Guaranteed income: an idea worth rethinking

Posted on November 28, 2010 in Social Security Debates

Source: — Authors: – Business – The idea of a guaranteed annual income for all Canadians has long provoked a knee-jerk reaction of rejection from many people.
November 27, 2010.

Such handouts, the assumption runs, would create a work-resistant underclass prepared to milk the state for all it’s worth. But the time has come to rethink the idea, without preconceptions.

A guaranteed annual income (GAI) might well allow us to sweep away the burdensome, confusing, inefficient, intrusive, overlapping tangle of current federal and provincial programs for income support. And a number of pilot studies seem to suggest that the disincentive to work is not enormous, while immediate benefits, notably in improved nutrition and health, are significant for the individuals and for the whole economy.

The idea of a GAI cuts across traditional left-right lines, but has never quite reached critical mass. In recent months, however, a number of proposals have suggested anew that a GAI might in fact be the best solution to Canada’s seemingly intractable problems of poverty.

“We spend $150 billion each year in federal and provincial transfer payments to individuals,” said Conservative Senator Hugh Segal, a GAI advocate, citing 2007 data. “So how is it that there are still millions of Canadians weighed down by poverty?”

The World Bank also thinks Canada should answer that question. Canada could well afford to establish a stable income platform under every citizen, the World Bank says. We already have a minimum income for seniors, and this month, a House of Commons committee proposed a guaranteed basic income for Canadians with disabilities. Quebec has also considered a guaranteed income, to start at $12,000.

The problem with revisiting this much-discussed idea now is that governments are in no position -as we keep saying in this space -to take on new spending commitments. But it’s not clear that total spending would have to increase, given the simple efficiencies which should be possible with a GAI.

The key question is: Does it work? Will a guaranteed annual income produce better results? The answer seems to be yes. U.S. social scientist Joseph Hanlon, who has studied direct cash transfers in some 45 countries, has written a book entitled Just Give Money to the Poor. Cash transfers, he says, are “not short-term, emergency ‘safety nets’ or charitable donations; they do not assume poor people are poor because of stupidity and cupidity.”

A World Bank study on grants given with no strings attached to poor households in Mexico found that the families invested 12 per cent of their “Opportunities” grants in agriculture, trading or other small businesses, generating a rate of return of 18 per cent. This was well above the bank’s expectations. There are other such findings.

This is an idea that needs serious consideration -and careful cost estimation. Intractable social problems, poverty not least among them, demand new approaches. This one, which Segal calls an investment in “human empowerment,” demands full and open-minded investigation.

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