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eBay founder is testing giving people free money

Ethan Wolff-Mann
Senior Writer

Support for Universal Basic Income has increased considerably in the past few years, sparked by stark changes in the labor landscape. The idea is simple, and it solves the question of how you’d earn money if machines are handling much of the labor load. Everybody receives a check, like Social Security, to supplement income.

There has never been any test of how well UBI works on a large scale, because of cost. And without data, the utility and best applications of UBI remain unclear.

To that end, on Tuesday, Omidyar Network, a “philanthropic investment firm” started by eBay (EBAY) founder Pierre Omidyar, announced an investment of up to $493,000 in GiveDirectly, a charity that facilitates cash transfers to poor people around the world.

GiveDirectly has set up a trial in Kenya to give 6,000 people enough money to avoid poverty for a decade to see what happens. (This money puts the Kenya project closer to its goal of being fully funded.)

“In these programs, low-income individuals who receive cash benefits achieve remarkable outcomes in country after country: improvements in nutrition, household income, status of women, school attendance, and a range of other positive indicators,” wrote Omidyar Network’s Tracy Williams and Mike Kubzansky in a blog post. In addition, the test will allow further penetration for digital, cashless payment methods, which the Network views as important for government transparency as well as an “inclusive financial system.”

Today, more and more manufacturing jobs are evaporating despite American manufacturing’s record levels of production, as technology and automation allow a smaller workforce to do more with less. As the Wall Street Journal noted in a recent article titled “The End of Employees,” “Never before have American companies tried so hard to employ so few people.”

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Universal Basic Income (UBI) has become a more talked about idea, in groups on both sides of the aisle. Certain groups on the right admire its efficiency and small-government potential while the left likes the social safety net it provides.

The idea, of course, also runs contrary to the instincts of many, who may assume free money leads to things like laziness, alcoholism, and other negative behaviors.

But in small tests, results from cash transfers have shown that this is not the case—even if you give the cash to the extreme poor. So far, people have overwhelmingly used it for their family’s betterment, such as quitting a second job to be with their children more, or send a child to school.

This perspective, along with the second benefit of alleviating extreme poverty efficiently in Kenya, drove the Omidyar Network donation.

“Existing social safety nets seem increasingly unsuited for these disruptions to work and income,” Williams and Kubzansky wrote. “There is very little research and empirical evidence on how and when UBI could best be used. Even though we know that cash transfers in developing countries help reduce poverty and improve outcomes for families, these have not been tested on a long-term basis or with a universal beneficiary pool.”

Giving 6,000 Kenyans 75 cents a day for 12 years is a cost-effective way to test this theory, and MIT and Princeton economists are working with GiveDirectly to monitor and review the study.

Questions that need to be answered include how security might influence risk-taking and entrepreneurship? Would people stop working—and go back to school for more training? Would people gamble and take drugs? (An extremely strong “no” has already come in for that question.) How often should the participants get paid? What are the public health benefits? Will people still derive pride and identity from work? The list is long.

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Obviously, these answers may be different for Kenya than they would be for Americans displaced by machines and struggling with low-paying jobs that cannot provide a middle-class lifestyle or benefits, so it’s likely the first of many trials the Omidyar Network will be supporting.

“GiveDirectly’s pilot in Kenya is geographically-specific and focuses more on the issues around poverty alleviation than questions about jobs displaced by technological change,” Williams and Kubzansky wrote.

“While we don’t know what the right answer will be, or whether UBI will prove useful or feasible, this is an important first step on generating data, so that policymakers can make informed decisions.”

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann.