Finland’s government is currently drawing up plans to give each of its citizens 800 euros ($900) a month and scrap most forms of welfare payments. The country’s government will make a final decision on whether to enact this plan in November 2016. The Netherlands is considering a similar plan. If approved, Finland will be the first country in the world to pay its citizens a universal basic income (UBI).
Universal Basic Income, the guarantee of an unconditional minimum income for everyone, is not a new concept. Its proponents have ranged from Thomas Paine to Milton Friedman. However, until recent years, it had largely been dismissed as little more than a utopian thought experiment with no serious attempts being made by any government to implement it on a nationwide scale.
In recent years UBI has been generating much serious discussion and interest among policymakers. It is uniting economists from both the Left and Right, who now see UBI as a simpler, fairer and more effective alternative to the paternalistic and wasteful 20th century welfare state which has failed to live up to its promises.
Finland’s large welfare state is characteristic of all Nordic countries and social security spending there is currently running at about 31% of GDP. In an economy which has been suffering for years from high unemployment and low productivity growth, this level of public expenditure and the accompanying tax burden is not sustainable.
Kela, the government agency in charge of social security provision, released a report on the government’s proposed implementation of a UBI. In the summary section of its report, Kela outlines the reasoning behind the plan:
“The basic income experiment [sic] is one the measures in which [sic] the aim is reform the Finnish social security system in accordance with changes in working life, to make social security more participatory and incentive-based, to reduce bureaucracy and simplify the complex benefit system in a manner that would be sustainable from the perspective of general government finances.”
Won’t it just make people lazy? Well, no. The evidence suggests otherwise. In past experiments where poor people have been given unconditional grants of money they have tended to invest the money in things that would improve their lives such as housing, education and businesses. Also, the fact is that very few people in advanced economies go to work purely to avoid starvation and homelessness. We aspire to more than just survival.
Many of UBI’s proponents argue that UBI will actually incentivize more people into work as it avoids the welfare traps that deter people from going into full-time work as they would hardly be much better off than if they remained on welfare. As UBI is paid regardless of circumstance, the incentive to seek employment would be significantly greater.
There can be no doubt that many of the people currently dependent on one or more of the bewildering array of welfare programmes on offer have effectively become wardens of the state instead of dignified, independent, self-reliant and productive individuals. Given that the total abolition of all welfare programmes would be catastrophic for a society which has grown dependent upon them, UBI offers a promising alternative.
Such a system would provide what current welfare systems aim to do in a fairer and more efficient way while eliminating many of the negative effects. UBI could replace the untidy mess of current welfare programs with a single comprehensive system of direct payments which would negate the need for a sprawling bureaucracy while assuring that no citizen would see their income fall below a certain amount.
Implementing UBI would be expensive to be sure. But in most advanced economies welfare already accounts for a hefty chunk of GDP and much of it is wasted on simply administering the multitude of programs on offer. Only a fraction of the funds actually reaches the intended recipients in the form of cash payments or services. A significant amount is skimmed off as the money filters from top to bottom through the Byzantine state bureaucracy.
For libertarians UBI offers a tantalising opportunity. By liberalising the economy, the gains from all the productive and creative energies unleashed could easily pay for the UBI. By raising the floor from starvation and homelessness to a level which meets all the basic needs for a dignified existence.
In the long term, the UBI could replace all forms of welfare including state-funded healthcare and education. Individuals tend to make wiser choices when spending their own money on themselves rather than bureaucrats spending someone else’s money on someone else as the former has far more of an incentive to get maximum value for their money than the latter spending someone else’s. Furthermore, we could afford to do away with the minimum wage without the risk of causing distress to millions of workers. On the contrary, this one measure could well create millions of employments opportunities for those currently priced out of the labour market by minimum wage legislation.
Will the Finnish experiment offer a preview of a better future? Only time will tell.
* William Dry works in project support in the construction industry and promotes economic and social liberty in his spare time.
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