The Silicon Valley set, my new neighbors, are pretty excited about a future “universal basic income” (even while Medicaid, food stamps, and housing assistance face an existential threat today). As Amazon.com takes over what we used to call retail and self-driving trucks and cars take over transit, an increasing number of academics and CEOs say a minimum, basic income for all is inevitable. Cory Booker, a likely 2020 presidential candidate, is a supporter. Progressives like basic income as a mechanism to redistribute money from the wealthy to the poor. Conservatives like it as a justification to privatize healthcare, education and social services; if people have money in their pocket, then they are free to choose for themselves their private schools, private water providers, private electricity providers, etc.
There is a mushrooming body of literature — much of it from Africa with some current research in California — which shows that simply giving people money in the form of “direct cash transfers” is one of the most effective ways of reducing poverty. Regular cash transfers enable citizens to meet their basic needs even when they’re unable to find work in a difficult economy; or they can choose to spend the money on whatever brings them pleasure; or they can invest it in income-generating projects. Cash transfers are wonderfully non-paternalistic. But that money has to come from somewhere and it could instead be spent on education, policing, healthcare, water, job training, and childcare. How do we balance the individual empowerment that comes from cash transfers with the need for collective investment in public goods like clean water, sanitation, education, healthcare, parks, and libraries?
I have a research proposal to start to address the question. But first, a digression into West Africa’s investment in Montreal’s real estate.
Spending African Income on Montreal Apartments
Last week I flew from Senegal to Montreal for a gathering of idealists hoping to advance participatory democracy at a time when an increasing number of people are arguing for less participation, not more. I was far from the only one flying from Senegal to Montreal, though I did seem to be the poorest. I was out of place in business class with my duffel bag and gray hoodie, surrounded by Gucci luggage and Hermes Apple Watches.
Montreal has emerged as the newest real estate investment destination for West African millionaires. The son of Senegal’s former president earned the nickname “Mr. 15%” for pocketing 15% of all government contracts while he worked at various ministries. He’s now in jail for embezzling US$240 million, but during the trial, his childhood friend and lawyer both purchased multiple apartments in Montreal. This is how money flows from poor countries in Africa to wealthy countries in North America and Europe. Mr 15% is hardly alone. The Panama Papers exposed a long list of friends and family members of African politicians with offshore accounts, including the son of Kofi Annan, who used a company registered in the Pacific to purchase an apartment in London. He says he did nothing wrong, but then why go through an anonymous company in Samoa to buy a flat in Chelsea?
The more money that an African country has from diamonds, gold, oil, gas and other natural resources, the more that money seems to wind up in real estate in London and Montreal — the so-called “resource curse.” Economists and activists have long wondered about ways to ensure that money from natural resources is spent on programs that reduce poverty, rather than luxury apartments abroad. Todd Moss at the Center for Global Development argues for “Oil 2 Cash” in which governments would deposit a percentage of oil revenue to individual bank accounts set up for all citizens.
Imagine that you’re a resident of Tanzania and once a quarter you receive a text message telling you that a deposit has been made in your mobile money account that represents your share of what the Tanzanian government has made from revenue on newfound natural gas — similar to Alaska’s Permanent Fund Dividend annual payment. In fact, Tanzanians were asked to imagine just such a scenario and, surprisingly, they overwhelmingly favored that the money go to the government to pay for public services rather than receiving payments directly.
Mexico and Madagascar have tried a different approach. In Mexico, mining companies must pay a percentage of their earnings to a federal “mining fund,” which invests in social development projects in communities with nearby mines. In the past, these funds have been allocated by “expert committees.” But in some municipalities, like Cananea in Sonora, they’re now experimenting with participatory budgeting as a way to let citizens vote on how the money is spent. In Tamatave and Fort Dauphin, Madagascar, mining companies are the largest municipal taxpayers and residents are deciding how those funds are spent via participatory budgeting.
Four Visions of Economic Redistribution
This takes us back to our original question: how involved should citizens be in how our government spends its money? Should we let the experts decide what’s best for us? Should we decide how we spend money for ourselves through direct cash transfers, some kind of basic income? Should we decide how our local governments spend taxes on projects aimed to improve the whole community? Or should there be some combination of the three?
So here’s my research proposal. It would have to be a long term project — at least 10 years. Imagine four nearby cities with comparable economic and demographic characteristics. In one city, the government decides how it spends its money. In the second city, they use participatory budgeting to allocate all of its spending beyond the fundamental necessities. In the third city, they fund only the most basic services and transfer the rest of the money directly to residents’ individual bank accounts. And in the fourth city, residents receive a direct cash transfer which is taxed and they then decide how the taxed portion is allocated via participatory budgeting.
Those choices represent four different visions for how liberal democracies should address increasing inequality and stubborn rates of poverty. They each deserve to be taken seriously.
Meanwhile, earlier this month Senegal discovered another 1.5 billion barrels of oil off its coast. Even at today’s low price of $45 a barrel, that represents $67.5B. Let’s say that Senegal only receives 5% — that’s still $3.4 billion. To put that into context, Senegal spends about $700 million on education each year — roughly 5% of its GD&P. So that money could double the amount Senegal spends on education for five years. Or it could fund a boom in luxury condos in Montreal.
