Finland tried, and Finland failed. To combat high unemployment and wage stagnation, Finland’s government decided to try a universal basic income (UBI) experiment with a portion of their population. Establishing a UBI has been viewed as a favorable by liberals and Silicon Valley elites who view a UBI as a necessary method of injecting capital into the economy.
Unfortunately, as Finland just learned, giving citizens money without restriction does not fuel growth, it wastes money. Now, Finland is backtracking on their UBI program to instill real reforms to end individual dependency on the government.
The unemployment rate in Finland has exceeded eight percent since long before the UBI program began in January 2017. Petteri Orpo, Finland’s finance minister, told the Financial Times, “Working life has changed through globalization, automation. We have to reform our society in order to activate people to reach a higher employment rate…”
These fears of a more globalized future led Finland to a two-year experiment in basic income. The Financial Times continues to explain, Finland selected a large group of unemployed individuals to be given €560 (about $670) a month without any conditions on what individuals must do to receive the funds or where they could be spent.
One of the reasons the experiment could not continue or be expanded is because of the extreme tax hike it would require. The Organization for Economic Cooperation and Development found in a Feb. 2018 report on Finland’s economy, while a UBI might enhance work incentives — a dubious finding, but okay, let’s play along — in order to universally adopt the policy, Finland would have to increase taxes by nearly 30 percent causing an increase in overall poverty.
Finland was placing their hopes in a system they could not afford, which is why they have decided against renewing the program at the end of this year. Instead, Finland is now pursuing the exact opposite style of reforms to fix their broken welfare system.
Jon Henley, the European affairs correspondent for The Guardian, explains, Finland has now introduced legislation to make some benefits for unemployed people contingent on the completion of work or work training.
Even finance minister Orpo had to admit to the Financial Times that the UBI system in fact made people “passive”. Orpo explained, “When we look at our economy that is now growing, we have tens of thousands of free jobs [that cannot be filled] and more than 200,000 unemployed people. We have to look at the incentives to work.”
Giving individuals free money while hoping they get a job might seem like a distant European concept, but it hits much closer to home. More and more people in the United States have advocated for a similar UBI model over the years.
Michael Hiltzik of the L.A. Times reports, from Martin Luther King Jr. to Elon Musk to apparently everyone in San Francisco, UBI is seen as a great way to kick-start economic growth and offset the impacts of automation taking jobs.
While the Finnish government insists full results on their experiment will not be gathered for several years, the country’s top economists believe it failed to do exactly what they had hoped, instead widening the free jobs gap and maintaining stagnant employment numbers.
While Social Security, including Supplemental Security Income, is not a UBI program because it is not universal, it does mirror how the program works: a select group receives a monthly guaranteed income from the state. Social Security can be seen as our own experiment in UBI and highlights the insurmountable revenue problem if it were to be made universal.
Sean Williams of the Motley Fool explains in April 2018, according to the Social Security Board of Trustees’ annual report, “Social Security is expected to begin paying out more in benefits than it’s generating in revenue by 2022. That’s only four years away. By 2034, after just 12 years of cash outflows, its roughly $3 trillion in asset reserves, which is primarily invested in special-issue bonds, is expected to be completely exhausted.”
This means in order for our Social Security system to survive; it will be forced to engage in dramatic benefit cuts or just borrow the money. If we cannot maintain the closest thing to a UBI system which we currently have, where there is an incentive to work, because there is still not enough revenue, it is clear we cannot universalize it in a context when there will be far less of an incentive to work. People will stop working and the system will collapse.
Finland tried the system people around the world claim will end the welfare state, but they found out the real truth. Universal basic income is the welfare state. The only way to truly end the welfare state is to incentivize people to be less reliant on the state, not more.