by Guest Contributor | Jan 30, 2017 | Opinion
“The UBI Bait and Switch” by Bruenig, Jauhiainen, and Mäkinen: A Critical Response
By Otto Lehto, political economist, King’s College London; former chairman of BIEN Finland (2015-2016).
A recent article in Jacobin Magazine on the Finnish UBI experiment is mostly an accurate and well-researched piece of journalism. I was especially impressed by its fastidious attention to detail in its account of the timeline of events leading up to the experiment. However, as someone well-acquainted with Finnish UBI experiment, allow me to bring another perspective on the matter. Jacobin Magazine has all the right to be as firebrand leftist as it wants to be. No question, the rhetoric of the commentary is in line with its socialist ethos. But I would just like to point out a few things that are inaccurate or misleading.
I, too, have written about the government’s proposal in harsh and unforgiving tones in the past, so I really can’t fault them for that. The experiment, let us not mince words, is badly mangled, expert advice is ignored or distorted, and the government coalition’s commitment to any form of basic income is half-hearted, with the gracious exception of a few MP’s. The narrow focus on reducing unemployment and increasing workforce incentives is unfortunate. It becomes tragic when one realises that this ideological agenda drowns out the human rights perspective.
But this is where it gets tricky to fully agree with the Jacobin article’s apocalyptic spin. It describes the current experiment as a “UBI-as-workhouse nightmare”. Now hold on a minute. A workhouse is a place where you must work in exchange for basic amenities. This is a preposterous description of the UBI proposals and experiments underway today. Even under the most critical lens, the (partial) UBI model under experimentation in Finland, while obviously targeted too narrowly and with too many exclusions, significantly reduces the “workhouse nightmare” nature of the benefit system.
What are we to make of the conundrum? It would be useful to separate the general political ambitions of the Sipilä government and the UBI experiment itself. The Sipilä government has an admittedly “schizophrenic” attitude towards basic income. While, on the one hand, it is committed to seeing through the UBI experiment, it is simultaneously, via other channels, pushing for stringent workfare conditionality. These draconian practices – nonsense baked in the tears of unemployed people – are truly deplorable, even from the point of view of austerity itself, i.e. even if one believes the anti-Keynesian line that one must balance the budget when national output is down. The proposed and enacted cuts are disproportionately hurting poor people, relative to the cuts affecting the mid income and high income sectors. The richest people have even been given delicious tax cuts, while students, pensioners, sick people, disabled people and others have suffered.
All that is worth criticising. Some other enactments of the government, like drastically deregulating the opening hours of stores, or shaking the stiff and moribund government monopoly on alcohol sales, I personally find most welcome developments. But all things considered, the general direction of the austerity program, and the government’s attitude towards poor people, leaves a lot to be desired. But I would argue that one shouldn’t judge the UBI experiment on this basis.
I will concede that the general ethos of the Sipilä government certainly permeates the parameters of the experiment. The limits of the experiment were decided after the 2015 elections. The result is a predictable beast built upon the sorrowful soil of a Protestant work ethic that fetishises work incentives and bemoans the metaphysical sinfulness of laziness. It involves the misguided and conscious exclusion of people who are either too old or too young, or who are not currently recipients of the mainline unemployment benefit. This distorts the experiment from the start.
But here’s something to consider. The only people for whom the current UBI experiment is a significant welfare-reduction are people who fulfill all of the following criteria: 1) they happen to be long-term unemployed, 2) they happen to be taking part in the UBI lottery and 3) they happen to have received a slightly higher level of benefit from the state in the past. The diversity of benefits in Finland translates to a diversity of levels of income security, with some people relatively well-off while others receiving pennies (if anything at all). The universal UBI level of approximately €560 can be a reduction to people who have received approximately €650 in the past. The UBI is topped off with housing benefits and other types of discretionary benefits. But a few will obviously be net losers in any equalizing scheme. This is understandable. But this hardly qualifies as a “workhouse nightmare.” In fact, the reduction in quantity comes with many obvious upsides that may or may not compensate for the marginal reduction in the absolute level of welfare income for some people.
