Is free money for real? (And can it solve poverty?)

In many countries, poverty remains a significant problem, with millions of people living below the poverty line. According to the World Bank, as of March 2023, the number of people living in extreme poverty has increased by 11 million, mostly in South Asia, Middle East, and North Africa. As a result, there are now 659 million poor people in the world, which is 8.5% of the global population.

The rise of automation and the gig economy has led to an increase in precarious work and a decline in traditional full-time employment, making Universal Basic Income (UBI) an attractive policy proposal for many. The COVID-19 pandemic has exposed and exacerbated existing inequalities, making UBI even more relevant in the current global scenario.

Can state subsidise and sponsor its citizens?

The UBI is a system in which every citizen of a country is provided with a regular cash payment by the government, without any conditions. The amount of payment can vary, depending on the country and its economic conditions. The concept of UBI has been gaining mainstream coverage in the 21st century due to rising income inequality, job displacement, prevalence of automation and artificial intelligence, and the need for a more sustainable social welfare system.

The idea of UBI is not new and has been proposed by many scholars and politicians throughout history. However, the recent surge in interest is due to the changing economic landscape, which is putting pressure on traditional social welfare systems to provide for the needs of an increasing number of people. With technological advancements, it is predicted that many jobs will be automated, which will lead to job displacement and the need for new social welfare systems.

Proponents of UBI argue that it can help reduce poverty, improve well-being, and stimulate economic growth. It can also help reduce administrative costs by eliminating the need for means-testing and other bureaucratic procedures. On the other hand, opponents of the concept argue that UBI can be too expensive and may discourage people from working. They also argue that it may lead to inflation and may not address the root causes of poverty.

In socialism, UBI is often seen as a means of redistributing wealth and reducing inequality. Socialists argue that the rich should be taxed heavily to fund a basic income for all citizens, thereby ensuring that everyone has access to the same standard of living. Proponents of socialism believe that UBI would eliminate poverty and create a more egalitarian society.

On the other hand, in capitalism, the implementation of UBI is viewed through the lens of individual freedom and economic efficiency. Capitalists argue that providing a basic income to all citizens would enable them to make their own economic decisions, which would lead to more innovation, job creation, and economic growth. Capitalists believe that UBI would promote entrepreneurship and encourage individuals to take risks without the fear of financial ruin. However, some capitalists also argue that UBI could be detrimental to economic growth if it leads to a reduction in labour supply.

In Marxist approaches, UBI is viewed as a potential solution to the problem of increasing inequality and poverty in capitalist societies. Marxists argue that UBI should be financed by taxing the wealthy and redistributing the income to the poor. However, some Marxists criticize UBI as a means of pacifying the working class and maintaining the capitalist status quo. They argue that UBI does not address the root causes of inequality and poverty, which are rooted in the exploitative nature of capitalism.

Case studies across the globe

In 2020, Spain became the first country in Europe to introduce a permanent basic income scheme, which provides monthly payments to low-income households. It is is expected to benefit around 850,000 households, and the cost is estimated to be around €3 billion ($3.5 billion) per year.

Other countries such as Finland, Canada, and India have already implemented some form of UBI, although on a small scale. In Finland, a two-year experiment was conducted, from 2017 to 2018, in which 2,000 unemployed individuals were given a monthly payment of €560 ($670). The aim was to test whether a UBI system could help reduce poverty, increase employment, and improve well-being. The results showed that while the participants reported improved well-being, there was no significant impact on employment levels.

In Canada, the province of Ontario started a pilot programme in 2017, which was supposed to run for three years. The programme aimed to provide a basic income of up to $16,989 per year to eligible individuals. However, the programme was cancelled in 2018 by the newly elected government, citing high costs and lack of effectiveness.

In India, a basic income pilot programme was launched in 2019 in the state of Sikkim. The programme aimed to provide a basic income of Rs 10,000 ($137) per month to eligible individuals. The pilot was completed successfully, and it is expected to be expanded to other states.

Where does Pakistan stand on UBI?

