Tag Archives: Finland

Basic income, revisited: the Finns are on it!

Until recently, I lived and worked in Belgium, and benefitted from a benevolent state taking care of me. I received lunch vouchers for around €100 to €150 a month. Plus ‘ecological vouchers’ for organic products or train travel. Plus ‘sports and culture’ vouchers, for, well, sports and culture. My monthly contribution to the public insurance fund came in at a very modest €8,00, and my own contribution for most treatments was fairly low. Had I lost my job, there would be an expansive social security system where I could get support. Sounds good, doesn’t it?

Well, I spent my time in one of the most heavily taxed countries of the world. Relatedly, Belgium ranks on top of the list across the OECD as for the labour costs – income tax, and employees and employers’ social security contributions. Over half of the wage costs of a Belgian employer account for income tax and social security contributions. Or in other words: it costs over €4,000 to have an employee with a take home pay of €2,000.

Tax wedges in OECD countries. Source: OECD

Tax wedges in OECD countries. Source: OECD

Basic income, revisited

Even if you agree with the noble goals, and despite the correlation between high taxes and happiness, wouldn’t it be a lot better to remove this money pumping function of the state? If a tax reform increased  my net salary by the same amount, I’d have happily foregone all my vouchers and started paying an amount closer to the real cost of my insurance. Sweet and simple!

Last year I already wrote about the possibility of using basic income as a tool to simplify social spending. At the time – just after the Swiss voted ‘no’ in a referendum on the subject – I saw the possibility to get rid of series of tax breaks and charges that have little more effect than creating employment for tax collectors on the one side and tax consultants on the other.

Two things made me revisit the issue. Firstly, the policy discussion on basic income has advanced: more studies have been produced, and Finland’s experiment is underway. Secondly, we are getting a better picture on how basic income can help us solving social problems around globalisation and automation (the robots are coming, and they may give us the cash we need!). Let me take the second issue in a later piece, and look at the policy discussion now.

The Finnish experiment

Finland’s national experiment with basic income launched in January 2017, and contrary to other recent tests has nationwide coverage. 2000 selected Finns now get a monthly sum of €560 – no questions asked. That’s a modest amount, compared to the €2,500 national average wage. It’s not universal basic income per se, though. The participants are all unemployed; typical employees and billionaires don’t get basic income. Kela, the Finnish social security body that organises the experiments, deducts basic income from other social spending, so that basic income mostly replaces existing tools. Despite these limits in scope, the basic income is fully unconditional: participants are free to spend the money any way they like.

While Kela is clear that conclusions will only be reported after the end of the experiment, initial feedback confirms earlier anecdotal evidence that basic income increases the sense of freedom and happiness. Vice went to speak to Juha Järvinen, an artist who feels basic income allows him to focus on what he enjoys: creating the shaman drums that he sells. For Järvinen, the money is not the main advantage of the experiment: “you need to be a magician to survive” on €560 a month in Finland. Instead, it’s the fact that the employment office is not at his back all the time that gives him a sense of liberation. The basic income provides a first basis that makes it easier to undertake the project he likes. He recognises that with this level of spending a beneficiary couldn’t simply be lazy and do nothing, as some adversaries of basic income fear.

Left-wing and right-wing basic income

The Finnish government is a centre-right one, and this is visible in the design of the experiment. Typically, many proponents of basic income are centre-left, focusing on the benefits basic income offers to personal freedom and development, and quality of life. From a left-wing perspective, basic income is about citizens’ rights and distribution of state means. Basic income could then be a tool to ensure that citizens have equal possibilities, and that people of poorer or minority groups are not worse off.

The centre-right perspective would rather emphasise simplification and reduction of state spending. Basic income could replace up to 100 tax incentives in the Finnish case. This is also a key condition to ensure that basic income remains affordable, they argue.

Can we pay it?

That begs the critical question: can we afford basic income? The low Finnish basic income is set up with affordability in mind. It’s not an easy question. The answer of the advocacy group, the Basic Income Earth Network (BIEN), boils down to ‘it depends‘: if we narrowly redistribute existing benefits, it could work. However, if we maintain all existing benefits and then add a broader basic income for everybody to live comfortable, governments will struggle to find the means.

