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Viernes, 08 Julio 2016 09:31

Could Universal Basic Income work in LatAm?

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The Swiss rejected the proposal of over $2500 to every adult citizen, no matter how much they worked, but could a similar scheme operate in LatAm?

First things first. What is Universal Basic Income (UBI)? It is a form of social security system, typically associated with market socialism but not necessarily a socialist policy. The way the system works, all citizens of a country, regardless of employment status or age, receive a set amount of money from their government each month - ideally enough to cover basic living standards - with the condition that the government could then stop providing other social security services, such as health, housing, education, food or transport.

Last month, Switzerland held a vote to decide whether or not to adopt UBI. If it were to pass, all adult citizens would receive 2500 Swiss francs ($2555 USD) and 625 Swiss francs ($641 USD) for every child monthly, all adjusted to the price of living in Switzerland, which is, as the amounts reflect, very high.

The vote overwhelmingly rejected UBI, only 23% of the ballots were for its implementation, with all the rest going against. Critics of UBI argued it would be harmful for society to disconnect the value of work to the amount of money earned, as some others argued that the implementation of UBI would trigger a massive influx of immigrants into the country in search of the substantial monthly wages.

The system, however, is not as crazy as it sounds. Considering that UBI would absolve the government of having to provide a plethora of very expensive services, the burden of welfare that falls upon public institutions would be removed.

It has other advantages. It would benefit education, as competition between institutions pushes them to betterment, and as students receive the money they need to stay in school instead of trying luck in the job market with unprofessional education.

It is also argued that UBI would is the key factor to make volunteering flourish. It would allow people with the will to offer themselves to a worthy cause to do so without thinking of financial pressure.

The system sounds good, and to be honest, a bit utopic. To get it implemented, anywhere, is a huge endeavor, and even more so in LatAm.

Switzerland is one thing, the high standards of living make it necessary to earn beyond the UBI, so its implementation would not necessarily discourage work. The bountiful treasuries can account for any potential losses during the adjustment period to the new expenses, and they also have an established social infrastructure (hospitals, transportation and schools, for example)

LatAm is another thing completely, as countries in the region generally fail to tick all those boxes.

First off, its worth remembering that the welfare state never did take off in LatAm, therefore governments are not providing all the benefits to all the population. In most cases, they provide some of the benefits to some of the population. This is what would complicate UBI the most in LatAm, it means that if UBI were to come into action the government will end up having to pay much more than what they are saving.

Then there is the matter of the incentive that UBI sets. LatAm’s lower standards of living would signify a lower amount dispensed by the UBI, yet the point is still for it to be enough to provide for the services that the government will take away. The problem here, is that there is no guarantee that individuals will spend it on social services and might instead keep it as ‘pocket money’. While there is nothing wrong with this, an availability of pocket money to spend on leisure and other expenses might discourage paid work and spike unemployment. This is especially true for LatAm, where minimum wages are low and don’t offer enough of an incentive to work in order to earn beyond the UBI.

Finally, we have the issue of state savings. In a region where fiscal deficits and debt defaults are common occurrences, it would be dangerous to implement UBI. The adjustment period after UBI’s application will certainly generate unheard-of expenses for the government, which will subsequently have to run a sizeable fiscal reform to compensate for it and bring balance to the budget. Fiscal instability or fiscal insufficiency then might make this adjustment period severely traumatic, and might discourage UBI application altogether.

Additionally, one has to consider the effect UBI has on inflation. LatAm is a region where many countries run few checks on rising inflation, looking into the case of Venezuela or Argentina might give enough of an insight on the matter. UBI will inevitably give way to rising inflation as citizens have more money to spend, without considerable counters to inflation, its growth might completely devalue the UBI until its completely insufficient to pay for the expenses it was intended to.

Although UBI does offer considerable rewards for its implementation, getting it to work is a huge challenge, and has a number of prerequisites for its success. LatAm is far from finding itself in a position where UBI would help more than it sets back, the case of Switzerland, however, is a bit more perplexing.

The Colombian Post | Pedro Bernal

Read 11355 times Last modified on Viernes, 18 Noviembre 2016 12:34

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