BUSINESS
12/08/2015 04:58 pm ET Updated Jan 16, 2017

Finland Wants To Revamp Its Welfare System By Simply Giving People Cash

Universal base income is a radically simple plan that just might work.
Jim Young / Reuters

Finland has a huge economic problem. Unemployment is high and growth is low. The country earned the accolade of being Europe's worst-performing economy in the third quarter of 2015, which is a feat considering the sluggish growth across the EU in recent years.

As part of its search for solutions, Finland is toying with the idea of giving thousands of its citizens cash payments every month through what's called a universal basic income scheme. 

Universal basic income is exactly what it sounds like: The government gives everyone a certain amount of money -- enough to survive, but not much more . While UBI has never been widely implemented, the theory has proponents among both liberals and conservatives, and there is an ongoing experiment in the Dutch city of Utrecht.

Preliminary research shows that giving people cash generally doesn't keep them from working hard. A pilot program in India in 2010 found that people who received government payments displayed more entrepreneurial behavior than people who didn't. The results suggest that UBI could encourage people to be more creative and take more risks because they aren't spending all of their energy trying to pay basic expenses.

But implementing what is, in theory, a very simple idea is harder than it seems. Should very wealthy people get money? What about children? The elderly? Should people with children receive more than single people? What about those who are chronically ill or physically disabled? Further, how do you define "everyone"? All citizens? All residents?  

So while Finland does seems to be seriously considering a basic income scheme, it has not settled on how to go about it. The government is giving Kela, the country's social insurance institution, €20 billion (about $22 billion) to conduct some sort of UBI experiment between 2017 and 2019. The experiment is being designed by Olli Kangas, Kela's head of research. There's no specific plan yet for what the initiative will look like, but the goal is "to reform the existing social policy to better match with societal changes, abolish work disincentives and diminish bureaucracy," according to a report on the program that Kangas provided to The Huffington Post. Sixty-nine percent of Finns support some sort of basic income, the report indicates.

These models outlined in the graphic below get to the heart of the debate over what form a universal basic income should take.

Kela

Conservatives think of UBI as a very simple system: Give everyone cash that will substitute for government benefits (that's like the full basic income model outlined above). This vastly simplifies the role of the government in the social sphere: Just send everyone a check. In economic terms, the government creates a wage floor, then lets the market work from there. Two of the forefathers of modern conservative economics, Friedrich Hayek and Milton Friedman, liked the idea.

Among liberals, there's a lot of support for giving some cash to the poor, although they are more cautious about getting rid of other benefits (putting them more in line with the partial basic income model described in the graphic). Matt Bruenig at the left-wing think tank Demos has written a lot on the subject.

Government benefits, specifically medical benefits, do more than just help people pay their bills, according to Josh Bivens, the research and policy director at the left-leaning Economic Policy Institute. The government, by providing a benefit like Medicare, serves as a "countervailing power in the provider market," Bivens says, which can help keep costs down (at least a little bit) across the health care market.

There's also a concern about how to identify those who need the most help in the absence of government benefits, also known as transfers.

"There are a lot of problems with transfers, but they are pretty well-targeted," Bivens said. That is, the majority of them go to the poor. With a very flat UBI scheme, there is very little targeting, which means people with good jobs may get more than they need, while the unemployed, elderly, disabled and single parents could end up with too little.

Regardless, basic income is still largely untested, particularly on as wide a scale as the proposed Finnish experiment. Whatever Finland chooses to do, its path will likely be closely watched by economists and politicians around the world.

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