Can Basic Income End Poverty?

Money

Last year, in “The Post-Work Society“, I wrote about whether a universal basic income would be a feasible option in a society where there aren’t enough jobs for everyone.

I was skeptical that this wouldn’t lead to a tragedy-of-the-commons problem – that the people who get the money would drop out of the workforce and leave everyone else to pick up the slack. But a test run in Kenya, at least so far, is offering evidence to the contrary.

The program is being run by the nonprofit GiveDirectly, which has an innovative approach to charity. There’s no dispute that many well-intentioned foreign aid projects end up being a useless waste of money, because far-away donors don’t know what local people need. When we try to dole out aid based on what we think would be best for them, too often, we just end up sending goods that they don’t need and can’t use.

The philosophy of GiveDirectly, by contrast, is appealingly simple. It argues that people are the best judges of their own needs, so why not just give money to the very poor and let them spend it on whatever would most improve their lives?

To put this plan into action, GiveDirectly hands out cash grants to every resident in extremely poor rural villages. So far, in Kenya and in a few other places that have tried this, the results have been resoundingly positive. The total amount of money, by Western standards, is tiny: just $22 per person per month. But the gains in people’s standard of living are large and immediate. Some spend the money on immediate needs, like buying food or patching a leaky roof. Others use it as seed capital to start small businesses that will hopefully give them a ladder out of poverty:

Fredrick Omondi Auma… had been impoverished, drinking too much, abandoned by his wife and living in a mud hut when GiveDirectly knocked on his door. He used his money to buy a motorbike to give taxi rides. He also started a small business, selling soap, salt and paraffin in a local town center; he bought two cows, one of which had given birth; and he opened a barbershop in the coastal city Mombasa.

When he got his money, Erick Odhiambo Madoho walked to the cow-dotted local highway nearest the village and took a matatu, a shared minibus, overloaded with 20 passengers, down to Lake Victoria. There he found an M-Pesa stand and converted his mobile money into shillings. He used the cash to buy the first of three rounds of filament-thin fishing line that he would need to hand-knot into nets to catch tilapia in the lake.

When the nets were done, he told me, he would rent a boat and hire a day laborer to work with him. He anticipated that his income, after costs, might reach as much as 2,000 shillings on a good day. I asked him why he hadn’t saved money for nets beforehand.

He shrugged, smiled and said, “I could not.”

But there was one other part that jumped out at me. The obvious next question is whether this approach would be much too expensive to replicate elsewhere. According to one founder, nothing could be further from the truth:

GiveDirectly wants to show the world that a basic income is a cheap, scalable way to aid the poorest people on the planet. “We have the resources to eliminate extreme poverty this year,” Michael Faye, a founder of GiveDirectly, told me.

This isn’t pie-in-the-sky optimism. According to one study, we have the resources to end extreme poverty now, not a few years or a few decades down the line. More shockingly, we could do it at a discount compared to what we’re already spending:

One estimate, generated by Laurence Chandy and Brina Seidel of the Brookings Institution, recently calculated that the global poverty gap — meaning how much it would take to get everyone above the poverty line — was just $66 billion. That is roughly what Americans spend on lottery tickets every year, and it is about half of what the world spends on foreign aid.

We could lift every human being out of extreme poverty with just half of what we currently spend on foreign aid. If this number is true, it’s a finding of enormous consequence.

For one thing, it would deprive many charities of their reason for existence. You don’t need a staff of experts to figure out what locals need most, or a complex infrastructure for acquiring and distributing goods, if the solution is just to send people money via their mobile phones. All that bureaucratic overhead could go away.

Granted, this approach requires us to give up the paternalistic concern that people given free money will squander it on booze or drugs, or that it’ll be lost to theft and corruption. It forces us to trust the poor and to believe that they know what they need – that their problem isn’t lack of moral fiber, just lack of money. These intuitions can be hard to set aside. I admit, I’m still skeptical of whether a basic income would work everywhere, especially in richer countries. But given these positive results, it seems like it’s worth trying in more places.

About Adam Lee

Adam Lee is an atheist writer and speaker living in New York City. His new novel, Arc of Fire, is available in paperback and e-book. Read his full bio, or follow him on Twitter.