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The Finnish Model

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The Finnish Model

Helsinki prepares to give every citizen €800 per month and shut down its welfare bureaucracy. March 18, 2016
The Social Order

Career politicians have become incredibly boring. This helps to explain the appearance of rebel parties in every Western democracy. These new splinter groups include the Ciudadanos in Spain, the National Front in France, the Tea Party in the United States, and the Independentists in Catalonia and Scotland. Voters have grown tired of accepting the same old tunes, whistled from both Left and Right. Constantly recycled policies and programs offer no solutions to difficult, long-term, and often intergenerational problems, such as unemployment among the unqualified youth, or the excessive dependence of certain groups on the welfare state. The same goes for the debate over immigration. One side demonizes globalization; the other decries nationalism.

New ideas are far from lacking, however. Economists and sociologists in universities, laboratories, and foundations provide a steady stream of fresh approaches to these problems. But politicians don’t seem to read much these days, preferring the advice of a closed circle of marketing consultants and dried-up slogan manufacturers. This makes Finland’s move toward instituting a universal basic income (UBI)—often referred to by economists as a negative income tax—all the more refreshing. The negative income tax is often associated with the free-market economist Milton Friedman, who defended it with passion and flair in the 1970s.

This year, the Finnish government hopes to begin granting every adult citizen a monthly allowance of €800 (roughly $900). Whether rich or poor, each citizen will be free to use the money as he or she sees fit. The idea is that people are responsible for their actions. If someone decides to spend their €800 on vodka, that is their decision, and has nothing to do with the government. In return for the UBI, however, the public accepts the elimination of most welfare services. Currently, the Finnish government offers a variety of income-based assistance programs for everything from housing to children’s education to property insulation. Axing these programs should free up enough public resources to finance the UBI. The bureaucracy that currently governs welfare payments will disappear. There will no longer be any need to ask for government help, nor to fill out forms or wait for the competent authorities to examine each dossier to determine eligibility.

The introduction of a UBI should loosen the hold of public bureaucracy over Finnish citizens and reverse a century of top-down socialization in Finnish society. In practice, each citizen will automatically receive his monthly allowance and declare it as part of his taxable income. The poorest citizens—who do not pay income tax—will keep their entire allowance, while high-earners will repay a relative portion of their allowance in tax. As always, the devil will be in the details. It’s still not known whether this allowance will replace every welfare program, or if some—such as those that aid the physically and developmentally disabled—will be maintained.

Remarkably, every major Finnish political party has signed on. The Left is cheered by the socialistic idea of government-assistance-for-all. The Right looks forward to the unprecedented drop in bureaucratic control over citizens, an unheard-of extension of freedom of choice, and an unconditional restitution of part of citizens’ taxes.

The Finnish government is expecting the negative income tax to have a beneficial effect on employment and growth. Regardless of age, the underqualified will be more willing to accept poorly paid jobs, knowing they will continue to receive their UBI. By the same token, employers will be more willing to hire and fire, as the UBI will act as a social damper. As national wealth figures always depend on the number of citizens in the labor market, Finland is hoping for a clear growth spurt. The allowance may also limit the influx of migrants if the government decides to grant the UBI only to citizens and legal residents.

This project is so simple and apolitical that it’s natural to ask why it has never been tried before. The answer is quite simple. The political and bureaucratic classes fear innovation, and even more so the loss of their direct influence over society. Shrinking the welfare state will scale back politicians’ ability to buy votes. If the Finnish experiment works, all of Europe will follow suit. Something similar happened in the early 1980s, when American monetarism imposed itself and stemmed inflation, and the British privatization trend became globalized. Perhaps in the future we will refer to a “Finnish model” that makes ordinary politics more interesting, governments less heavy-handed, and citizens more responsible.

Photo by Jean-Pierre Dalbéra

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