To: Yahoo Moors <mororthchuram at yahoogroups.com> Sent: Sunday, May 27, 2012 9:57 AM Subject: [mororthchuram] Iranian BIG
>Iran has had a basic income grant system since 2010. Who knew?
>
>http://www.citizensincome.org/resources/newsletter%20issue%202%202012.shtml#Mainarticles
>
>Iran's Citizen's Income Scheme and its Lessons
>
>by Hamid Tabatabai
>
>A big idea...
>
>In December 2010, Iran became the first country in the world to
>establish a nationwide Citizen's or Basic Income scheme. Interestingly,
>the scheme did not emerge by design but by default: it was the
>by-product of an effort to reform an outdated system of price subsidies
>that concerned primarily fuel products. A basic income proved to be the
>most practical way of compensating the population for the loss of
>subsidies that had been costing some US$100-120 billion a year.
>
>When the first phase of the reform process became operational on 19
>December 2010, nearly half of the subsidies were slashed overnight. At
>the same time, every Iranian became entitled to a monthly 'cash subsidy'
>of about US$40 payable to heads of households (e.g. $200 for a household
>of five members). In the first year of the scheme $40 billion were
>returned to households in compensation. Nearly the entire population of
>75 million is now covered although some 1-2 million people have decided
>not to claim it. The second phase of the reform is expected to go into
>effect shortly, entailing further cuts in price subsidies and a
>corresponding addition to the transfer amount. Later phases will operate
>on the same principle until domestic prices of subsidised goods and
>services are brought into line with international or cost prices within
>the five year period of the reform effort.
>
>The big idea has therefore been to convert price subsidies into cash
>subsidies. The objective is twofold: improving economic efficiency
>through rationalisation of subsidised prices, and reducing income
>disparities through cash transfers. These were reflected in the main
>provisions of the Subsidy Reform Law of January 2010 that is now being
>implemented.
>
>...yielding results...
>
>The reform process was launched over a year ago and evidence is now
>beginning to appear on the results. The Central Bank figures suggest
>that while the initial price shock accelerated inflationary pressures,
>the impact has not been as dire as had been predicted by some observers.
>The annual rate of urban inflation in the months preceding the reform
>was 9-10 percent. With the launch of the reform on 19 December 2010,
>this rate started climbing by about 1 percentage point a month to reach
>20.6 percent in December 2011. The acceleration appears to have been
>entirely due to price reform. The relatively subdued impact on overall
>inflation - when subsidised prices had been raised several-fold - was
>due in part to price controls that were intensified when the reform was
>launched. Price controls have since been relaxed but not entirely withdrawn.
>
>Official data also show substantial declines in the consumption of fuel
>across the board. Between 2010 and 2011, the years before and after the
>reform, the average daily consumption of petrol fell by 5.6 percent,
>diesel fuel by 10 percent, liquid gas by 10.6 percent, furnace oil by
>36.5 percent, and electricity by 8 percent. These savings are all the
>more remarkable in view of past trends that witnessed growth of the
>order of 10 percent a year in the consumption of fuel and electricity.
>
>Income effects too are likely to have been positive. The cuts in
>subsidies affect household incomes adversely in direct proportion to
>their consumption of subsidised goods and services. While some basic
>foods such as bread were among them, the cuts overwhelmingly concerned
>energy products whose consumption correlates positively with income. The
>compensatory transfers are however uniform for everyone and hence the
>short term impact of the reform on income distribution can only have
>been egalitarian, although the extent of it is not known since no hard
>data are available as yet.
>
>...and some potential lessons
>
>This basic income experience is in its infancy and it is still too early
>to draw definitive conclusions and lessons from it. Nonetheless, it may
>suggest possibilities that could help make basic income more of a
>realistic proposition in some contexts.
>
>Advocacy for basic income:
>
>The adoption of the subsidy reform and the birth of a de facto basic
>income in Iran owe much to the fact that cash transfers are universally
>seen as compensation for the loss of subsidies, not as a right or
>entitlement without a quid pro quo. That is how the hurdle of
>reciprocity was overcome. The rights-based arguments would have been a
>non-starter. Furthermore, a basic income was not a policy objective in
>itself but the fortuitous outcome of a broader effort aimed at
>correcting an inefficient and inequitable system of subsidies. It served
>to facilitate subsidy reform by making it more palatable to politicians
>and the public at large. In a sense, the country stumbled upon basic
>income while pursuing a different objective. This unique experience
>highlights the instrumental potential of basic income in smoothing the
>way towards better resource allocation and greater equality, the two
>objectives of Iran's reform. The concept's very simplicity appears to
>account for its emergence in the national search for an appealing
>alternative to an irrational system of subsidies. It just seemed to make
>sense.
>
>Financing a basic income:
>
>A major hurdle facing a basic income scheme is often finding sufficient
>resources to fund it. In Iran, the problem was turned on its head:
>substantial funds were going to be available from price increases but a
>use for them had to be found. The basic income emerged as a way of using
>up a large portion of those funds. This method of financing a basic
>income is not discussed much in the literature but it has its merits.
