The Basic Income Grant Experiment in Namibia

by Ingrid Robeyns on June 2, 2009

One could debate and dispute whether implementing a Basic Income Grant would be a good idea in affluent post-industrial societies, as we did (here and here and here) at CT before. Yet for developing societies with serious problems of persistent poverty, it seems to me like a very good idea indeed. One could add as a (desirable) condition that such a society should be able to internally generate the money to fund such a BIG (that is, there must be a big enough section of rich or middle class people whose consumption or income can be taxed). The idea may work wonderfully in countries like South Africa for example. If you give poor South Africans a relatively tiny BIG, they are not given welfare payouts that enable them to sit back and rest (as the critics may have it), but rather people are given some very basic means to take their lives in their own hands: money for food, for basic health care, for school fees, for a roof above their head, and perhaps to set up a small business. No more begging for food needed. The amounts can be tiny and may seem like pocketmoney to people in the global North, but as we know from the relative success of microcredits, poor people can change their lives (and those of their children) when they have small amounts of money.

There is now empirical evidence supporting this line of reasoning, coming from Namibia, where in 2004 a coalition of churches, trade unions, NGOs and AIDS organisations decided to run a pilot project to figure out what a small BIG would do to the lives of the extreme poor.

The BIG Coalition raised money which allows them to give a BIG of 100 Namibian Dollars to each individual which was registered in July 2007 as living in the Otjivero-Omitara area, about 100 kilometres east of Windhoek (pensioners were excluded as they get an unconditional state pension). The amount is small, since the food poverty line stands at 152 Namibian dollars per capita, whereas the poverty line counting “the severely poor” stands at 220, and the official poor are all those living on less than 316 Namibian dollars per month.

As the study of the effects of the BIG after one year clearly demonstrate, the effects are strikingly positive. The percentage of those falling below the food poverty line has dropped from 76% to 37%. The percentage of those being able to get a job or become successfully self-employed has increased from 44 to 55%, and the amount of non-BIG income per capita rose from N$ 118 to N$ 152 (indicating a virtuous economic growth cycle). The number of underweight children has dropped from 42 to 10%. School attendance has gone up, and teachers report that the children are better able to concentrate. The health clinic receives many more patients (for illnesses that would otherwise not have been treated). Average household debt fell from N$ 1,215 to N$ 772. Crime rates fell by 42%, and there is no evidence that alcohol-abuse (which is a serious problem in many poor areas) has worsened. (Further details are in the report, together with interviews documenting the experiences of the people who have been given the BIG).

The authors claim that the funds needed to implement this across Namibia could be raised within the existing fiscal constraints, and that thus the only remaining question is one of political will. To me their story made complete sense and I found the empirical evidence compelling. Yet am I overlooking something? Some to-be-expected unintended negative consequences when this would be implemented on a larger scale, for example?

{ 27 comments }

1

Kang 06.02.09 at 8:18 am

Insightful write-up here. I suppose your reservations about this scheme which appears to be working at the onset is maybe based on track record? I guess we shall see, what we shall see. As for the concept itself, it does indeed seem very sound, since it is addressing the root of the problem, ie by supplying the exact amounts which the people require for basic means, and to get their lives moving.

2

Ingrid Robeyns 06.02.09 at 8:47 am

Kang – Yes, you are right. It almost sounds too good to be true, so that’s why I wonder whether there is something I am overlooking. I hope this is not the case, since it would mean that the Namibian BIG coaltion may have found a development recipe that really works (even though, of course, it won’t solve all problems – there will always be a need for a mix of policies to stimulate human development).

3

Greg Ball 06.02.09 at 9:17 am

To address your final question – a Georgist analysis suggests that if this was implemented on a larger scale, it would tend to drive up rents. This would in turn suck the BIG out of the pockets of the poor and into those of landowners.

This doesn’t happen in the small scale experiment because the poor individuals in the rest of Namibia *not* receiving the BIG don’t have any more money for the landlords, so the general market can’t rise. As a first approximation, the Otjivero-Omitara area prices won’t rise because (a) to get the BIG you had to register in July 2007, so nobody can start getting the BIG just by moving into the area; and (b) if you are getting the BIG, you keep it even if you move away, so nobody loses the BIG by moving out. Therefore the extra income is not creating extra demand for local land.
(More accurately, there will be some extra demand arising from the economic growth in the area, probably enough to soak up a reasonable fraction of the N$34 non-BIG per capita income.)

Distribute the BIG to the whole country, and general market rents will soak up essentially all of it. Non-BIG income per capita will not change much at all – no virtuous cycle effects expected.

