Basic income, child benefits best bet to reduce poverty

Poverty — especially child poverty — is pernicious. The latest research reported in Scientific American shows children born into low-income situations experience a range of intellectual deficits compared to their counterparts raised in homes at a higher socioeconomic status (SES).

Poverty is also persistent. Children born to a low-SES family start the foot race of life several metres behind the pack and with ankle weights. They are less likely to reach higher incomes and will likely have children born in a low-SES environment. The cycle perpetuates.

The fable that anyone can succeed in our society is just that: a fairy tale we tell ourselves to justify inaction. But before we beat ourselves up too much, let’s review exactly the status of poverty and ask a simple question: are things getting worse?

The response may surprise many, especially in light of the continuous messaging from the anti-poverty industry that we are making no progress in the war on poverty.

Globally, the reduction in poverty is startling. According to the World Bank, the percentage of world population that lives on US$1.90 a day declined from 30 per cent in 1990 to 12 per cent in 2015. This daily expenditure is truly a trifling amount for North Americans to contemplate, but this is an accepted standard by which to measure global poverty.

In Canada, the story is generally similar. The closest measure to the World Bank poverty index in Canada is the basic-needs poverty measure developed by the Fraser Institute. It shows a reduction in the number of households unable to meet their physical needs from eight per cent to four between 1982 and 2009.

Most view the basic-needs measure of poverty as too restrictive, since it excludes important resources needed to thrive in the modern world. Access to the Internet is one obvious essential service to support education and employment.

A commonly accepted poverty measure is the low-income cutoff developed by Statistics Canada. This shows a steady decline between 1997 and 2012. Child poverty also has declined, but remains at just below 12 per cent, a number most Canadians find unacceptable.

So, the prevalence of poverty shows a steady decline globally and nationally. The common explanation for the worldwide reduction in poverty is freer trade and land reform. In other words, economic growth, led largely by the growth of the Asian economies, has been key to poverty reduction. Of course, some areas have languished. Sub-Saharan Africa remains mired in an economic quagmire due to civil wars, corruption and drought.

In Canada, a strong social safety net plus growth have been the factors in poverty reduction. Despite this progress, we hear repeated calls for continued poverty reduction. The federal government has announced the formation of an anti-poverty strategy and the Ontario government is about to launch a basic annual income experiment. But, before we start into any anti-poverty strategy, it is important to understand the root causes and also what policies already exist.

What surprises many is poverty’s transitory nature. Sickness or injury, divorce and job loss often trigger abrupt reductions in income. As Statistics Canada shows, most people thrust into poverty recover within a couple of years.

The real problem is those born into poverty or who are unable to recover from unexpected events. Those who are permanently disabled or born into single-parent families — as well as the poorly educated, aboriginal people and singles — are at increased risk in experiencing persistent poverty. Understanding this is key.

Any new poverty-reduction strategy must enhance and/or supplement existing policies. These policies include a progressive income tax that lightens the burden on low-income families through exemptions and lower rates. But you need income to benefit, so this cannot be a sole solution.

Another set of policies includes employment insurance and worker’s compensation, but these are intended to impede the descent into poverty and offer no assistance for those who are not employed.

Regulatory policies such as minimum-wage laws are intended to ease poverty, but this also works only for those in the labour force. They offer no assistance for the growing number of pension-poor retirees and those unable to work. There is also debate whether such laws have the intended effect.

Finally, income transfers in the form of a basic annual income seem to have emerged as the preferred policy. Basic income experiments are underway in several countries, provinces and U.S. states. We will need to wait a couple of years to determine whether this approach reduces poverty rates.

To return to the impact of poverty on children’s intellectual development, targeted income transfers such as the child benefit may offer the best chance for intercepting persistent poverty caused by being unlucky in "choosing" one’s parents. It is my guess that enhancing such income support has the best long-term value-for-money prospects in the war on poverty.

Gregory Mason is an associate professor of economics at the University of Manitoba and a senior consultant at PRA Inc. His views are his own.

gregorymason.ca