Jeffrey Sachs: – Better ways than income transfers

– There are better ways for a poor country to use its vital tax revenues to ensure sustainable Development.

HEALTH AND SCHOOLING: ‘Improve the country’s health services and schools rather than providing cash transfers to households,’ says Jeffrey Sachs. (Photo: NTB Scanpix)

Apollon has asked the economist, director of The Earth Institute at Columbia University and former UN special adviser, Jeffrey Sachs, to comment on the proposal from Debraj Ray and Kalle Moene.

– The motivation of the Universal Basic Income is correct: a market economy needs a significant amount of income redistribution via taxes and transfers to support a just and efficient economy, Sachs says.

He points out that the redistribution of income supports economic justice by narrowing the gap between rich and poor. The redistribution of income also supports efficiency by ensuring that all members of the society, the poor as well as the rich, are enabled to invest in their health, education, and labor-market skills to reach their human potential.

– Not only the poor, but all of society thereby loses ground. These basic points lie at the core of the social democratic concept so successfully deployed for almost a century now in Norway and its Scandinavian partners, Denmark and Sweden. The same ideas motivate the new Sustainable Development Goals (SDGs) agreed by all 193 UN member states in 2015.

– Basic income – not the most important

The UN adviser points at Ray and Moene’s proposal, that each country devote a given share of GDP, 12% in their illustration, to income transfers to households.

– While I very much support the concept of resource redistribution through the fiscal system, I think that the nature of the redistribution needs to differ according to the economic circumstances of each country. There are better ways for a poor country to use its vital tax revenues to ensure sustainable development.

For a typical low-income country, with an underfinanced and therefore very weak system of public health and public education, he argues, is it generally far better to use an increment of public revenue to finance a scale up of public health and public education rather than to finance unconditional cash transfers to households.

An active state

Some libertarians and free-market advocates believe that it is enough simply to give income to the poor, and their cash demand will solve the problems of healthcare, education, and even good governance, roads, and other infrastructure.

– I think such a view is wildly off the mark. There are public goods as well as private goods. We should not expect the market to provide an efficient level of public goods through private demand, Sachs emphasizes.

–  In short, while a very rich country like Norway, after decades of successful social democratic development, may already possess an ample stock of public capital in healthcare, education, nutrition programs, roads, power, ports, Internet connectivity, and high-quality public administration, a very poor country should generally use an increase in public revenues for the vital investments in health, education, infrastructure, environment, science and technology, and high-quality governance needed for equitable and efficient economic development, indeed needed for sustainable development.

–  The moral of the story is that while economic equity and efficiency require ample public revenues and an active state that redistributes income both in cash and in kind (e.g. via free public health and education and infrastructure for all), the specific public investment program and tax-and-transfer system should be tailored to the needs and conditions of each country. The social democratic core of the concept of UBI is correct leave no one behind, by deploying an active state that raises sufficient revenues to carry out its key public investment and redistributive functions – but the specific modalities need very much to be tailored to the particular conditions and public investment needs of each country.

Published Mar. 2, 2017 2:51 PM - Last modified Mar. 2, 2017 3:02 PM