Could ‘basic income’ solve APAC wealth inequality?

Basic income triptych. Credit: Flickr/Russell Shaw Higgs

With its fragmented economies, diverse language and geographies, as well as differing developmental status, the Asia Pacific (APAC) region is often seen as a challenging regional economy for businesses to operate in. Another major issue is the wealth inequality seen across the region, especially in major economies like India, the Philippines and Indonesia.

The key takeaway from the economic success of most Western economies – at least from the 1960s to the early 1990s – was their reliance of middle-class consumption internally, in order to fuel their economic growth. Similar patterns of developments were seen in Japan and are being replicated to some degree in China, India and Indonesia.

Today technologies like robotics, automation, and 3D printing are disrupting established work paradigms and practices across the manufacturing and logistics sectors With cost-based competition and differentiation simply a downward spiral along the value chain, what is the most viable approach for government to adopt in preparing their people and economies for the knowledge-driven 21st Century? One of the solutions is basic income.

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Basic income

Fundamentally, the basic income – or citizens income – is a form of social security, where all citizens or residents of a state or jurisdiction regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.

Designed as a method of redistributing wealth, it would ameliorate the issues surrounded income disparities and wealth gaps in many states, as well as boost local consumption via the infusion of increased discretionary income to individuals and their associated households.

Advocated internationally by organisations like the Basic Income Earth Network (BIEN), it is a concept that has been advocated by various economists. At least one Nobel prize winner, James Meade, advocated a basic income scheme.

Other Nobel economists supported the related concept of a guaranteed minimum income, framed as a negative income tax. This group includes economists like Paul Krugman, Milton Friedman, F. A. Hayek, Herbert A. Simon, and Robert Solow. However, the negative income tax is not without its fallacies, though there are some compelling reasons to explore it as an option.

Gary Becker, a University of Chicago economist and disciple of Friedman, once commented to the City Journal: “Any state intervention, any income redistribution, creates disincentives and distortions. But if society decides that a certain level of redistribution must take place, the NIT is the best, the most minimally distorting, solution ever devised.”

While Switzerland has explored the issue of basic income as a public policy, the issue has yet to gain significant traction, being a highly divisive issue in the Netherlands.

However, the city government of Utrecht is enacting a basic income experiment to validate its viability. The apparent social and economic benefits of the basic income, as well as the increased local consumption – via the increased discretionary cash – that it fuels, are very powerful benefits.

Finland itself is experimenting with basic income as a method of reforming the welfare system, simplifying it and possibly boosting the administrative efficiency of their social security machinery.

However, such a system will need systems of governance to minimise abuse, as well as calibrations suitable to the socioeconomic conditions of the local jurisdiction, as is being argued by some in Noway. Criticism and concerns regarding the work incentive issue also need more robust responses.

A pilot project which involved implementing basic income grants in the state of Madhya Pradesh, India saw positive outcomes for the community. Guy Standing, who was involved with the project, cited the improved financial liquidity basic income facilitated as contributing to improvements in health, nutrition and the socioeconomic status of the community.

Another pilot project, conducted in Manitoba, Canada and implemented as the MINCOME project, found that health and education outcomes in the community involved improved. Every family received a minimum cash benefit. Participants who worked had their mincome supplement reduced by 50 cents for every dollar they earned by working.

While critics have noted that work disincentive elements are certainly in play in some schemes, a feature report in Vice noted”..the primary breadwinner in the families who received stipends were in fact not less motivated to work than before.”

There was some reduction in work effort; working hours dropped 1 per cent for men, 3 per cent for married women, and 5 per cent for unmarried women. But it was observed that mothers of young children wanted to stay at home longer with their newborns, while teenagers from economically deprived backgrounds were not under as much pressure to support their families, enabling better educational outcomes.

It should be noted the declines may be artificially low, due to awareness of the temporary nature of the guaranteed income. Decreases in hours worked may be seen as offset by the opportunity cost of more time for family and education.

A basic income could also spur entrepreneurship and improve public safety by reducing crime, which was the case in a Namibian village where a basic income pilot project was implemented.

The concept itself may be sound. However, implementing it in a sustainable manner will pose significant challenges, as well as require significant political continuity and will to see it through. It must also resolve concerns and criticisms surrounding work disincentive issues. However, most research to date suggests that basic incomes may be very viable.

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Endgame

Putting aside all ideology and ethics, it is in the enlightened self-interest of businesspeople, oligarchs and merchants to resolve issues of income inequality. Disparities in wealth and general income inequality breeds social disorder, resulting in civil discontent that can impact positive business outcomes.

A population with less disparity in wealth equates to a market where consumers have higher levels of discretionary income with which they can consume goods and services. This creates a virtuous cycle that generally tends towards positive social and economic outcomes – for society, the government and the business community of a nation.

While a minimum wage might be argued to serve a similar purpose, it increase overall business costs, acting as a marginal tax on local businesses. It also impacts the labour market and productivity. Similarly, one report suggests that circumstances exist where working more at the minimum wage is not financially worthwhile, with basic income representing a compelling and possibly superior alternative.

To date, practical assessments of basic income implementations tend to suggest that it encourages entrepreneurship – the formation of small business ventures – within the community; increased discretionary income and the corresponding consumption of goods & services; improved academic outcomes for students; and the enhancement of family life, due to mothers investing greater time in household-related activities.

The argument for a basic income has political, philosophical and economic dimensions, with variations across cultures as well. Convincing arguments for a basic income exist. However, a fundamental need exists for them to be backed by a defensible concept creating a better society, and implementing such a scheme sustainably.

Any state intervention in wealth redistribution creates market distortions and disincentives at some level. But the evidence from pilot projects suggests that an objective assessment of some form of basic income – as a public policy tool to mitigate wealth disparities in APAC nations and alleviate poverty – may be the instrument needed to raise APAC states to state of greater socio-economic parity with developed economies.

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.