Basic Income: Resolving Wealth Inequality

By Yap Shiwen

Singapore’ Gini Coefficient is amongst the highest in the world, with a Credit Suisse report noting a figure of 0.739 for 2013, second to Hong Kong. Measured for wealth patterns within a country, it implies potentially serious social disruption ad developments, as economic mechanisms fail to distribute wealth equitably.

The minimum wage remains unpalatable to the pro-business People’s Action Party (PAP) government, for political and economic reasons. Economically, it can potentially result in greater costs than any benefits that can be derived from it, due to the economic inefficiencies it imposes on businesses, such as a high marginal tax.

Basic income presents an alternative in reducing income disparity, managing poverty and distributing costs across the population. Rather than imposing a marginal tax on businesses and other business inefficiencies via the minimum wage, basic income is supported by a broad tax base presents a bureaucratically efficient, economically elegant and socially effective solution.

Singapore’s Economy

Singapore’s overall market structure is an oligopoly. The main actors in Singapore are Government-Linked Companies (GLCs), with a high degree of influence and the ability to determine price and generate abnormal positive profits (Hushke,2010;Chakravarty & Ghee,2012). The case of the public transport sector fare increases implies cartel behaviour by oligopolistic agents within Singapore.

Singapore has always made use GLCs to develop it’s external economy, as well as maintain influence over strategic sectors within Singapore, such as telecommunications and defence sectors (i.e. Singtel & ST Engineering).

Asian GLCs and state-owned enterprises command a significant economic share within their home countries. A comparison amongst Asia-Pacific economies for the share of GDP revenue generated by GLCs illustrated the following:

China’s & Thailand’s: 14.5%
India:6.5%
Malaysia: 17.4%
Singapore: 48%
Australia: 3%
USA: 1.68%

Because of this, the government has immense influence in the economy, possesses leverage and is well-positioned to push through such a measure. It has the ability to evaluate and implement an effective system suited to the conditions of Singaporean society.

Basic Income

Basic income is social security measure where residents or citizen of a state receive monthly monetary sums unconditionally, either from the government or organisation able to ensure equitable wealth distribution.

Extensively studied and promoted through organisations such as the Basic Income Earth Network, it has gained praise and criticism. Criticisms cite it as disincentivising work, as well as the lack of reciprocity by recipients, due to the unconditionality.

Supporters highlight basic income as an efficient and effective measure, due to the broad tax base supporting it and lack of bureaucratic overheads, due to lacking means testing. Some benefits highlighted were balanced power in the labour market for workers, greater social justice due to a reduced need for charity and welfare and reduced crime due to less socioeconomic deprivation.

Proponents, such as economist and philosopher Hans-Werner Sinn and Philippe Van Parijs, have highlighted it’s potential benefits in research., while Nobel Prize-winning economists like Herbert Simon, Friedrich Hayek, Robert Solow, Milton Friedman, Jan Tinderbergen, James Tobin and James Meade have endorsed it as an alternative to minimum wage.

Generating mixed reactions in Switzerland, cases of basic income implementation are showing great promise. While basic income programs which are currently operational in Iran and Alaska, with past projects have made grounds for aspiring countries to follow their footsteps.

In Canada, the ‘Mincome Programme’, running from 1974 to 1979 in Dauphin, Manitoba, proved only two groups whose work rate dropped by a significant degree: new mothers who spent more time with their children and teenagers who dedicated more time to studies & further education. Another basic income project was conducted in the US with the Eastern Band of Cherokee Indians, with positive socioeconomic effects without inhibiting work and productivity.

Criticisms

A common criticism of basic income is the negative impact on work incentives and labour supply. The hours worked by recipients of the minimum income benefit in the Mincome Program were observed to decline by 5% on average, or 2 hours less in a 40 hour work week. The reduction was largest for dual-income households and negligible for single-income households. Similarly, the negative effects was higher as the benefit level increased.

However in rural Manitoba, only two groups were found to work less: new mothers and working teenagers. New mothers spent more time with their children while teenagers invested more time in schooling (Belik,2011). In general, work reduction was modest, with 1% for men in general, 3% for married women and 5% for unmarried women.

In Namibia, from 2008 to 2009 a pilot project was implemented in the Omitara village. The outcomes contradicted critics, with a post-project review finding economic activity was boosted, specifically in the proliferation of small businesses and other entrepreneurial activities. It also served to reinforce the domestic market through the greater purchasing power of households.

Basic Income Future?
The endorsement of economic experts, as well as case studies, indicate the potential of basic income to be a powerful tool for social egalitarianism and a simpler alternative to social welfare measures that are economically inefficient, like the minimum wage, or guaranteed minimum income with means testing and high administrative overheads.

Basic income generally preserved work incentive, as additional income increased personal resources. It funded training, relocation or other investments that made entrepreneurship and enhanced economic activity possible. Socioeconomically, the benefits were greater than the costs.

Any policy effectiveness is highly dependent on the socioeconomic and cultural context of communities, as well as their implementation model. So basic income for Singapore is certainly worth a look.

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Resources & Further Reading

Charavarty, V. & Ghee, C.S..(2012). Role of public sector in key Asian economies. The Edge: Your Window to Malaysia. (source)

Dolan, E. (2014). The Economic Case for a Universal Basic Income. EconoMonitor. (source)

Birnbaum, S. (2008). Just Distribution: Rawlsian Liberalism and the Politics of Basic Income (Doctoral dissertation, Stockholm). (source)

European CEO Finance.(2014).The case for and against unconditional basic income in Switzerland. European CEO. (source)

Hum, D. & Simpson, W. (2001). A Guaranteed Annual Income? From Mincome to the Millennium. Options Politiques aka POLICY OPTIONS-MONTREAL, 22(1), pp. 78-82. (source) 

Huschke, N. [aka Huschke, N.] (2010). Market Structures in an Economical Context. The Evolution of the Economic Market. Entelequia,11, pp. 215-240. (source)

IBP USA(2008). Singapore Investment & Business Guide, 5th Edition. International Business Publications, Washington, USA. ISBN 1-4330-4467-6. (source)

Jordan, B. (2010). Basic Income and Social Value. Basic Income Studies, 5(2), 5. (source)

Martin, M. (2011). International Perspectives on Guaranteed Annual Income Programs. Queen’s Policy Review, Vol. 2 (1), pp. 50-61. (source)

Tabatabai, H. (2011). The Basic Income Road to Reforming Iran’s Price Subsidies.Basic Income Studies, 6(1), pp. 1-24. Retrieved from source 1 and source 2