Finland pilots radical basic income idea despite feasibility doubts

Country becomes first to pay basic income in Europe
By Jussi Rosendahl and Tuomas Forsell
|hrreporter.com|Last Updated: 01/19/2017
An office of Social Insurance Institution KELA, is pictured in Helsinki, Jan. 17. REUTERS/Tuomas Forsell

HELSINKI (Reuters) — A group of unemployed Finns have just become the first Europeans to enjoy a guaranteed basic income; from January a monthly pay cheque has begun arriving from the state, regardless of whether they find work or sit at home on the couch.

In its purest form, the basic income idea aims to prepare society for a future when robots and artificial intelligence may replace huge numbers of humans in the workforce. This will allow unwanted workers to lead comfortable and dignified lives while machines create much of the wealth to pay them, supporters argue.

The Finnish scheme has different, less lofty ambitions; while offering a safety net for those who cannot or choose not to work, it seeks to encourage the unemployed to take often low-paid or temporary jobs without fear of losing their benefits.

Swiss voters rejected the concept of an unconditional minimum income for all last year, but authorities in the Netherlands, France, Canada and the U.S. state of California are among those looking at the possibility, though mostly at a local government level.

Finland has gone further by launching a two-year nationwide pilot scheme. Last week, 2,000 randomly-chosen unemployed Finns got their first monthly payment of 560 euros ($597) under the trial in the Nordic country which is struggling to recover from a decade of economic stagnation.

"The participants get this money, no matter what," said Marjukka Turunen at the Social Insurance Institution of Finland (KELA), which runs the programme. "They can ... stay at home on their couches and do nothing if they settle for this basic income."

But Turunen, who heads KELA's legal unit, said recipients could also top up the basic sum. "They can take on part-time jobs or start their own business," she told Reuters.

The object is to tackle the "welfare trap" that afflicts many European economies - unemployed people often find they are better off on benefits than in work when it is available, creating a heavy burden on strained government budgets.

For Juha Jarvinen, the scheme offers an escape. A formerly bankrupt entrepreneur and father of six, Jarvinen said he couldn't believe his luck when he found out he had been chosen. "When I saw the letter, I felt like shouting yippee!" he told Reuters.

Jarvinen, an artist and joiner, said he had been unemployed for five years as taking part-time work was unprofitable and he felt returning to self-employment would have been too risky.

"I'm so relieved now that I can start doing something again. I can focus on developing my business without stressing about food," said Jarvinen, who lives in the small town of Kurikka, 300 km (180 miles) northwest of Helsinki.

"UNFEASIBLE REFORM"

The Finnish economy has struggled for the last decade due to a string of problems, including high labour costs, a decline of Nokia's former mobile phone business and recession in neighbouring Russia, a major trade partner.

Labour market data underline the welfare trap: the number of unfilled job vacancies has returned to its highest level since 2007, and yet unemployment remains at around 9 percent, with long-term joblessness rising.

Following demonstrations and strikes over cuts to public spending and labour benefits in the past two years, the centre-right coalition government hopes Jarvinen and many others can get back to work.

"Employers say they have problems finding employees for new positions. Unemployed people say ... even a small additional income either reduces their benefits significantly, or stops them altogether," said Social Affairs Minister Pirkko Mattila.

"Basic income is one solution to this problem," she said in a speech last month.

Nevertheless, the pilot has drawn criticism from economists, lawmakers and business lobbies. They variously argue that it is too narrow to yield credible conclusions, a waste of time and money, and an attempt to portray the government in a favourable light.

Doubts exist even in the National Coalition Party, a member of the ruling coalition, that such a scheme would work if applied across society. "I wonder if everyone understands ... that the model of this experiment is unfeasible," said Juhana Vartiainen, one of the party's lawmakers and a former head of the State Institute for Economic Research.

Under the trial, the tax-free monthly payments replace unemployment benefits, with the difference being they will not be reduced or halted if the recipient earns extra income for working during the period.

The monthly sum - roughly equal to the basic unemployment benefit that covers food, personal hygiene, clothing and other daily expenses - is supplemented, when necessary, with earnings-related benefits such as housing allowance.

However, it is only roughly a quarter of the proposed basic income payment of 2,500 francs that Swiss voters rejected overwhelmingly in a referendum last October. Opponents of that plan, which included the Swiss government, said it would cost too much and weaken the economy.

TAX-FREE PAYMENT

Sceptics says the Finnish pilot is poorly designed.

"This is a trial for a new kind of unemployment benefit, not for basic income. It targets only one population group, the unemployed, and lacks essential elements including taxation," said Markus Jantti, a professor of public economics at the University of Helsinki.

"The trial should have included all population groups, which in turn would lead to a larger sample size to be effective."

A working group of researchers had suggested having 10,000 participants, but the government viewed that as too expensive. The model with 2,000 jobless people is expected to cost a net 20 million euros.

If the model were applied across Finland's population of 5.5 million, it would need to be funded by raising taxes on middle- and high income-earners to ensure it cost no more than the existing system.

Without the tax component, the model would cost 10-15 billion euros if spread to all Finns, Nordea bank economist Olli Karkkainen estimated.

Finland already has some of the highest taxes in the world. State tax revenue equated to 44 percent of gross domestic product in 2015, compared with an average 34 per cent for the wealthy nations of the OECD.

With the basic income payments exempt from tax, the opposition accuses the government - which is nearing the mid-point of its four-year term - of trying to score party political points.

"The government was in a hurry to get a feather in its cap," said Joona Rasanen, a member of parliament for the Social Democrats, a party opposed to the whole idea of basic income.

"No matter what the results are, this model cannot be applied to the whole of society."

The government is looking into extending the pilot to a larger group. According to a social affairs analyst, the government wanted to make sure the trial was well underway before the next general election in 2019 when the sceptical Social Democrats might return to power.

"With that schedule, this was the best test environment that could be set up," said Markus Kanerva, managing director at Tänk think tank, who took part in the government-assigned research group.

"There are no guarantees that the trial could be followed up during the next government term," he said, but added. "This should be experimented on with a longer timeframe." 

($1 = 0.9376 euros)

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