World

THE WELFARE QUESTION

The Universal Income Grant: An old idea that may have a new impetus in South Africa

There is a growing understanding and acceptance that we cannot continue to have large pools of un- or under-employed individuals with few resources while others take advantage of the benefits of the new 4IR economies, says the writer. (Illustrative image | source: EPA / Nic Bothma)

At this time of a new debate in South Africa about a guaranteed annual income, it is crucial to look back at the history of this idea and how this idea has been discussed and debated for decades elsewhere.

There was a moment in US political and economic life that surely stunned almost everyone watching it. In 1969, the newly elected president, Richard Nixon, endorsed something dubbed the Family Assistance Plan – the FAP.

Less than a year earlier, Nixon had run an acrimonious, hard-edged “law and order” candidacy for president. He had railed on ad nauseam about the rampant crime in the streets, those conniving welfare queens and cheats who were driving Cadillacs while receiving welfare payments, and all those students running riot on college campuses over the hapless forces of law and order. He called for tough tightening down on welfare as part of his promise of a clean sweep and it wasn’t even artfully disguised racist language.

Nevertheless, once in office, Nixon had fallen under the spell – intellectually at least – of a youngish and often-unconventional Harvard academic, Daniel Patrick Moynihan, whom he had appointed as a senior domestic policy adviser in the White House. Moynihan had built a reputation as an analyst of the contemporary urban condition (including his co-authorship of the best-selling, critically acclaimed volume Beyond the Melting Pot). As an academic, he was prepared to jettison political and intellectual orthodoxy, and, instead, to champion new ideas and approaches to resolve the challenge of the urban underclass.

Moynihan had become especially concerned about what he saw as the explosion in the 1960s of an African American underclass, now increasingly in the country’s cities, after so many had moved northwards in The Great Migration. But they were an urban ethnicity failing to follow the upward climb that had been achieved by other, earlier ethnic migrants to US cities. Instead, Moynihan observed, this underclass was now increasingly dependent on welfare, prone to be in single-parent, female-headed households, and where the young men were too often co-opted by life on the streets, the illegal drugs, the alcohol, and the crime.

These concerns were at the core of the so-called “Moynihan Report”, officially, The Negro Family: The Case For National Action, issued in 1965, when Moynihan had been an assistant secretary of labour in Lyndon Johnson’s administration. Moynihan had been tasked with designing the programmes of the newly-declared “War on Poverty”, with the goal of reversing urban decay and poverty in the US. Given that his report had significantly relied upon the argument that the female-headed black household had its roots in the pathologies of slavery – rather than seeing such households as bulwarks of resilience against yet deeper disasters – the report fuelled an acrimonious national debate in both political and academic circles about the circumstances of black American life.

Welfare programme payments in the US at the time were largely via the programme, Aid to Families with Dependent Children (AFDC). The beginning of this programme had been a public recognition during the Great Depression that economic deprivation could not simply be left to the generosity (or the lack of it) of local and state governments. Moreover, it came along when the idea of welfare was gaining an impetus from the Social Security pension system for the elderly, also first instituted in 1935.

In essence, AFDC provided a basic floor of aid, but only as long as the immediate household receiving aid did not include a father or male partner who should have been working, but who was not, and was thus deemed illicitly “living off” AFDC money ostensibly designed to aid children. In the mid-1960s, further programmes such as food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP) were established.

Medicaid for healthcare support for the poor, and various housing subsidies followed. After decades of struggle and sustained lobbying by labour unions and others, Medicare, the medical programme for the elderly, was also passed into law.

In his new position, Moynihan was looking for a larger, all-encompassing way to reform the entire Augean stable of the welfare system and to create a road to dignity and family stability he saw as crucial to family and social stability. He warmed to an idea of fundamentally reforming welfare along the lines of what had been proposed for years by economist Milton Friedman – the negative income tax (NIT). Friedman was clearly no left-wing social reformer or policy advocate eager to increase welfare entitlements. Instead, he was the leader of the “Chicago School” of economics, a strong right-wing, thoroughly monetarist, deeply conservative, sometimes nearly libertarian perspective – and the force of his ideas came through his teaching as well as in more popular books like Capitalism and Freedom.

For Friedman, the negative income tax was the way out of the growing tangle of welfare programmes and the unhealthy dependency it inevitably bred in its recipients. By contrast, the NIT would take an axe to all those social welfare laws, regulations, administrations and managers; substituting for all of it a straightforward mechanism that would simply deliver money to every poor family, via the existing national tax system. Simplicity. In essence, as long as your household income was still below a certain level and you filed a tax return, you received a payment – with the disbursements made on a sliding scale until you moved into the ranks of solid, tax-paying citizens.

At a certain point, a household started paying taxes, rather than receiving payments. (But the difficulty with any such plan, to critics, is that it never quite answers completely the problem of how to entice people into the workforce, if the only job they can get is little better than the NIT benefit they were already getting while they were sitting at home, watching television.) Under Friedman’s plan, benefits, keyed to the tax system, decline progressively the more a person earns – just as tax payments by individuals increase as a share of their earnings, the more they earn. That is the essence of the progressive income tax system and, in theory, it is simplicity personified.

