GiveDirectly, one of Give Well’s top four nongovernmental charity organizations, is preparing to empirically test the idea of a universal basic income based on selected Eastern African extremely poor households.
What's the universal basic income?
The concept of a universal basic income has a long tradition. It was first promoted by a sixteenth century philosopher, Thomas More, in his “Utopia”. Enthusiasts of introducing this idea on a global scale vary regarding what the most important components of a universal basic income are and how it should be implemented depending on the state’s economy and social conditions. Supporters of a universal basic income enumerate various arguments for their idea: from socio-economical to ethical (1).
A universal basic income may be:
a solution for potential future technological unemployment and for actual gender inequality and extreme poverty,
a means of lifting the spirit of entrepreneurship and creativity,
a way of realizing our presumed moral obligation to share money with the poorest.
On the other hand, many people may consider it to be inefficient and disastrous both for the economy (e.g. for economic liberals, a universal basic income is just another example of a social welfare system, just less bureaucratized and paternalistic) and society (e.g. instead of increasing entrepreneurship it may discourage people from working and lead to abuse). In a referendum in June this year, the Swiss overwhelmingly voted against the program to introduce a universal basic income in their country (2). However, there are still governmental plans in other European countries to experiment with a universal basic income. For example in 2017, from 5,000 to 10,000 Finnish people will be paid a basic income of €500 to €700 per month (that’s approximately twice less than the average income) and in Utrecht (the Netherlands), research on five groups of people with different or no conditions for receiving particular sums of money will be conducted (3).
What's GiveDirectly's plan to tackle poverty?
Coming back to GiveDirectly’s experiment, they will check whether a universal basic income is an efficient way of tackling the extreme poverty occurring in developing countries. The project is in fact what GiveDirectly is doing now but on a larger scale: by means of their mobile transfer system, the organization will provide people in need with money that may be spent however they want (more on GiveDirectly’s operating model: https://givedirectly.org/operating-model) .
In this experiment, in order to be considered a universal basic income, the given payment should meet the following four conditions (4):
Universality. Everyone from the selected community will receive the same sum of money collected from GiveDirectly’s donations. The project will embrace all full-time residents of the targeted villages in Eastern Africa who would get their income regardless of migrating out of the village (however, incoming citizens will not be able to become a part of the project). It’s estimated that at least 6000 Kenyans will receive an ongoing income (5).
Unconditionality. The income will be provided regardless of how its recipients will spend the received money, e.g. on education, family, investments, savings or luxuries.
Long-term. GiveDirectly’s project is planned to last approximately 10 years. Compared to other experiments that have introduced a universal basic income, this one would be the longest. 10 years is also a considerable amount of time to see how the whole community manages.
Sufficiency (enough for basic needs). The funds include $10 million already accumulated by GiveDirectly with an additional $10 million received from further donations (6). $9 million is still left to be raised. Funding a basic income for an entire village is about $50,000 per year. There are no further details yet about the actual amount or frequency of payments (monthly, weekly or daily).
For me it’s really intriguing how this experiment will turn out and how people will spend their money. Will this regularly received sum encourage them to be more entrepreneurial? Will it really positively affect these people’s outlook on life? Will it lead to the social and financial empowerment of women?
Results of other cash transfer programs
GiveDirectly argues that the success of the project is likely, on the basis of previous cash transfer programs which had a positive impact on children’s welfare (improvement of health and access to education, decrease of labour) and the recipients’ future life as they tended to invest and save the money (7). There appears to be several examples of positive outcomes of similar projects conducted in underdeveloped countries. For instance in 2008 the Ugandan government distributed unconditional year-income cash transfers to thousands of poor young people (aged 16 to 35) as an enterprise start-up program (8).
After two and four years, their real earnings were 49% and 41% higher than the control group. The difference was especially astonishing in the case of women whose earnings were 84% greater than the controlled trial.
There are also studies showing that people receiving cash transfers in fact try to save or invest part of the received sums. For example, research on OPORTUNIDADES, the Mexican conditional (particular expenditures had to be made e.g. school for children) cash transfer program, showed that people did not only spend money on consumption, which increased by 34% after 5½ years of participation in the program, but also invested it in farms and micro-enterprises that will probably later benefit the younger generation (9). There are also studies showing that there is no evidence that there was increased spending on temptation goods such as alcohol or tobacco (e.g. http://www.princeton.edu/~joha/publications/Haushofer_Shapiro_UCT_2013.pdf). A similar case seems to be with working hours: according to studies conducted on seven randomized controlled trials of government-run cash transfer program in six developing countries (Honduras, Indonesia, Morocco, Mexico, Nicaragua, the Philippines), regularly receiving small amounts of money had no impact on working hours (10).