Universal Basic Income and Microfinance are Wrong
Table of Contents
Universal Basic Income (UBI) became popular in 2016 after it was adopted by a few Western countries.
In UBI, money is given to poor people without any strings attached. This makes it a bit different from Conditional Cash Transfers (CCT) which imposes conditions that the poor must meet.
What’s Wrong with Universal Basic Income?
Studies have found 2 flaws in UBI:
- It contributes little to alleviate poverty as a whole
- It is expensive to administer
Adam Smith, the founder of Economics, would be against UBI because:
- It can only be measured in nominal value
- It acts as an expense instead of as a capital
- There is no guarantee that the recipient will use it for education to build up his knowledge, or to buy healthy food to build up his body
In towns principally supported by the residence of a court, the poor are maintained by the spending of revenue. The inferior ranks are generally idle, dissolute, and poor.. In mercantile and manufacturing towns, the poor are maintained by the employment of capital. They are generally industrious, sober, and thriving.. It is better, says the proverb, to play for nothing than to work for nothing.

Adam Smith
The Wealth of Nations Simplified, Book 3
Development banks want UBI for them to find use for their idle money which is of no value when not circulating.
Therefore, UBI is an easy sign that the profits in lending are very low, that banks have to find radically new business models.
Governments of democratic countries like Brazil and the Philippines want it because it lets them placate the poor and prevent the rise of Communism or terrorism.
Unofficially, it helps politicians buy votes*.
The abandonment of UBI in Finland and Bolsa Familia in Brazil are proofs that UBI is not sustainable.
Is Microfinance Better?
Smith would rather be in favor of microfinance which are small loans, usually given to poor people to start a micro-business or cooperative.
- The loans would then be used to provide wages, reducing unemployment
- The wages would then be used to pay for the education of children
Loans are supposed to serve as one’s capital, and thus, are not supposed to be spent recklessly as an expense. A capital pays for itself, but an expense does not.
However, the problem with microfinance is that it does not deal with the structural issues that are causing the poverty.
Even if you lend money to the poor, they still won’t be able to sell their goods to the market if there are no roads, or if middle men force them into a lower price.
Without addressing these structural problems, microfinance ends up being land grabbers since the people can produce, but are unable to convert their porduce into money. And so the debtors give up their land which they use as collateral.
In this way, microfinance is an evil that steals real value as land, but giving nominal value, as money.
Problems with Microfinance
This solution would not work if there are many regulations against self-made goods or services. Assuming that the law allows solo and cooperative enterprise, then microfinance would have 2 general problems, one with supply and another with demand:
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The demanders of loans are poor people who are deficient in practical skills like saving, diligence, hardwork, grit, problem solving, etc, otherwise they would not be poor in the first place. This could be caused by childhood development problems, bad environment, oppressive family or community members, and so on.
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The banks might be predatory or inefficient especially in poor countries where the morals are low, law enforcement is not strict, or infrastructure is undeveloped.