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Musings, The Finland Chapter

Finland Is Running A Basic Income Experiment, And There Is Much To Learn

Taken from http://cdn.images.express.co.uk/img/dynamic/78/590x/Finland-money-624756.jpg.

The key problem at the moment, with discourse about basic income, is that evaluations do not go beyond the superficial or the general.

The key problem at the moment, with discourse about basic income, is that evaluations do not go beyond the superficial or the general. By generalising the policy concept of the basic income – of a guaranteed income provided by the government to citizens – and therefore ignoring the specifics or the permutations of different models through which basic income could be implemented, policymakers moot perspectives which are neither conclusive nor helpful. The same tired arguments are rehashed. Proponents of the basic income argue that recipients could take up more productive or innovative exploits, and that governments could reduce bureaucratic expenditure, while opponents point to high costs and the reduction of work incentives.

Prime Minister of Singapore Lee Hsien Loong, when asked during an interview with “TIME” magazine, said Singapore cannot afford a universal basic income. “Nobody has done it. Even the Swiss voted against it. Silicon Valley thinks it will solve the problem, but it is a vast expense and we do not know what the social consequences will be of doing that”, he added. Though it is precisely this uncertainty, of not knowing what might happen, which justifies the value of an experiment. What the prime minister did not mention, moreover, was that experiments – besides Finland – are readied in Canada, France, and the Netherlands.

Which is why the universal basic income experiment in Finland is so fascinating. (Finland, where I spent six months in, also has a special place in my heart). “The New York Times” ran a feature on December 17, describing the experiment as underscoring “the deep need to find effective means to alleviate the perils of globalisation … to lessen the vulnerabilities of working people exposed to the vagaries of global trade and automation”. But what is even more useful is a 62-page working paper – translated and abridged from a report in Finnish – published by Kela, or the Social Insurance Institution of Finland, in September.

Across the eight chapters, the working group sketched the experimental setting, though its exploration and comparison of different models and designs for the Finnish basic income experiment were based on extensive research and microsimulations. Here, I have summarised the most important insights from the Kela paper.

What is the universal basic income experiment in Finland?

2,000 unemployed Finns, between 25 and 58 years old, will be randomly selected for a two-year trial from 2017 to 2018. Each participant will be given 560 euros per month (S$844), and the results will then be assessed in 2019. Participation is mandatory so as to reduce bias, and the primary goal of this universal basic income experiment – which may seem counterintuitive – is to “promote employment” (page 58), by creating more jobs and by activating more unemployed people in the economy.

The total cost of the experiment is 20 million euros (S$30.2 million), and it is also part of a broader policy endeavour to make social security more participatory, to reduce bureaucracy, and to simplify the existing complex scheme.

Why conduct an experiment?

Two reasons. The first – as alluded to in the beginning – is that policymakers know little about universal basic income and its effects. “Discussing basic income at a general level is not a useful basis for the experiment because even small differences between basic income models may lead to very different outcomes” (page 8), and thus far forecasts around the world remain speculative. An experiment, in this vein, would “form a basis for sufficiently reliable assessments on the incentive and other effects of basic income in different population groups and an estimate of the total costs” (page 7), allowing the Finnish government to make more informed choices.

And given the objective “to estimate the causal effect of a basic income scheme on outcomes” (page 11, emphasis mine), random assignment in this field experiment is important. For the next two years, basic income will be “provided to a randomly chosen subset of the target population, and the rest continue receiving benefits as before” (page 11), and in 2019 researchers should be able to estimate the average treatment effect between the treatment group (those who received the basic income) and the control group (those who did not).

Were other models considered?

The basic income of 560 euros per month (S$844) is a partial basic income model, chosen from a range of proposals: a full basic income model, negative income tax, participation income, general benefit based on the Universal Credit, and a basic account.

"From Idea to Experiment: Report on Universal Basic Income Experiment in Finland" / Kela.

“From Idea to Experiment: Report on Universal Basic Income Experiment in Finland” / Kela.

The working group compared the models across different dimensions, though three were the focus. First, a full basic income model, which would “replace a large proportion of other social insurance based benefits” (page 19). Along this tangent, a partial basic income model just means “the level of benefit is substantially lower and the aim is not to replace other current transfers to the same extent as in full basic income” (page 24). Second is negative income tax. While the aims are similar to basic income – of guaranteeing minimum income and providing work incentives – it is “income compensation by means of taxation when an individual’s income remains below the agreed minimum level” (page 37). And third, participation income, disbursed by the government when individuals become “active”. What counts as “participation” and its conditions, nevertheless, remain debatable (page 42).

Is there popular and political support for the experiment?

Opinion surveys were conducted in 2002 and 2015. In 2015, 69 per cent of all the respondents were in favour of basic income, with the median level of basic income at 1,000 euros (S$1,508). There were no major differences across demographics or socio-economic indicators, and support for basic income is consistent across the various political parties too.

"From Idea to Experiment: Report on Universal Basic Income Experiment in Finland" / Kela.

“From Idea to Experiment: Report on Universal Basic Income Experiment in Finland” / Kela.

There is, however, a very important caveat. “Respondents – high-income earners in particular – become much more critical when they were told the tax rates needed to finance basic income” (page 10, emphasis mine). This unwillingness to pay for the financial costs and the effect of increased taxes on political support have also been quantified: “The support [for basic income] went down to 35 per cent for a basic income of 500 euros (S$754) a month with a flat rate tax of 40 per cent collected from income exceeding the level of basic income. An 800 euros (S$1,207) basic income level and a tax rate of 55 per cent were supported only by 29 per cent of Finns”.

What were the practical concerns and limitations?

The hope is that this pilot study will be followed by a larger experiment, to address existing constraints:

  • The 20 million euros (S$30.2 million) set aside has to also cover administrative cost, so “the factual amount available for benefit purposes is less than [that amount]” (page 60). A larger budget would avail more manpower and resources.
  • Exclusion of the Finnish Tax Administration means no changes can be made to the tax system.
  • There is no testing of the basic income at different levels. Earlier, the working group said that “the dynamics of a basic income model can only be properly understood if more than one treatment group with different levels of basic income and tax rates is included in the experiment” (pages 12 to 13), but towards the end they conceded that “the time constraints placed on the legislative process limited the choice of the target population and research model” (page 60).

The unemployed were ultimately chosen as the sample for this experiment, because “up-to-date recipient registries maintained by Kela make it easy to draw a sample of unemployment benefit recipients” (page 61).

About guanyinmiao

A man of knowledge lives by acting, not by thinking about acting. Carlos Castaneda.

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