Will the Finns be the first to introduce a basic income?


Finland may become the first country to introduce basic guaranteed national income.  Although the final proposal will not be considered until November 2016, the basic income plan would replace existing social welfare benefits and instead hand out a monthly tax-free payment of €800 for every Finnish adult.

According to the poll commissioned by KELA, the Finnish Social Insurance Institution, 69 percent of the population supported the idea of a universal monthly income of about €1,000.  The poll indicated that there was especially high support for basic income that was implemented as a negative income tax.  Initially proposed by Milton Friedman and Robert Lampman, negative income tax arrangement would provide payments from the state that would increase in inverse proportion to income.  However, as the Finnish constitution requires an equal treatment of every citizen, an equal pay should be made to one and all, at least those in the wage earning age.  Naturally, some of the basic guaranteed income could be clawed back by taxes from the better off individuals.

Finland’s major political parties back the universal basic income concept as the means of simplifying the country’s complex social welfare system, and perhaps counterintuitively, the plan is seen as the means of tackling high unemployment.  Finland has been in a recession on and off since the mid-2012 having lost its footing in the traditionally strong pulp and paper industry, and after the demise of Nokia in mobile phones, the tech sector has not lived up to its expectations as a national growth engine.  The country’s unemployment rate is alarmingly high, hovering around 10 percent and rising to 23 percent among the young.

The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost.  At the moment, taking a low paying job may result in lower welfare benefits and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with temporary employment that reflects the changing nature of work.  There can be a lengthy time lag before welfare payments are restored after a temporary contract employment has been terminated.   

Critics of basic guaranteed income caution that it could remove people’s incentive to work, especially among the young.  However, previous experiments with basic universal income provide support that such programmes produce largely positive social and economic benefits.  In the Canadian town of Dauphin everybody was given a stipend from 1974 to 1979.  Although there was a drop in the hours worked this decline was mainly due because men spent more time at education and women took longer maternity leave.  Other social benefits of the experiment were hospital admissions for mental-health related issues that fell after the introduction of the guaranteed income scheme.  These results were most likely a result of the stress reducing effects at least to some degree of income security.  In addition, economic benefits of basic guaranteed income have been studied in Uganda.  When thousands of unemployed people were given unsupervised grants twice the their monthly income, working hours increase by 17 percent and earnings rose by 38 percent.  The guaranteed income provided a level of security that motivated people to gain further skills and/or take entrepreneurial risks. These experiments indicate that people with a basic income do not lead idle lives.  In developing countries the economic benefits can be substantial in terms of skills development, longer working hours, and a significant uplift in earnings.   In wealthier countries the accrued benefits may include personal and professional development, improved family life, and the pursuit of healthy lifestyles.

However Finland’s basic universal income or negative income tax initiative will ultimately be implemented it is unique in the sense that it has gained support across the political divide.  Other countries that are seriously considering such policy options include the Netherlands and Switzerland that will hold a national referendum on guaranteed basic income in 2016.  The major question that Finland and other countries will have to address is the cost.  Bloomberg has calculated that in the case of Finland the cost would amount to €46.7 billion annually.  The projected government revenue for 2016 is estimated at €49.1 billion.  It will be interesting to follow how the policy discussion evolves and what the projected savings will be from the streamlined welfare administration and what welfare payments eventually will be scrapped and rolled into the basic universal income.

From libertarian perspective, we should support the basic guaranteed income policy development.  The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy.  Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  The provision of national income removes the stigma that is often attached to having to apply for welfare payments.  Moreover, basic universal income increases choice as it allows and empowers individuals to make decisions how to spend their income by themselves by removing the state diktat of targeted welfare payments.  Finally, the implementation of a basic guaranteed income policy could reduce administrative costs and roll back the state, at least a little, which on its own would be a worthy outcome.

Further reading:

Story, M. (2015) Free Market Welfare: The case for a negative income tax. ASI (Research) Ltd., London