4

The Creator 06.02.09 at 9:30 am

Valuable post. However, it would be even more interesting if someone looked at the Social Grant system in South Africa, where the state provides modest child support payments and disability grants (including for people with HIV/AIDS) to something like five million people. It seems to me that this could well be compared with the very small-scale Namibian experiment.

But if anybody really wants to do it, they’d better hurry, since there are indications that our Social Grant system may be under threat from the backers of the new government (possibly because the money goes straight to the people instead of being filtered through complex bureaucracies or — better still — private banking services) . . .

5

Ano 06.02.09 at 9:58 am

This BIG story matches well with the idea behind “The Persistence of Poverty” by Karelis: when income is low enough that the marginal dollar alleviates pain (rather than giving pleasure, as at medium and high incomes) there is increasing marginal utility, so a BIG would increase the desire to work and earn income.

6

Tracy W 06.02.09 at 12:43 pm

Biggest problem I can see is that the evaluation, judging by the link, was carried out on behalf of the BIG coalition, not independently (this is of course far better though than never evaluating charity work at all).
It looks promising though.

7

JoB 06.02.09 at 1:24 pm

School attendance has gone up, and teachers report that the children are better able to concentrate

I’m sure for it to work there have to be clear controls ensuring that this is not just a side effect, but the main objective. The time gained in not-struggling for food needs to be invested in some personal development.

An issue for the study actually might be that, given the source of the project, beneficiaries have been pre-selected in ways that make them non-representative of the average Namibian (it need not be a conscious pre-selection, maybe only those already close to church really got wind of it, or zillions of other reasons). Although I think this is the way to go (not only in Namibia), I have my scepticism about it (but let me discredit them for most here by admitting I still believe that the work of Malthus was very worthwhile and insightful).

8

Pete 06.02.09 at 2:57 pm

The time gained in not-struggling for food needs to be invested in some personal development.

Why?

9

Jonathan Edelstein 06.02.09 at 3:05 pm

Greg Ball:

Has there been any study of whether the effect you mention can be controlled by rent stabilization laws? I would assume that the current rents in Namibia are profitable, so rent stabilization would simply place a ceiling on profit rather than requiring properties to be operated at a loss. It would seem to me, as a non-economist, that this could keep the BIG money in the recipients’ hands without causing many properties to be taken off the market. Or, in this event, would the price of food or some other necessity take the place of rent by rising to absorb the BIG money?

10

JoB 06.02.09 at 3:33 pm

Pete, because nobody would be helped by yet another bunch of people dependant on charity. A basic income is great but to continue to settle for it needs to be a conscious decision (implying a certain level of education and information).

But you were joking, weren’t you?

11

Kathleen Lowrey 06.02.09 at 3:38 pm

I suspect Greg Ball’s analysis would be correct, if extended to the whole country. I’ve thought about this a fair amount in my field site (I’m an anthropologist) in rural lowland Bolivia. Individual families tend to use occasional windfalls (which include my field stays) really well: they invest them in home improvement, livestock, and basic necessities. But when a couple of big development projects came into the community, and hired mostly men in multi-year salaried positions from one village in particular, what happened was that life in that village just became “expensive” in various ways such that there wasn’t a general rise in well-being there. I am not against basic income grants, and this Namibia result sounds really exciting, but I think to be successful at a grand scale BIGs would have to be combined with social-structural investments. Certain kinds of goods have to be created collectively in ways that (I suspect) BIGs can’t accomplish alone, and which BIGs might even undermine if not matched with collective forms of planning/investment.

12

Pete 06.02.09 at 4:14 pm

#10: no, I was entirely serious. It’s not means-tested and it’s for a tiny amount. It’s not a disincentive to work. What it will mean is a transfer from time-struggling-with-cashflow-emergency to productive time.

13

Glen Tomkins 06.02.09 at 5:50 pm

Theologically unsound

There may be nothing at all empirically wrong with this scheme, though only time will tell for sure, by removing the possibility that other incidentally contemporaneous factors were responsible for the observed beneficial effects.

But empirical results aren’t the problem that the positive results of such a program would face getting itself believed in our society. Just conducting the experiment goes against axioms and postulates of the current state religion, and so the results cannot be taken seriously until and unless that religion is overthrown. It’s the same situation as that cardinal of the Church who refused to look through Galileo’s telescope for fear that he might see empirical evidence questioning the reigning theology of the day. “Everyone” knows that you create jobs and wealth in a society by getting more money to the rich, because they’re the “job creators”. Look, if this myth can survive the plain, palpable evidence provided by the current financial crisis in our own society that the rich use their excess money seeking rent rather than creating jobs, there is approximately zero probability that devotees of our state religion will be convinced to the contrary by this experiment in some far-off society that they don’t understand nearly as well as our own. The non-religious already know that you improve an economy’s ability to deliver what everybody really needs by directing money at what everybody really needs, and away from the rent-seekers.

