Tax within the context of philanthropic giving
Last October I was privileged enough to be a little part of history. A long, sometimes dusty drive through the cool African morning had brought me and others from the GiveDirectly team to a small village in Western Kenya.
The village was visibly poor and drought-stricken: the houses were largely thatched and were surrounded by parched fields, the water and sanitation infrastructure was poor and people were inadequately clothed. But as we walked through the village, the welcome was warm and rich. Nearly 100 people had gathered for a baraza – a village meeting. They didn’t yet know that their village was set to become the launch-pad for the first true test of an idea that is gaining increasing interest around the world: universal basic income (UBI).
A universal basic income is a recurring, long-term, unconditional cash transfer paid to all members of a society and sized to meet basic needs. It is an old idea – with bipartisan advocates throughout history ranging from Martin Luther King, Jr. to Milton Friedman – but it has never been implemented, or evaluated, at meaningful scale. Yet interest is now surging, with basic income up for referendum last year in Switzerland; pilots being planned in Finland, the Netherlands, and Canada; and active debate in other countries ranging from the UK and Germany to India and Namibia.
Proponents view basic income as a potential solution to major social ills, from extreme poverty in emerging markets, to structural unemployment due to technological advances, to inefficiencies in government social programmes. Opponents worry about its impact on work and view it as unnecessarily expensive. The debate matters: trillions of dollars are spent on social safety nets each year. But a true, long-term basic income has never been implemented, much less rigorously evaluated. Most similar projects have run for only a few years, targeted select individuals rather than a comprehensive group, or provided payments insufficient to cover basic needs.
On that October morning, it was announced that every adult in the village would receive the equivalent of a month’s income (about £18) every month for the next 12 years. They would be part of a randomised control trial covering 200 villages to find out whether people receiving a minimum income that covers their basic human needs allows them to break the cycle of poverty. People’s reaction to that news was humbling. Amidst the singing and dancing, people started to discuss what they would do with the money when it came.
The first payments were made in late October, and have been paid monthly since. The money is delivered through a digital payment system, M-PESA. Credit is loaded on to mobile phones, which people can then withdraw through a growing network of local agents, much as we might use an ATM. The system is cheap to use and secure.
Although the preliminary results from the trial won’t be known until 2019, surveys and focus group discussions have provided some initial feedback. Recipients who were asked to describe whether and how the money they received had affected their lives described using the money in different ways. The flexibility and mobility of cash (as opposed to goods or services) allows recipients to decide how to invest the aid they receive in a way that addresses their specific needs.
For one person the biggest difference was being able to eat three meals a day. For another it was being able to expand their business. Some are buying more livestock, others fishing equipment while 80% of people said that they planned to save some of the funds to use later. Of those saving, most plan to use something called ‘table banking’, creating a group with other recipients where members will contribute a portion of their regular transfer and one member will receive the full sum each month. Focus group respondents estimated that residents have started three of these groups so far.
We don’t yet know what the overall impact of UBI will be, but this trial is already delivering some tangible changes in the lives of recipients. It is also serving to build the evidence that will help to answer one of the hottest public policy questions of the day.