By Dr. Fernando Aldaba
The Philippine Statistics Authority (PSA) announced that the poverty incidence among Filipino families in 2018 fell to 12.1 percent, lower than the estimated 17.9 percent in 2015. This is defined as the proportion of families whose income is below the poverty line to the total number of families. While this is indeed a great improvement, the percentage still translates to around 2.9 million poor families.
Recently, the concepts of universal basic income and basic income guarantee have been advocated by various individuals and sectors because of the increasing number of workers confronted by uncertainties and precarious employment in the labor market due to technological upheavals brought about by artificial intelligence and also due to various extreme climate events and calamities. UBI grants all citizens of a country or a selected geographic area with a fixed sum of money, regardless of their income, resources or employment status, the purpose of which is to basically provide income security to meet basic needs. BIG also involves cash transfers designed with a similar purpose but targets only low income or poor individuals.
The idea that the state should ensure its citizen’s earnings are sufficient to cover basic living costs through a cash subsidy is not new. This notion has come up repeatedly over the past two centuries through various terminologies: as a citizen’s dividend, a social credit, a national dividend, a demogrant, a negative income tax, “free money for everyone” and a guaranteed minimum income (or “mincome”), among others.
Thomas Paine (1737-1809) proposed that a “groundrent” of £15 be paid to every individual upon turning 21, followed by £10 every year after turning 50. He argued that “every person, rich or poor, should receive the payments to prevent invidious distinctions.” Nobel Laureate Milton Friedman (1912-2006) proposed what he called a “negative income tax,” a welfare system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.
In the 1960s, James Tobin (1918-2002) and John Kenneth Galbraith (1908-2006) and other liberal economists defended in a series of articles the idea of a guaranteed minimum income which is more general, more generous and less dependency-creating than the existing assistance social programs. In the 1970s and 1980s in Denmark, three academics led by Dr. Niels Meyer proposed a UBI type called “citizen’s wage.” In the Netherlands, J.P. Kuiper, a professor at the Free University of Amsterdam recommended uncoupling employment and income through UBI as a way of “countering the de-humanizing nature of paid employment.”
For a country like the Philippines, BIG will be able to reduce poverty and provide financial security among the marginalized population and may also decrease inequality across sectors of society. If this will become the exclusive program for social security, it could rationalize and simplify the delivery of social protection programs. It may also catalyze local economies through increased demand among the populace.
However BIG can also be inflationary due to this increased demand or can have “moral hazard” issues since beneficiaries may lose motivation to look for better quality jobs and become dependent on the grant. The program can also be costly especially if the delivery and targeting mechanisms are not designed well. It can also be a source of corruption and may divert government resources from competing priorities. UBI, meanwhile, is simply out of reach by developing country governments like the Philippines because it will entail a very large expenditure.
Prime Minister Juha Sipilä’s conservative government of Finland implemented a BIG experiment from 2017 to 2018. Two thousand randomly selected unemployed persons received a basic income of €560 per month regardless of their other income and whether they actively tried to find a job or not. Results were disappointing and income recipients did not have additional work days or higher incomes than those in the control group.
In Madya Pradesh, India, Unicef and a women’s organization called SEWA gave a grant to households amounting to 40 percent of subsistence levels and found amazing results—improvements in nutrition, improvements in health and health care, improvements in school attendance and school performance by the children, with girls staying longer in school, and improvements in economic activities. An NGO, Give Directly and the Innovations for Poverty Action also found positive results in a similar project of unconditional cash transfer that they implemented in Kenya. There were other initiatives in Canada, Alaska and Mongolia. The last two were “dividends” given to citizens from revenues generated by mining operations but most of these were only for a limited period.
The Philippines has a long experience of various types of cash transfer —the Pantawid Pamilya, a conditional cash grant of around P1,400 per month, the Social Pension for Indigent Senior Citizens, around P500 per month, and the Unconditional Cash Transfer due to TRAIN effects at P300 per month. Current Philippine spending on social assistance is at 0.7 percent of GDP as compared to an average of 1.5 percent of GDP for developing countries. Resources-wise, obviously UBI will be unaffordable for the Philippines at the present time. BIG may be affordable but transfers should be given to families and not individuals. It should also be targeted and the delivery mechanism can use the existing infrastructure used by the Pantawid Pamilya.
In 2018, a family of five needed no less than P7,528, on average, to meet the family’s basic food needs for a month (the food threshold). On the other hand, no less than P10,727, on average, was needed to meet both basic food and nonfood needs of a family of five in a month (the poverty threshold). For a cash grant of P2,500 per month for a poor household, the government needs P72.5 billion or 2.1 percent of total budget for 2019 and around .41 percent of GDP. For P5,000 per month per poor household, it is P145 billion, 4.2 percent of total budget and .82 percent of GDP. If we want every Filipino to meet the food threshold, there should be around P7,500 per month transfer per family with a total cost of P217.5 billion, 6.3 percent of the total budget and around 1.23 percent of GDP. Which administration will have the political will to implement this BIG?
The author is Dean and Professor of Economics, School of Social Sciences, Ateneo de Manila University. This was mostly derived from his talk during the conference organized by the Philippine Social Security Association entitled, “The Future of Work and Social Security” held on November 15, 2019 at the Marco Polo Hotel, Ortigas, Pasig City.
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