Has the time come for Universal Basic Income?

Three factors point to the need for effective social protection mechanisms for the most vulnerable population to be created. They are: the advancement of automation and Artificial Intelligence eliminating jobs of low- and medium-skilled workers, which will produce higher structural unemployment and intensify the already growing social inequality; the likelihood of a severe environmental crisis as a result of climate change; and the possibility of other pandemics, a risk inherent to globalization, which is accentuated as climate change continues to unfold.

“Hence the necessity to have ongoing assistance mechanisms on hand for the neediest, they can be ‘increased or reduced,’ depending on the need, or a mix of both.”
Marcelo Medeiros, sociologist, and economist, and a visiting professor at Princeton University (USA).

“In the midst of a pandemic, a coalition is formed between different lines of social and economic thinking about the urgency of helping those who live paycheck to paycheck. Universal basic income (UBI) emerges as an axis of this economy with a humanistic view.”
Monica de Bolle, economist and a professor at the Johns Hopkins University School of Advanced International Studies (USA).

The two Brazilian academics reside in the USA and participated in the “ Has the time come for Universal Basic Income?” webinar, at the invitation of the FHC Foundation. Spain, one of the countries hardest hit by the novel coronavirus and which has adopted stringent isolation measures to combat the pandemic, is considering adopting a UBI program as soon as possible, which has an annual budget that can reach hundreds of billions of euros (read the report from El País).

‘In Brazil, ⅔ of the population is vulnerable to poverty.’

According to Marcelo Medeiros, one of the leading Brazilian scholars on social inequality, about two-thirds of the country’s population is vulnerable and can fall into poverty in times of crisis like the current one.

“Programs like Bolsa Família (Family Allowance, in English—a social welfare program of the Government of Brazil), although insufficient, give some protection to the poorest 20%, while the richest 20% have better jobs, protected by labor laws, or have their own business, in addition to savings. But there is a hole between these two extremes: 30% to 40% of the Brazilian population that has little or no legal or financial protection and is very vulnerable to crises,” he said.

He cited household maids (common in Brazil), as an example, especially those who get paid per day, and construction workers who manage to have a reasonable quality of life in a normal situation, but can face great difficulties all of a sudden. “At least one-third of Brazilians need to be systematically protected, but another third also need support, even if not permanent,” he said.

According to the Brazilian Institute of Geography and Statistics (IBGE) data released on May 6, half of Brazilians survive on only 438 BRL per month. In other words, about 105 million people have less than 15 BRL per day to satisfy all their basic needs. 

‘Brazil acted quickly, but aid will have to be extended.’

For Monica de Bolle, Brazil acted quickly in approving emergency aid to the neediest population in the amount of 600 BRL for three months. However, the healthcare and economic crises will not disappear fast and, to prevent the most vulnerable population from suffering even more from doubts and uncertainties, it is necessary not only to ensure that everyone entitled to the benefit receives it but also to extend the aid for at least six months as soon as possible.

Researchers at the University of São Paulo estimate that 32 million workers’ jobs and income are threatened due to the paralysis of economic activity and they will not be able to receive the emergency 600 BRL, either because they have a formal employment relationship or because of the restrictions of the law that created the aid, limited to two beneficiaries per household.

“In the medium-term, the question is whether emergency aid for the poorest will become constant. One possibility is to establish a permanent basic income of a lower amount, which can be increased in times of emergency,” proposed the senior researcher at the Peterson Institute for International Economics.

According to Bolle, one conceptual difference between UBI programs (studied and proposed for decades, but not yet applied on a large scale for a more extended period) and income transfer (such as Bolsa Família) is that, in principle, the former is not conditional, they have no counterpart, nor are they exclusively focused on the poorest. The Bolsa Família Program (originating from Bolsa Escola) requires that the children of the beneficiary families attend school and undergo regular monitoring at the health clinic.

The economist downplayed the idea, often raised by critics of these programs that transferring income to the most vulnerable parts of the population on a more permanent basis would result in discouraging the motive to work: “The human being has a need to be productive and play a role in society. Receiving a basic income will not provoke this natural incentive to disappear.”