The religious simply won’t look through your telescope. “Serious” people will be sure that the beneficial effects were caused by incidental contemporaneous factors, like, say, that the govt of Namibia had the great good sense to sign away oil rights to some international conglomerate at about the same time. That sort of thing is much more likely, theologically speaking, to lift all boats, even if the mechanism is a bit hard to trace here on earth.

14

Paul Nollen 06.02.09 at 6:37 pm

As far as Alaska is concerned there is, to my knowlegde, no influence known on rent as result of a basic income.
the work of Scott Goldsmith, University of Alaska, Anchorage is the only research on the subject I know of.

Quote:
“The purpose of this paper is to provide a short introduction to the Alaska Permanent Fund Dividend Program—a method for returning a portion of the revenues from petroleum development to the citizens of Alaska as a direct cash payment. I will briefly touch on 5 topics— the mechanics of the Dividend, why it was established, its history, its economic, political, and social effects, and the future of the Dividend.”
http://www.iser.uaa.alaska.edu/iser/people/Scott/Goldsmith_Web_Page_Body_2.htm

Kind Regards

Paul

15

Paul J. Reber 06.02.09 at 6:50 pm

In theory, if the rent market were efficient, the BIG would cause a relatively small increase in rents due only to a slight increase in demand (as some slight-less impoverished people spread out to new dwellings instead of staying all together to save money) — prices are supposed to be set by supply and demand and the BIG doesn’t change that directly.

Practically, of course, landowners would collude to raise rents together and essentially extract the BIG from the poor. Unless some other form of corruption got to the money first. One of the problems of scaling a program like this is that the more people you are planning to support, the more money is involved and the greater temptation for the corrupt fixers and thieves to come after it.

The great frustration of Africa is the difficulty of administering helpful programs like this. Without institutions and social structures to effectively distribute help, a lot of the financial aid to Africa gets stolen. And yet, how do you improve the institutions in an impoverished country in Africa without financial aid?

16

Mark 06.02.09 at 7:53 pm

Thanks for posting this, Ingrid. The situation with cash transfers in countries like South Africa and Namibia is one to watch, I think.

Paul, your points about Africa as a whole are certainly worth debating. They are not particularly relevant to Namibia, however, which like South Africa has a relatively well-functioning state bureaucracy and which, again like South Africa, suffers more from extraordinary national inequality than from extraordinary national poverty.

17

virgil xenophon 06.02.09 at 8:14 pm

Isn’t this plan remarkably similar to the Financial Assistance Plan (“FAP”) proposed by Monyihan under a Republican President, Nixon–and shot down for a variety of reasons, but mainly Southern farming interests who were afraid their low wage-based economy would suffer as a result?

18

Kragen Javier Sitaker 06.03.09 at 9:13 am

Very heartening news.

It seems that the cartel ascribed to landowners in some of the previous comments would be sufficient to extract any excess value whatsoever from the peasantry — and so they would have no way out of their poverty other than, perhaps, land reform, or breaking the cartel. But while this situation has obtained at various times and places, it does not obtain always and everywhere. Do the commenters have some specific knowledge that it currently obtains in Namibia?

If such a powerful cartel does not, in fact, exist, then presumably rents would go up, just as they do in cities in the United States that have better-paying work available, but not enough to extract the entire BIG. Even a modicum of competition in the housing-rental market would suffice to permit the tenants to retain a substantial fraction of the BIG.

19

reason 06.03.09 at 10:26 am

I think immigration is the killer problem – will enough people migrate into the area to qualify for the plan to make it financially unviable.

20

reason 06.03.09 at 10:33 am

Yes, and think that is a danger that the benefits go to landlords, and some of social investment is needed in order to avoid that (perhaps even direct investment in public housing).

21

reason 06.03.09 at 10:35 am

virgil xenophon…
curious – because surely a basic income should be GOOD for low wage economies, as it amounts to a wage subsidy (that works for instance by reducing the incentive to emigrate).

22

StevenAttewell 06.03.09 at 5:15 pm

Sounds rather interesting. I wonder what the impact would be on the internal market in Namibia or any other developing nation (which are often very export-dependent).

And Virgil: the story of the FAP is very complicated; Nixon’s FAP was killed both by your standard conservative interests, but also by liberals and the National Welfare Rights Organizations – because they thought it didn’t go far enough, and they thought that they could get a better bill through when the Democrats won the presidency in 1972. It’s a strange characteristic of late 60s and 70s American politics – you had very liberal Congresses by today’s standards, but the big ticket legislation kept getting sidetracked by people’s mistaken assumptions about what would happen in national elections.

