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Understanding Universal Basic Income: Experiment in Finland

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The scheme of basic income which should be paid in cash in a regular basis without any burden of conditions was thought as a response to a massive replacement of human brain workers by computers, technological challenges, like robotization or self-driving vehicles. Its main aim is not only to diminish poverty, but also to liberate everyone by giving them a moderate income that they can make a choice. The side effects of globalization, like polarizing income and creating winners / losers, and conditional nature of social protections, such as minimum wage legislation and unemployment insurance will increase the precarious jobs with miserable salaries. However, Philippe van Parijs and Yannick Vanderborght argue that basic income will eliminate precariousness and enable everyone to work and smooth extreme poverty substantially. (Parijs, 2017)

The proponents of basic income consider it as a useful scheme to escape from both unemployment and poverty traps, whereas the opponents provide significant practical issues generated by basic income. There are two main criticism of basic income which the former focuses on cost critique and the latter on the work critique. In this article the attention will be given to the critique of work and the possible answers of basic income defenders to the debate.

Regarding the first critique, Simon Cowan as one of the opponents of it, argues that the implementation of basic income model is highly expensive, as it requires additional revenue beyond the scope of suggested tax increases. Capital gains tax or superannuation tax concessions can cover a small percentage of a basic income, therefore, it will require additional funding. He further argues that another main drawback of basic income, is its unconditionality. According to him, welfare state has been based on reciprocity rather altruism which means that for some people paying taxes for the welfare of others can dismantle social solidarity which has been the base of welfare state. He suggests that basic income scheme should consider favourable conditions for taxpayers as well.  (Cowan, 2017)

One of the most important arguments of opponents of basic income – regarding the second critique – particularly subsistence-level basic income, is that basic income might encourage people to stop working. They further argue that if a basic income is enough for recipients’ livelihood, then there will be no incentive to find a job. Therefore, a basic income will never have a social and economic feasibility. To give people cash will hurt the economy, cause people to work less by disincentivizing them and distort social cohesion which can be found in work environment.  (Yi, 2017)

In response to the critics of lower supply of labour and workless future, the proponents of the scheme argue that if incentives matter, then basic income should be preferred. It can overcome unemployment and poverty traps by encouraging people with low skills to enter the legal part of the market than going to precarity or black market. As an active participant of the debate, Guy Standing puts forward that basic income has a longer-term impact on human capital, rather just organising supply side of the labor market. By proving a modest income for everyone, basic income gives an opportunity to go to part-time work or low-paid internships which young people can acquire further skills required by job market. (Standing, 2017) Furthermore, basic income can organise more relaxed and flexible labor market through unconditionalities where everyone can find his/her dream job. Freeing people to make a choice can be viewed as an investment to economic system rather forcing them to work.  (Parijs, 2017)

The supporters of basic income’s work critique exemplify the results of Negative Income Taxes which has been implemented in the U.S. and Canada during 1970-80s. As an unconditional cash program, NITs are equal to basic income in its essence. Loana Marinescu who investigated the wide range literature on unconditional cash programs, argues that in some experiments during the program, the observations of some reductions in work and decline in labour force participation lead the criticizers to claim that basic income can cause a decline in labour supply and incentive to work. They concluded that experiments proved no overall effect on the share of labour market. (Marinescu, 2017)

Through the analysis of NIT experiments, Marinscu finds that although fall in employment rate that caused lots of criticism, the empirical data showed just 4 percent reduction in only one – Seattle/Denver – experiment. (Marinescu, 2017, p. 4) As a response to the decline of labour supply in this experiment, the basic income supporter, Eric Hanushek empirically proved that non-labour supply has perfectly been compensated by rising school attendance and longer job searches. Better and longer job searches enhance matching between jobs and candidates and therefore, lead to the improvement in economic efficiency.  (Hanushek, 1987) It means that the minor reduction in labour supply due to basic income would result in increasing quality of works and making a choice of desirable job which will rise happiness index, good perceived health and lower stress level.

