by Guest Contributor | Aug 18, 2017 | Opinion
According to the OECD, basic income (BI) is not an effective tool for reducing poverty. However, the outcome would depend on the model chosen for implementing a BI system, as well as the changes made in other parts of social protection.
The Organisation for Economic Co-operation and Development (OECD) published in May a Policy Brief paper studying the feasibility of a basic income model in four OECD countries, one of which was Finland.
On June 16, Kela organized a seminar in which Herwig Immervoll, a senior economist at the OECD, discussed the findings of his study and analysed the strengths and weaknesses of a BI scheme. After the seminar, the national broadcasting company YLE reported: “Universal basic income might increase poverty and inequality”.
Apart from Finland, the OECD study includes France, Italy and the United Kingdom. The analysis was done with the help of the EUROMOD microsimulation model. In each country, the starting point for the analysis was to take all existing spending on social cash-transfers together and see what level of BI they would amount to. Eventually, the level of BI was set near the existing levels of guaranteed minimum-income benefits for single individuals in each country, adjusted so that it would not increase the public expenditures.
In Finland, this resulted a BI of 527 euros for the working age adults and 316 euros for children and youth under 18 years of age. Those entitled to old-age pensions within the current main statutory retirement age (in Finland over 65-year-olds) were excluded from the BI model.
In the BI model used in the OECD analysis, all existing working-age benefits (including social insurance benefits) apart from cash transfers for housing and disability would be abolished. Also, the zero-rate tax bands of income-tax schedules and equivalent tax-free allowances would be abolished, and all income-tax thresholds would be shifted downwards by a corresponding amount. BI would be made taxable under personal income taxation alongside other taxable incomes.
The OECD model would create many gainers and losers
The most important outcome of the OECD study is that the simulated BI model would strongly impact the income distribution in all studied countries. However, the effects vary greatly among the countries.
In all income groups, the BI model would create many gainers and losers. It would change the net income of most people in one way or another. It would lift some groups out of poverty and thrust others below the poverty line.
The simulated BI model would increase the income level of those small income groups who are currently not receiving any social benefits, or whose benefit level is very low. In turn, those receiving earnings-related benefits or several means-tested benefits would see a decline in their standard of living.
In Finland, those below 65-years-old receiving old-age pensions and single parents with low incomes would be among the losers of the model. The middle-income earners instead would generally benefit from the model.
The conclusion of the OECD is that particularly in countries with a comprehensive social protection BI is not an efficient tool for reducing poverty, since it does not target the benefits effectively. According to the OECD, a budget-neutral BI would not be distributionally neutral. High enough to be socially and politically meaningful and fiscally realistic, a BI would still require tax rises as well as reductions in existing benefits.
A very low basic income, instead, would have little other significance but increase poverty.
The outcomes of BI depend on reforms in taxation and social protection
How the findings of the OECD study are to be interpreted in the Finnish context?
Perhaps the most important issue that the research sheds light on is the fact that there are many institutional challenges in implementing a BI system, and those challenges differ among countries due to their different systems of social security and taxation.
As the OECD report (p. 5) notes, BI as an idea is simple, but the existing social protection systems are not. Therefore, there are grounds to argue that the same model of BI does not fit everywhere. If a reform such as BI were to be carried out, it needs to be adjusted to the existing institutions of social protection and taxation in each country separately. The parameters of the model should be adjusted so that it will not produce excessive changes in people’s incomes.
The greatest problems of the OECD’s microsimulation are that the income taxation is not changed to correspond with the BI model, and that the existing systems are demolished by the same means everywhere without examining the structures of social protection in each country separately. Due to this, BI seems to have unpredictable effects to income distribution.
The income distribution produced by a BI model can be influenced by adjusting the parameters of taxation and social security. In his presentation at the Kela seminar, Herwig Immervoll mentioned that tax reforms should be discussed in parallel with BI. Indirect taxes, such as environmental or value added taxes, have often been proposed as a complementary source for financing a BI scheme, combined with income taxation.
However, the OECD report does not mention these alternatives, and the premise seems to be that taxation in any form should not be increased.
In Finland, as well as in many other countries, some organisations and individuals have launched models of BI adjusted to the local context. Their objective has often (yet not always) been to not radically alter the income distribution or cause reductions in people’s after-tax incomes, especially in the lowest income groups. Microsimulation has been employed at least in the models of partial BI by the Green Party and the Left Alliance, and in the preliminary study for the national BI trial conducted by Kela.
