Finland’s Ministry of Social Affairs and Health has just published a press release, announcing an experiment based on a partial basic income (< 800 €/month), instead of a full basic income (> 1000 €/month). Although the latter had also been considered for the experiment, it appears that the government has decided that the experiment should be conducted as a partial basic income, specifically 560 €/month. Here are the reasons for which Kela decided to recommend against running the trial with a full basic income:
- It would imply higher taxes;
- It would result in lower earnings-related contributions to unemployment and pension funds;
- Low income earners might quit contributing to unemployment funds and joining trade unions.
Let’s address each of these points:
- Kela links the higher tax rates with the “incentives for work”. The argument is that the former will lead to a reduction in the latter. Why? Ok, so a person on a job will pay more taxes. Assuming these taxes are maintained under reasonable levels, why is Kela assuming these people will stop working? Kela assumes a purely economic standpoint here – meaning that, according to Kela’s logic, people’s decisions, and particularly those related to work, result exclusively from monetary arithmetic. This logic, ironically, is completely non-economical in nature. Kela is assuming that people’s interests, preferences, and particular drives to do things for reasons other than money are not important, and hence can be discarded. Furthermore, Kela assumes that the possible effects of these preferences and drives on the experiment are not even worth trying to capture or understand. Stripping the argument from its technicalities and white-collar language, it can be reduced to the most common, basic, and prejudice-laden argument against basic income: that with a (full) basic income, people will stop working (“the laziness argument”). Nothing about the nature of the work itself is mentioned – such as whether it is socially useful or not, or whether it is contributing or not to people’s sense of belonging and happiness. The only thing that concerns Kela’s officials, analysts and institutional partners is whether a person stays on the job (whatever that job may be): if he/she does (or if an unemployed person becomes formally employed), that’s great; if not, that’s bad. Let’s not forget this is an experiment. If doubts exist, it’s precisely by undertaking an experiment that we might understand more about the subject being tested – in this case, ourselves. If the experiment is only intended to confirm what we already know, then it’s not an experiment: it’s a purposeless act taken only to gain collective confidence, much closer to public relations than science.
- Kela’s second argument goes like this: if people receive a full basic income, then why would they bother saving for unemployment and pension funds? Of course, these savings would be nonsensical at amounts lower than the basic income. But if someone has an average income above the basic income threshold, then a certain amount of unemployment and/or pension saving could be a wise investment, in order to maintain the same level of earnings in case of unemployment and retirement. For sure, this implies that, overall, there would be reduced contributions to unemployment and pension funds. But would that be a bad thing? After all, with the existence of a full basic income, people’s need for unemployment or retirement security would be reduced, so these funds wouldn’t need to be as large as they are today. Anyway, unemployment and pension funds are composed of money belonging to those who have directly contributed to them (or they are supposed to be). So they should only be as large as those people’s need for them. So what if a person stops paying their contribution to unemployment and/or pension funds because now he/she has a basic income? Nothing really happens, other than that the person will have a smaller amount of money to draw from when he/she becomes unemployed or retired. However, that person would never sink below the basic income level, and so a basic safety would always be in place.
- The first part of Kela’s third argument has already been dealt with in our second point. So, the remaining question is just about unionization. Why does Kela assume that joining a union is so important—so important, in fact, that a decrease in union membership could justifying not even testing a full basic income? Trade unions represent a certain kind of vision about work which is declining. In the USA, in the last fifty years, trade union membership has declined from around 33% (of all employees) to about 10% nowadays (Planet Money, 2015). Also in the UK, the number of registered union members has sharply declined in the last 35 years, from 13 million in 1979 down to 6.4 million as of 2014. A moderate to strong reduction in trade union membership has occurred in most other European countries as well, including Finland (Henrique de Sousa, 2015). At the same time, self-employment has been on the rise in several countries (e.g.: Austria, Belgium, Ireland, UK, Netherlands, Czech Republic, Finland)– although, in the European Union overall, it has stabilized around 16.7% since 2008 (World Bank). The vision of work that the trade unions represent includes fixed working periods, clear employer/employee relations, fixed negotiated incomes (collective bargaining), and holiday arrangements. All of these are getting less relevant as the time goes by. This comes with the acute rising of work flexibility, uncertainty over work periods and earnings, and the increase of precarious working conditions (Guy Standing, 2011). Precarity, unions’ number one enemy, does not necessarily represent a problem if a full basic income is in place. Unions were formed to give workers collective bargaining powers over wages and working conditions; in their absence, the threat of destitution was constantly used by employers to retrain and control workers. The employers could push less favourable deals onto workers, who were forced to choose between a bad deal and poverty. But this relationship, based on employees’ fear and employers’ abuse of power, need not exist – and, under a full basic income, would not exist. This makes sense because individual workers would have the personal bargaining power that a full basic income brings. Being part of a trade union would thus cease to be a necessity, and turn into a mere preference. So, reduced unionization is no grounds for rejecting implementing a full basic income, let alone merely experimenting with one.
Kela is rejecting a full basic income out of fear. This is an experiment. Of course there are issues, but that is exactly why the experiment is needed in the first place: to look at the extent of the consequences, within a controlled setup, before any full implementation. And experiment is needed to study the effects, expected or not. And to observe changes in people’s behaviours, when they are able to enjoy (during the experiment’s limited timeframe) a larger degree of freedom that they have never experienced before. I, for one, think that it’s entirely worth it. For the future of Finland – and of humanity.
