Dear Kindred Spirits,
Sorry to intervene in the debate on subsidies and cash transfers, which in India has been an ideological one
I have argued in several papers that we need to cut through the impasse by differentiating between (i) subsidised commodities, including fuel and food, (ii) cash transfers that are usually targeted via means-tests as well as selective and conditional, and (iii) basic income, which are not targeted, universal and unconditional. We in BIEN (which anybody can join) favour the third route.
We have also been conducting pilots using the third variant. The belief that they are inflationary stems from prejudice or one-sided economic reasoning. Some people are hostile to cash transfers for ideological reasons, and therefore slam them whatever the findings. But we found in a pilot in Namibia that the influx of basic incomes into the villages led to a sharp supply side reaction, which critics of cash tend to ignore.
Clearly, a lot does depend on the elasticity of supply of basic goods and services. In Namibia, within months, villagers were buying more seeds, fertiliser and tools, planting more food, repairing equipment, etc. Production of food increased more than demand, so prices tended to fall. As productivity rose, diets improved. As the lowest-income villagers had some money, the previous tendency to pilfer food from gardens virtually stopped. That in itself encouraged people to plant more vegetables, knowing that they had a better chance of eating them in the end!
In short, the elasticity of supply cut of any inflationary effect. Basic Keynesianism, really. It may not always be like that, but in most rural communities that is likely to be the case. Where there are expected to be supply bottlenecks, an interim policy could be combined with the payment of basic incomes, which must be modest regular amounts rather than 'capital grants' to work optimally.
In our much bigger pilots in India, almost identical outcomes emerged. People with the basic income felt more in control. They have been turning away from the low-quality subsidised food. Instead of the stale grain and rice, often adulterated by stones in the sacks they acquire from the ration shops, they have bought fresh vegetables (which are not subsidised under the PDS scheme) and have improved their storage facilities for the improved crops they have been growing. Own-account farming and non-farm work have increased significantly.
No policy is a panacea. But a paternalistic subsidy system is certainly not development as freedom. It is hugely costly, it distorts markets, it is prone to systemic corruption and literally stunts growth. It is definitely not the same as a basic income scheme.
As for the case of Iran, the main cause of inflation has been sanctions, which have choked access to goods. Not to mention that and to claim that the conversion of oil subsidies to a virtual basic income was the cause of inflation is neither fair nor objective. My good friend Hamid Tabatabai has done some excellent papers on this.
This is a great time for social protection reform and we should all be delighted that one of our circle is now director of social protection in the ILO. Good luck, Isabel.
And to all!
Dr Guy Standing
Professor in Development Studies, School of Oriental and African Studies,
University of London.
Co-President, Basic Income Earth Network (BIEN)
www.basicincome.org
Mob: +41 (0)79 647 6379
Email: GuyStanding@standingnet.com
Website: www.guystanding.com
Latest book: The Precariat: The New Dangerous Class (Bloomsbury Academic, 2011)
The Precariat on Facebook
Indian basic income pilot video
Sorry to intervene in the debate on subsidies and cash transfers, which in India has been an ideological one
I have argued in several papers that we need to cut through the impasse by differentiating between (i) subsidised commodities, including fuel and food, (ii) cash transfers that are usually targeted via means-tests as well as selective and conditional, and (iii) basic income, which are not targeted, universal and unconditional. We in BIEN (which anybody can join) favour the third route.
We have also been conducting pilots using the third variant. The belief that they are inflationary stems from prejudice or one-sided economic reasoning. Some people are hostile to cash transfers for ideological reasons, and therefore slam them whatever the findings. But we found in a pilot in Namibia that the influx of basic incomes into the villages led to a sharp supply side reaction, which critics of cash tend to ignore.
Clearly, a lot does depend on the elasticity of supply of basic goods and services. In Namibia, within months, villagers were buying more seeds, fertiliser and tools, planting more food, repairing equipment, etc. Production of food increased more than demand, so prices tended to fall. As productivity rose, diets improved. As the lowest-income villagers had some money, the previous tendency to pilfer food from gardens virtually stopped. That in itself encouraged people to plant more vegetables, knowing that they had a better chance of eating them in the end!
In short, the elasticity of supply cut of any inflationary effect. Basic Keynesianism, really. It may not always be like that, but in most rural communities that is likely to be the case. Where there are expected to be supply bottlenecks, an interim policy could be combined with the payment of basic incomes, which must be modest regular amounts rather than 'capital grants' to work optimally.
In our much bigger pilots in India, almost identical outcomes emerged. People with the basic income felt more in control. They have been turning away from the low-quality subsidised food. Instead of the stale grain and rice, often adulterated by stones in the sacks they acquire from the ration shops, they have bought fresh vegetables (which are not subsidised under the PDS scheme) and have improved their storage facilities for the improved crops they have been growing. Own-account farming and non-farm work have increased significantly.
No policy is a panacea. But a paternalistic subsidy system is certainly not development as freedom. It is hugely costly, it distorts markets, it is prone to systemic corruption and literally stunts growth. It is definitely not the same as a basic income scheme.
As for the case of Iran, the main cause of inflation has been sanctions, which have choked access to goods. Not to mention that and to claim that the conversion of oil subsidies to a virtual basic income was the cause of inflation is neither fair nor objective. My good friend Hamid Tabatabai has done some excellent papers on this.
This is a great time for social protection reform and we should all be delighted that one of our circle is now director of social protection in the ILO. Good luck, Isabel.
And to all!
Dr Guy Standing
Professor in Development Studies, School of Oriental and African Studies,
University of London.
Co-President, Basic Income Earth Network (BIEN)
www.basicincome.org
Mob: +41 (0)79 647 6379
Email: GuyStanding@standingnet.com
Website: www.guystanding.com
Latest book: The Precariat: The New Dangerous Class (Bloomsbury Academic, 2011)
The Precariat on Facebook
Indian basic income pilot video
