Can Finland overhaul its social security system with basic income?

Can Finland overhaul its social security system with basic income?

Two thousand unemployed workers will receive €560 for the next two years in a groundbreaking national basic income trial in Finland.

(Way Out West Photography/Alamy Stock Photo)

Early January may have been cold in the north-east of Europe but for 2,000 unemployed Finns, 9 January felt like an exceptionally warm moment. They had just received the first payments of a two-year basic income trial in their accounts. The €560 would not be reduced or interrupted if they took on work.

An old idea, calls for a universal basic income have been growing in recent years, particularly with the rise of precarious employment in industrialised societies. Most current models of social security mean that recipients of out of work benefits are often penalised for taking on short-term or part-time work.

Plans for basic income trials in the Netherlands, Scotland and Canada build on successful pilots in India and Kenya. But the Finnish experiment is the first one to take place nationwide.

Its participants were randomly selected from unemployment benefit recipients aged between 26 and 58. It was initiated by Prime Minister Juha Sipilä’s centre-right coalition government that took power in May 2015.

“The basic income experiment is one of the activities aiming to reform social security so that it corresponds better to the changes of working life, to overhaul social security to encourage participation and employment, to reduce bureaucracy, and to simplify the complicated benefits system in a sustainable way regarding public finances,” Olli Kangas tells Equal Times. He heads Government and Community Relations at Kela, the Finnish Social Security Institution.

Finland, like the other Nordic countries, is renowned for its comprehensive social security system. But the complexity of it also creates problems.

“Shifts in employment and social security statuses may cause uncertainty among the benefit recipient, and there is a vicious combination of income traps with bureaucratic traps. An unemployed person may ask ‘If I accept a job for 6 months, will I again qualify for that benefit I had?”. People are afraid of bureaucratic hassle and of losing their benefits,” says Kangas.

Kela recommends extending the study to other low-income individuals, including those aged between 18 and 25. That is what also Basic Income Earth Network (BIEN) Finland would like to see.

Simo Ruottinen, director of BIEN Finland says: “At this stage the experiment is limited, and we are hoping for it to be extended next year not only to a larger sample but also to different demographic groups. This would show other impacts than just those on employment – that is not the only purpose of basic income. It is a complete overhaul of the system.”

Some groups Ruottinen mentions are self-employed and those receiving child home care allowance, a benefit that allows parents or guardians to stay home with children under three. “This way you could observe the behavioural effects. Basic income could be more supportive and enable people to better combine different situations in life.”

He calls for qualitative research into how receiving basic income changes the attitudes and behaviours of its recipients.


Economically unrealistic?

But basic income is not without its critics, even in Finland.

Ilkka Kaukoranta, an economist at the Central Organisation of Finnish Trade Unions, SAK, welcomes attempts to reform the social security system. But basic income is not the best mechanism to do so, he says.

“The model trialled now is economically unrealistic. It would increase the deficit by 5 per cent. A cost-neutral basic income, on the contrary, would not incentivise to work, or it would lead to a reduction in the level of social security.”

Kaukoranta believes that contrary to means-tested benefits, universal support enables people to stay out of work. He considers the prolonging of studies or staying home with children, the marginalisation of young people, unemployed people becoming passive or people retiring early due to basic income as some of the risks involved.

In addition, some proponents of basic income have criticised the Finnish trialfor excluding changes in taxation, which makes scaling it up uneconomical.

Kela’s recommendations for a broader experiment include introducing a taxation model compatible with the basic income, as well as putting in place measures to ensure smooth co-operation between different sectors of government, including making available sufficient resources for it.

Ruottinen from BIEN Finland also emphasises the importance of including taxation. But he does not want to criticise the experiment too much.

“Even though we were first a bit disappointed with these limitations, there are practical reasons for them. And even under these parametres, basic income is moving forward.”