In these models, BI is linked with a reform in income taxation that is designed so that radical changes in after-tax incomes will not occur in any income group. The aim is also to make the models budget neutral, that is, to cover the costs of BI by reforms in taxation and replacing the existing benefit systems. In these models, the old system will be abolished only in those parts where the level of benefits is lower than the BI.
One of the problems with the BI trial currently underway is that due to time constraints, the taxation reform proposed by the research team that designed the experiment was not included.
Will Finland implement a BI?
Though there exist BI models in Finland that would technically allow implementation of a BI system without radical changes in income distribution or public financing, the road of BI will probably be rocky even here.
The preparations of the BI experiment scheme revealed many institutional challenges in implementation of a BI model. The greatest obstacles for a BI are, however, ideological.
In Finland, BI has gained interest especially as a possibility to improve the incentives for paid work. The possibility to combine wages with social benefits more smoothly than today is an issue that no party opposes. Yet, many still find it morally wrong to give people money with no obligations. The opponents of BI fear that the “free money” would reduce people’s willingness to work and give a moral legitimacy to not apply for jobs.
If the only, or at least the most important function of BI is to improve work incentives, the great promises of BI may not be fulfilled after all. The preliminary studies for the BI trial revealed that BI models do not always unambiguously remove incentive traps, if parts of the old social security stay intact.
However, it seems likely that in Finland, as well as in other industrialised countries, the social security will be reformed in a direction that may contain some elements of BI, but not necessarily a ‘pure’ BI model.
If the political thinking emphasizing the labour supply and austerity in public economy prevail, the prospects for more generous BI models seem to be low. In the framework of current economic policies, the implementation of a BI would most probably mean at least demolishing large parts or other forms of social security.
BI as a social dividend?
The OECD report (p. 8) ends up recommending some kind of ’partial’ alternative of a BI model. One option mentioned is a possibility to introduce BI as a separate system from the existing social protection, whose function would be to share the benefits of globalisation and technological progress more equally.
This idea of ‘social dividend’ has often appeared in BI discussions. The state of Alaska is already giving an annual share of the permanent fund based on oil revenues to each citizen as a social dividend. There is similar thinking linked also to the idea of “helicopter money”, originally introduced by Milton Friedman, a cash transfer paid by the central bank to people’s accounts to stimulate consumer demand in economic downturns.
Considering BI as a social dividend would locate it in a new frame, where its function would not be to fix the problems of social security systems, but to distribute purchasing power also to those who lose their jobs or end up in low paid precarious jobs in the labour market turmoil caused by digitalization.
If BI were paid on top of other social benefits, its level could even be lower, or for instance connected to macro economy indicators. In that case, it could also be used to stimulate economies in downturns.
Johanna Perkiö
M.Soc.Sc., Doctoral Candidate
University of Tampere
email: johanna.perkio(at)uta.fi
Original article:
Johanna Perkiö, “The OECD and the problems of basic income“, Kela, June 30, 2017.
by Kate McFarland | Aug 14, 2017 | News
“Basic Income on the agenda: What now for the Norwegian model?”
BIEN’s Norwegian affiliate, Borgerlønn BIEN Norway (BIEN Norge), has organized a public meeting on basic income on Saturday, August 26 — two weeks before the nation’s parliamentary elections (September 11). The event will investigate current challenges to Norway’s welfare state and the potential for basic income to reinvigorate and further develop the Nordic model.
During the first part of the meeting, Heikki Hiilamo (Professor of Social Policy at the University of Helsinki) will discuss Finland’s currently running Basic Income Experiment, and Becca Kirkpatrick (Chair of UNISON West Midlands Community Branch) will apply her experience of organizing trade unions in the UK to explaining why unions should support basic income. BIEN Norge has invited representatives from four Norwegian unions to speak at the event.
The second part of the event will focus on the current situation in Norway–where the traditionally robust welfare state has been threatened by the privatization of public services, tax cuts, benefit cuts, and a weakening of labor legislation, where the universal benefits characteristic of the Nordic model are being replaced with targeted and means-tested benefits, and where automation and digitalization are challenging another cornerstone of the Nordic model: the goal of full employment and a duty to work.