Even with net-losers mixed in with net-gainers (in a yet-to-be-determined proportion), the proposed UBI model is an improvement over the current system in almost every respect: 1) it is given automatically and without hassle (for the duration of the experiment), 2) it provides a long-term safety net (a steady shower rather than a drizzle of sporadic benefits) and 3) it is not withheld from people who take up part-time or full-time work (thus improving work incentives). I will surely not need to enumerate for my audience the other well-known benefits of a non-utopian UBI system.
In fact, since the tax system hasn’t (yet) been reformed to account for the UBI system, those lucky participants in the experiment who find employment, full-time or part-time, will also gain significantly in terms of post-tax income. To this extent the experiment is arguably too generous. The tax system obviously needs to be reformed as well, since money doesn’t just grow on trees.
But there’s another thing. Some of the aims of the utopian left, as evinced by this piece, are just contradictory or confused. One cannot simultaneously call for more legal power to the unions, in the style of the old corporatist model of the Nordic welfare state, and to call for a truly universal basic income guarantee. This, however, is the paradoxical cry of the Jacobin piece, whose logic I simply cannot comprehend. The power of the unions has been traditionally very strong in Finland. This has meant, e.g., the legally protected collective bargaining of wages and benefits. For all the good this has brought to industry-insiders, this has meant very little for people outside the framework. It has created a natural opposition between “inside” and “outside” groups: the “insiders” being the members of the protection racket of the unions and the employer’s associations, who receive good and generous benefits, while the “outsiders” being all the other people that fall outside the “standard” model of employment. The insiders have received semi-automatic and hassle-free benefits for a long time, while outsiders have suffered from the “workhouse nightmare” of the discretionary welfare bureaucracy. The guarantee of a non-union-based unemployment and sick leave benefit scheme in the form of a UBI naturally chips away at the monopolistic power of unions to determine who deserves what, when and under what conditions. This is a good thing.
Out of the four demons conjured by the authors of the Jacobin article in the concluding paragraph – “forcing unemployed workers into bad jobs while undermining organized labor, earnings equality, and the welfare state” – the first one, about forcing people into bad jobs, is simply false (nobody is forced under the UBI system to accept any bad jobs, either de jure or de facto); the second one, about undermining organized labor, is actually a mixed blessing (since it actually helps “outsiders” gain benefits at a cost to “insiders”); the third one, about earnings equality, is something that the authors give no reason to think is threatened by the experiment (and indeed, it seems like a complete throwaway line); and the fourth point, about undermining the welfare state, is a tad question-begging.
The real question is, which structures should be reformed and which not. The existing welfare state has obviously failed in many ways to provide effective welfare for all people, and it is impossible to reform the system (for the better) without breaking a few eggs.
If the accusation is levelled at the other stuff the Sipilä government is doing, or the broken moral compass of the austerity crowd, the accusation sticks much better. But I have tried to show these should be kept separate. The UBI experiment is, indeed, severely compromised as a result of a confluence of factors. It survives, barely, within narrow ideological bounds. But the important thing is that the experiment tests the waters for a paradigm shift – slowly, ineluctably.
Even a compromised UBI marks a steady improvement over the status quo in almost all conceivable dimensions. And those are just the conceivable dimensions.
Reviewed by Kate McFarland
Photo: Finland’s “frozen waves”, CC BY-ND 2.0 Marjaana Pato
by Kate McFarland | Jan 28, 2017 | Research
Jurgen De Wispelaere (Visiting Research Fellow at the University of Tampere) and Lindsay Stirton (Professor of Public Law at the University of Sussex) have coauthored a new article in which they argue that basic income advocates must not ignore questions about how the policy is to be administered (“When Basic Income Meets Professor Pangloss: Ignoring Public Administration and Its Perils”).