The supporters of basic income don’t correlate the small cuts in paid labour which can occur after its implementation, with laziness. Rather, they emphasize that lower labour supply should be analysed from the beneficial longer-term effect which will enable people to find a job better suited to their capabilities and needs. People can improve their skills through part-time opportunities or take the opportunity to better their lives, like studying for a degree. On the other side, basic income can also lead to active labour participation by providing strong incentives to work without any cuts in paid labour as experienced in many cases during U.S., Canada experiments. (Marinescu, 2017) The active participation in labour market can be understood as working at jobs which employees like more (or have intrinsic incentives) rather than being more paid.

There are two main aspects of basic income in the provision of active labour participation. Firstly, people who are unemployed could find encouragement to improve their skills through part-time work and other trainings in order to find a full-time job. As all kinds of work are valuable in basic income, their work in part-time or training also contributes to labour supply.  Secondly, people who are employed full-time, but don’t satisfy with their job, will find time to better search for the job that more applicable to their competences. Here the incentives matter more in the active labour participation of basic income, because high enthusiasm towards their career will make employed people find their dream job. In the environment where everybody engages with the work which satisfies them, the happiness and health indexes and trust in future will increase which will lead to a sharp rise in the economic efficiency.

Experiment in Finland

The purpose of the basic income experiment in Finland was to investigate “whether a social security model based on a basic income could promote more active participation and provide a stronger incentive to work than the present system” (Kangas, et al. 2019). Through this experiment, the Finnish government aimed to answer the question whether basic income hinders labor market participation rates by stopping losing benefits in exchange for employment. Even though, the experiment targets solely the unemployed population which is only a fraction of the society; thus, this experiment is rather a partial basic income experiment than a universal basic income experiment. The subjects were unemployed individuals from which 2000 were randomly selected to the treatment group and the control group consisted of 173,222 unemployed Finns. The 2000 Finns aged 25–58 years received an unconditional 560 euros stipend per month free from obligations and tax which corresponded to the monthly net amount of the basic unemployment allowance and the labor market subsidy provided by the Social Insurance Institution of Finland (Kangas, et al. 2019).

The preliminary results show that there is very little difference between the treatment and the control groups regarding employment after one year. The number of days spent with employment were 49.64 and 49.25 days on average respectively (Kangas, et al. 2019). Even though, the increase in days spent in employment is slightly bigger in the treatment group, the two groups show very different results for which the effectiveness of basic income was actively criticized by the media.

Source: Finnish Ministry of Social Affairs and Health​, 2019

However, it is questionable whether this indicator really measures the target outcome. Days spent in employment does not necessary correspond with the employment rate. If the government goal is to increase labor force participation rate, it might be closer to investigate the ratio of persons that are employed part -time or full time since it is possible that more people work for shorter time in the control group which gives the same result as if fewer people worked for longer hours. According to the survey results, out of the total employed people at the time of the survey, more people worked part-time in the treatment group (31 percent) compared to the control group (25 percent). The ratio of part-time workers was higher in the treatment group than in the control group, 38 percent and 30 percent respectively which may offer some evidence to that one of the possible beneficial outcome of basic income is that people are more likely to engage in jobs that they truly prefer and more open for voluntary work, part-time and self-employment (Parijs & Vanderborght, 2017; Kangas, Jauhiainen, Simanainen, & Minna, 2019). Interestingly, when part-time workers were asked, if they would rather work part-time or full-time, 68.6 percent of them in treatment group while only 58.2 percent of the control group responded they would rather work full-time. This might imply that people receiving basic income had the incentive to engage in part-time while they would prefer working full-time since they were not facing the risk of losing their monthly stipend while people without basic income would have to wait for job offers that cover their monthly expenses.

The self-reported well-being was generally larger in the treatment group than in the control group. Participants in the prior group reported higher self-perceived health, ability to concentrate and not surprisingly, lower perceived bureaucracy. In addition to this, people receiving basic income were more optimistic about their future and finding job in the upcoming year. This implies that the intervention had positive affect on people’s well-being which might also have positive effect on their performance at work. These results can also explain how basic income reduces the stress caused by lack of employment and help people break the vicious circle through the lowered level of uncertainty.

