Universal basic income as a policy to protect the vulnerable and protect the future of capitalism

What is Universal Basic Income? Which are its benefits? Its problems? Would it be a good idea for a social policy in Ecuador and especially during this COVID-19 year?

Demos Helsinki group of scientists (Helsinki´s Think Tank) have developed a Universal Basic Income (UBI) experiment which was implemented in Finland and ran through all of 2017 and 2018. The experiment was simple: 2000 randomly chosen unemployed persons between the ages of 25 to 58 will receive during 24 months an unconditional monthly stipend of 582 euro regardless whether they find or not full time employment, or sporadic incomes. The UBI system has the objective of replacing all the benefits for a person with a direct money transfer without conditions attached.

What are the main benefits of implementing this social policy? The straightforward benefits include an easy social welfare system which would replace a lot of bureaucratic jobs, processes, red tapes, corruption opportunities, money leakages, complex system with a direct money transfer that would give freedom of choice to the beneficiaries. Just imagine how much tax money and resources goes into ministries, secretaries, etc, with all their employees and other resources (including computers, paper, printers, etc) which are needed for implementing a social welfare program? All those resources could be transferred directly to the unemployed increasing their quality of life. As well, imagine all of the corruption opportunities in state procurement processes avoided.

The UBI is a great way to reduce corruption and avoid money badly spent. The less processes and less people involved in the subsidies transfer the less opportunities and probabilities for corruption to happen and the more easier it is to identify it.

What would happen to the macroeconomics in Ecuador? In the end, money would be transferred almost directly to the people and they would choose the better way to spend it in the free market strengthening competitivity between manufacturers and driving prices downwards. This way the government would pour money towards consumption directly while providing equality of opportunities for entrepeneurship, gender empowerment and preventing corruption. With a UBI companies would have to drive basic salaries upward to lure the unemployed because of the lower opportunity cost of working versus leisure, thus setting a new equilibrium point.

On the productive side, since now an unemployed could live off the UBI, only the ones with a true instrinsic and extrinsic motivation to work would seek out jobs (the ones who value more working and earning than their leisure time), thus employed people would self select to jobs and the employed would be more efficient. Another benefit rests in the fact that Solow´s residue (innovation capability and motivation of a society will promote development) would be strengthened because new entrepeneurs would actually have a sustaining income while they start their bussinesses and could complement it with occasional earnings. Leisure time not necessarily means sitting in a hammock, but it can be used to develop skills, studies, or entrepeneurship that in the long run, would be very productive for society and for driving up exports. This system in fact, would allow for a flexibility in labor hiring and firing laws, as well as eliminate a 9 to 5 regimen which mostly is unproductive.

Regarding the benefits from a socialist point of view, the UBI is a social welfare system that could prove as a safety net for unemployed people who, because of their age, their set of skills, or different characteristics are not able to find a job. These people would include the widowed mother, the single man, woman, the old grandmother. But as well, the young entrepenuer, the young lads not being able to catch a formal job, the informal workers, the unemployed in transit or frictional unemployed, and all of the people that may be laid off and replaced by machines or software. The thing is, all of these people will have a safety net that will at least provide them with food, clothing and housing to live by and have a chance their income with informal or occasional earnings. This way dignity is given to people, they are all taken care off by their country and meritocracy is not corrupted, or broken. In fact it would remain exactly the same but people would start from the safetynet line of the UBI.

What are the main problems with UBI in Ecuador? The main problem is it's budget. In Ecuador it would be a major surgery to cut 50% of actual Government spending and channel it to UBI. It would require around 20% of the GDP. So there is a need to increase the tax system (both direct and indirect taxes) but especially on the really wealthy. I am talking about that minority which earns at least 80K a year. This the population to target with a Revenue Tax increase because they earn it all mostly through established companies which will not flee to other countries since they are as confortable as can be. In the end, the big underlying obstacle is finding political capital with the right size of courage, empathy and theory of mind to be able to tackle and decide on this social welfare policy shift. It is a system that solves extreme poverty as well as a salvation for capitalism since it deters the inevitable clash of classes.

UBI as a policy in Ecuador has financing as an obstacle but there is a huge benefit to take into account from the behavioral economical view: a new solid punishment for antisocial behavior would be born. Criminality, fraud, tax evasion would be strongly deterred with the credible threat of eliminating someone's UBI for life or at least for some time according to the gravity of the fault. This would act as a tool to help promote cooperation among agents thus reinforcing development and economic growth.

Universal Basic Income would be immensely useful and appreciated by people in the middle and low class for an extra 150 to 200 bucks a month. Incomwise, for the higher classes, it will mean close to nothing because of the diminishing marginal utility of extra money. But there is a little magic happening. Every individual, regardless of their status is receiving something from the government. You barely perceive national defense (a service everyone of us receives). National defense is an intangible service. 150 bucks are tangible, and receiving it engages our inner instinct of being reciprocal and it eases giving. Even if you give 2,000 to the system and receive 150, you are engaged in giving and receiving. Most of our taxes are given and never seen again and thus reducing the willingness to contribute. As well, giving money to people with no strings attached is a sign of trust in that that person will be responsible, and if it isn't then it is their fault, because they are given the money and the opportunity thus protecting the government from the blame. It is another way of thinking, being humane and trustful and accountable and responsible, instead of that state which is paternalistic, always giving with strings attached and putting limits and rules, wich in the end spoils and makes brats out of people who get used to live off the system. It is always the case of beneficiaries of transfers that hide their income, limit their jobs and progress not to loose the cash transfers. UBI helps poverty, strengthens market systems and promotes solidarity and cooperation.

Finally I believe that this type of policy has the power to solve the covid-19 crisis or similar, boosting climate adaptation, crisis and others to come, as well as secure elections (in developing countries). It can be defended from rightwing or leftwing. Presidential candidates in Ecuador should all be fighting to use this policy for their presidential plans.

And basic income could depend not on a fixed amount, but on a variable amount depending of the overall development of the economy. This way everybody will row in the same direction and envy and jealousness will decrease, enhancing trust and reciprocity.

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