Universal Basic Income: G2P On Steroids Or An Opening for Cryptocurrencies?

~7 min read

Universal Basic Income (UBI) as a possible policy instrument is slowly creeping from the fringe into the mainstream. Switzerland, mid last year, humored a historic referendum on implementing and allocating a basic income of 2,500 CHF (2,555 USD) to each adult, with an additional 625 CHF for each dependent. And although the referendum was mostly an act of political posturing - with almost 77 percent of the population voting against it - murmurs and arguments in favor of Universal Basic Income have surfaced from hard-hitting entrepreneurs like Elon Musk of Telsa to small town municipalities in the United Kingdom.

As automation and downward pressure on wages intensify, populist elements may identify Universal Basic Income as a strong addition to political platforms or party lines. Therefore, the follow-through of such programs would likely land in the backyard of government institutions, a mighty proposition in terms of breadth and expense. Any long-term hope to turn these rose-colored aspirations from theory into reality would require comprehensive digitization across the board to manage administration and monitoring costs.

However, between burdensome bureaucracy or budgetary tightness, government-directed initiatives might not be the most efficient UBI scheme to arise. Cryptocurrencies could represent a private response to large-scale unconditional wage transfers. But, would it be accessible to groups that would most heavily rely on UBI - such as the elderly or the needy - who tend to be poorly versed in more advanced digital finance technology?

When 'Big Brother' Does Some Good

As it currently stands, more than 130 low and middle income countries have put cash transfer programs into place. The consequences of such disbursements in relation to both financial inclusion and digitization of financial services are two-fold.

For one, these transfers serve as a funnel into 'formalized' financial accounts, whether that be through mobile devices or more traditional banking tools. According to World Bank Global Findex data, only 50 percent of the worldwide adult population enjoys a registered financial account. That percent bounces up to 70 when the cohort subject to analysis is limited to recipients of government transfers. While this is not definitive proof that there is causation between accepting government funds and account ownership, there is certainly a case for correlation.

But, custody over an account is only half of the equation. An account that is merely symbolic of financial inclusion, but fundamentally dormant, does not beget the same benefits - for either the individual or the economy - as an account plugged into, and used for, the full portfolio of financial services. Again, though, data suggests that government transfers, especially digital transfers, warm or coax communities to the idea of borrowing, saving, and even investing.

In India, randomized trials across sub-districts of 60,000 people revealed that the digitizing of government welfare allocations triggered a 15 percent jump in participants' willingness to take on a loan. Similar findings were echoed in a Kenyan study. Participants who received government payments were 7 percent more likely to squirrel away savings, and 10 percent more likely to borrow from formal channels, in comparison to the control group.

Let's Kick It Up A Notch

It stands to reason, then, that if digital Government-to-Person (G2P) aid campaigns can cause cascading effects across the financial inclusion spectrum, Universal Basic Income would be the 'nuclear bomb' equivalent in a government's arsenal of wealth and financial services distribution tactics. That said, UBI as a concept is still in its formative phase, and there is no consensus as to whether it would be truly universal or have its availability capped to those in certain income brackets.

Other more practical policy considerations, like what is the ideal value for a basic income to achieve social goals, or which technology will optimize disbursements in regard to administrative costs, reach and red tape, are playing out in real-time as pilots around the world strive to find answers.

Finland is one such pioneer, and an experiment involving 2,000 unemployed citizens is underway. With ages ranging from 25 to 58, each Finn will automatically pocket 560 EUR (587 USD) every month in lieu of other government welfare services. That sum will remain steady even if a recipient elects to enter the labor market. And Finland is not alone - a whole medley of governing bodies in Europe and beyond are toying with UBI variations to suss out their budgetary viability, technological demands and holistic impact.

The jury, however, is still out, and UBI advocates and opponents alike are eagerly waiting for raw data from government pilots to trickle in. Other programs are a bit further along the development curve, and early assessments are starting to take shape.

GiveDirectly, a non-profit that delivers cash transfers to the extreme poor, has circulated the first qualitative feedback aggregated from its Universal Basic Income trial in Kenya. The survey data paints a picture of ever expanding economic activity in response to the free money - from entrepreneurship to urban relocation - contrary to convictions that it would breed laziness and inertia. And, of even more excitement, is that this economic activity is absorbed into the digital finance ecosystem, as the transfers are deposited directly into M-Pesa mobile money accounts.