23

Pete 06.04.09 at 8:54 am

In re: landlords, I suspect that a lot of the very poor in the third world are living in shacks with no legal status that they built themselves, and pay no rent. Hernando de Soto’s books are interesting on this.

24

Greg Ball 06.04.09 at 9:53 am

Jonathan Edelstein:

Rent controls are a fairly drastic interference with market mechanisms. I claim no expertise but I believe there are all sorts of ways that they get subverted. For example, landlords will allow buildings to fall into disrepair while still charging maximum allowed rental. In the US, you often find that tenants lucky enough to get rent-controlled apartments then illegally sub-let them, creaming off a profit – thus real rental prices are on a black market. (Those controlling the apartments are then, economically speaking, land-owners.)

If you really do succeed in reducing rents you may drive a shift from renting to ownership – then the true rent is the “imputed rent” reflected in the property price. (This is more relevant in a society with a level of home-ownership which is already fairly high, unlike many third-world situations.)

To various commenters above; it isn’t necessary to have a land-owner cartel. The efficient operation of the land market is sufficient to drive prices up to absorb much of extra per capita income of the poor. (It is true that cartels can make things even worse; my understanding is that in Ireland around the time of the potato famine, English landowners kept large areas of productive land completely out of use, because artificial shortages of land dramatically increased rents, and a cartel can sustain this.)

Paul J. Reber: demand is not just the amount of land people would like to have. It also measures what they are willing to pay for it. The more income people get (or COULD get if they could secure the required accommodations) , the more they will bid up the price of desirable locations. Also, land is not just required for dwellings but for shops, offices, factories etc; to take advantage of the opportunities available in the economy you need a space within the appropriate geographic region to operate in. More economic activity = more demand, but no more supply.

Paul Nollen: Thanks for the interesting link. I have read through “The Alaska Permanent Fund Dividend: An Experiment in Wealth Distribution” which poses some interesting questions, but it doesn’t mention rents or real-estate prices. It *does* mention that real wages fell in the decade to 2002, offsetting gains in per capita income from the dividend. Another interesting aspect is that the dividend is paid annually, which means that for those living paycheck-to-paycheck, it has a smaller effect on their ability to pay rent than a monthly dividend would. (The BIG experiment in Namibia is paying out monthly.)

25

The New York City Math Teacher 06.04.09 at 5:15 pm

Jonathan (how’s Naomi?), I suspect one of the major issues with rent stabilization is less landlord neglect and black market reletting, since vigorous regulation can deter the worse forms of neglect and landlord vigilance the latter (when the marginal costs of policing the black market are less than the returns from enforcing the terms of leases) but 1) the intergenerational wealth transfer that takes place when a fixed supply of rent-stabilized rental housing is mostly exhausted and new entrants into the housing market must confront 2) the immobility of present renters. Here in NYC, with a shrinking supply of rent-regulated housing, the cost of entry into rent-stabilized housing is not particularly prohibitive (1.5 month equivalents of rent at the start of an open-ended contract), but the supply of unoccupied units is relatively tight, because of the long tenures of renters, so it takes longer to find a desireable rental. Of course, I’d have the same problem if I was looking to buy a coop apartment, what with the high degree of segmentation and lack of substitutability in the sale market.

Since the laws governing rent stabilization decontrol at a particular price point, renters of long tenure tend not to give up larger apartments with higher rents, though, which displaces growing families into the non-regulated rental market at higher prices. This is non-optimal for welfare outcomes.

But, you know? The New York City Housing Authority has a fantastically successful rent stabilization program (in terms of improving the welfare of the poorest). It just hasn’t been expanded in the last fifty years because of the objections of landlords.

26

Mark 06.04.09 at 8:22 pm

I don’t quite understand commenters (e.g. reason) arguing that immigration would pose a problem for the BIG as applied to all of Namibia. I’m sure that this scheme would be citizens only, and Namibia doesn’t have particularly generous naturalization laws. The report confirms that fairly stringent ID checks (along the lines of those required for a bank account–in fact the scheme is encouraging individuals to come into the formal banking system) would be required, and I think the Namibian state–from what I’ve seen–could handle this.

27

Mike Lubika 06.05.09 at 8:15 pm

Greg – your Georgist analysis is highly refreshing. Can you by any chance direct me to any discussion of a related area – whether earned income tax credits effectively constitute a subsidy on low wage labour, on the grounds that, after the introduction of EITC, employers (given perfect information) would reduce gross wages so that take-home pay post-EITC is the same as it was pre-EITC, but with employers paying less?

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