Four scholars, all of whom are prominent Norwegian supporters of basic income, will present their ideas concerning the potential for basic income to confront the concerns facing the Norwegian economy and welfare state: Nanna Kildal (Research Professor at the University of Bergen), Margunn Bjørnholt (Research Professor at the Norwegian Centre for Violence and Traumatic Stress Studies), Karl Ove (Kalle) Moene (Professor of Economics at the University of Oslo), and Ove Jacobsen (Professor of Ecological Economics at the Business School at Bodø). A debate will follow the individual presentations.
Litteraturhuset, CC BY-NC-ND 2.0 Aprile Clark
The meeting will take place at Litteraturhuset, a cultural center in Oslo.
For more information, see the event page on Facebook.
Tickets can be purchased from Hoopla.
Post reviewed by Genevieve Shanahan.
Cover photo (Sognefjord – Dragsviki, Norway) CC BY 2.0 Giuseppe Milo
by Kate McFarland | Aug 12, 2017 | News
In October 2017, the city of Barcelona, Spain, will launch a two-year experiment testing several variants of a guaranteed income and active policies to reduce poverty rates.
The project has been called B-MINCOME in reference to the Canadian province of Manitoba’s Mincome experiment, a guaranteed annual income trial conducted in the late 1970s.
The design of B-MINCOME, which was first discussed in Basic Income News in February, has recently been finalized. It will be conducted in the Besòs area, the city’s poorest region, and include 2000 households. These households will comprise a stratified random sample from Besòs area households which have at least one member between ages 25 and 60 and which are current beneficiaries of the city’s Municipal Social Services. (Participation in the experiment is voluntary for the households selected, in contrast to Finland’s basic income experiment in which participation was made mandatory to avoid self-selection bias.)
Of the selected households, 1000 will be assigned to a control group, while the other 1000 will be assigned (at random) to one of ten treatment groups, all of which will receive cash income supplements (Municipal Inclusion Support or SMI). Treatment groups differ according to whether the SMI is accompanied by an additional program and whether the SMI is means tested.
The amount of the SMI will depend upon household composition and financial status, but will range from 100 to 1676 euros per month per household. For example, a four-member household with no assets and a total monthly income of 900 euros would receive an SMI of about 400 euros per month. Participants will continue to receive Municipal Social Services, but these will be deduced from the SMI.
For 450 households in the study, the SMI will be delivered without any additional associated policies. For this group, the benefit will carry no terms or conditions beyond those made necessary by the constraints of the experiment: participants must continue to reside in the Besòs area until the conclusion of the trial on September 30, 2019, and they must agree to the terms of the experiment (e.g. consent to be anonymously monitored for research purposes, communicate changes in income or household status to those administering the experiment, and install a mobile app to communicate with experimenters). Importantly, receipt of the SMI is not conditional on a willingness to work or fulfill any other participation requirement.
These 450 households will be further divided into two treatment groups: one in which the SMI is means tested (the amount of the payments will be reduced according to the amount of additional household earnings), and one in which participants will receive the full amount of the SMI for the duration of the experiment, regardless of additional income.
Thus, the latter treatment group will receive a benefit extremely similar to a basic income–a guaranteed monthly cash payment with no work requirement or means test–with the slight difference that its amount depends on household composition.
The remaining 550 households will not only receive the SMI but also be subject to an associated social policy. These households will be distributed among eight treatment groups, according to (a) the associated policy and, in the first three groups, (b) whether participation in the policy is mandatory or voluntary. The policies include (1) an occupation and education program (150 households), (2) a social and cooperative economy program (100 households), (3) a guaranteed housing program, and (4) a community participation program (200 households).
Within the fourth group, half of the households will be assigned to a treatment group in which the SMI is means tested, half to one in which it is not.
The researchers conducting B-MINCOME are interested in the extent to which the SMI reduces poverty and social exclusion, and which particular models of SMI are most effective for this purpose. For instance, is the SMI more effective when combined with any particular associated policy, or with none at all? And is the SMI more or less effective if it is means tested?
To examine the impact on poverty and social exclusion, researchers will examine, more specifically, changes in labor market participation, food security, housing security, energy access, economic situation, education participation and attainment, community networks and participation, and health, happiness, and well-being.
Researchers will additionally examine whether the SMI reduces the administrative and bureaucratic responsibilities of social workers.
