In 1974, the Canadian government conducted a randomised controlled trial in Winnipeg, Dauphin and rural Manitoba. Lower-income households across the region were randomly allocated into seven treatment groups, along with a control. Families gained an income guarantee, dependent on their family size, constrained by their working income. The trial excluded families earning above a predetermined amount (about $13,000). Everyone else in the treatment groups was given a base amount ($3,386, equivalent to $16,094 now), while 50 cents was subtracted for every dollar earned from other sources. This negative income tax experiment, termed “Mincome”, helped over a thousand families below the poverty line in Dauphin earn a liveable income. It offered financial predictability, food insecurity vanished, education was not compromised. A guaranteed annual income (GAI) system had brought about social stability and improved health-care outcomes. With the onset of 1970s stagflation, induced by the oil crisis, such schemes were abandoned and any insights ignored. But briefly, there was a town with no poverty.
A gradual evolution
The idea that every individual should have access to a minimum guaranteed basic income is not new. Thomas Paine sought an equal inheritance for everyone, “a national fund” which would pay every adult a sum of “fifteen pounds sterling as compensation” for the introduction of the system of landed property. Over the last century, with the Great Depression, welfare policy in the U.S. was transformed with minimum wage legislation, while Keynesianism meant that the government would attempt to stimulate the economy during downturns by directly financing public employment and public works. Long-term support was offered to the aged, the disabled and single mothers while unemployment insurance sought to support the temporarily unemployed. The 1960s brought about the war on poverty, waged through federally funded social service and healthcare programmes. Milton Friedman sought a negative income tax, eliminating the need for a minimum wage and potentially the “welfare trap”, while bureaucracy could be curtailed. Richard Nixon supported and yet failed to push through a “Family Assistance Plan” while George McGovern’s 1972 campaign sought a $1,000 “demogrant” for all citizens. This decadal struggle against poverty in the West cut the number of those in poverty in the U.S. to 26 million from 36 million in 12 years. Education and health care were improved, but the employability and the income of the poor remained stranded. With the rise of neo-liberalism, opinion shifted. Existing welfare systems had grown too cumbersome, without eliminating poverty.
Now, however, the idea of an unconditional annual income is gathering momentum. Y Combinator, of Silicon Valley fame, is testing out a new business model: handing out money, without any strings, in an unnamed U.S. community in an attempt to replace safety net welfare policies that often fail to help those with the greatest need. Finland is considering a plan to give 100,000 citizens $1,000 a month, while four cities in Netherlands are starting trial programmes. Switzerland may have rejected, in a referendum, the idea of giving citizens about $2,500 a month, but the Canadian province of Ontario is planning a trial run. Progressives hail it as an escape route for workaholics, from oppressive jobs and situations, giving individuals greater time to build relationships and pursue education or artistic endeavours. Conservatives applaud its potential to shrink bureaucracy. As job concerns about automation grow, the basic income stands out as a panacea.
Even India has seen its share of basic income experiments. A pilot in eight villages in Madhya Pradesh provided over 6,000 individuals a monthly payment (Rs.100 for a child, Rs.200 for an adult; later raised to Rs.150 and Rs.300, respectively). The money was initially paid out as cash, while transitioning to bank accounts three months later. The transfer was unconditional, save the prevention of substitution of food subsidies for cash grants. The results were intriguing. Most villagers used the money on household improvements (latrines, walls, roofs) while taking precautions against malaria — 24.3 per cent of the households changed their main source of energy for cooking or lighting; 16 per cent had made changes to their toilet. There was a seeming shift towards markets, instead of ration shops, given better financial liquidity, leading to improved nutrition, particularly among SC and ST households, and better school attendance and performance. There was an increase in small-scale investments (better seeds, sewing machines, equipment repairs etc). Bonded labour decreased, along with casual wage labour, while self-employed farming and business activity increased. Financial inclusion was rapid – within four months of the pilot, 95.6 per cent of the individuals had bank accounts. Within a year, 73 per cent of the households reported a reduction in their debt. There was no evidence of any increase in spending on alcohol.
Before moving ahead, we would need more data to prove its applicability in the Indian context. There have only been eight large-scale pilot programmes testing the impact of a universal basic income on human well-being. Social context too matters — what might have worked in Manitoba or Kenya might not necessarily be applicable to India. We need a greater depth of pilot studies, focussed on ensuring universal access and covering minimum living expenses. With more pilots planned in Oakland, Netherlands, Germany and India, insights developed can be used to modify welfare policy.
The route ahead
A regular unconditional basic income, scaled up through pilots, and rolled out slowly and carefully, seems ideal for India. It can help improve living conditions including sanitation in our villages, providing them with access to better drinking water, while improving children’s nutrition. Regular basic income payments can help institute rational responses to illness or hunger, enabling households to fund their health expenses instead of encountering a vicious cycle of debt. It can help reduce child labour, while facilitating an increase in school spending. It can transform villages, enabling the growth of productive work, leading to a sustained increase in income. It could cut inequality; grow the economy; all while offering the pursuit of happiness.
By – Feroze Varun Gandhi
Feroze Varun Gandhi is a Member of Parliament, representing the Sultanpur constituency for the BJP.