De Wispelaere and Stirton consider several reasons for which basic income supporters believe that issues of administration are immaterial, such as the assumption that technology will render administration unproblematic and the comparative claim that administering a basic income could not be more difficult than administering conditional benefits. The authors find such justifications insufficient, maintaining that the challenges of administering a basic income are non-trivial, and that their resolution can impact the political feasibility and even ethicality of a basic income proposal.
The article has been published in the British political journal The Political Quarterly.
Jurgen De Wispelaere and Lindsay Stirton, “When Basic Income Meets Professor Pangloss: Ignoring Public Administration and Its Perils,” The Political Quarterly, December 14, 2016.
Abstract:
Basic income advocates propose a model that they believe will dramatically improve on current welfare programmes by alleviating poverty, reducing involuntary unemployment and social exclusion, redistributing care work, achieving a better work–life balance, and so on. Whether these expected social effects materialise in practice critically depends on how the model is implemented, but on this topic the basic income debate remains largely silent. Few advocates explicitly consider questions of implementation, and those that do are typically dismissive of the administrative challenges of implementing a basic income and critical (even overtly hostile) towards bureaucracy. In this contribution we briefly examine (and rebut) several reasons that have led basic income advocates to ignore administration. The main peril of such neglect, we argue, is that it misleads basic income advocates into a form of Panglossian optimism that risks causing basic income advocacy to become self-defeating.
Post reviewed by Danny Pearlberg
Photo: Scene from theatrical production of Candide (Pangloss on viewer’s left), CC BY-NC-ND 2.0 shakespearetheatreco.
by Kate McFarland | Jan 26, 2017 | News
Videos of two lectures on Finland’s basic income pilot are now available online. The lectures, delivered by Marjukka Turunen and Olli Kangas of Kela, were originally aired as part of a public event on Finland’s “social innovations”.
As previously announced in Basic Income News, Kela, the Social Insurance Institution of Finland, held a series of short lectures called “Socially Innovative Finland” on January 12, 2017. The event, which was open to the public and streamed lived online, highlighted two “social innovations” from Kela: the eight-decade-old maternity package, under which all mothers-to-be receive a package of child necessities, and the two-year basic income experiment launched this year. Two speakers, Marjukka Turunen (Head of Legal Affairs Unit) and Olli Kangas (Director of Government and Community Relations), discussed the basic income experiment and fielded a variety of questions from the live and online audiences.
Olli Kangas: “Basic income – Part of tomorrow’s social security?”
Kangas situates Finland’s basic income experiment in its political and economic context: the center-right government that took office in May 2015 decided to investigate a basic income as a way to remove the disincentives to work and reduce the bureaucracy inherent in Kela’s current programs of unemployment compensation; meanwhile, changes in the labor force underscored the need for a revised system of social security.
Kangas describes the rise of short-term labor contract labor and the threat of automation as general sources of motivation for basic income. Then, focusing specifically on the Finnish context, he discusses the country’s increase in self-employment as well as its high rate of structural unemployment. He goes on to explain how Finland’s current welfare system can creates a disincentive to work. In some cases, as he describes, individuals who leave unemployment benefits to take a job face an effective marginal tax rate of 80-100%. Moreover, the current system creates “bureaucratic traps” whereby individuals are deterred from accepting short-term work (asking, e.g., “If I accept the job for six months or so, do I again qualify for the benefit I used to have?”).
Marjukka Turunen: “How the basic income experiment works in practice”
Turunen provides an introduction to Finland’s basic income experiment, including an overview of the experiment’s design, motivation, and implementation. She explains why the researchers hypothesize that the basic income will provide an incentive for unemployed persons to take on paid employment–the main outcome that the experiment has been designed to test–and describes other potential benefits to individuals. For example, she notes that financial security brings “peace of mind” and allows individuals to plan for the future with less uncertainty. Furthermore, the basic income eliminates the time-consuming task of applying to Kela to maintain unemployment benefits–which, as she mentions, requires the submission of paperwork every four weeks–or to change benefit status due to sickness or childbirth. Recipients of the basic income are not required to inform Kela of their employment status, income, or other life changes.