More information at:
In Finnish:
Olli Kangas & Ville-VeikkoPulkka (eds.), “Preliminary report on a universal basic income”, Prime Minister’s Office, March 30th 2016
In English:
Ministry of Social Affairs and Health, “Ministry of Social Affairs and Health requests opinions on a basic income experiment“, Sosiaali-Ja Terveysministeriö; August 25th 2016
Planet Money, “50 years of shrinking union membership, in one map”, February 23rd 2015
Department for Business Innovation & Skills, “Trade Union Membership 2014 – statistical bulletin”, June 2015
OECD Data, Self-employment rate (% of employment, 1990 – 2015)
World Bank, Self-employed, total (% of total employed)
Guy Standing, “The Precariat: the new dangerous class”, Bloomsburry Open Access / Creative Commons, 2011
In Portuguese:
Henrique de Sousa, “Sindicalização: a vida por detrás das estatísticas [Unionization: thelifebehindthestatistics]”, WorkingPaper, Faculdade de Ciências Sociais e Humanas, September 2011
Article reviewed by Ali Özgür Abalı, Kate McFarland and Tyler Prochazka.
Zerohedge – “Finland unleashes helicopter money” red: Milton Friedman’s version of basic income, his final solution against the entitlement state.
Finnish “a monthly basic income of 560 euros (approx. $600). That basic income will replace their existing benefits”,
is Milton Friedman’s version of “basic income”.
How much is not enough? This can be found said about Milton Friedman’s version of a basic income as his final solution against the entitlement state:
– “The neoliberal version, as theorised by the US economist Milton Friedman (1912-2006) is his negative income tax, “Prescribes a basic income too low for people to get by without a job”.
Such an income, works like a subsidy to employers, to cut workers’ pay.
– It would also be a ‘final settlement’, replacing existing welfare benefits – health insurance, unemployment and family benefits, old age pensions.”
Finnish Basic Incomers (is that a word), you have been had (or how does one say that in Finnish?)
A formula for an ‘actual’ basic income calculation adheres to, grosso modo,
GDP – (labour) cost – investments – dividend = subsistence (+ rent + food etcetera ) + possible citizen dividend (discretionary wealth distribution e.g. Alaska oil revenues)
then divided – per capita / per age group / per household.
There you go.
The obvious moral hazard is degradation of competitiveness which should be addressed by a reshuffling of income opportunities, or rather, this will be set by an ‘shifted’ equilibrium.
A real concern ‘vis-a-vis the supposition of a civilized society’ is this.
It seems to be that in historical periods of macro-economic contraction, were we now also live in that specific period of ‘fiduciary money’ or so-called ‘fiat’ money that can be monetized, that in such historical periods of macro-economic contraction,
parts of society apparently still collapse into humiliation, poverty, squalor, ruin, naked eyesore and actual filth.
A society whose financial establishment cannot provide for a solution, involving monetarization towards dilapidation, deprivation and ruin,
such is still, a barbarous society.
When, in particular in the american example, a societies doctrine can be found for instance in Hobbes’ Leviathan as this is still taught and subscribed to in its all-important military industrial complex and its circles of most influential schools of economic thought,
such a society is actually not very far removed from the Huns.
And with my apologies to the actual Huns.
– Finland Unleashes Helicopter Money In “Greatest Societal Transformation Of Our Time”
http://www.zerohedge.com/news/2016-08-31/finland-unleashes-helicopter-money-greatest-societal-transformation-our-time#comment-8041963
“What stops the employer to close shop and go on basic income?” Economist reasoning is that if enough employers or shopkeepers would close shop, by equilibrium, new actors would step forward to open shop, because the prospect of profit margins would have gone up.
Rome’s capital controls on sellers is light-years removed from the present-day reality of uninhibited movement of capital. In today’s world the method for government to pay for basic income would be taxation, which is very bad idea in a contracting economy, we would see additional layers of taxes, if it weren’t for the fact that because of the modern Internet we now all know that money is created from thin air.
In our new world of the Internet expert system, new economic thinking, not by politicians but by hedge fund managers amazingly, has come to conclude that something equal to basic income should be partly or fully funded by so-called financial monetization, which is printing electronic money.
This is because we’re ending the era of capitalist growth, where the competitive search for yield opportunities has now ended in a quagmire of capital saturation, the reason why pension funds are now in such immense trouble.
We are equally at the beginning of the era of robotization which will create havoc in the unemployment numbers.
This is why major funds money managers have come to conclude that the only way out now is not more taxation, nor borrowing from the FED which puts an interest charge on the money circulation,
but, since our money these days has no more intrinsic value, to simply just print the money up to a certain point, to restore demand but not trigger unwanted inflation.
This is what you could call “new money logic”.
If only the likes of a Janet Yellen or a Lawrence Summers wouldn’t be lying through their teeth about this, this could become actual reality.
https://www.youtube.com/watch?v=D7ULrA3SdMc&lc=z13ctjqrymfawf0um22ffdr5sneje5m3l.1472654590327617