is a Universal Basic Income a good solution to end Poverty?

Recently, the Universal Basic Income (UBI) has hit the news headlines around the world;either because few politicians included it in their political programs (France, Finland, India) or a number of influential people said that they support the idea (Tesla's Musk, Facebook's Zuckerberg or Virgin's Branson, Bill Gates to name a few).  This has not left the economists aside, instead many economists from different economics schools delivered studies or views about the introduction of the Universal Basic Income in a country and its impact on labor, productivity, employment, poverty, etc...

Many known economist are backing the idea of UBI, among them Thomas Piketty and Nobel prize in Economics laureate Joseph Stieglitz. And not to forget one of the leading advocate of UBI Professor Philippe Van Parijs from the university of Louvain, Belgium, read his influential paper on the topic here.

So what is the Universal basic Income? here the official definition from basicincome.org:

"A basic income is a periodic cash payment unconditionally delivered to all, on an individual basis, without means-test or work requirement. That is, basic income has the following five characteristics:

1. Periodic: it is paid at regular intervals (for example every month), not as a one-off grant.
2. Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
3. Individual: it is paid on an individual basis—and not, for instance, to households.
4. Universal: it is paid to all, without means test.
5. Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work."

The idea of a basic income paid regularly is not new! It was proposed by Thomas Paine in 1796 who wanted it funded out tax on natural resources; and more recently through several initiatives.
The notion of a Negative Income Tax (NIT) first appears in the writings of the French economist Augustin Cournot (1838). It was briefly proposed by Milton Friedman (1962) as a way of trimming down the welfare state. But the UBI is fundamentally different than the NIT in its nature, because UBI has no means-tested scheme, and is paid to all.

Ongoing Pilots
Various pilots have already been rolled out in Kenya, India, the United States, Finland and France, among other countries. In developed countries the debate has been motivated by the prospective threat of technology replacing jobs, in developing countries this debate has more to do with finding a better way to tackle poverty.

I have selected below two totally different pilot purposes, in order to show how diverse an implementation of the UBI can be.

Finland pilot
In January 2017, 2000 Finnish unemployed people received their first cash transfer of 560 euros, which they will continue to receive each month, until 31 December 2018. They were randomly selected from 25 to 58 years to participate in a study to assess the impact of universal basic income on employment. If it is proved conclusive, the experiment could be extended to other categories of the population of that country of 5.5 million inhabitants.
After 3 years of recession with the fall of its flagship brand Nokia, Finland wanted to test new ideas that could provide a solution to decrease "poverty", social exclusion and provide incentives to support employment.

Looking forward to the results of the Finnish pilot...

Meanwhile, in a recent note (July 2017) entitled "Basic Income, what would it change? " The OECD has studied 4 countries ( France , Finland , Italy and the UK ) a universal income would be paid without means testing, to all working age individuals as well as minors.

According to the OECD, the introduction of a universal income in these 4 countries would lead to lower resources for early retirees and the unemployed as a result of a general increase in taxation.

"A basic income, which would be granted unconditionally to all working-age individuals and children and would be neutral to public finances , would not be an effective tool to reduce poverty", the Organization for Economic Cooperation and Development Economic statistics (OECD).
According to the scenario of the study, many low-income households, currently receiving aid, would be less well off. The poverty rate would increase in Finland, France and the United Kingdom, and would remain unchanged in Italy.

Kenya pilot*
GiveDirectly, a New York-based nonprofit has initiated a pilot program in a rural village in Western Kenya, this past October. 
The cash transfers are made via mobile phone to the village residents. Each of the 95 participants received 2,280 shillings (about US$22) every month to save or spend however they see fit.  Participants are all guaranteed this income for the next 12 years. Before GiveDirectly began the payments, many people in the village were living on less than US$0.75 a day; afterwards, no one was. 

GiveDirectly’s analysis claimed that “for 45% of the village’s residents, the first month’s basic income payment was the largest amount of money they’d ever had.” The organization recently published an internal analysis of the pilot program, in a first attempt to process the results of the pilot. The results will set the tone for future programs and influence basic income policy making moving forward.