Pakistan has not yet implemented a nationwide UBI programme. However, successive governments have launched several social welfare programmes aimed at addressing poverty and inequality, such as the Benazir Income Support Program (BISP) and the Ehsaas Emergency Cash Program, a targeted, short-term social welfare programme aimed at providing financial assistance to the most vulnerable households affected by the COVID-19 pandemic. Launched in March 2020, it provided a one-time payment of PKR 12,000 to eligible households through a digital payment system. However, it is not the same UBI, which is a policy proposal that aims to provide a basic level of economic security to all citizens, not just those who are in need.

UBI is usually implemented as a regular, ongoing payment to all citizens. Although the Ehsaas Emergency Cash Program in Pakistan did not provide a full-fledged UBI, it underscores the importance of social welfare policies in addressing poverty and promoting economic security in the country.

However, these social welfare programmes have faced challenges and criticisms, including concerns over targeting and transparency, political interference, and corruption. Overall, while these social programmes have had some success, there is still a need for more effective and efficient social welfare policies in Pakistan to address poverty and promote economic security for all citizens.

The idea of UBI is not yet popular in Pakistan, and this can be attributed to several factors.

Firstly, there is a lack of public awareness and understanding of UBI in the country, which may lead to scepticism or resistance towards the idea. Secondly, given Pakistan's status as a developing country with limited resources, there are competing demands for government spending, and some may view UBI as an expensive and potentially unsustainable policy. Thirdly, there may be concerns about the impact of UBI on work incentives and the labour market, which could lead to a decline in productivity and economic growth. Finally, political and cultural factors may also play a role in the lack of popularity of UBI in Pakistan, including the complex political landscape and cultural attitudes towards work and welfare.

Overall, a combination of factors contributes to the lack of popularity of UBI in Pakistan, highlighting the need for further public education and discussion about the potential benefits and drawbacks of this policy idea.

There are several ways in which UBI can be financed.

Taxation financing for UBI

Taxation is one of the most common ways to finance UBI in Pakistan. Government can increase taxes on the wealthy or introduce new taxes, such as a financial transaction tax or a carbon tax, to generate revenue for UBI. In Pakistan, the tax-to-GDP ratio is very low, which means that government has limited resources to finance social welfare programmes.

To increase revenue, government can focus on improving tax collection mechanisms and reducing tax evasion. Additionally, government can introduce new taxes on luxury goods, real estate, or high-income earners, which can generate significant revenue for UBI.

It is important to ensure that the tax system is progressive and equitable, and that the burden does not fall disproportionately on the poor or the middle class.

In Pakistan, reducing existing subsidies such as fuel subsidies or agricultural subsidies can be a way to finance UBI and create a more efficient and sustainable social welfare system. Pakistan spends a large portion of its budget on subsidies, but these subsidies are often inefficient and benefit the wealthy more than the poor. By redirecting these funds towards UBI, government can ensure that the resources are used more effectively and reach those who need them the most. It is important to carefully consider which subsidies to reduce and how to mitigate the impact on vulnerable groups, such as farmers or low-income households.

In Pakistan, elimination of wasteful spending such as unnecessary defence spending can be a way to finance UBI. Pakistan spends a significant amount of its budget on defence, which can be reduced without compromising the country's security.

Corruption is a major problem in Pakistan and addressing this issue can free up funds that can be redirected towards UBI. Eliminating wasteful spending requires political will and effective governance, which can be a challenge in Pakistan. It is important to ensure that funds are used for their intended purpose, and that there are effective mechanisms to prevent corruption and ensure transparency in the allocation of resources.

The theology and impact

The potential impact of UBI can be analysed from a theological perspective, particularly with regards to social justice and human dignity. UBI can be seen as a way to promote the inherent dignity and worth of every human being, as it provides a basic income to all citizens regardless of their economic status or social background.

While there are pros and cons to UBI, it is important to continue the debate and gather more data to understand its potential impact. The implementation of UBI on a larger scale could help reduce poverty and improve well-being, but it will require careful planning and consideration of economic factors.

Abdul Rehman Nawaz is a research assistant at the Institute of Development and Economics Alternatives (IDEAS). Ali Asad Sabir is a political economist and senior research assistant at IDEAS. All facts and information are the sole responsibility of the writers