"Every recipient family in our cash transfer programs receives a SIM card, and we provide recipient families with the option of purchasing a cell phone from us. In fact, in recent operations, only a bit over 40% have a working phone at the time of registration, the rest do not. Because of this, a lot of families are connected to financial networks for the first time through our program. We do think that’s one of the positive side-effects of our transfers - plugging families into M-Pesa and mobile payments systems they might not have heard about without these cash transfers." Matt Johnson, Chief Marketing Officer at GiveDirectly

Although the experiment is still at its dawn, with only one of the tentative 200 villages enrolled, there are already inklings that the GiveDirectly's Universal Basic Income project has, on top of inducing account ownership, encouraged financial service usage as well.

"In our focus group, we found one participant who reports saving monthly using the M-Shwari saving service through Safaricom. We have also seen the emergence of informal financial savings groups, where all the members will transfer their payment to one particular member in a rotating circle every month."

And while it is too early to draw authoritative conclusions, Universal Basic Income appears to be one avenue to rope large swaths of the unbanked into digital finance and commerce.

Anything Government Can Do, Private Can Do Better?

The logistics and price tag, alone, of UBI schemes render it a tough sell in politics - great as a talking point, but difficult to actualize and therefore a risk that could derail careers. Cryptocurrencies, in contrast, have almost negligible transfer fees and do not face the same level of scrutiny, regulation or taxation, thereby offering a degree of flexibility to react and respond as issues crop up.

In fact, there are a whole host of Cryptocurrencies already exploring UBI initiatives. Resilience, which is powered and secured by Ethereum blockchain, is hoping to grow taxes from Person-2-Person (P2P) exchanges, through Swarm Redistribution and dividend pathways, that would then be doled out among the members as Universal Basic Income (see here for a more thorough technical explanation).

Universal Basic Income, in this scenario, would be self-generated, and therefore self-sustainable, as Resilience's ecosystem expands. However, not all block-chain inspired solutions have proposed to follow this model. The Grantcoin Foundation, a U.S.-based 501(c)(3) charity and the brain behind the cryptocurrency Grantcoin itself, relies on tax-deductible donations to hold up the value of Grantcoin in online currency exchanges. In its rendition of UBI, every year the organization would inject an additional 3.5 percent of Grantcoin's current supply into circulation. Anyone can opt-in to receive a slice of that 3.5 percent, which as of January 31st, 2017, was 1,132 self-selected applicants across 79 countries.

Private answers to the question of Universal Basic Income seem to revolve around the idea of consent. In the case of Grantcoin, the re-distribution of wealth is voluntary, whether through grants or individual contributions, and the product of a collective social conscience. Resilience, instead, leverages the technology of block-chain to normalize built-in deductions that 'branch out' into a pliable pool of funds.

Even though government might be more of an imposition, and arguably less technological adaptive or efficient, there is one unignorable factor that underpins the worth of any government's attempt to roll out a Universal Basic Income. In terms of financial services, any UBI scheme implemented by a government has to cater to the lowest common denominator of financial inclusion and be accessible to even the most un- or under-banked. Cryptocurrencies, in contrast, are still fairly avant-garde, and those most comfortable with their deployment are unlikely to be the most deserving recipients of a Universal Basic Income.

Perhaps, then, government and private initiatives of UBI should not be treated as an 'either or' paradigm, but as two compounding systems that are exposing different segments to the idea and execution of Universal Basic Income.

While government intervention is not necessarily the be-all and end-all strategy to introduce more complicated financial instruments, like cryptocurrenices and blockchain, to overlooked consumers (as was demonstrated by the independent success of blockchain derivatives in the remittance sector), it is certainly an over-arching tool that can capture, educate and empower numbers unimaginable by a single private campaign.

Therefore, if a private enterprise is ever to pilfer and operationalize certain duties of the State, especially in regard to a Universal Basic Income, it would most likely piggy back on in-roads made by a government that had already cleared the way with broad digital G2P programs. Or, alternatively, maybe it will be government that instead swallows the inventions and value-added of private sector technology, similar to the strategy of a recent UN project, all while maintaining its role as the lifeblood of greater society.

© Mondato 2017

Image courtesy of [Generation Grundeinkommen](https://www.flickr.com/photos/generation-grundeinkommen/).
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Mondato is a boutique management consulting firm specializing in strategic, commercial and operational support for the Digital Finance & Commerce (DFC) industry.
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