Some of their answers are below:

• “I will be getting transfers that will enable me to pay medical bills for my condition and also buy other things. Since I went for checkup after receiving the transfer, my health situation has improved and I am able to go about my business without much stress.” Grace, 68.
• “Since I have been able to improve on my business, I have gotten income to help me meet my daily expenses and also buy enough food for my children.” Diana, 33.
• “The biggest difference in my daily life is that I can have 3 meals in a day.” Dorcus, 87.

The survey also asked how the money was spent.

• “I spent the entire transfer received from GiveDirectly to purchase a fishing net and a floater.” Erick, 40. 
• “I spent the money received from GiveDirectly to buy clean water, food, soap, and used most of the amount to pay school fees.” Fredrick, 70.
• “I spent most of the money I received from GiveDirectly on buying a goat since I want to buy livestock. I also bought food for my household.” Patrick, 38.
• “I spent the money received from GiveDirectly to purchase food and kept most of the transfer as savings.” Milka, 44.

Do recipients of basic income stop working? Here are some of their responses:

• “I feel I need to work harder and engage in other income-generating activities to get more money.” Samson, 70. 
• Yes, receiving the payments has changed my feeling towards work since I really want to finish my driving course and immediately look for employment.” Fredrick Odhiambo Awino, 28. 
• “I will not be working since I am old and sickly. I will just wait for the transfers.” Jael, 73.
• “I will still continue with my small business and charcoal burning since the family needs the extra income to enable us to meet all our expenses without borrowing from relatives each time.” Norah, 30

Also, many of the beneficiaries mentioned that they could invest part of that money for a joint community project like building a well,...

So where the poverty starts?
Poverty is defined globally as those below a daily consumption level of $1.90 in 2015 purchasing power parity terms (**). About 11 percent of the global population, or 750 million people, live below this consumption level. Many Economists have argued that this definition tends to be narrow (Deeming and Gubhaju 2014, UNSD 2005, Pritchett 2003). This is an important point in the sense that this definition could blindside policymakers to potentially serious problems. Why?

Several studies of economists prove that poverty is transient in nature, i.e., individuals move in and out of poverty (Dercon and Shapiro 2007). Recent analysis on poverty in Africa by Beegle et al (2016) shows that in 20 out of 26 studies transient or temporary poverty is higher than chronic poverty (always poor).

Increased climate risks such as droughts and floods only increase the risk of individuals falling into poverty. How many people became -literally overnight- poor and fulfill the definition above after the recent hurricanes in the Caribbean?.
A large part of individuals in low-income-countries (LICs) is poor. For example, they are 87% in Democratic Republic of Congo or 74% in Zambia.
Therefore, the idea of a UBI is interesting to get the poor from their poverty and, given the transient nature of poverty, a UBI could provide insurance against economic shocks in many poorer countries.

Policymakers should not be blindsided following exactly the consumption level of $1.90 in PPP as defined by the world Bank. They should take into account the transient nature of poverty with including a much larger share of the population.

The UBI discussion is still new, hot, exciting and everyone has arguments depending on whether they are pros or cons. There are still way too many poor in the world!
______________________________________________________
Sources:
*basicincome.org
**WorldBank increase the Poverty line in 2015 to $1.90 instead of  $1.25

Book review - Machine, Platform, Crowd: Harnessing Our Digital Future

Authors: Andrew McAfee & Erik Brynjolfsson
Title: Machine, Platform, Crowd: Harnessing our digital future
Year: 2017

Andrew McAfee and Erik Brynjolfsson book is a spot-on exploration of three pillars unleashed by the digital revolution: Machine, Platform and Crowd.

1) The Machine learning is supplanting human minds (Artificial Intelligence, AI). Google’s AlphaGO AI is now able to defeat any human GO player (it took more than 3000 years for humans to understand and develop the GO knowledge !)- a development that occurred at a faster pace than almost every AI researcher had predicted - The authors see this as indicators of much larger structural economic changes to come.