Regardless of this potential financial hiccup, at least for Moynihan, here was a way out of both the mess of the welfare system and the social decay he was observing. Accordingly, he sold the plan, now christened the FAP, to Nixon and his new administration. But, despite initial enthusiasm, the president pulled back from pushing the plan forward in the face of opposition from conservative members in Congress, especially in the Senate Finance Committee, over the revolutionary nature of the idea, as well as the uncomfortable fact that with the Vietnam War continuing to consume vast federal resources, there was little fiscal room left in the federal budget to try anything as big as this was, and as untested and expensive as this wild and crazy idea was, despite Friedman’s imprimatur on the idea.

Amazingly, at around the same time, Moynihan was warming to the NIT, from an entirely different political corner, this time the far left, the case for a guaranteed annual income (the GAI) was also being made. A leading exponent for it was economist Robert Theobald. Born in India, he had spent the greater part of his life teaching in the US, and, because he styled himself an econo-futurist, he was increasingly focused on the question of whether or not work itself might be going the way of the dinosaur as a result of the inevitable, implacable, increasing automation of the economy, and thus the transformation of the country’s entire economic structure. All those pick and shovel, strong-back jobs that had been the first stop for many aspiring immigrants were now evaporating and machines were increasingly taking their place. If so, a guaranteed annual income would be the right – and indeed might be the only – appropriate response to assure every American had the money needed to survive and – hopefully – to thrive in the fast-approaching post-industrial age.

Theobald’s ideas naturally had roots in earlier writings, such as Edward Bellamy’s 1888 novel, Looking Backward, the first utopian novel that assumed the problem of work and welfare had been solved in the incoming century after its writing. Or a similar value could be found in the ideals in the Marxist approach, first enunciated in 1875: “From each according to his ability; to each according to his needs”, an idea that similarly assumed the real issue was the equitable distribution of the cornucopia of wealth, rather than the economic engine of wealth creation for a growing economic pie. People would work because they wanted to, not because they had to in order to survive.

Of course, a cruder idea of some kind of income floor has still deeper roots. It reaches back to Napoleonic times with the proclamation of minimum wages for some categories of workers in France, those dismal British workhouses Charles Dickens had described that were supposed to keep the poor from absolute starvation, and in welfare bodies that were a feature of some societies and nations – back as far as the Middle Ages in a few cases. A French visitor to America, Alexis de Tocqueville, in Democracy in America, had described voluntary welfare associations in the US when he had explored the country in the first half of the 19th century. But most of the world continued to be engaged in the primary activities of farming, grazing and transhumance, forestry and fisheries, until industrialisation began the movement of populations into cities. Until then, welfare was generally a family or local community affair, without much expectation of national government responsibilities.

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Mother Jones magazine recently assembled an inventory of proposals and trial runs of versions of a GAI, globally and historically. These include:

  • 1797: American Thomas Paine proposes taxing landowners to fund a £10 annual stipend for all people over 50 and a one-time £15 payment at age 21.
  • 1848: Belgian Joseph Charlier writes the first fully fledged proposal for a basic income. Virtually unknown until academics discover the proposal 150 years later.
  • 1918: Post-World War I, English Quakers call for a weekly “state bonus” for all citizens, although the proposal is rejected by the Labour Party.
  • 1934: During the Great Depression, Louisiana Senator Huey Long in the US proposes wealth confiscation to provide guaranteed income for all families. His “Share Our Wealth” movement is cut short by his assassination in 1935. That same year, President Franklin Roosevelt’s administration establishes the Aid to Families With Dependent Children programme.
  • 1940s: Economists Milton Friedman and George Stigler first propose a “negative income tax” (NIT).
  • 1962-63: Amid “The Great Migration” of black Americans to the North, leftwing social critic Dwight MacDonald argues for guaranteed income in a New Yorker article. Meanwhile, Friedman presses for an NIT in Capitalism and Freedom, and Theobald floats a “Basic Economic Security Plan.”
  • 1966: President Lyndon Johnson’s economic advisers argue the NIT “would be the most direct approach to reducing poverty.” By 1968, supporters include Martin Luther King Jr and many CEOs, along with many economists who sign a statement advocating a “national system of income guarantees and supplements”.
  • 1969: Once in office, President Richard Nixon is persuaded an NIT might be the best solution to the “welfare mess.” In a televised address in August, he presents the Family Assistance Plan, insisting it is “not a guaranteed income” because of the work requirements. But families headed by both working and unemployed adults are eligible, erasing the historical line between the “deserving” and “undeserving” poor. The bill stalls in the Senate Finance Committee as Daniel Patrick Moynihan tells Nixon that for Southern committee members, “it would very likely mean the end of political dynasties built on poverty and racial division”.
  • 1974: A trial in a small Canadian town in Manitoba provides residents an annual income of $15,000 for a family of four. The data is forgotten until 1,800 boxes of documents are found in a Winnipeg warehouse 40 years later.
  • 1976: As the Trans-Alaska Pipeline nears completion, Alaskans approve a measure to pay dividends to all Alaska residents. Beginning in 1982, paying around $1,150 a year to eligible residents ever since, the state oil fund is the first basic-income system in the US.
  • 1978: US government NIT trials involve 4,800 families in two cities. Evaluations find a small reduction in “willingness” to work but a large increase of divorce in two cohorts. In the meantime, President Nixon had pushed through two other programmes, Supplementary Security Income (for the old and disabled) and the Earned Income Tax Credit (a limited version of the NIT for the working poor).
  • 1997: Mexico launches a programme of conditional cash transfers (CCT) to poor households and Brazil and Colombia follow. Tens of millions of people worldwide now receive aid through CCTs funded by governments, aid organizations, and nonprofits.
  • 2013: Basic-income experiments begin in rural India, involving more than 6,000 individuals.
  • 2016: Switzerland becomes the first country to vote on, and reject, a national basic income. Opponents argue it would undermine the Swiss economy, but advocates take heart from the very fact of a referendum on such a plan. Meanwhile, Silicon Valley leaders like Elon Musk are making ever more dire pronouncements about the impact of AI on the workplace and employment. Further, startup incubator Y Combinator (Andrew Yang’s effort) announces a pilot project to distribute about $1,500 a month to 100 families in Oakland, California. And US-based nonprofit GiveDirectly plans a 12-year trial involving thousands of Kenyans.
  • 2017: Pilot projects are initiated in Finland, the Netherlands, and three cities in Ontario, Canada, where low-income residents will be paid $14,000 a year whether they work or not. It is time to be “bold,” says Ontario’s premier. And in September, Hillary Clinton reveals she had considered an “Alaska for America” basic-income proposal, funded by carbon and financial transaction taxes, but “couldn’t make the numbers work”.
  • 2017: Stockton, California, announces that to offset economic inequalities brought on by the tech boom, it will begin a municipal pilot programme known as SEED, or the Stockton Economic-Empowerment Demonstration. Some city residents may receive as much as $500 a month – not enough for anyone to subsist on, but enough to ease some financial burden.

