Finland - Unconditional Basic Income Progress

37-year-old Juha Järvinen

How would you like to receive €560 a month — no strings attached?

It’s not an email scam but rather an experiment by the Finnish government which has selected at random a group of unemployed citizens across the country to participate in a ground-breaking two-year study.

The controversial idea, versions of which have been proposed in Switzerland and France, is that by providing a so-called basic income to citizens, whether they are in or out of work, the government can simplify the benefits system and free up individuals to take short-term work that otherwise wouldn’t be financially worthwhile.

Such schemes have been studied before, but never on a national level and over such an extensive period. Unusually, the trial being implemented by the Center Party-led government — a party with agrarian roots that doesn’t exactly have a reputation for cutting-edge reform — has political backing from right and left, in a post-Nokia economy which is struggling to get the vast army of IT workers that the company created back into permanent employment.

“Finland’s social security framework does not always meet the demands of modern working practices,” said Pirkko Mattila, minister of social affairs and health, on announcing the initiative. “Basic income is one solution to the challenge of how the unemployed could accept work in a more flexible manner.”

“Receiving an unconditional basic income means that I am finally free to do what I want to do” — Juha Järvinen, unemployed citizen

One of the citizens selected to take part in the experiment is 37-year-old Juha Järvinen. Although chosen randomly, he seems a poster child for the study. A former entrepreneur, Järvinen has been unemployed for five years since filing for bankruptcy.

“I am a very active person and I want to work, but I have not been able to accept even the smallest job offers as that would have meant losing my unemployment benefits,” he said.

Järvinen believes the current benefits system is a charade. The jobless are forced to undertake what he claims are useless employability enhancement courses and to demonstrate constantly to the authorities that they’re doing all they can to find work — all involving large amounts of bureaucracy.

“Receiving an unconditional basic income means that I am finally free to do what I want to do. I have already made plans to start a new company and I will finally become a normal active citizen,” he said.

Incentive trap

Over the past 20 years, various Finnish governments have toyed with the idea of testing some form of universal basic income, but the current center-right government of Prime Minister Juha Sipilä has decided to give it a go.

 “The time was ripe for various reasons — first and foremost due to the fact that the Social Democratic party finds itself in the opposition,” says Erkka Railo, a political scientist at the University of Turku.

According to Railo, the Social Democrats have traditionally shunned universal benefits such as basic income in favour of social security payments linked to earnings, while Sipilä’s Center Party has always favored universal benefits.

The makeup of the current coalition government has also been key to getting the policy experiment off the ground.

“The current coalition government that consists of the Center Party, the right-wing National Coalition Party and the populist True Finns has been uncharacteristically open to new service models and seems to really want to cut down on bureaucracy,” Railo said.

The Center Party were not previously known as reformists but that has changed under the leadership of Sipilä, a businessman who entered politics on a pro-change platform. The National Coalition Party, though often labeled as conservative, is economically liberal and open to novel policies. And the True Finns, who according to Railo have not had much say on the policy, are broadly in favour of making governance less complicated.

There are also economic factors at play. Finland’s unemployment rate is considerably higher than that of its Nordic neighbour’s and slightly above the European average. In its heyday, the mobile phone maker Nokia and the technology cluster that it spawned employed tens of thousands of Finns and inspired many young people to seek an education in IT-related fields. Nokia’s rapid decline rendered a field that was previously considered a safe career bet as insecure as any other, leaving an army of IT professionals without a job.

In a sector characterized by flexible working practices and temporary project-based work, many of these people have hit what Heikki Hiilamo, a professor of social policy at the University of Helsinki, calls an incentive trap.

“The unemployed have not been able to take on small jobs for fear of losing their benefits. What’s more, they’ve been disincentivized from starting new companies for the same reason,” he says.

This has led to social marginalization and passivity in the labor market — a key issue the basic income policy is intended to address.

It does that by offering income security and a consistent financial incentive to seek work. Crucially, the 2,000 jobless citizens who were selected at random to receive the basic income, will not lose the payments — roughly equivalent to how much they received in benefits — if they find a job.

The 2,000 jobless citizens who were selected at random to receive the basic income, will not lose the payments if they find a job.

This is the issue at the heart of the Finnish experiment, says Ohto Kanninen, at The Labour Institute for Economic Research in Helsinki.

“We are talking about a groundbreaking social study that examines the effects of basic income on the behaviour of the unemployed job seekers,” he says. What is being tested would not be a finalized model of a universal basic income, though. The level of income used in this experiment is too small for that, he believes.

Fundamentally, it boils down to behavioural economics and psychology.

“Everyone agrees that Finland has a problem with the marginalization of the unemployed. But then there are those who advocate sanctions, and others who believe in humans’ ability to make wise choices when free from constraints,” Hiilamo says.

Rights and responsibilities

There have been some concerns come from within the government that such handouts might have the opposite effect of an incentive and instead will make people lazy. “While the basic income does simplify social security, it does not automatically provide incentives to work,” said Interior Minister Paula Risikko. “In the worst case, the basic income can make people passive. We need to offer an alternative that encourages participation.”

The unions, which hold a lot of power in Finland and are politically tied to the Social Democrats, have not been keen on the idea, either. The head of the Central Organisation of Finnish Trade Unions (SAK), Jarkko Eloranta, told the newspaper Kansan Uutiset that “having a certain basic income would decrease peoples’ willingness to work” and that the workers “need to have both rights but also responsibilities to participate in the working life.”

After the two-year experiment, the authorities will examine the results and decide whether or not to pursue a more comprehensive basic income system. The trial is part of a much wider reform of Finland’s social security framework as it struggles to come to terms with an aging population.

Previous governments have offered significant but ultimately insufficient solutions such as raising the retirement age and streamlining the country’s municipal structure to make the generous Nordic welfare state model sustainable. Sipilä’s government has embarked on a more ambitious reform of healthcare and social security that aims to achieve cost reductions through privatization and administrative overhaul.

This has ruffled feathers in a risk-averse country that is accustomed to consensus. Legal experts have criticized the government for hasty decision-making and an apparent lack of respect for the constitution. Those on the left have blamed the prime minister for cuts to welfare and education and criticized the center-right government for running the country like a business.

“Like him or not, Mr. Sipilä has brought with him a more experimental policy-making culture, of which the basic income experiment is a prime example,” said Markus Kanerva, director of the Helsinki-based think tank Ajatushautomo Tänk. “It would be a radical proposal in most countries, including our progressive neighbor Sweden. In Finland, it has become mainstream politics.”