28th April 2018

Global Welfare State

Most developed economies have welfare states, which cover many sectors. The most common is of course the health service such as free of charge British National Health Service, free education and extensive social services helping people in need. Welfare state varies across the world in its funding and generosity, but the principle is always the same: people going through periods of ill health or unemployment receive direct support. That support is usually in-kind (e.g. low cost or even free social housing) and additionally in cash, e.g. child support allowance or winter fuel allowance. The assumption is that to address social ills, the government has to give help to the people in need and that costs money.The picture is very different for international aid, both development aid to economically underdeveloped countries, and emergency assistance after disasters or wars. Donor organisations and countries rarely hand out cash, generally doing so only in emergency situations. Most humanitarian aid comes from a huge and complex network of organisations delivering many different kinds of aid.

Depending on your view on international help, some people would see it as a very positive humanitarian assistance delivered by strongly motivated people, quite often volunteers to deliver expertise and well-targeted interventions to people who need it. Other people on the opposite political spectrum may instead talk about high salaries for international staff, incoherent investment programmes and long and expensive supply chains for delivering goods that could be supplied locally. As always, there is some truth in both views.

Without going too much into detail, I would like to sketch how some percentage of the money delivered to the recipient countries could be best spent helping directly individual people. You can call it a wish list combined with some ideas on how to minimize the suffering of people who are at the absolute rock bottom of the world’s personal income table like those with GDP per capita of less than $1,500 per annum (in International dollars).

Below is my wish list of measures that could be applied for the poorest countries financially supported by the GWRF. Each recipient country would have to be a member of GWRF and the EF Association Area (Zone 4). My assumption is that it would fully work from 2032 (two years after the creation of the EF), although if the GWRF fund is created earlier, some elements of the programme proposed here could be introduced on a pilot basis in some countries.

The cap for this kind of help for qualifying countries would be an annual GDP per capita equal to $1500 in 2016 (as in the table, although by 2032 the countries and the amounts, including the cap, may change significantly). All numbers are of course examples only. The programme would have to be properly costed before it is introduced on a full scale. Some countries might have already implemented some of these suggestions, such as a minimum living wage, in which case, the money due would be invested in the country’s projects. Here is my wish list:

  • Introduce unconditional Universal Basic Income (UBI) for all adult citizens. That income would equal 20% of the average wage but no more than $500 per annum (valued at 2032 level). It would be funded by GWRF – 70% and the recipient country – 30%.
  • There was already a similar programme ran in Namibia from January 2008-December 2009 by the Basic Income Grant (BIG) pilot project commenced in the Otjivero-Omitara area, about 100 kilometres east of Windhoek. All residents below the age of 60 received a Basic Income Grant of N$100 (about US $9) per person per month (about US $40 per average household, i.e. about $500 p.a. per household), without any conditions being attached. It produced some interesting evidence on the impact of UBI in developing countries as the final Report from that pilot project concludes: “The village school reported higher attendance rates. Children were better fed and more attentive. Police statistics showed a 36.5% drop in crime since the introduction of the grants. Poverty rates declined from 86% to 68% (97% to 43% when controlled for migration). Unemployment dropped as well, from 60% to 45%, and there was a 29% increase in average earned income, excluding the basic income grant. These results indicate that basic income grants can not only alleviate poverty in purely economic terms, but may also take the poor out of the poverty cycle, helping them find work, start their own businesses, and attend school” (Forum, 2008).
  • Introduce conditional Universal Supplementary Benefit for those in employment for at least 16 hours a week. It would amount to 20% of country’s average wage with a cap of $500 p.a.
  • Introduce minimum living wage which would be at 60% of the average wage. Unconditional and conditional Income would count towards the living wage
  • In countries with very high unemployment introduce massive job sharing, where for every job shared GWRF would pay extra 30% of the original wage of a full-time job
  • Introduce state pension financed from contributions (employee 30%, employer 30%, the state 40%)

Next: Financing Global Welfare State

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