Who will pay the bill?

“The answer is moral and political: Brazil’s Federal Government has the margin to spend less resources on the richest and more on the poorest segment of the population,” said Medeiros. Both agreed that the ideal is for UBI programs to be “fiscally neutral,” in other words, not to produce permanent Treasury deficits. Its adoption must be offset by a cut in other expenses and/or an increase in the tax burden.

The researcher from IPEA (Institute of Applied Economic Research) cited several subsidies or special lines of credit granted over time to specific sectors of the economy and society as an example of possible expense cuts, which end up benefiting mainly business owners, shareholders, and senior corporate employees. “With one hand, the Brazilian State helps the poorest, with the other it shakes hands with the richest,” he said.

Yet, according to the sociologist, the fundamental thing is “to invert the Brazilian tax pyramid to relieve consumption, production, and labor, and to encumber income and wealth.”

The speaker also criticized pejotização, or PJ, (when companies encourage a worker to operate as a private entity and invoice the company as a client like a separate business would do) in the working world. “In Brazil, it is a terrible idea to be a CLT-registered worker (due to the high discounts on the paycheck) and a great advantage to become a Legal Entity (whose burden of taxes and contributions is much lower). It is no wonder that more and more lawyers, doctors, consultants, and other types of professionals migrate to the PJ model, with losses to public treasuries, including the corrosion of the pension budget,” he explained.

Also according to the economist, the Bolsa Família program, which consumes just over 1% of Brazilian GDP, “is outdated and well below the country’s means, as we should spend at least 3% of GDP on a comprehensive program to guarantee a minimum income to all those who are really in need.”

Part of the program would be able to be ‘self-financed’

Although some proponents of UBI suggest that it should be universal, that is, include all citizens of the country, even the wealthiest, Bolle proposes that, in Brazil, it should be aimed at the almost 80 million Brazilians enrolled in the Single Registry for Social Programs.

The economist did what she called a “baker’s account”: for 80 million to receive a monthly income of up to 500 BRL, around 500 billion BRL would be needed annually or approximately 8% of the GDP (the 2019 GDP was 7.3 trillion BRL, but there should be a contraction this year). “It would be very costly, but in the end, it is a question of distribution to be arbitrated by the political system—the Executive and Legislative. It involves unified spending on other income transfer programs, cutting expenses for other areas, eliminating subsidies and waste, and reviewing the tax structure,” he said.

According to the economist, part of these resources would be self-financing. “Lower-income people generally consume everything they are paid. The increase in consumption by this portion of the population would benefit both production and services, impacting economic growth and revenue. This factor has to be taken into account,” he said.

‘Compatible with capitalism’

In addition to basic income, both speakers defended the importance of quality public healthcare and educational systems. For them, the market economy and capitalism itself are absolutely compatible with this social tripod.

“Capitalism is strong enough. The time has come for this secular wealth-producing system to be fit into new terms and conditions and be more just and supportive,” said Bolle.

“There is no doubt that the capture of resources by more privileged sectors of society – whether due to unbalanced income distribution, injustices in the tax system, or as a result of undue protection and advantages – undermines how the economy functions and ends up undermining capitalism,” said Medeiros.

‘Opportunity to rethink reform’

For Bolle and Medeiros, once the critical point of the pandemic has passed, it will be necessary to resume the structural reform agenda, but with a more balanced approach. “The ups and downs experienced by Brazil in the last decade taught us that fiscal responsibility must come together with social responsibility and vice versa. One cannot stand without the other,” said the Princeton professor.

“With everything that is happening in Brazil and the world, we have the opportunity to think about the more in-depth reforms that Brazil undoubtedly needs, to unite the social and fiscal axes,” concluded Bolle.

Otávio Dias, journalist, specialized in politics and international affairs, former correspondent for Folha in London and editor of the estadao.com.br website. He is currently a content editor at Fundação FHC. 

Portuguese to English translation by Melissa Harkin & Todd Harkin (Harkin Translations)