Is basic income better than current social spending?

The Organisation for Economic Cooperation and Development (OECD) weighed into the debate via a study outlining a slightly different question: does basic income reduce poverty and increase equality? The study started with the observation that social expenditure is targeted in wildly different ways. As of 2013, the 20% richest in the average OECD country benefitted only marginally less from cash transfers than the 20% poorest. In most countries, the poor obviously benefitted more from transfers than the rich. But in a few countries, particular subsidies worked out in a net transfer from everybody else to the rich, including Greece, Italy, Poland, and Portugal.

Beneficiaries of cash transfers in OECD countries, 2013. Source: OECD

Beneficiaries of cash transfers in OECD countries, 2013. Source: OECD

So, does basic income do a better job? According to the OECD, it probably doesn’t. If basic income were to be set at the level of current spending -  a narrow basic income – it would remain below the poverty line across all OECD countries, sometimes staying far below. Not surprisingly, if you consider that at present only a share of the population benefits from public spending. As such, basic income would risk distributing from the poor to all. Then, it could draw similar criticism as some education grants do: funds paid for by the baker and the electrician to finance the career investment of the lawyer’s son.

Redistribution from the poor to all

Looking at modeling of how basic income could work in Finland, France, Italy, and the UK, the study finds that a narrow basic income indeed would not reduce poverty. Rather than sharing wealth, the changes in public expenditure would redistribute poverty along different lower-income groups. As such, simply pooling existing benefits and reallocating them as basic income is not the right solution. But there might be other ways – maybe robots could come to rescue? That, however, is a topic for another post. See you later!

The Nanny State: repression of happiness?

It’s a pedagogic dilemma all parents will face: should we be strict to our children and prohibit them to do things that are bad for them? Or should we give them the freedom to learn for themselves that sand is not tasty, that you can fall if you climb a tree and that a drink too many has dire consequences the next day?

At the state level, similar dilemmas arise. Social-democrats traditionally don’t scare away from a dose of paternalism to educate citizens. Libertarians, on the other hand, abhor states that coerce a certain type of behaviour. Which recipe works best to develop a happy society?

Two weeks ago, I addressed the question “does size matter” – when it’s about the size of the state and happiness levels, that is. The evidence indicated that some of the happiest states are smaller countries, and that after a certain level? There is – surprisingly – a positive correlation between higher tax and higher life satisfaction. Does that also mean that a more active government, a Nanny State, could contribute to higher levels of happiness?

Nanny State Index

Republicans in the US and liberals in EU States – such as Dutch PM Rutte – agree on one thing: big government is big enough, and the state shouldn’t interfere too much with individuals’ life. That’s also the thought behind the Nanny State Index. It has been developed by liberal or libertarian think-tanks, and maps the strictness of regulation affecting personal choice in the 28 countries of the EU.

The Index lists four areas: e-cigarettes, tobacco, alcohol, and food. There is quite a difference in the freedom of access to this products across the EU. For instance, in Sweden alcohol is only available in state stores and e-cigarettes are effectively prohibited in Belgium.

Altogether, two of the paternalistic Nordics, Finland and Sweden, top the list. They stay ahead of UK and Ireland. As a result of strict rules on tobacco and so-called ‘sin taxes’ on unhealthy foods and drinks, Hungary completes the top-5. Denmark, which one might expect to be in sync with paternalist Nordics, only ranks 12th. On the lower end of the scale, we find Netherlands, Luxembourg, and Germany. The freest country of all is… the Czech Republic.

Nanny State Index. Source: www.nannystateindex.org

Nanny State Index. Source: www.nannystateindex.org

 

Does repression, or freedom, bring happiness?

Is there any correlation visible between being a nanny and low and high happiness levels? The evidence is difficult to interpret: the three top-1o countries of the World Happiness Report rank at different places in the Nanny State Index. Swedish is on top of the list, the Netherlands at the bottom, and to confuse the picture further, Denmark is mid-way in the table.

The implication might be the following. Policies may work out differently in different settings. It’s probably the same with children: all are different. Some kids will exploit freedom and end up in troubles; other will feel their confidence strengthened and will be good and happy citizens.