2)  Multi-sided Platforms owners (like Google, Amazon, Uber, Facebook, Alibaba) are becoming so powerful that they might disrupt a large number of established corporate -all industries included. They are collecting so much data from different market segments so they can develop the right models for selection, production and distribution of products and services. 

And even more important the marginal cost of any additional digital product or service they would launch would be almost equal to zero!

3) The Crowd is increasingly augmenting and constantly on-line. One of the consequences is the decline in number of retail stores in the US market. From 2005 to 2015 the number of indoor shopping malls declined by 20 percent. 2007 was the first year in 50 that no indoor shopping mall was opened.

These 3 trends will combine the advances of Artificial Intelligence and machine learning, with the growth of interconnected digital networks (Mobile Internet and Internet Of Things).

Shift from Products to Platforms, a new pattern

The largest taxi service owns no vehicles (Uber). The biggest hotelier has no property (Airbnb). The most comprehensive retailer holds no inventory (Alibaba) and the most valuable “media” company creates some content but not much (Facebook).

Attributes of Successful Platforms 

• They all take advantage of  the technological advances of  GPS, mobile and cloud.
• Successful platforms are customer-centric.
• Smart API's Open up the platforms to a broad range of contributors and contributions, enabling platforms to be at the heart of any transaction from any type.
• Platforms are a way for companies to create marketplaces that allow both sides of the transaction to flourish. 
• Platforms must ensure that standards are high, and also attract different sets of participants, producers on one side and consumers(customers) on the other side. 

Jobs & Productivity growth: the "Great Decoupling"

Productivity growth has been decoupled from wages because of  "concentration" of wealth in the hand of few people/companies. Andrew called it: the  Great Decoupling.

Questions from the book
The book ends every chapter with an interesting question. Here are selected ones:

• Which key decisions or operations, if any, would you consider turning over entirely to artificial intelligence systems?
• What would happen if your competitors start applying machine learning?
• In your innovation and prototyping work, how are you taking advantage of the new technologies for making things?
• Looking at the existing tasks and processes in your job or organisation, what do you see as the ideal division of work between humans and machines?
• What are the most important digital platforms in your industry today? What do you think they will be in three years?
• Does it make more sense for you to try to build your own platform, or to participate in someone else’s?
• What’s your strategy for cooperating or competing with a platform that brings network effects and revenue management capabilities to your industry?
• Are you confident that you can continue to differentiate your offerings as platforms spread? If so, why? What are your sustainable sources of differentiation?
• How and how often do you look outside your group of identified internal and external experts for help with your challenges and opportunities?

Conclusion

Robots, robots, Artificial Intelligence and even more robots.
The book is to my opinion a bit of a repetition of the last book the second machine age.
The authors brought up the same examples from Google, Airbnb, Amazon, Facebook, etc...and even Alibaba...

So what's new in this book? The core message and probably the most important conclusion of the book is that we are underestimating the pace of technologically driven economic change - and that these changes will concentrate advantage amongst an ever narrowing segment of companies and individuals.
Clearly, the authors are surprised by the faster pace of machine learning, faster than anyone has predicted.

The book is in any case a wake-up call that make executives, business leaders or future startups think about their model.

The authors do not dare to make any humble assertion about impact on jobs (loss) other than menting economic change. Is it because there's still a lot of uncertainty? [...]. It's just starting...

I am disappointed that the authors do not provide a playbook or not even a direction on how to use these great technological advances to advance society! Not a single word about Sustainable Development, about the UN Sustainable Development Goals or positive impacts.
All they had to say is: " the technology is here, and we can make whatever we want with it ..."

Finally, Machine, Platform, Crowd is a book that should be read and discussed by executives in order to understand the ongoing change and decide on the strategy to apply in their own company/industry; and scholars and academics to get the discussions going and maybe be able to influence the course of business discussions towards a more Sustainable, Societal Business Practice.

