Jan 14th 2017

How Finland could see benefits from its basic income experiment

by Surraya Rowe and Chris Parry

Surraya Rowe is Finance Lecturer, Cardiff Metropolitan University Chris Parry is Senior Lecturer in A​ccounting and Finance, Cardiff Metropolitan University

One of the greatest political challenges in the 21st century is coming up with a welfare system which is both effective and fair. Recipients and non-recipients of benefits payments are both quick to point out apparent deficiencies in the status quo – as well as problems with any potential alternatives. But some countries are clearly ready for change.

As of January 1 2017, Finland became the first European country to implement a plan whereby unemployed citizens receive a basic monthly income. Created by the government agency responsible for Finnish social security benefits (KELA), it will be run as a pilot scheme in which 2,000 randomly selected unemployed people receive €560 every month in place of their existing social security payments.

Recipients will continue to be paid even if they find work or, more significantly for some, even if they choose not to look for work. The trial will last for two years and is intended to reduce high levels of unemployment.

Like many Western societies, Finland has long had a complex social security system which could lead to an unemployed person refusing a low-paid or short-term job for fear of having their financial benefits reduced dramatically. This kind of system can be said to cause a negative cycle in which those in receipt of payments feel they are better off on benefits. The fear of losing “certain” benefits for “uncertain” wages becomes a significant barrier to moving into employment.

This kind of situation is replicated in much of continental Europe and it’s certainly a bold move for the Finnish government to look at the possibility of such wide scale change. Perhaps they are encouraged by the success of similar schemes in parts of Africa and India, which were designed to reduce poverty. In the UK, Scotland considered scrapping the current welfare system and replacing it with a non-means tested guaranteed income for all citizens in the hope of tackling the growing problem of mass unemployment.

It doesn’t appeal to everyone however. In June 2016, after a frank, open and occasionally heated debate, Swiss voters overwhelmingly rejected a minimum monthly income for all, with only 23% of voters supporting the plan. But looking at the logic behind Finland’s experiment, it can be argued that a basic income scheme has more advantages than disadvantages.

First, basic income will make the social security system much simpler by reducing bureaucracy, resulting in a fairer and more cost effective system that should end extreme poverty. The scheme will reward unpaid contributions to society, such as close family carers. And it could make people feel more secure in making changes to their lives – a safety net which might strengthen the nation’s sense of endeavour and enterprise.

Another important advantage is that a basic income scheme should almost completely eradicate the plague of benefit fraud, which costs the UK billions of pounds every year.

Race to the Finnish

Critics of the scheme feel it will reward and encourage laziness. Harsher sceptics have even likened the concept to reverting back to negative stereotypes of communist societies. But beyond fears of what might happen if a population is given “free money’”, perhaps the biggest concerns currently being voiced tie into immigration. Would a scheme like this give a country an unwanted “pull factor”?

It’s no secret that Europe is currently undergoing the worst migrant crisis since the World War II. Having a basic income scheme in Europe could make the continent an even more attractive place to live. Last year, the UK saw its highest level of net migration ever, with figures for the year ending June 2016 standing at 335,000. It has been suggested that Finland could see migrants turning away from the UK as they are pulled towards the country and the promise of an “easier” life because it offered a basic income. This argument was a dominant part of the Swiss debate.

Critics of the scheme also point to the issue of benefit tourism among European citizens who move from low GDP countries to higher GDP countries with absolutely no intention of finding work. You can see why there are more than a handful of doubters.

Yet among all the discussion, one key point seems to have escaped many people’s attention. The average private sector income in Finland is around €3,500 a month, making the basic income for unemployed just 16% of the average salary. Perhaps the question people should be asking is whether this is enough to pay for day-to-day living expenses in Finland, let alone be a pull factor towards the country?

This article was originally published on The Conversation. Read the original article.

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