Back during the primaries, when people hadn’t yet discovered that the DNC was fixing the outcome for Hillary, you would often see Bernie boosters extolling the virtues of Scandinavian socialism. Everything in Europe’s great white north was better than it is in America according to their oversimplified Facebook posts and Imgur memes. It probably won’t be long before we start hearing about the latest experiment in collectivism taking place in Finland. The Finnish is conducting a trial program to provide ‘basic income’ to citizens instead of traditional welfare.
Could it actually be a good idea though? Government social programs almost always end up growing in cost while doing little to actually solve problems. This scheme will probably be no different but it is inspired by a real problem with welfare programs in Europe and here in the United States. The design of most welfare programs disincentivize people from seeking gainful employment.
Finland has some 213,000 unemployed, a higher rate than its Nordic neighbours, and a working population of 2,413,000. Short-term contracts here have steadily become a key feature of Finland’s labour market.
The benefit system in many cases provides people with little incentive to go into low-income jobs because welfare is generally cut back if you start earning.
“Every single euro that a person earns diminishes his or her social benefits,” says Olli Kangas, head of society relations at Kela.
“In some cases an unemployed person is afraid of losing their benefits in the future, if he or she receives a temporary employment.”
In America you will often hear this phenomenon referred to as “the welfare cliff.” In order for welfare recipients to transition to work they have to navigate through a period where their overall income shrinks drastically even as they experience success in a job. This is because as their work income increases, the amount of government benefits for which they are eligible decreases. As a result someone who is managing to survive on welfare may be reluctant to pursue a job with higher earnings because it is effectively a net loss. Presumably their income would increase over time in the new job to bring them back to where they were and ultimately higher, but it is still a sacrifice and a leap of faith that many are understandably reluctant to make.
In the Finnish experiment, 2000 unemployed people will receive a government benefit of around $600 per month for the next two years. That will not change even if they find work during that time.
For Liisa Ronkainen, already looking for work for several months, it is certainly an attractive idea.
“Now that I will get a salary in addition to the basic income I might try even harder,” she suggests.
And there was a similar message from another of the participants, Juha Jarvinen, who has been out of work for five years but now hopes to start a new business. “For my part, the basic income will mean I can escape enslavement and feel that I am a functioning citizen again,” he told Finnish public broadcaster YLE.
It sounds like a better alternative to the dysfunctional welfare arrangement but in the hands of government bureaucracies “better ideas” are easily transformed into worse ones. Maybe it would be more precise to call it a less bad idea. Assuming that the less bad idea would completely avoid the traps of over dependence on handouts and ballooning deficits, would be unwise. When a program such as this becomes official and not just an experiment, what will it do in terms of immigration? The demons of unforeseen consequences are always ready to plague any idea that can be made to look good on paper.
The only real solution to this problem is robust economic activity. As Ronald Reagan famously said, “I believe the best social program is a job.” The best way to implement that idea is for the government to get out of the way and let capitalism work.