Is China disrupting Europe, US & Japan industrial leadership?

image from Foxconn manufacturing site

China’s economic miracle is directly attributable to its manufacturing industry. Approximately 100 million people are employed in manufacturing in China (in the U.S., the number is around 12 million), and the sector accounts for almost 36 percent of China’s Gross Domestic Product(GDP).

Despite the huge challenges, a large number of manufacturers in China are planning to transform their production processes using robotics and automation at an unprecedented scale.
Do they really have a choice? Human labor in China is no longer as cheap as it once was, especially compared with labor in rival manufacturing hubs that are quickly growing in Asia. In Vietnam, Thailand, and Indonesia, factory wages can be less than a third of what they are in the urban centers of China.
So the solution for China, many manufacturers -and government officials- believe, is to replace human workers with machines.

Almost a quarter of the world’s products are made in China today. If China can use robots and other advanced technologies to retool productions that never before automated, that might turn the country, now the world’s sweatshop, into a hub of high-tech innovation.

But how this would affect the millions of Chinese factories workers?

But this change will challenge U.S., European and Japanese industrial companies not used to competing with Chinese firms in the high-end segments of their markets.
In other words, China may soon be known less for cheap Christmas toys and more for high-end medical equipment, luxury cars and jet engines.

Growth has moved elsewhere...Where will you invest then?

By 2025, China will be home to more large companies than either the United States or Europe. It is expected that nearly 50% of the world’s large companies—defined as those with revenue of $1 billion or more—to be headquartered in emerging markets.

Image from Hubble telescope

New emerging cities
Nearly 50% of global GDP growth between 2010 and 2025 will come from 440 cities in emerging markets. 95% of them small and medium-size cities that many may not even have heard of and couldn’t point to on a map;

Who has heard of Hsinchu, in northern Taiwan?
Brazil’s Santa Catarina state, halfway between São Paulo and the Uruguayan border?
Or Tianjin, a city that lies around 120 kilometers southeast of Beijing?
In 2010, it is estimated that the GDP of Tianjin was around $130 billion, making it around the same size as Stockholm, the capital of Sweden. By 2025, it is estimated that the GDP of Tianjin will be around $625 billion—approximately that of all of Sweden.
Lagos, economic capital of Nigeria, is predicted to be one of the 10 most populous cities globally. Nigeria's population is set to rocket to 397 million by 2050.

Countries are becoming more urbanized
By 2025, emerging economies will grow 75% faster than developed nations and will account for more than 50% of the world's economy. 440 cities in emerging markets will account for more than 50% global GDP growth and more than 50% of urban population (2.5 billion people) will live in Asian cities. 46 of the top 200 cities in the world will be in China.

And this is going to happen in 6 years from now!
The gravity center of the world will change its coordinates by then.

Source: McKinsey & Company report on new disruptive forces

4th industrial revolution: AI, driverless vehicles, robots; what impact?

Manufacturing site

The intriguing and insidious intrusion of robots (note that robot is a piece of hardware and/or software that execute repetitive tasks!) in our daily lives is one of the mark of the ongoing 4th industrial revolution.

New professions related to the ongoing digital transformation will appear, but how many and most importantly at what pace? If factories turn day and night without workers, will machines finance the national social protection system? From where will governments collect their revenues?
Are we moving from a "labor" income to "capital" income economy? What are the consequences on the national economies?

The revolution in artificial intelligence is only just beginning and will probably be
costly in jobs. The economists community is clearly divided. Automation has become a general concern over the future of manufacturing and the global economy as a whole. Many fear that the economic well-beings of vast populations are at risk in the coming years. A report from Deloitte indicated that 35% of jobs will be in jeopardy over the next 20 years alone.

Uber self-driving taxis are already driving in Tempe, Arizona (one recently crashed!) and autonomous trucks are being tested on German motorways; what will become of the millions of truck, bus, metro, train, taxi and truck drivers? Aircraft engine manufacturer Rolls-Royce has announced a program which aims to sail by 2020  totally automatic boats, without crew and captain.
We are even starting the discussion around pilot-less airplanes that can save billions of dollars for the airlines companies.

