Finland May Have Found The Answer To Increasing Global Unemployment

In an era of populism and pessimism, this country could be one of the first to help citizens hurt by globalization.
01/20/2017 11:25 am ET
Finnish farmers demonstrating in front of the parliament building burn the European Union flag as they protest EU agriculture
STR New / Reuters
Finnish farmers demonstrating in front of the parliament building burn the European Union flag as they protest EU agriculture policy in Helsinki.

HELSINKI ― As the planet prepares for a potentially isolationist Trump world order and leaders gathered in Davos to debate the impacts of globalization, it is difficult to imagine what to make of the future of international integration. But a new basic income program in Finland aimed at curbing the negative side effects of globalization head on, may just be what the the global community needs to ease fears of widespread unemployment.

This proposed system, now in its early stages in the Nordic nation, allows citizens to receive a fixed sum of money from the government, which could be the trick to at least starting to lift bottom incomes and serve as a solution for the economic ills of globalization. In a world where the day worker and short-term employee feel more and more disconnected from who they perceive as the overpaid elites, this effort is more important than ever.

While it is still early to tell how the program will score, the fact that it exists and is working towards a solution should help steer leaders in the right direction. Much of the recent international debate on income inequality has centered on calls to cut top incomes in an effort to equalize incomes from the top down. And globalization, technological change and austerity policies have led to serious inequality in both Western and non-Western countries, reflected not only in slow or non-existent economic growth, but also in the escalation of populist movements and a general increase in pessimism worldwide, evident in Donald Trump’s “America First” foreign policy and Britain’s Theresa May’s commitment to a split from the European Union. But in Finland, this pessimism has led the government to try and alter social security systems and open up incentives in untapped parts of the economy.

While it is still early to tell how the program will score, the fact that it exists and is working towards a solution should help steer leaders in the right direction.

Kickstarted just this year, this initiative has taken the shape of an experimental program instituted by the government. In this experiment, a randomly selected group of 2,000 unemployed Finns are paid €560 per month for a study period of two years regardless of employment status, a much different system than the country and others around them have been used to. Though not an entirely new concept, Finland’s move is one worth taking note of, especially when you look at the history of Western workfare policies in the 20th century.

From the 1970s onward, social policies on both sides of the Atlantic have been dominated by workfare where payment of benefits is made conditional on participation on job promoting activities such as training, rehabilitation and work experience or on unpaid or low-paid work. As globalization and technological change have moved lower paying jobs out of many Western nations, the number of unemployed people in those same nations has increased greatly, creating a new group of people who are now targeted for various workfare policies. But while the number of people reliant on these policies has grown, jobs have not, and these programs have not shifted their focus to allowing citizens to continue to receive unemployment benefits even when they take the only jobs they can find, often short-term and low paying ones that don’t cover basic standard of living needs. Moving to a basic income system could help support those who fall within the short-term employment category.

Around the same time that workfare programs dominated the West, the concept of basic income gathered interest from legislators and governments in the U.S. and Canada and resulted in local experiments, but even after over 40 years since this exploration, the basic income experiment in Finland is the first nationwide randomized field experiment based around this idea. In contrast to workfare, where claimants may face sanctions terminating all benefits, basic income is based on a positive view on individuals. It is a symbol that I believe shows that the country believes that their citizens, even those in the lower class, are able to contribute to society and benefit both themselves and their community. 

Finland this month became the first country in Europe to pay free basic income in a pilot which evoked enthusiasm around the
Tuomas Forsell/ Reuters
Finland this month became the first country in Europe to pay free basic income in a pilot which evoked enthusiasm around the world.

But aside from the confidence that the program shows in the ability of its citizens, basic income based on social security systems has proven to increase quality of life. The evaluation of a universal basic income experiment in Dauphin, Manitoba in Canada showed just that. In fact, the Canadian city saw large improvements in both health and education of its residents. The same goes for four negative income tax experiments in a handful of U.S. states between 1968 and 1980. In both cases, employment fell slightly. This can be explained based on the knowledge that, in the absence of universal access to child care and elderly care, it seems easy to understand why some may gravitate towards unpaid domestic work, such as taking care of their kids, over paid work outside of the home.  