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Since the abortive efforts in the 1960s to establish a nationwide NIT, FAP or GAI, there have been seemingly contradictory pushes in the US for both the expansion of benefits in certain categories of assistance, such as the recent “Medicare for All” demands, as well as the tightening of benefits such as the abolition of the old AFDC system and the establishment of time limits on welfare benefits under the AFDC’s successor programme, during the Clinton administration.

Now, with the most recent experiences of the pandemic and temporary emergency aid efforts in a number of countries, including South Africa, the crisis seems to have reignited discussion about guaranteed income systems. In the past several weeks, the South African minister of social development, Lindiwe Zulu – addressing growing dissatisfaction over rather chaotic efforts to establish emergency assistance packages for newly unemployed or furloughed workers, as well as those who have never managed to obtain anything more than occasional bits of informal work – has proposed a (temporary) guaranteed income.

According to media reports, the proposal now prepared is based on the realisation by her department that the needs for income support will clearly go beyond the half year now covered by the R350/month Covid-19 Social Relief of Distress (SRD) grant. Zulu’s department says it is now trying to sort out a proposal for people between the ages of 18-59 who have no income.

Or, as her department said, “This is a result of the introduction of the Special Covid-19 SRD grant that has revived the discussion of the feasibility of a Basic Income Grant (BIG) as was recommended by the Taylor Report in 2002”. Bloomberg reported:

“The ANC proposes paying a R500 monthly grant to those aged 19 to 59 who aren’t normally eligible for other aid would cost the state R197.8-billion a year. Between 50% and 60% of the money could be recouped by levying extra taxes on those with jobs.

“Reuters notes that a universal grant had seemed unlikely, given soaring public debt and following an emergency budget that proposed sticking to R230-billion in spending cuts. It added that the universal grant will target around 33 million people between the ages of 18 and 59.

“South Africa’s poverty line, including non-food expenses, calculated by Statistics South Africa, is around R1,270 ($76.04). That would put the annual cost at roughly R42-billion, calculations by Reuters found.”

Isobel Frye, director of the South African-based Studies in Poverty and Inequality Institute and a minimum wage commissioner, said the universal grant had been discussed by the government over the last 10 months, but the “Treasury had been reluctant to fund it”. Given current economic circumstances, they may be even less willing now, despite Minister Zulu’s announcement.

As things stand, now, there are many ideas regarding the impact of a GAI, just as there are few ideas about how to fund such a massive project in the face of overstretched budgets in many nations. Remaining, also, are questions of how such a programme will fit together with the current as well as emerging economies – as easy-to-find jobs have, seemingly, vanished, perhaps never to return. Simultaneously there is a growing understanding and acceptance that economies and nations cannot continue to have large pools of un- or under-employed individuals with few resources while others take advantage of the benefits of the new 4IR economies. Such a situation can only lead to greater instability politically and socially.

But what happens to humanity once the connection between income and work has been sundered? Will individuals find new ways to make use of their lives and that freed-up time? Will humanity live in a world where most people can relax and enjoy the flowers (or study the intricacies of ikebana) while others labour to keep it all running? Will HG Wells’ vision of the future for humankind in The Time Machine be the one we have to look forward to, then? DM

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