Tag Archives: Social Security

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!

Can we replicate Denmark’s success story?

Last week I gave an anecdotal explanation to Denmark’s happiness. To complete the story, today I would like to ask what the Danes think themselves about their high levels of happiness, and whether it’s a success can be replicated elsewhere.

What do Danes think themselves?

If I believe what Meik and Marie Louise from the Happiness Research Institute say, I get the impression that Danes find the interest in their high happiness levels amusing and comical. Danes tend to point at what is not good in Denmark: mental health issues and depression, a complex relation with immigrants, a reputation of not being too outgoing. Part of the disbelief, says Meik, may have to do with the fact that ‘lykke’, the Danish word for ‘happy’, is a term for quite an extreme term. Jante’s Law in mind, it’s probably to say that things are not bad than that they are amazing.

Can we replicate Denmark’s success?

Whether it is through well-crafted policies or a lucky coincidence of getting many things right, Denmark as a state manages to achieve one of the highest levels of happiness. Is there anything in Denmark that can be replicated elsewhere? My feeling is there are three factors that can be easier taken at heart elsewhere:

  • Urban design. Certain factors in the design of a city are related with the happiness of its citizens. A city like Copenhagen is easy to navigate, has green spaces close-by in various neighbourhoods, and can be travelled by bike. This allows people to get around easily and to be active, and the example can be followed elsewhere. The term ‘Copenhagenize‘ has already been used to drive the use of bicycles into other cultures.
  • Work participation. I believe work-life balance (also cited in the Happy Danes report) is an important factor in Danes’ levels of happiness. Acceptance of flexitime and working from home, subsidised creches and generous maternity leave, a full year to be divided by the two parents) are helpful. This allows people to pursue a career and benefit from the overall positive impetus for happiness levels of work, whilst maintaining a meaningful relation with growing children.
  • Strive to take away barriers. Kristian mentioned he does not have to worry about healthcare or education. If such services are accessible for all, this can prevent worries resulting in unhappiness. In other countries, such as the US, the belief that it’s people’s own responsibility to reach success in life is a barrier in the pursuit of happiness. Without wanting to sound like a communist – if US politicians want to increase quality of life, raising taxes to decrease the cost of health and education may provide part of the answer.
Copenhagen is full of bikes. Photo by Kasper Thyge/Visit Copenhagen

The size and design of Copenhagen help people to get around by bikes, spending little time on work-home commutes and being active on the go. Such a policy can be replicated elsewhere. Photo by Kasper Thyge/Visit Copenhagen

An anecdotal explanation to Danish happiness

Why is Denmark so happy? And most importantly: which of Denmark’s lessons can we replicate in other countries?

These were my main questions during a short study visit to Copenhagen that I undertook last week. Denmark routinely tops the rankings of happiest countries. In the 2015 World Happiness Report, it lost two places (going from 3 to 1), but it still the happiest country of the EU. And it is home to a dedicated think-tank on the issue: the Happiness Research Institute!

Another observation: Danish flags are everywhere

Another observation: Danish flags are everywhere. One day walking around in Copenahgen, we counted about 80 of them!

Let’s first share a couple of my findings and observations from three days in Copenhagen. And then, next week, I’ll provide my answer to the question whether Denmark’s secrets are unique to the land of the Dannebrog (the omnipresent flag) and Smorrebrod (Danish sandwiches served with fish, meat or potatoes), or whether they can be implemented elsewhere.

My findings

These findings are based on impressions and conversations with people over a couple of days. If you allow me, I’ll be a bit anecdotal today; I’ve discussed a more evidence-based list of factors identified in the Institute’s report on the Happy Danes before.

Opportunities to live the good life…

Our host Kristian identified two possible theories behind Denmark’s high happiness levels: firstly, Denmark offers plenty of opportunities to live a good life. At the cost of high taxes, the state takes many reasons to worry (and unhappiness) away: healthcare is free, and students cannot only attend university without any tuition fee, but also receive an allowance to do so.

At the same time, there does not seem to be a dominant path set out for you. It seems individuals have the possibility to choose their lifestyle quite freely. In Danish, there is no formal version of ‘you’, even the Prime Minister is a ‘you’. Compare this  to the difference between informal and formal in many languages, such as du and Sie in German, or titles like ‘Sir’ and ‘Dame’ in the UK social class system. Even the Danish royals seem to be down-to-earth: our tour guide’s repertoire includes an anecdote about petting the royal dog and entering a conversation with Crown Prince Frederik and princess Mary on the street.

… but low expectations?

The second theory Kristian cites is that low expectations about life can be a factor. As the expression has it, low expectations are key to a happy life. According to Danish-Dutch philosopher Stine Jensen’s, the so-called Law of Jante can explain the unpretentious mentality of the Danes. Half-ironic, half-serious the law of Jante drawn up by writer  Aksel Sandemose formulates ten rules Danes (and other Scandinavians) are required to live by. These include:

  • You’re not to think you are anything special.
  • You’re not to convince yourself that you are better than we are.
  • You’re not to think you can teach us anything.

Happiness is within easy reach

This attitude and the small scale of the Danish society, at some 5 million people, could possibly explain why Danes live well together in their community. In a sunny May weekend in Copenhagen I observed a vibrant social life. With many Danes, I spent my Saturday night on the Tivoli Lunapark, and on Sunday in amongst hipsters in the Papiroen Street food Mekka and amongst hippies in Christiania. At the same time, the sun didn’t only colour my face but also bias my view. On a grey and cold March days, when winter is in its seventh month, there’s little to be ecstatic about.

That’s it for today. Next week, I’ll get to two other questions: what do Danes think themselves about their high levels of happiness, and can their lessons be replicated their elsewhere?

IMG_2615

Sitting on a sunny terrace at the waterfront, happiness is within easy reach