Turunen also describes Kela’s process of selecting a sample of 2000 individuals for the experiment, contacting them, and distributing the first funds. She points out that researchers will not conduct interviews of the subjects during the course of the experiment, in order to avoid a possible source of influence on their behavior. Moreover, it is the policy of Kela not to disclose information about the basic income recipients to the media. Nonetheless, Turunen notes, some recipients have themselves divulged information about their situations and reactions to the basic income trial; she reviews some of these preliminary reactions near the end of the lecture.
Reviewed by Danny Pearlberg
Photo: Helsinki, CC BY-NC-ND 2.0 Jonathan
by Guest Contributor | Jan 13, 2017 | Opinion
Imagine entering a website for your country which after answering a few questions would inform you how much money you would receive from a basic income. This is net of any increased taxes from each of the financing models proposed to finance the UBI. This site will also tell you how the country would be affected overall. Each of the variables are listed and are changeable, which gives those interested the ability to measure results from all possible outcomes.
We have this now in a Google Docs spreadsheet form, and it has been forwarded to all the members of the international BIEN outreach group of which I am a member. The original Excel version can be found here.
The outreach group has several objectives. My primary focus in this group is the collaboration, communication, connection, and mutual support of the international groups who are working on modelling, financing and forwarding a universal basic income.
At the congress earlier this year, I presented a paper on a European wide basic income financed by a collective goods and services or value added tax. This was a costed model which indicated that an increase of the European VAT rate of 16 percent to 22 percent would be sufficient to finance a basic income of 150 to 200 Euros for everyone in the European union over the age 18. The expected results for Europe was people had more money to spend, there was increasing employment, no need for austerity measures, big savings in bureaucracy and healthy economies in Europe with the measures they need to cope in a changing world.
While 96 percent of people in Europe would be better off with this UBI, a higher percentage could have been achieved by having a tax-free income allowance as well with a slightly higher GST rate. I was not able to model this, as it impacts individual member budgets while I was seeking a collective UBI agreement keeping with the existing aligned VAT rates across Europe. However, this is the suggestion that I made to the New Zealand government last year.
The Labour party here, along with all the left-leaning parties, have indicated an interest in or directly support UBI. I find that reading other people’s spreadsheets brings on a headache so I have designed an interactive model that hides away the calculations and simply delivers the results of each financial model in a dollar value for your individual circumstance.
I have made this template available to the BIEN international community. They would need to enter their own existing welfare budget, the country tax and VAT incomes. It also asks for the population income and taxation per income band. Doable from web sources in some countries, but needing real work and government assistance in others. It does offer a way to map financial results given different financing models.
While we could disperse this information through our own networks, I have an additional objective in that there are six questions that the website would require you to answer, most of which relate directly to the calculation of your personal UBI net advantage. While the other asks whether you would leave your job if you received a UBI. I will consult with the parties here as to whether they need anything further answered as there were hints of a UBI financed by a capital gains tax which would be interesting to compare.
The four models currently considered are:
- Tax free earnings to $100,000 and UBI of a higher amount financed by a raise in GST.
- A moderate UBI financed by a raise in GST.
- A lower UBI financed by the top tax rate.
- A lower UBI financed by increasing the income tax by the same percentage.
My conclusions are as follows:
- The bottom earners of less than $16,000 are best off with the model (1) as are the people earning more than $70,000.
- The middle earners from $16,000 to $70,000 (the majority) are better off with model (3) however the top tax rate would need to be more than 100 percent and therefore it is not possible.
- Model (2) has the second best overall result of $10,187 average extra money per person yearly. Model (1) has the best of $13,376.
- Model (4) has a similar overall result to model three of an $8,604 average additional income per person annually.
The spreadsheet also adds the total cash benefit for the entire population, and I hope that if this was put to a vote that this would be given due attention, as the extra cash received by many from the top tax being increased is not much more than from the tax-free GST model. The country total is $47 billion for the GST model compared to $26 billion for the top tax. This gap widens as the variables are changed.
My conclusion is that the tax-free GST model is the best method of financing UBI for New Zealand.
