The Simplest Way to Tackle Poverty

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Photo by Aka Tman
At various times the notion has been referred to as a universal basic income, basic income guarantee or negative income tax, but has always maintained one core element: that every member of society receives unconditional cash transfers that guarantee them a minimum income.

There was a brief moment in time when both the Republican and Democratic nominees for the U.S. presidency supported a guaranteed minimum income (GMI).

Economists and politicians from across the political spectrum had begun to warm to the idea in the 1960s as a poverty reduction measure—from Nobel laureate and free-market evangelist Milton Friedman to left-leaning economists like John Kenneth Galbraith. A petition in the spring of 1968 calling for its adoption was signed by over 1,000 economists, bolstering similar conclusions from multiple presidential and state commissions.

A Nixon-backed bill to adopt a modest form of GMI passed the House of Representatives by a wide margin in 1970 and 1971, and looked poised to sail through the Democratic-controlled Senate.

In Canada, similar momentum appeared to be building. The Special Senate Committee on Poverty concluded in 1971 that a GMI would be the most effective tool for lifting people out of poverty, as did the Castonguay-Nepveu Commission of Quebec. Even Robert Stanfield, leader of the official opposition Progressive Conservative Party, was supportive of the concept.

Then it all fell apart.

GMIs are appealing for reasons that span the political spectrum. At various times the notion has been referred to as a universal basic income, basic income guarantee or negative income tax, but has always maintained one core element: that every member of society receives unconditional cash transfers that guarantee them a minimum income.

This differs significantly from the current methods of establishing a social safety net, one that is conditional. Work requirements for welfare recipients are the most prominent example of this, while old age pension plans are age-restrictive. Other aspects of the social safety net involve the government providing specific services like health care.

But poverty, at its most basic level, is about a lack of money. It makes intuitive sense to solve this by simply giving poor people more of it.

Friedman made the conservative case for a GMI in his book Capitalism and Freedom, published in 1962. It centered on three points: It would supplant a bloated and inefficient welfare system, transfer spending decisions away from the government into the hands of private citizens, and allow people to get out of poverty gradually by not cutting off their benefits when they began to earn more money—escaping the “welfare trap.”

For people on the political left, it offered a simple approach to an intractable problem. “I am now convinced that … the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income,” Martin Luther King Jr. wrote in 1967. The egalitarian promise of equal treatment was also salient as second-wave feminism and the civil rights era dominated the political landscape. This brief moment of opportunity quickly disintegrated. The Nixon bill died in the Senate due to a mix of senators who either found it too weak or too extreme. Nixon’s Democratic opponent in the 1972 race, George McGovern, adopted a stronger GMI into his platform but lost badly. The Watergate scandal soon engulfed all legislative action and put the issue on the backburner.

Four pilot projects launched by the Nixon administration were carried out throughout the 1970s, but by then political support had largely dissipated.

In Canada, the federal government under Pierre Trudeau joined with Manitoba in 1974 to undertake what would become the most extensive study of GMIs conducted to this day called Mincome. But a change of government at the provincial and federal levels meant the project was mothballed in 1979 without much analysis.

The most relevant part of the Mincome experiment encompassed the city of Dauphin, Manitoba, with about 10,000 residents. It’s the only GMI experiment in North America that involved everyone in the town being eligible for benefits. About one-third of the town qualified for a GMI because their family income fell below the poverty line, but there were no other conditions attached.

The findings from Mincome would have stayed buried if not for the dogged determination of a community health economist at the University of Manitoba named Evelyn Forget. She dug through 1,200 unopened boxes 30 years later, and began to analyze the data.

She found that hospital and family doctor visits plummeted 8.5 per cent compared to a nearby town being used as a control group—largely due to improved mental health outcomes. Using 2011 estimates, Forget calculated that such a reduction in hospital visits alone across the entire country would account for $4 billion in annual savings.

Forget also discovered that Mincome resulted in a slight reduction in the number of hours worked, but for reasons that would pay social dividends later. Mothers took the opportunity to extend their maternity leave, while the high-school graduation rate among teenage boys increased significantly.

In the United States, the findings were not as conclusive. The studies were smaller and monitored fewer indicators, but also identified some evidence of improved health outcomes. A 13 percent reduction in work hours was found overall, but the cause was not sufficiently explored.

Forty years later, the idea has resurged in the world among policy circles as a viable solution to poverty. Various Latin American countries have adopted a version of Mexico’s cash transfer program for poor households, first instituted in 2002. These programs don’t technically qualify as GMIs because they are conditional, but they’ve stayed away from work requirements and instead insisted that children remain in school and visit health clinics. As with Mincome, programs like the Bolsa Família in Brazil have shown strong evidence of better education and health outcomes as a result of poverty alleviation.

The idea has also taken on new import in western countries following the financial crisis, galvanized by a growing focus on wage stagnation, income inequality and stubborn poverty levels.

Finland’s national social insurance provider is drawing up plans for a GMI experiment in 2017, and the Dutch city of Utrecht is planning to begin a GMI pilot project in January 2017. Momentum slowed a bit this June, though, when Swiss voters nixed a proposal to adopt a generous GMI that would have allocated 2,500 Swiss francs ($2,560) a month to every citizen. A similar revival in the United States does not appear on the horizon either. Even Democratic presidential candidate Bernie Sanders’ platform detailing the ambitious expansion of the social safety net did not include a GMI.

But in Canada, it appears as if the stars are aligning once again.

Ontario’s 2016 budget includes funding for a basic income pilot project, and Quebec’s employment minister recently announced a study on the issue as well. Jean-Yves Duclos, federal minister of families, children and social development, has also expressed interest, as have the mayors of Calgary and Edmonton. Federal conservative finance critic Lisa Raitt wants the House of Commons finance committee to study the issue.

There will no doubt be rigorous disagreement about whether GMIs provide a disincentive for working and how significantly social services would need to be restructured.

Let’s just hope the findings don’t get abandoned in a basement again.

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