This experiment fails to address some other issues such as the possible benefits for workers who depend on precarious employment; temporal, insecure, and discontinuous forms of work since these people may not be receiving unemployment benefits; and thus, were excluded from the experiment.  What is more, universal income would cover the entire society while the subjects of this experiment were not selected randomly from the society. They were randomly selected from unemployed people that can differ from employed people in many ways which means the external validity of this experiment is quite low, its conclusions cannot be applied for the entire population. The experiment fails to observe how basic income would affect the employed people. Furthermore, it is impossible to draw conclusions for the long-run based on the first -year results. It is possible that more positive results would arise on the labor market and it is also possible that increasing well-being was solely the result of the intervention and not sustainable for the long-run. Overall, the experiment did not answer its proposed question completely, and raised a few more which should be further investigated. Experiments on truly universal income, given to all people in a certain town may offer better insight for the debate on basic income.

Sabina Jahanli is PhD student at Corvinus University of Budapest in the department of Political Science. She is a graduate from Central European University and Budapest Business School’s International Relations MA Program. She has participated in Student Scientific Conference which is a national research competition in Hungary and was awarded with the first place twice in 2016 -17. She has also been a visiting student to Centre for EU- Russia Studies at University of Tartu in 2019.

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Economy

Another Sri Lanka?: Pakistan’s Economic Crisis

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Pakistan’s Finance Minister, Miftah Ismail warned of “bad days” ahead as he highlighted the looming economic crisis that the nation finds itself in. Addressing a ceremony at the Pakistan Stock Exchange, the Finance Minister blamed the economic policies taken by the erstwhile Tehreek-e-Insaf government for the dire economic state of the country.

A Nation in Crisis

Pakistan’s foreign-exchange reserves have shrunk by more than half in the past year, to just over $9 billion, or about six weeks’ worth of imports. In 2022, the Pakistani rupee has lost about 30 percent of its value against the US dollar. Furthermore, a rise in inflation and unemployment coupled with political instability has only made matters worse. The three major global rating agencies, Moody’s, Fitch, and S&P Global have downgraded Pakistan’s long-term rating from stable to negative, citing the country’s deteriorating economic position.

The current Pakistani government has blamed former Prime Minister Imran Khan for much of its economic woes. These accusations are not entirely unfounded. While he promised to rid Pakistan of its economic troubles, Mr. Khan failed to deliver. His regime saw an increased rate of inflation and widespread economic mismanagement. By March 2022, the country’s total external debt and liabilities reached $128 billion. Unemployment also surged with Pakistan Institute of Development Economics (PIDE) reporting 31% of the youth to be unemployed. The sudden dissolution of his government added fat to the fire, leading to political instability amid grave economic troubles. However, with a tenure of less than five years, blaming Imran Khan for all of Pakistan’s economic troubles seems far-fetched. Undoubtedly, the economy suffered under the Khan administration but this crisis stems from a much larger flawed system.

Economic Fault Lines

There are various structural flaws that can be located in the Pakistani economy that have time and again led to its unmaking.

The Khan administration is not solely responsible for the ongoing debt crisis. The IMF has provided loans to Pakistan on twenty-two occasions since 1958, imposing 13 Structural Adjustment Programmes (SAP). The focus of these programmes has been to stabilise the economy while sacrificing growth in the short term. However, Pakistan’s growth rate has consistently remained the lowest in South Asia since the introduction of the first SAP in 1988. The sustainability and feasibility of these IMF bailouts have also been brought into question considering the frequent visits Pakistan makes to the IMF requesting for bailouts. For instance, the last bailout Pakistan requested was in May 2019, just three years before the current crisis. Furthermore, the China–Pakistan Economic Corridor (CPEC) created a debt of $64 billion for Islamabad which was originally valued at $47 billion in 2014. The excessive borrowing to resolve short term issues has majorly contributed to Pakistan’s economic troubles.