My hope is that someone will first audit these findings and bring about this information being shared on a website. This way, people get a chance to view what a UBI means to them and their country. The questions answered will help developers with the data they need to see what the likely outcomes for their country would be.
A final note – A tax on spending enables people to save with the extra UBI they receive, seek employment without a punishing higher tax rate, get a entry-level job without paying any tax on it and still receive the full UBI.
UPDATE: Added new spreadsheet version.
About the Author:
Peter Brake is a self-employed accountant in a busy public practice and a part time organically certified olive farmer. A member of the BIEN outreach task-force, one of four members charged with creating a space in the next congress for Bien affiliates and international developers of UBIs to share their progress, discuss common problems and brainstorm common solutions. He is actively involved with the British, European, Indian and New Zealand UBIs.
by Kate McFarland | Jan 12, 2017 | News
Finland’s basic income experiment is now underway, with the first payments having been mailed this week. With the experiment generating much media attention, here is a review of some of the basics.
On January 1, 2017, Finland launched an experiment in which 2,000 individuals–randomly selected from a pool of unemployment benefit recipients–will receive unconditional cash payments of €560 (about 590 USD) per month for two years.
The first payments were sent out on Monday, January 9.
The main goal of the experiment, as it presently stands, is to determine whether unconditional cash transfers are more effective than means-tested unemployment benefits with respect to promoting job-seeking and employment. Olli Kangas, leader of the research team at Kela that designed the experiment, has recommended expanding the experiment to other target populations (including “other persons with small incomes” and individuals under age 25).
The Sample
The test subjects comprise 2,000 individuals between the ages of 25 and 58 who were receiving unemployment benefits from Kela (the Social Insurance Institution of Finland) as of November 2016. These subjects were randomly selected from a pool of about 175,000 individuals nationwide.
To avoid selection bias, participation in the experiment was mandatory for those selected.
Kela reports that, of those selected, 87% had been receiving the Labour Market Subsidy, while 13% had been receiving the Basic Unemployment Allowance. These programs provide taxable payments of €32.80 per day, five days per week, to those (and only to those) who are officially registered as unemployed job seekers. The benefits are subject to withdrawal if a recipient turns down an offer of work or training. Furthermore, if a recipient takes temporary or part-time employment, the amount of the benefits is decreased (as a general rule) by 50 cents per euro in earned income over €300 per month.
The Basic Income
Those included in the study population will be paid a monthly basic income of €560 for a period of two years. Unlike the Labour Market Subsidy and Basic Unemployment Allowance, the amount of the benefit does not decrease if the recipient earns additional income (regardless of the amount of earned income).
The basic income is not subject to tax. However, it is counted as income for the purpose of determining eligibility for additional social assistance.
Kela notes that there are some circumstances under which payment of the benefit might be terminated, such as moving abroad or entering military service.
Research Objectives
The Finnish government is interested in testing basic income as a way to remove work disincentives in the current welfare system as well as to reduce bureaucracy.
Kela plans a study of the trial in which the group of the 2,000 individuals receiving the basic income is compared with a control group consisting of all individuals in the original target population who were not selected to receive the benefit. The study will examine, for one, differences in employment rates between these groups.
Information about individuals’ employment status will be gathered through register data. Kela will be conducting no interviews or questionnaires of the test subjects, since such interventions have the potential to influence behavior. (Kela has also expressed concern about interviews with test subjects conducted by the media.)
It is possible that the experiment will be expanded in subsequent years–as research team leader Olli Kangas has recommended–to test different levels of basic income or different taxation models, or to include additional population groups. However, no firm plans have been made, and moving forward with any expansion is contingent on the amount of funding allocated to the experiment by the Finnish government.
More Information
The latest information about the study can be found on Kela’s “Basic Income Experiment 2017-2018” webpage: https://www.kela.fi/web/en/basic-income-experiment-2017-2018.
Thanks to Danny Pearlberg for reviewing this article.
Photo: Saariselkä, Finland CC BY 2.0 Ninara.
