27 January 2016

Finland’s universal income idea could transform economics and politics


Career politicians have become incredibly boring, which explains the appearance of rebel parties in every Western democracy. These new splinter groups include the Ciudadanos in Spain, the Front National in France, several years ago the Tea Party in the United States, and the Independentists in Catalonia and Scotland. It seems voters have understandably grown tired of accepting the same old tunes whistled from both the left and the right.

As soon as politics becomes show business, a demand for renewal is created. And not just for superficial reasons. The constantly recycled old programmes offer no solutions to difficult, long-term and often hereditary problems such as unemployment among the unqualified youth, or the excessive dependence of certain groups on the welfare state. The same goes for the debate on immigration, which is plagued by symmetrical discourses either battling against globalization or nationalism. These approaches have no practical effect, as migrants alone choose where they go.

New ideas are far from lacking however, and are incessantly provided by economists and sociologists in universities, laboratories, foundations and as part of published studies and books. But anyone would think that politicians read nothing, and content themselves with the advice of their closed circle of marketing consultants and dried-up slogan manufacturers.

This context adds an extra, stimulating twist to the ground-breaking innovation being prepared in Finland: universal basic income (UBI), often referred to by economists as a negative income tax. The concept is nothing new and is often attributed to Milton Friedman, who defended it with passion and flair in the 1980s. Regardless of its inventor, this concept was already available on the global ideas market and has been revived today.

The Finnish government plans to introduce the initiative this year, hoping to grant every adult citizen a monthly allowance of 800 euros, regardless of their income and situation. Whether rich or poor, each person will then be free to use this money as they see fit, based on the idea that each person, rich or poor, is responsible for their actions. If someone decides to spend their 800 euros on vodka, that is their decision, and has nothing to do with the government. In return this income implies the removal of most welfare services, which until now were granted by the government, based on income and obligatorily aimed at specific situations such as housing, children’s education and… property insulation.

The suppression of these specific welfare programs should free up enough public resources to finance the UBI, thereby creating a zero-sum game. The bureaucracy that currently governs welfare payments would become obsolete, and disappear. There would no longer be any need to ask for government help, nor to fill out forms or wait for the competent authorities to examine each dossier to decide whether it is eligible or not. The UBI should loosen the hold of public bureaucracy over Finnish citizens, and reverse a century of socialization from the top down. In practice, each citizen would automatically receive their monthly allowance, and would have to fill out a tax declaration form and reintegrate the allowance into their taxable income. The poorest citizens who does not pay income tax would keep their entire allowance, while other, higher-earners would repay a relative portion of their allowance in tax, which would provide the concept with a certain progressivity.

Despite such promising prospects, the Devil is in the detail, and we still do not know whether this allowance will replace every welfare programme, or if some will be maintained, such as help for the disabled.

One quite remarkable, extraordinary aspect of this project is that every major Finnish political party has approved it, showing it is neither left-wing nor right-wing. The left are reassured by seeing the arrival of government assistance for all as a form of universal socialism. And the right praises the unprecedented drop in bureaucratic control over citizens, an unheard-of extension of freedom of choice, and an unconditional restitution of part of citizens’ taxes.

The Finnish government is also expecting to enjoy beneficial effects on employment and growth. Regardless of age, the underqualified will be more willing to accept poorly-paid jobs, knowing they will continue to receive their UBI. By the same token, employers will be more willing to hire and fire, as the UBI will act as a social dampener. As national wealth figures always depend on the number of employed citizens, Finland is hoping for a clear growth spurt.

The allowance may also regulate migrant influxes if the government decides to only grant the UBI to citizens and legal residents. This project is so simple and apolitical that it begs the question why it has never been applied before. After all, the concept has been known to and lauded by economists for 50 years. We can only assume the political and bureaucratic classes fear innovation, and even more so the loss of any influence over society. The removal of a large swathe of the welfare state will in turn remove the ability to buy votes.

If the Finnish experiment works, all of Europe would follow suit. A similar situation occurred in the early 1980’s when American monetarism imposed itself and stemmed inflation, and when the British privatization trend became globalized. Perhaps in the future we will refer to a “Finnish model”, which will make ordinary politics more interesting, governments less heavy-handed and citizens more responsible.

Guy Sorman is a contributing editor of City Journal, a French public intellectual, and author of many books, including Economics Does Not Lie.