Another major issue with the Pakistani economy is the huge trade deficit that the country incurs. Pakistan’s trade deficit currently stands at $48.66 billion, a record high. This enormous trade deficit has resulted from lack of exports in the face of steadily growing imports. As the industries fail to meet the requirements of the domestic market, Pakistan has to rely on imports for bridging the gap. Similarly, the exports suffer due to low productivity of agriculture and industries. According to the International Labour Organisation (ILO), Pakistan is ranked 143 out of 185 countries on labour productivity, having its GDP per hour worked at a measly $6.3.

Poor fiscal management and failure of the private sector to adapt to innovations has further shackled the Pakistani economy. All of these issues have contributed to the ensuing political instability.

Another Sri Lanka?

The past few months have witnessed the collapse of Sri Lanka from one of the top performing economies in South Asia to its descent into anarchy. With Pakistan in a similar crisis, it is widely argued that the country might be on its way to follow the island nation into a harrowing economic collapse. With the fate of Sri Lanka at display, it is also feared that escalating political instability might lead to an eventual military rule, as has been the norm in Pakistan.

While the situation is bad and might worsen in the coming days, Pakistan is unlikely to follow the Sri Lankan trajectory. The revival of a 2019 bailout with the IMF on July 13, clearing the way for about $1.2 billion, comes as a relief for Pakistan. This much needed help will allow the country to look for alternative channels to bridge the financing gap. The Pakistani military has also been playing an active role in stabilising the situation, with Army Chief Qamar Bajwa seeking financial help from friendly countries including UAE and Saudi Arabia. The involvement of such external lenders should discourage major creditors like China from requesting immediate repayments, easing the pressure on Islamabad. However, this requires the Pakistani government to keep a check on the steadily increasing imports.

While the present measures are likely to provide respite for now, even in the unlikely scenario of a Sri Lanka-like complete economic collapse, the military would not let the political situation in Pakistan slide into anarchy and is likely to take over by dissolving the government in the worst case.

The Way Ahead

Even though Pakistan might just evade the crisis through IMF involvement and bettering the trade deficit by curbing imports into the country, these are measures that tend to serve short term purposes and are no guarantee against another similar crisis in the coming years. The only sustainable answer would be initiating structural reforms. A self-sufficient economy must be at the heart of a rebuilding project. Increased productivity will facilitate an increase in exports while decreasing the imports on basic commodities like food and medicines. Finding economic stability is also detrimental to which path Pakistan’s politics will take in the future as the shadow of military rule looms large on the dwindling democratic set up which has managed to keep it in the barracks since 2008.

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What Is Stopping Economic Development Across The Free World?

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Notice the big events of economic booms during the last century and observe the unique role of mobilization of entrepreneurialism on such trajectories. For example, the original Silicon Valley of the USA was not a technology or financial revolution but the mobilization of an entrepreneurial journey, way before the term ‘IT’ became popular, and ‘technology’ conceptualized as worthy enough to trade in billions while staying invisible. The out-of-box thinkers came out of their garages, broke old systems, created new alternates and changed the world forever. Revolution of entrepreneurs, created by entrepreneurs and for entrepreneurs. The rest is history

Today, some 100 other nations are still trying hard with their own version to become the copycats. The existing lukewarm failures around the world on the replications of “silicon valley” of sorts, already speak volumes. Remember, only measured by entrepreneurialism, such goals, unless once Mindset Hypotheses properly understood this entire subject already beyond common narratives on economic growth.

Real economic development always needs methodical advancements of national mobilization of entrepreneurialism, upskilling and uplifting SME sectors to quadruple exportability otherwise, growth and productivity remain stagnant.  The big challenges are to bring the entrepreneurial thinking and job creator mindsets blend across the economic development teams on a fast track basis. Their current frame of mind critically needs uplifting so their confidence level stands up to the global quality, demands for speed and execution able to tackle the power of global competitive forces.  

Neither across the world, during the entire last decade, did academia build neither the long awaited Fourth Industrial Revolution nor did the bureaucracies digitized, mobilized and uplifted SME economies. Where is the entrepreneurial mix in all such equations? What have the economic development teams really learned recently?  When will they get ready to advance their thinking and blend their efforts alongside the entrepreneurial engines and right mindsets?

