Why universal basic income might be what our youngsters need?

After more than a year, the pandemic has left our economy in ruins. Business closure and redundancy loomed. The latest act from the Hong Kong government to counter the assault of the crisis came in the form of a HK$5,000 cash voucher.

Crisis such as the pandemic often impels us to re-evaluate our welfare policies. The way our government stepped in — through a consumption-boosting voucher scheme — could sink our once squeaky-clean financial credentials into the deep-end of fiscal deficit. Is a one-off cash transfer a fitting shock absorber?

Even as the end of the acute phase of the pandemic draws near, discontent against our ruling authority reverberates. The HK$10,000 assistance last year failed to evolve into a more sustainable plan sought by many besieged sectors in society. Worse still, the economic turmoil we observe today might only be a sliver of the total impact of the pandemic.

The unanticipated economic maelstrom that resulted from the pandemic pushes the role of the government into the spotlight. Many countries responded with a fire hose of money. Hong Kong young graduates, who have been suffering from intermittent employment opportunities long before the pandemic, are similarly demanding stronger fiscal largesse.

Against this backdrop, perhaps it is time for us to at least consider expanding the social safety-net in a form of universal basic income (UBI).

UBI is predicated on the concept that every citizen is entitled to cash payments. At first glance, UBI may seem preposterous, not least because self-reliance and hard work are Hong Kong’s long-standing trademarks. Nevertheless, the concept, originated long before the pandemic hits, has seen its renaissance on a global scale. For example, Finland, a country well-known for its social safety net, has already given it a trial run.[1]

UBI is more than a pet project for socialists. During the U.S. Presidential Election 2020, Democratic candidate Andrew Yang gained much fanfare when he proposed to dole out free money to all citizens with no strings attached. The spirits behind UBI — to enable the poor to subsist — should strike a sympathetic chord in the hearts of young graduates who were hurt most by the pandemic-triggered economic shutdowns.

Further, the tangible impact of UBI, such as poverty alleviation and mitigation of insufficient employment, might ripple across other less tangible aspects of the recipients’ lives. It could, for instance, offer autonomy over their own financial budgets or improve their mental health, according to the report by Bloomberg.

This is not to say UBI is perfect. No government has adopted it as a principal tool for social protection. Indeed, UBI is still contested as a theory and a practical solution. For example, if the UBI amount is too low, the handout might be unwieldy and turn out to be a damp squib. Money spent will be money wasted. In effect, no amount of UBI can account for all shocks experienced by every household. On the other hand, if UBI is to cover millions of people, our government, which prized itself on being a non-interventionist, would have to raise taxes to soften the fiscal burden — an act that would surely raise the eyebrows of many foreign investors and local oligarchs.

It is easy to challenge UBI as being unsustainable. That it would subvert the incentive to work and limit growth are common argument against it. Research outcomes on these points have also been inconclusive. But we do not need to adopt the concept of UBI wholesale. Instead, we can design a more flexible framework such as making UBI available only for a limited period or a tier-transfer system conditioned by age or by experience. Regardless of the nomenclature, ensuring that social spending is flexible is crucial, not just in a pandemic.

Rather than having youngsters waiting in the wings to gain employment when jobs are scarce, UBI might push them to take developmental risks, such as attending night classes or buying a new computer to learn new skills.

Through UBI, young graduates may be able to pivot into more interdisciplinary and technical fields that will ensure high employability. Also, young graduates may be incentivized to seek jobs they find rewarding — a rarity as can be attested by many of the Hong Kong working class.

Under the UBI framework, young graduates have the financial backing to explore more challenging careers such as starting a business. This may lead to higher creative output and employment satisfaction. Even if free income has its drawbacks, it could inspire entrepreneurship and innovation by happenstance.

The pandemic has accelerated ongoing changes to the structure of the economy. Technological advancement will cause large-scale demographic job shifts. Learning how to embrace structural changes might determine how our future plays out. After decades during which the threats of longer life expectancy, automation and globalization began to loom large, the pandemic has exposed the vulnerability of a growing group of inexperienced graduates, and how few jobs and income security they enjoy. An agile emergency toolkit could step in and absorb some of the downside of the changes.

As the pandemic abates, our attitude toward welfare may change as well. Only then can we take stock of how far along the path the pandemic has pushed us. The suffering working class has sounded a cri de coeur nudging the government to do more. Regardless of the solutions we adopt, welfare policies should always be pegged to the state of the economy to pool and underwrite risks.

In a city as polarized as present-day Hong Kong, winning over everyone is often slow work. But, as we are brewing to craft a new plan to steer our economy back on track, a dialogue on updating social welfare cannot start soon enough.

Head of legal with an MBA@MIT. Exploring topics on education, data privacy, tech, entrepreneurship and PE/VC landscape.