The fourth largest city in Netherlands will be starting a new welfare programme that will act as an experiment to test the basic income theory.

Basic income is an unconditional and regular payment meant to provide enough money to cover a person's basic needs. In January, the city of Utrecht and its partner University of Utrecht will create several different versions of its welfare system and test them.

A group of people already receiving welfare will get monthly cheques ranging from €900 for a single adult to €1300 for a couple or family. Out of the estimated 300 people participating, around 50 will be part of the unconditional basic income group. This group will receive these monthly cheques and will not be subject to any regulation, therefore even if they get a job or another form of income, the cheques will keep coming. There will be three other groups, with differing amounts and regulations, and one control group that will receive the existing welfare benefits and be subject to its laws on finding a job.

Utrecht city, Holland | Source: utrechtaanzee.nl

The experiment seeks to challenge the notion that people who receive public welfare need to be punished and patrolled. The traditional criticism of basic income is that it does not incentivise people to find a job and, thereby, damages the economy.

However, experiments in other countries in the past have shown positive signs of this theory. The most famous experiment took place in Dauphin, Canada. Between 1974 to 1979, the 'Mincome programme' gave a stipend to the entire population of the city, varying depending on how much money each person earned.

Evelyn L Forget, an economist at the University of Manitoba, studied the experiment and later published a report, called, "The town with no poverty". Her conclusion was that basic income reduced Dauhpin's poverty and alleviated several other problems.

Although working hours stopped, as critics suspected, it happened mainly among young men, who chose to continue their education, and mothers who used their financial freedom to focus on child-rearing.

Forget believes this is a positive sign as higher education usually has a positive influence on lifetime earnings. It also means that women felt more independent and could afford to take longer maternity leaves.

Dauphin city, Canada | Source: YouTube

One of the biggest differences between Duaphin and Utrecht is that in the former the basic income was provided universally, whereas in the latter it was only provided to those already on welfare.

What is lost when limiting the programme to current welfare recipients is the possibility of improving the lives of the working poor. These are individuals who work in the unorganised sector — on daily wages or contractual payments. They tend to fall between the cracks in the existing system.

Basic income in India

The basic income theory was tested out in India in eight different villages for 18 months. More than 6000 men, women and children were part of the experiment. They received a monthly stipend, and the only conditions were that their children must go to school and receive regular health checks and the beneficiaries must open a bank account.

The experiment found that basic income can be transformative — there were four major effects.

First, it had strong welfare or "capability" effects, meaning improvements in child nutrition, child and adult health, schooling attendance and performance, sanitation and economic activity and earned incomes. The socio-economic status of women and the elderly also improved.

Source: dot-edu.edc.org

Second, it had strong equity effects. It resulted in bigger improvements for scheduled castes and tribes, as well as for vulnerable groups, notably those with disabilities and frailties. The fact that the basic income was paid to each individual strengthened their position in the society.

Third, it had growth effects. Contrary to what sceptics believe, the experiment resulted in more economic activity and work. There was a big increase in secondary economic activities as well as a shift from casual wage labour to own-account farming and small-scale businesses.

Four, it had emancipatory effects. This is something many development thinkers did not consider. Due to the basic incomes, many families were able to buy themselves out of debt bondage, others paid off exorbitant debts with horrendous interest rates. Most importantly, it provided people with liquidity with which to respond to shocks and hazards, something that would usually destroy a poor family.

Source: walkthroughindia.com

These four effects — welfare, equity, growth and emancipation — combine together to become transformative.

All in all, unconditional basic income has proven in the past to be effective, both in uplifting a community and providing assistance to those most in need. However, as the experiment has not been tried on a massive scale or even for a very long time, it is hard to say whether it will have the same effects in the long term.

Feature image source: Reuters