When 100 plus nations, talking about digitization, are still trying to figure out mobilization of large sectors of their SME economies, with little or no progress, lingering questions arise. Necessitated now, are some newly mandated activities at every stage of any economic development in progress. Identify and rearrange right mindsets, for right challenges. What worked, last many decades, today, with no results, now ready for thrown out of windows? How long unlimited printing of currencies last, how high will inflation go and how long the recessions last?

The post-pandemic technologically advanced world,  Best option is to balance mindsets and cause change, adjust to global age demands on productivity and performance, otherwise accept a diaper change, surrender to face frailty of life and limits of minds. It is not the absence of expertise that is a problem, it is the mindsets unable to recognize such expertise, in the first place.

The invisible switch: There is no political power unless there is a parallel economic power; after all, there cannot be any economic power without entrepreneurial job-creator-mindset power. Economies without digitization are as if without electricity, economic development without upskilled frontline teams as if without a bulb. Study the solutions via Mindset Hypothesis

The 4B factor: Four Billion on the march; billion displaced due to pandemic, billion replaced due to technology, billion misplaced in wrong jobs now a billion on starvation-watch. The 4B Factor, this digitally connected mass of people making this now the biggest force of global opinion in the history of time.

Global opinion v/s national public opinion: Observe, how fast the world changed, how the ocean of global opinion is now drowning ponds of national opinion. Notice, nations are already so intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. Study the global tidal waves.

Study the Agrarian Age to Industrial Age, later to Computer Age, measure how most talented ‘cow-hands’ were suddenly replaced by steam power and hydraulics and later floors filled with clerks replaced by a single computer. Study “How did we arrive here so suddenly” Excerpted Source: Naseem Javed, Sunrise, Day One, Year 2000. Published, IABC Communications World, Dec. 1995, Volume 12 Issue 11, Article, ‘Chronology Charts’

Over centuries, despite, available like an open book, the government failed to create armies of entrepreneurs but was always successful in creating real armies and real combat soldiers. Simply because, soldiers trained by sleeping in the forests while digging trenches in the rain, but not trained by running around in classrooms with water pistols or drawing pictures of tanks. 

Entrepreneurialism is neither academia born nor academic centric. Let the professors teaching entrepreneurialism break the furniture in protest, their contributions, as theories are excellent only when free, but not for heavy cost and creating student debts. Today business education is more a liability and no longer a real asset. The world changed, minds opened, old-systems closing, new worlds arising with new definitions erupting to manage the future better.

Go build an airline, place aeronautical engineers, and frequent flyers in the cockpits but leave qualified trained pilots in the airport lobbies. Now glued to the radio to find about a crash understand the similarity to current pending financial crashes, nation by nation. As a test, best check out what percentage of entrepreneurial job creator mindsets are in the mix with job seeker mindsets of any local, national economic ministry anywhere in the free world.

Save economies and grab the solutions: They can rapidly upgrade and acquire Mastery on National Mobilization of Entrepreneurialism,learn its pragmatism and common sense deployments within months, acquire digitization, mobilization and most importantly to articulate on such advanced new thinking across the national agenda. Learn fast, fail fast, raise fast and shine. Study how Expothon is tabling such ideas globally. 

Today, a shipload of some 7000 economic development officers, representingalmostthe total of top teams spread across free economies of the world should now take a luxury cruise, relax, relearn, unlearn, as their current mathematics is causing serious maladjustments on creating grassroots prosperity for some 100 nations. How fast can this force of 7000 people on a luxury cruise be upskilled on National Mobilization of SME Entrepreneurialism?

The difficult questions: How quickly options when infused with technology lead to mobilizations to discover new paths. Which economic leadership of free nations can display such transformation or even articulate on such critical topics? Which national or global institution is bold enough to face and debate such challenges? Which economic team is ready to test, explore, or try on such forbidden topics? Nevertheless, the world changing fast and will not stop for anyone.