Basic income: utopian dream or the road to happiness?

Few ideas are more exciting for a happiness economist than a basic income. It sound like utopia: free money for everybody. Could it actually work?

The Swiss basic income referendum

The Swiss electorate had the chance to have its say on Sunday. And the answer is a resounding ‘no’: 77% of the population opposed the idea of a basic income. In the design for the Swiss referendum, the basic income would be unconditional: nothing would be demanded from citizens in exchange for the transfer of money. The level of the basic income would have to be set by law, according to the initiators, but they argued that 2,500 CHF for adults (around 2300 Euro) and 625 CHF for children would be an appropriate figure. That sounds like a lot, but remember that Switzerland is rich: a salary for a supermarket worker is around 3,000 CHF.

Proponents of the basic income argued that it would “enable the population to live a dignified life and to participate in public life”, providing people the freedom to live their life as they want. They also argued that basic income would be needed in an age where robotisation and digitisation would mean that many current jobs won’t exist anymore in ten years. The basic income has also been portrayed as an easier way to provide social security in a modernised and more efficient welfare state.

Opponents argued – not surprisingly – that the math behind the idea doesn’t add up. According to estimates, the Swiss state would spend around 200 bn CHF, or 35% of GDP, to pay its citizens such a basic income. It would require around 25 bn CHF extra in taxation revenue (which may have pros, as we saw last week) or expenditure cuts to finance the scheme. Beyond that, the idea would risk to destabilise the entire economy, as people wouldn’t work as much as before. In addition, there were moral arguments on the national laziness that would ensue.

Switzerland won’t have a basic income. But don’t believe proponents are demotivated by the loss. Instead, they see the fact that over 20% supported such a radical income as a sign that the real public debate is only about to start.

Performance by the initiators of the referendum, who dumped 8 million coins at a square when they reached the necessary number of 125,000 signatures to call the referendum. Source: Wikipedia,

Performance by the initiators of the referendum, who dumped 8 million coins at a square when they reached the necessary number of 125,000 signatures to call the referendum. Source: Wikipedia,

A Finnish experiment in simplification

While I am sympathetic to the idea, I do have my doubts on the math. It might be worth studying the consequences of a basic income for a smaller group, before implementing it for everybody. That is exactly what will be done in Finland: in 2017, it will provide a basic income to 10,000 lucky sampled citizens. Participation is mandatory. Importantly, the Finnish experiment will also simplify the social security system as part of the exercise.

Some proponents support basic income as a way to rationalise the various categories of social expenditure. Finland has around 100 different categories of social security spending, and during the experiment 50 of these would be replace by one single basic income. Also in other countries, citizens are subsidised for several hundreds of euro per month, for instance via services accessed for free. Couldn’t all this be simplified into one basic income? Or would it still be impossible to fund it? The Finnish experiment will be closely watched.

Free money, a way to happiness

Even if we may be unable to introduce free money for all, there are a couple of lucky people who actually received a basic income. The German foundation Mein Grundeinkommen crowd-funds a basic income: every time when they’ve gathered 12,000 Euro, one winner gets a basic income for one year. And according to its director Michael Bohmeyer (who receives his own monthly 1000 Euro basic income via the proceeds of shares in the company he left), the results are amazing.

Speaking at a panel discussion in Brussels, Bohmeyer told how he feels a lot more free, secure and relaxed with his basic income. When receiving the income, he realised how much people are in running mode every day. Work and the need to have a salary to provide for our life results in a lot of stress.

In his experience, that doesn’t mean that nobody would work anymore if they receive a basic income. Of the around 40 people who won a basic income through the lottery, all but one continued to work. And maybe it’s an issue of low trust in others: when asked if others would still work when they have a basic income, around 80% said no. When the question was if they themselves would still work, around 90% said they’d continue to work, says Bohmeyer (video in German).

Basic income may not only about simplified social security, but also about a better work-life balance and higher happiness. Let’s hope that the Finnish experiences shows that it is actually possible to get the math right.

For another passionate case on basic income, see the talk of Rutger Bregman, a Dutch journalist and basic income enthousiast. He wrote a book on the basic income under the title ‘Utopia for Realists‘.