B-MINCOME is supported by a grant from Urban Innovative Actions (UIA), an initiative of the European Commission that supports projects investigating “innovative and creative solutions” in urban areas. The Barcelona City Council partnered with five research organizations and institutions to design and conduct the experiment: the Young Foundation, the Institute of Governance and Public Policy at the Autonomous University of Barcelona, the Polytechnic University of Catalonia, the Catalan Institution for Evaluation of Public Policies, and NOVACT-International Institute for Non-Violent Action.
B-MINCOME has maintained connections to global basic income movements throughout its design phase. The designers of B-MINCOME consulted with representatives from the governments of Finland, the Canadian province of Ontario, and the Dutch municipality of Utrecht, who have been involved with the design of guaranteed income experiments in their own areas. In addition, the project team contains several members of BIEN’s Spanish affiliate, Red Renta Básica.
The leading political party in Barcelona’s City Council, the left-wing Barcelona en Comú, hopes to implement a municipal cash transfer program following the results of the B-MINCOME pilot, in part with the goal of reducing the bureaucracy associated with the administration of Municipal Social Services and reducing total expenditures on social policies.
Thanks to Bru Laín for details of the design of B-MINCOME, and Genevieve Shanahan for copyediting this article.
Photo: Barcelona, CC BY 2.0 Bert Kaufmann
by Kate McFarland | Aug 5, 2017 | News
The center-right Estonian Free Party (Estonian: “Eesti Vabaerakond”) has established a working group to assess the potential for basic income in Estonia.
The goal of the Free Party’s working group is to determine what type of basic income policy–if any–would benefit Estonia. It aims to report its conclusions at the beginning of 2018. A report by Estonian Public Broadcasting cites the chair of the working group, Vahur Kollom, as saying that the group will consist of “visionaries, demographers, sociologists and taxation specialists.”
In a post on Eesti Vabaerakond’s website, party chairman Artur Talvik stressed that basic income is not just an idea of the left, noting its connection to the work of Milton Friedman, who believed that a closely related policy (the negative income tax) could unburden the distribution of benefits from state oversight and control. He also mentioned the policy’s potential to enable individuals to commit more time to charity and volunteer work. Talvik believes, however, that it is crucial to Estonians to be familiar with the conclusions of existing pilot studies and other research before deciding to endorse or reject basic income.
Founded in 2014, the Free Party received 8.7 percent of the vote in the 2015 election, gaining it eight seats in the national parliament (the Riigikogu). The party currently ranks fifth in terms of representation.
More interest from the Greens…
The Estonian Free Party is the first party currently represented in the Riigikogu to pursue research into a basic income. It is not, however, the first Estonian political party to express sympathy for the idea: the Estonian Greens have promoted basic income for nearly a decade, and they are currently scoping the possibility for an experiment.
If successful in the municipal elections in October, the party hopes to launch a trial in Tallinn, Estonia’s capital city, in which 1000 randomly selected individuals will receive 400 euros each month for four years. (Adjusting for comparative price levels, 400 euros is approximately equivalent to 640 euros in Finland, where a study is currently underway of the effects of basic income of 560 euros per month on its unemployed population.) In contrast to most existing experiments on basic income and related policies, such as Finland’s, the Estonian Greens wish to sample participants from all income groups, not only low-income or unemployed individuals.
Individual members of the Estonian Reform Party, Estonian Centrist Party, and Social Democratic Party–the three largest parties in the Riigikogu–have also expressed interest in the idea of basic income; however, none of these parties have taken formal action to research the policy, about which their key members have remained rather skeptical.
…and a Parliamentary Petition
In November 2016, basic income activist Jaanus Nurmoja created a petition to request that the Estonian government conduct feasibility and impact studies of the policy. The petition emphasizes that it does not demand the implementation of a basic income, merely its testing, which it poses as an indisposable precursor to the adoption of any specific policy. If the digital petition gathers over 1000 signatures from Estonian citizens, it will be sent to the Riigikogu.
At the time of this writing, the petition has acquired 558 signatures, just over half of the needed quantity. However, Nurmoja sees the recent announcement by the Estonian Free Party as an encouraging sign that support for basic income research is gaining traction within the nation’s government: “Their decision is a very positive surprise. I never expected such a strong and long step forward from any political party today. The Free Party seems to be relying on the views expressed by the petition. I think their initiative is aimed to accelerate the process and ensure that the question about the basic income studies will reach the parliament anyway.”