Observing the change, it will not be the sudden arrival of missed Fourth Industrial Revolution; but the surprised arrival of the First Industrial Revolution of the Mind. Study deeply how the mind is opening up and responding to creative entrepreneurial issues, the old concept already dead, now replaced with new thinking. Leaving behind the woman entrepreneurs is another tragedy for any nation. What are some new solutions

Just like today, we no longer tolerate square wheels or rotary dials, or chasing a form stamped 10 times, across a 10-floor building without a lift. The post pandemic economic recovery in smoke and mirror war games, will no longer tolerate the inefficiencies and bureaucracies. Of course, today, the ability to face the truth now considered extraordinary strength. Change can be beautiful, once minds opened.

Refusing to face the truth; this is where all the hostility and hate breeds,  and where without diversity and tolerance, wars and fakery declared the common games, this is when humankind left as secondary, common good declared waste, societies destroyed, so who needs economic development, anyway? A new wave of grassroots economic development will emerge as the top-level economic development almost already destroyed. Hear the sounds of distant firings. It will be the five billion connected alpha dreamers, who will develop and change the world. The rest is easy 

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The first Africa-Caribbean Trade and Investment Forum Comes On 1-3 September at Barbados

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With the new dawn gradually unfolding, African financial institutions such as the African Export-Import Bank (Afreximbank) are making tremendous efforts and offering support for African leaders in consolidating Africa’s economy within the framework of the African Union Agenda 2063. They have consistently been pushing to transform agriculture as the safest approach to reduce imports and insure food security, improve industrialization and the raise the efficiency of human resource capital in Africa.

The Government of the Republic of Barbados will be hosting the first ever edition of the AfriCaribbean Trade and Investment Forum (ACTIF) which is being convened by African Export-Import Bank (Afreximbank) and Government of Barbados in collaboration with African Union Commission (AUC), African Continental Free Trade Area (AfCFTA) Secretariat, Africa Business Council, the Caribbean Community Secretariat, and Caribbean Export Development Agency. 

The African and Caribbean ties are deep rooted and based on shared history, culture, and sense of a common identity and destiny that was forged by the slave trade creating large centres of African Diaspora in the Caribbean and elsewhere. While Africa and the Caribbean have renewed their engagement, with a Heads of State and Government Summit of the Caribbean Community and Africa, held on 7 September 2021, the relationship needs to be institutionalized through deepening of trade and investment ties between the two regions.

The holding of the inaugural Africa-Caribbean Trade and Investment Forum is, therefore, a key strategic deliverable towards the institutionalisation of the reborn relationship between Africa and the Caribbean. This Forum will further consolidate the political agreement reached by Heads of State and Government of the Caribbean Community and which aims to strengthen collaboration, unity and to foster increased trade, investment and people-to-people engagement between the two regions.

It is in this context that the inaugural Africa Caribbean Trade and Investment Forum (ACTIF), has been organized to hold during 1-3 September at Bridgetown, Barbados. The Forum dubbed: AfriCaribbean Trade and Investment Forum 2022, will hold under the theme “One People, One Destiny. Uniting and Reimagining Our Future” vividly reflecting the common cultural aspirations. 

The main goal of the AfriCaribbean Trade and Investment Forum is to provide a platform for the development of strategic partnerships between the business communities in Africa and the CARICOM Region with the objective of fostering bilateral cooperation and engagement in trade, investment, technology transfer, innovation, tourism, culture and other services. The Forum will also be used as a vehicle to actively promote trade and investment opportunities among people of Africa and the Caribbean, as well as the wider diaspora which will contribute to the implementation of the African Continental Free Trade Agreement (AfCFTA) and to the Caribbean trade development agenda.

Africa leaders and its people highly appreciate the readiness of external countries, who in practical terms, engage in infrastructure development, agriculture and industry especially at the dawn of the rapid geopolitical changes possibly leading to creating a new global economic order. Noting the significance, a number of countries are simultaneously trying to understand barriers in the region and are steadily exploring ways to leverage unto the newly created AfCFTA which provides a unique and valuable platform for businesses to access an integrated African market of over 1.3 billion people in Africa.

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