, and cultural effects that cannot be observed in any small-scale, controlled experiment. Therefore, even the best UBI experiment makes only a small contribution to the body of knowledge on the policy in question and leaves many important questions unanswered.”

Speaking of UBI experiments, it should also be mentioned that they are not very easy to run. It takes time to get them approved, work out the bureaucratic issues, and get funding, all of which may delay the project. And once a pilot gets going, a changing political landscape may force some of them to discontinue (as has happened, for example, in Ontario).

Given this, the question shouldn’t be: do we need UBI? The question should be: what kind of UBI do we implement? And a quick follow-up: how do we actually implement it? UBI is no easy thing to make a reality, as there are various obstacles in the way of its implementation (for more details you can read for example this study, which describes bottlenecks in implementing a UBI).

Conclusion
Universal Basic Income is an extensive topic, with a lot of “on the one hand …/ but on the other hand…” debates. This article was meant to give a taste of the complexity of the problem, as economic, social, and political aspects need to be taken into consideration. Still, as mentioned before, I would argue that the question that needs to be asked, and the discussion that should follow must centre around the questions of which UBI model to choose, rather than do we need it debates. And yes, basic income will be expensive and very difficult to implement, but is anything truly valuable cheap and easy?

And the future of UBI may not look so bleak after all. As me mentioned earlier, there are several early stage Blockchain projects that aim to decrease inequality by following UBI structures and values. We will present the most illustrious examples and different models in our next article (coming soon!).

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