More jurisdictions need to experiment with ways of delivering a guaranteed income

Posted on September 7, 2016 in Social Security Debates – Full Comment
September 6, 2016.   Leonid Bershidsky, Bloomberg View

Finland’s flirtation with an unconditional, universal basic income has entered a decisive stage: draft legislation for a pilot project has been presented for public discussion, which will run until Sept. 9. It’s clear that what the Nordic nation wants to try is neither overly ambitious nor particularly useful.

Paying every citizen of a country the same amount of money in lieu of most or all social benefits is a tempting idea. Leftists like it because, theoretically, it eliminates abject poverty. Techie utopians see it as a solution to the displacement of humans by machines. Intellectuals appreciate state support for creative endeavours with an unclear commercial potential. Libertarians see an opportunity to shrink government: the enormous social services apparatus could be eliminated and legislation vastly simplified. Academic experiments, however, have been too piecemeal and small-scale, so it’s hard for most people to imagine how basic income would work.

The first objection is that it would be prohibitively expensive. That’s why a recent Swiss referendum on the subject failed spectacularly. The activists who organized the vote proposed a monthly payout of 2,500 francs ($3,300) for every citizen, a hefty sum that would have required a complete revamp of the government finance system and big tax hikes.

Finland’s approach is much better. The Finns are fond of experimental governance, a concept vigorously promoted by Demos Helsinki, a local think-tank. Experimenting doesn’t kill off an idea the way the hasty referendum did in Switzerland because if results are inconclusive or unattractive, there can always be another try with a different design. It’s a gentle, low-cost way to introduce new ideas and allow society to get used to them.

The Finnish government has apparently decided not to wait for a final report, expected Nov. 15, from a research consortium it commissioned to develop the basic income experiment. The preliminary report, published in March, suggested a partial basic income that wouldn’t replace all existing social benefits, or pegged to the current minimum level of social aid. So that’s what the proposed legislation maps out.

A test group of 2,000 unemployment-benefits recipients will be randomly selected. They will be paid 560 euros ($800) per month, and will still have access to the in-kind benefits to which they are entitled. The experiment will be mandatory: if you’ve been selected, you’ll get the money whether you want it or not. For two years, the group’s life choices and outcomes will be compared with the experiences of another randomly selected 2,000 unemployed, to whom current rules will apply.

Polls show that Finns — 69 per cent of whom support the idea of a basic income — would like it set at about 1,000 euros a month. In terms of cost of living, that makes some sense. It’s difficult to rent a one-bedroom apartment in Finland for less than 500 euros a month, and the average cost of living for a student is 700 to 900 euros a month. Surviving on 560 euros would be difficult, and if the experiment is intended to find out whether people provided with this unconditional income would still want to look for work, one can safely predict that that the answer will be “yes.”

It would be much more interesting to see if people would still seek employment if they had enough money to satisfy their basic needs. If that turned out to be the case, governments would be encouraged to try what citizens actually want from them — to provide a living, rather than an insufficient handout, to everyone and ease the fear of poverty as a trigger for bad decisions. The experiment tests a palliative. It will take more testing to see if any in-kind benefits — health- and child care- and education-related ones — can also be replaced with a basic income. The current experimental design will not answer that question.

It’s easy to see, however, why the Finnish government would go for the “universal income lite” option. The government spends about 10.5 billion euros every quarter on social benefits paid out in cash rather than in kind. If every one of 5.5 million Finns received 560 euros per month, the government would spend about 9.2 billion euros per quarter. That wouldn’t be prohibitively expensive: Finland wouldn’t even need to raise taxes if it wanted to abolish all cash benefits and replace them with the meagre basic income.

It’s a shame that the Finnish government wants to spend years testing out a watered-down version of basic income. That leaves just one viable, ambitious, government-sponsored experiment with known parameters — the one scheduled to begin early next year in the Dutch city of Utrecht, where recipients will be paid 972 euros a month — enough to live on. The experiment will also test whether a small bonus — 125 euros— will entice recipients to do volunteer work.

Ontario has also announced its intention to test a universal basis income later this year, but it hasn’t come up with a design for the experiment yet. Talk of a program in New Zealand has only been tentative.

Governments need to be less timid in giving basic income a try: the more countries, cities and provinces run their own tests under different conditions, the more material there will be for everyone to examine in search of best practices.

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