Universal Basic Income: To UBI or not to UBI

February 12, 2022

by Sonny Africa

The catastrophic collapse of family incomes from lockdowns worldwide when COVID-19 hit has spurred interest in universal basic income (UBI) programs. It seems especially urgent now as socioeconomic statistics come in. Officially reported poverty increased in the first semester of 2021, the recently released December 2021 labor force figures set up the Duterte administration to have the biggest increase in unemployment in the post-Marcos era, and so-called job creation is virtually all in poor quality informal work.

Pope Francis visibly pushed for UBI last year, some lawmakers have tossed the idea around, and the lone Leftist presidential candidate in the May 2022 elections is formally proposing it. Institutionalizing more comprehensive and actually universal social protection is certainly long overdue. Current measures are fragmented and, outside of the Pantawid Pamilyang Pilipino Program (4Ps) of conditional cash transfers (CCTs) for the poorest four million or so families, underfunded.

However, this starts with the current and next administration making the clear policy choice that one of its key development objectives is ensuring that every Filipino has a minimum decent standard of living. This should be on a daily basis and especially in situations of distress, crisis and vulnerability such as the current pandemic.

Need for universal social protection

A universal social protection floor should include not just basic income security but also essential health care and minimum education and nutrition for children. The best and most sustainable sources of financing for this are the redistributive measures of higher income taxes and a wealth tax on the rich. IBON has been advocating for a billionaire tax for years.

There is already a rudimentary delivery mechanism for cash transfers that can be improved further. For social services, the government will need to let go of its overly market-oriented framework. Health care can’t be privatized and education shouldn’t be commercialized. Robust publicly-provided social services are still the best ways for affordability and accessibility over the long-run.

The crisis will worsen inequality especially with the government not taking any steps to mitigate this. The richest families and largest corporations will remain secure. MSMEs have closed permanently with adverse consequences on their owners and employees.

Many poor have been put out of work, face lower incomes from whatever odd-jobs they have, spend more on health care and education, and depleted any savings they might have had. The high unemployment also certainly means huge downward pressure on wages.

Free, affordable services more vital

The objective of a universal basic income (UBI) to ensure that everyone has a minimum basic income is unassailable. However, it’s probably inappropriate in the Philippine policy context and at its level of development.

For the UBI to be meaningful it will have to be large and such a large permanent cash transfer will likely have adverse policy consequences. The budget for this will easily run into the hundreds of billions of pesos.

Given the government’s overly market-oriented approach to social development, this could lead to a decline in public services where the UBI will be seen as the quick fix to development and universal social protection. Budgets for the public health system, education system, and welfare services will likely suffer and be increasingly turned over to the “efficient” private sector. The end result will be even more emaciated publicly-provided social services.

This kind of dynamic is already seen in the health sector. The government’s approach to universal health care is PhilHealth – e.g., a health insurance scheme essentially giving patients funds to pay for health care. The pandemic has drawn attention to how this privatized approach has resulted in an increasingly underfunded public health system and in insufficient health care capacity.

Public hospitals are underfunded because PhilHealth supporting the health expenses of its beneficiaries is supposed to incentivize private hospitals to provide this.  This has already resulted in more private hospital beds than public hospital beds.

Profit-seeking private hospitals however frown on excess bed and health worker capacity because, by financial calculations, unused capacity is excess inventory which cuts into profits. Private hospitals are also more expensive because of their profit premium – private hospitals are 3-4 times more expensive than public hospitals.

From a long-term development policy perspective, it makes more sense to focus on ensuring universal basic social services (including building public sector capacity to provide this) and modernizing the economy to create jobs and decent incomes (with vibrant agriculture and strong Filipino industry). Without these, UBI will just be a populist quick fix improving official ‘poverty’ figures but not really addressing structural constraints to national development.

Put another way, free or affordable social services, decent jobs and incomes, affordable transport and utilities, and comfortable homes are much better indicators of beating poverty than programmed UBI cash transfers.

At the micro level, a large UBI cash transfer may also inadvertently create a strong disincentive to work. This is less of a problem in a more advanced capitalist country of mostly formal work because minimum wage levels tend to be relatively uniform and high. In this context, a UBI recipient still has an incentive to work for the presumably greater earnings from getting a minimum wage or higher.

The Philippines however has such a high level of informality that earnings from odd-jobs or unregistered enterprises are on a continuum from nothing to around the minimum wage. In this context, it’s possible that a guaranteed UBI will discourage work at the lower and lowest ends of the scale with corresponding implications on overall economic activity.

A UBI can be productive but this cannot be a stand-alone effort and has to be just one element of a larger universal social protection scheme to avoid untoward consequences.