>One is that it puts no new claim on existing sources, for example the
>national budget or oil export revenues. Another is pointed out by
>Philippe Van Parijs who contrasts Iran's approach with that of Alaska,
>noting:
>
><<In many places, this is a far more realistic option than an
>Alaska-type permanent fund program…the Alaska scheme is funded out of
>the interest collected from investments made worldwide with revenues
>generated by the production of oil at some point in the past, whereas
>the Iranian scheme should be understood to be funded out of a tax on the
>current consumption of oil. The Alaska-type scheme is therefore
>restricted to resource-rich (sub-) countries that manage at some point
>to exercise sufficient political self-restraint to create and develop a
>substantial fund. The Iranian-type scheme, by contrast, is available to
>any country that wants to price the consumption of oil in an
>ecologically responsible way and to buffer the effect on people's
>standard of living in a socially responsible way. For this road to basic
>income to be a real option there is no need to first accumulate a large
>fund, nor indeed to be an oil-producing or resource-rich country.>>
>(Philippe Van Parijs, 'BIEN 2010 Congress: A Brief Personal Account,'
>BIEN NewsFlash 62, 2010, pp. 2-4. www.basicincome.org/bien/pdf/Flash62.pdf)
>
>Over the longer term however, the Alaska model has the advantage of a
>permanent flow whereas the Iran model does not. Since the subsidies are
>being cut permanently, one might presume that the compensatory transfers
>too would continue indefinitely. But this is by no means certain.
>
>Universal coverage and the transfer amount:
>
>One of the main justifications for universality lies in the shortcomings
>of targeting, but universal coverage has its cost too when the resources
>available are exogenously given or "fixed," as is the case in Iran since
>the funds available depend on the extent of price hikes and the volume
>of goods and services sold, not on the scheme's coverage or the transfer
>amount. The distribution of the funds is thus subject to a trade-off
>between the number of beneficiaries and the amount of the transfer to
>each. The universality thus comes at the expense of the lower income
>people who could have received more had those with higher incomes been
>excluded. At the time of writing (April 2012), there is increasing
>evidence that the principle of universality in Iran's scheme may be
>sacrificed with some better-off households being dropped from the
>programme. The current plan is to urge higher income earners to opt out
>of the transfer scheme voluntarily. Households with an income above a
>couple of thousand dollars a month (a fairly large amount of money in
>Iran) are being invited to consider giving up their cash subsidy in
>whole or in part (the options are the entire amount, half the amount or
>any addition to the transfer amount in the second phase of the
>programme). No one knows how they will respond. If enough of them agree
>to withdraw, the matter will have been settled. If not, the government
>will have to decide how to proceed.
>
>Constituency building:
>
>The subsidy reform in Iran was a government initiative that, far from
>enjoying public support, aroused deep anxiety throughout the society. It
>was the most radical economic transformation Iranians were going to
>experience in living memory. The cash transfer component of it was
>designed in part to alleviate public concern and build support for the
>reform on the strength of the argument that a large part of the
>population would in fact receive more in cash subsidy than they would
>lose from cuts in price subsidies. Universal coverage came about for
>lack of a practical alternative. It had few advocates per se and may yet
>prove to be short lived, even if retreating from it may be harder now
>that it is in place. But even if some of the better-off households are
>excluded from the transfer scheme, their number is unlikely to be large.
>The success of the reform depends on the vast majority of the people
>feeling that they are not being cheated out of their fair share of the
>oil wealth.
>
>To sum up the potential lessons:
>
>overemphasis on rights may not always be the best political strategy for
>promoting basic income;
>the compensatory nature of the transfers can help overcome objections
>rooted in the principle of reciprocity;
>piggybacking on a larger issue may open up fruitful opportunities for
>the promotion of basic income;
>one can conceivably stumble on a basic income under certain circumstances;
>Iran's model of generating resources for a basic income is potentially
>applicable in many other countries as well, even those that may not have
>fuel resources of their own or subsidized fuel;
>the Alaska model of dividend payment may have greater long-term
>sustainability;
>there is normally a trade-off between universality and transfer amount
>in the context of a developing country;
>universal entitlement need not mean universal payment if the better off
>can be induced to forego their entitlement voluntarily;
>cash transfers, once in place, can develop a large constituency behind
>them, for both economic and political reasons; and
>public support of cash transfers could be strengthened if they also
>addressed widely acknowledged problems (for example, irrational
>consumption patterns).
>
>For more on the subject, see
>Hamid Tabatabai, 'The Basic Income Road to Reforming Iran's Price
>Subsidies,' in Basic Income Studies, vol.6, no.1, June 2011, pp.1-24,
>www.bepress.com/bis/vol6/iss1/art3
>
>'Iran: A Bumpy Road towards Basic Income,' in Basic Income Guarantee and
>Politics, Richard Caputo (ed.), New York: Palgrave Macmillan, forthcoming;
>
>'From Price Subsidies to Basic Income: The Iran Model and its Lessons,'
>in Exporting the Alaska Model: Adapting the Permanent Fund Dividend for
>Reform around the World, Karl Widerquist and Michael Howard (eds.), New
>York: Palgrave Macmillan, forthcoming;
>
>'Reforming Energy Subsidies: The Iran Model,' in Oxford Energy Forum,
>Oxford, United Kingdom: Oxford Institute for Energy Studies, forthcoming.
>
>
>------------------------------------
>
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