Introduction
Today’s and next week’s column combine to form a preface to my intended task of updating the Buxton Proposal. For this purpose, the two columns address respectively, the World Bank and the IMF’s, recent public posture in regards to Universal Basic Income, UBI, as a social protection mechanism.
I recall here having identified six such widely utilized social protection mechanisms in emerging oil-rich economies, which are dedicated to rapidly eradicating all forms of entrenched poverty there. The six mechanisms are reproduced below; namely,
1. universal direct cash transfers [universal basic
income, UBI]
2. targeted cash transfers to poor and vulnerable
groups;
3. targeted transfers to mitigate the adverse impact
of oil expansion [such as Dutch Disease]
4. subsidies and taxes
5. public sector employment [jobs]
6. Third Sector optimization [volunteerism,
charities, social enterprises, cooperatives along
with community involvement and social
inclusion].
As I have indicated previously, the first listed item is indeed the one I had recommended at the outset for Guyana. This mechanism is labelled the Buxton Proposal, and is the subject of my intended re-visit. Additionally, the sixth listed item, I treat as being mainly complementary to all the others. Central to all these observations, is the notion of Dutch Disease, which is briefly reviewed in the next section.
Dutch Disease
From repeated commentary in this series of columns, readers should be aware that the Dutch disease refers to the economic phenomenon, whereby, the rapid growth of Guyana’s petroleum sector precipitates economic declines in other sectors. This is often linked to the appreciation of the Guyana dollar, making it a somewhat paradoxical outcome.
The classic remedy for engaging Dutch Disease lies in two policy responses; namely,
1, Deceleration of domestic currency appreciation. The deceleration of currency appreciation is the easier and more viable of the two strategies
2. Diversification of the economy. The diversification of the economy is a strategy that can almost eliminate the negative impact of Dutch disease on the economy.
It is to be anticipated that; the distributional impact of Dutch disease would be unfavourable given Guyana’s current labour-market composition. Much of the economic activity associated with the oil and gas sector, is in non-tradable services and the public sector, which is also concentrated in urban areas. Larger gains are expected for those employed in these growing sectors.
Additionally, however, the declining industries employ a number of vulnerable population (poor, old and less educated, most of them residing in rural areas. As these industries decline, the vulnerable groups are likely to lose their employment opportunities. With their inability to cope with labour market shocks especially from a structural change, the adverse impact from Dutch disease on this group is expected to be large.
As the World Bank’s Guyana Systematic Country Diagnostic, SCD, advises social protection and cash transfer mechanisms have been usually adopted by oil producing countries; with each adapting its particular purpose. Institutional arrangements therefore differ. It warns that although some claim best practice, every mechanism runs the risk of failure without good governance.
Elements of UBI Mechanisms
Government cash payments to Guyanese individuals and households are commonplace; for example, old age pensions and a number of one-off benefit payments to the infirm and school children. What distinguishes UBI mechanisms is in every instance their universality and unconditionality. UBI’s are cash transfers designed for all or a very large portion of a given population. These two features generate, as the World Bank opines heated debates in both the scholarly context and public discourses. I anticipate as usual there will be no such, but hopefully a growing common understanding as well.
It is apt to note, UBI’s that lack of common understanding has led to what the World Bank terms as “very different income-support programs often labeled UBI;s even when they have little in common or do not aim at the same goal”. Examples are cited:
1) cash transfer to selected groups of munemployed people for a short time in Finland
2) cash transfers to adults for 12 years in Kenya
3) cash transfers to randomly chosen households in California.
The World Bank bemoans this ”diversity”.
As the World Bank notes, in actuality, programmes grouped under the universal basic income umbrella have a mix of key features. Do they replace or complement other social protection programmes? Are the recipient’s individuals or households? How is the pool of beneficiaries defined? What is the timing of the payment? Are there conditions attached?
Two key features uniquely define UBIs; these are
Universality —or very large—coverage of individuals in society
Unconditionality —or very broadly conditioned provision—as is the case of Atkinson’s “participation income”
Proponents and opponents of UBIs differ. Proponents claim they reach the poor better than means-tested programmes. Many factors deter means-tested programmes from reaching the poor, such as, administrative capacity, information and related costs, poor performance of targeting mechanisms, and social stigma. Opponents tend to focus on sustainability—high fiscal costs. Skeptics worry about efficiency issues, like undermining work ethics.
Conclusion
The World Bank concludes empirical analysis should determine the relative redistributive performance of existing social safety nets as listed in the introduction. Such an analysis must consider fiscal sustainability and trade-offs along the following three dimensions:
1. Coverage at the bottom
2. Generosity of transfers
3. Fiscal cost