For Finland, with around 5.5 million inhabitants and a small and open economy, the benefits of a basic income system also stem from the nature of the economy’s dependency on the export industry and its vulnerability to external shocks such as global economic crises, trade sanctions against neighboring Russia and price fluctuations of minerals and pulp and paper. The collapse of Nokia’s mobile phone business wiped out factories leading to unemployment rates nearing 20 percent in some cities. Currently, Finland is slowly recovering from the global recession, but the GDP is still below pre-2008 level and the most urgent problem is increase in long-term unemployment. And more than ever, the Finnish people need an economic system, like basic income, to keep the growing lower class from expanding further and falling further into poverty.

For the Finnish, the lack of long-term employment in the country is a particular problem for the rise in poverty, and a problem which this basic income experiment is intended to solve. Since 2001, those who have been classified as “long-term unemployed” have been forced to participate in rehabilitative work programs, in an attempt by the government to reinvigorate the economy; those who refuse to participate, lose their unemployment benefit for two months and may also face reduction in social assistance, the last-tier income support system in Finland. As elsewhere, all minimum income benefits are means-tested in Finland, which means that extra income acquired from work is deducted from government-sponsored benefits. Combining small work incomes involved a lot of bureaucracy and repercussions, which could discourage jobless people from seeking the kind of odd jobs and small jobs available for them, since the old unemployment system in the country took away assistance based on any income, even small or short-term ones.

[The experiment] is a symbol that the country believes that their citizens, even those in the lower class, are able to contribute to society and benefit both themselves and their community.

Traditional activation policies have proven inadequate to employ long-term unemployed people and to prevent them from social exclusion. And in Finland, these programs have only led to a handful of unemployed gaining consistent work through activation programs. In short, the case for basic income is that the current social security system, designed for an industrial and outdated society, has become near useless in a globalized society, where many workers are forced to function in a shorter term capacity, and we must find another way to revamp the Finnish economy before it’s too late.

The basic income experiment is a policy measure designed to reform the Finnish social security system to better correspond to changes in working life, and make it easier for Finns to take up part-time jobs that may lead to fluctuating levels of income.

The cash sum will replace the existing flat rate unemployment benefit benefits and will continue to be paid even if they take up jobs. An additional advantage is that recipients of basic income do not need to report their incomes to the unemployment office, which will greatly reduce bureaucracy and insecurity caused by fluctuating benefit levels.

Farmers from different parts of Finland with their tractors participate in a demonstration over declining agricultural earnin
Lehtikuva Lehtikuva / Reuters
Farmers from different parts of Finland with their tractors participate in a demonstration over declining agricultural earnings in Helsinki, on March 11, 2016.

But the limited scope of the Finnish experiment leaves it with imperfections that may not solve all of the problems created by globalization, despite statements from some basic income advocates, who see universal basic income as a complete solution for social problems as well as economic ones created by a globalized world economy. For them basic income is about social justice, well-being, freedom and ecologically sustainable communities. But since these justifications cannot be tested by short-term pilot programs, such as the current Finnish one that involve a relatively small number of people, the program should rather be seen as a step towards growing the Finnish economy rather than a solution to all of the ills created by a globalized society.

It is also clear that the sum of €560 a month (around $600 U.S. dollars), provided by the experimental basic income system, cannot provide participants with true financial independence. But introducing high-level universal basic income is a radical call to transform the income distribution system, which is not a politically realistic goal even among Nordic countries known for their preference for comprehensive welfare states.

And despite some critique, the Finnish experiment has led to unprecedented interest and has gotten the attention of hundreds of reports in foreign media outlets; a clear sign that despite its shortcomings, the program addresses a problem which all governments struggle to solve: How to find employment for those in the margins of the labor market and how to release even poor individuals’ energy and creativity to promote their own well-being and the well-being of their communities.

The program should be seen as a step towards growing the Finnish economy rather than a solution to all of the ills created by a globalized society.

While the jury is out in Finland, cities and governments from Oakland, California to France, Italy and many more in Europe, have recently announced an interest in running basic income pilots in the coming years. The basic income experiment in Finland shows that partial basic income is a feasible idea with a pragmatic goal to increase employment and the incentive to work outside of the traditional labor market.

So as the world begins to see the impacts of globalized society with the elections of new leaders ― including Mr. Trump ― the answer to the fears of declining economies may just be a basic income system.

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