Supermarkets equipped with sensors and optical readers will replace cashiers. Consumer goods are ordered online and can be delivered by standalone vehicles. Already in Amazon's warehouses, the storage and shipping of goods are fully automated. Even the cashier is redundant in the newly launched AmazonGo store in Seattle.

Automation will certainly affect the job market, a recent report from Deloitte in partnership with Oxford University, is suggesting that 35% of jobs were at risk over the next 20 years.
Apple and Samsung supplier Foxconn has reportedly replaced 60,000 factory workers with robots. iPhone maker replaced more than half of its workforce with robots since iPhone 6 launch.This Deloitte report states that " About a quarter of jobs in the United Kingdom are threatened by automation over the next two decades, including more than two million jobs in the retail trade, one and a half million in transport and storage. Secure data technology called Blockchain could eventually destroy thousands of jobs in banks, law firms and notaries.

But for many economists, these widespread productivity gains, lower transport costs, are expected to create new wealth, new industries and new jobs. In the preceding industrial revolutions (electricity, computers, the Internet), new jobs have replaced old ones, but the transition took place over several decades.

There is simply no evidence at the moment that the current industrial revolution will be any different.

Is this pattern of creative destruction theorized by Joseph Schumpeter?

Robots, Artificial intelligence (AI) are likely to disrupt a large number of industries very quickly without allowing society time to adapt to changes. Will the speedy global capitalism allow time for vocational training to adapt to this new situation? It is to be feared that the fourth industrial revolution destroys more jobs than it creates. It is not sure that drivers, handlers or licensed workers in China or India are rapidly transforming into digital specialists.

To be continued...

Join the conversation!

What type of leadership is required to succeed in the new era, created by the digital transformation of the global economy?

Thousands of books have been written about leadership and leaders, and many theories have been
developed in the fields of management and psychology. To mention one, Austrian-born American management consultant, educator, and author Peter Drucker stated that “management does things right; leadership does the right things.”


What type of leadership is required to succeed in this new business world, created by the Networked Society, and the ongoing digital transformation of the global economy.? This society will see new market spaces, where cross-industry companies will compete. Because of its openness, its technology based on mobility, cloud and performing networks, because of globalization, free trade and capital movement; the Networked Society will transform and reshape businesses and industries.

So, what leadership and strategy playbook should executives and strategists use?

The competition and the customers have become unpredictable and will be even more so in the future. It will be hard for companies to keep a strong position and defend it for extended periods of time. It means that competitive advantages will no longer be possible to sustain. It also means that companies will have to review their strategies and portfolios, and start building new competitive advantages more often than ‘once a year’.
Leaders in the Networked Society need to constantly start new strategic initiatives. They should care less about market segmentation – because the borders between industries will be blurred – and focus more on the jobs-to-be-done (the Clayton Christensen concept) that are out there for customers.


I think that executives in the Networked Society should have at least the following skills:

- Innovation in their DNA. Have the ability to successfully connect seemingly unrelated questions, problems, or ideas from different fields and areas.
- Ability to listen to the society, understand the issues and opportunities around sustainable development, and develop a strategy around them.
- A more customer-centric and less industry-bound view. Their methods for evaluating new business opportunities and their approach to innovation should be different.
- Ability to spark continuous change by building an agile organization that can support any new competitive advantage or any new strategic change without ‘pains’.
- A non-narcissistic approach, because leaders must be engaged in initiating questioning conversations in their organizations.
- Ability to make fast and right decisions instead of deliberations and/or consensus finding.
- Discovery-driven. Executives produce uncommon business ideas by scrutinizing common phenomena, particularly the behavior of potential customers.
- Executives in the Networked Society don’t delegate creative work, they do it themselves. Not only do they feel responsible for facilitating the innovation process, but also for coming up with strategic innovations.
- A track record for innovations. Innovation will be a core activity in the Networked Society.

So, are you an executive of the Networked Society era?

This blog has been posted on Ericsson Networked Society blog as well