References and Further Reading
“Vabaerakond analüüsib kodanikupalga plusse ja Eestis kehtestamise võimalikkust,” Eesti Vabaerakond website.
“Free Party to analyze feasibility of implementing basic income,” Estonian Public Broadcasting (ERR), July 27, 2017.
Martin Aidnik, “The Estonian economy needs social imagination,” OpenDemocracy, March 20, 2016.
Photo: Tallinn, Estonia, CC BY-SA 2.0 TausP.
by Dave Clegg | Aug 2, 2017 | News
Scott Santens. Credit to: Singularity Bros.
Scott Santens, writer and long time UBI advocate, speaking at the Davos World Economic Forum 2017, views the Alaska Permanent Fund as a foundational aspect for the funding for a Universal Basic Income – a UBI. Santens, and a growing number of people all over this planet are coming to the conclusion that something like a UBI is required in order to provide an effective counterbalance to the inequality of wealth distribution that currently plagues the world’s populations and the human ramifications of automation, robotization of the workplace.
Santens points out that, in a democracy, all citizens are deemed equal under the law and the Alaskan fund offers an excellent example of how the wealth being extracted from a communities resources must first and foremost benefit the people that comprise that community. The Alaskan fund extracts a percentage of the wealth being extracted from its resources and that money is then used to fund Alaska’s social programs as well as annually depositing as much as a thousand dollars or more into the pockets of every Alaskan citizen. A sort of pay to dig policy. That Alaskan Fund is now worth some fifty billion dollars. Conversely, in a similar but more aggressive manner, some years ago Finland was adamant that its offshore oil resources must benefit all of the Finnish people. Finland took money off the top of the oil profits and put it into what is now a trillion dollar fund that is currently benefiting everyone in Finland.
But for Santens, resource funding is only one of a nation’s assets from which a UBI can produce a revenue flow that can both enrich and empower the populations it will serve.
Santens points out that a related resource, land itself, needs to be re-evaluated. Land is not just where we build our homes, grow our crops and where our businesses and factories operate from. Land is where wealth is invested and from which wealth is extracted. People can hide their money and their wealth, but they can’t hide their land. Therefore a Land-Value Tax would provide “… an extremely progressive tax on both corporations and individuals because land is so unequally distributed towards the top.” Instead of the value of the land being decided by the owner, the land would be valued for the wealth it represents. A vacant downtown lot would then be as valued as the next door highrise and further motivate the owner to develop the land.
Secondly, for Santens a strong, social motivator for a UBI is the ever shrinking workplace where employees are increasingly being undervalued and then victimized by the threat of automation and robotization these days. Santens provides graphic representations of how the decline of collective bargaining, worker’s rights and our wages – which not too long ago had almost balanced out income distribution – have been declining proportionate to the increase in income inequality for years now. Santens understands that a UBI is not just an income supplement whereby workers canweather technological changes in the workplace, but a means whereby we finally achieve the freedom to refuse to take work that is unsafe or underpaid and, instead, achieve an equality of empowerment when bargaining with prospective employers. An equality of needs as it were.
Thirdly, Santens offers that a “annually rising intellectual property fee could be added to any intellectual property wishing to be monopolistically excluded from the public domain, with the revenue returned to citizens universally for their co-ownership of the government granting such protection.” Santens uses the example of data miners like Google and Facebook that extract information from their hundreds of millions of users for free, and then they sell that information to third party profiteers, as the reason why that information must come with a price to the data miners. When you profit from us you pay us for the privilege.
Then there is the creation of money itself. Not that long ago only the state could create new money but corporate and financial lobbyists were able to convince many governments that the commercial banks could be trusted with this responsibility. Santens wants governments to take back this responsibility and thereby put themselves back in charge of first determining the value of the money and secondly setting the value of the money significantly above the cost of producing it so as to ensure adequate funding for that nation’s UBI.
For Santens these three pillars, resource and land value funding, worker empowered bargaining and intellectual property/data mining are all keys to diminishing and, hopefully, continuing to bring greater balance to the economic inequality we see today. But Santens cautions that none of these changes will ever occur, or if they do they will not survive the reactive response of the wealthy set. For without real, effective democratic reform none of these progressive ideas will survive for long. Santens points out that “barriers to voting must be torn down, and the franchise must be expanded” if we wish to implement such radical but much needed changes to the inequality that is plaguing this planet’s populations.
