The failure of Finland’s Universal Basic Income experiment
It is widely feared that advances in information technology (IT), while key to achieving more efficiency across various parts of commerce, will mean a fundamental shift in employment, with the elimination of jobs and the suppression of wages. A joint study conducted by Oxford University and the Oxford Martin school says 47% of the jobs in the US are at risk of being automated within the next 20 years.
Many thinkers have mooted Universal Basic Income (UBI), where all citizens get paid a basic wage whether or not they are employed, as the answer to this. Many UBI proponents, including tech entrepreneurs such as Elon Musk, Mark Zuckerberg, and even Richard Branson of the Virgin conglomerate, have said that they see UBI as the only solution to the problem of mass unemployment caused by advances in IT.
The basic premise behind UBI is not unlike the premise behind universal healthcare and other universal coverage systems. The Scandinavian welfare states have grappled with such issues for decades. They have outrageously high rates of taxation, but, relative to other nations at least, a semi-efficient way to plow these taxes back into welfare schemes for their citizens.
So, it was not surprising that Finland, also a welfare state, was the first to begin experimenting with the concept of UBI in January 2017. The programme allowed 2,000 unemployed Finns to receive a UBI dole, even when they tried out casual employment at odd jobs. These 2,000 were to be compared against a control group of 137,000 employed Finns.
A spokesperson for Kela, the Finnish governmental agency responsible for welfare programmes said at the time: “Incidental earnings do not reduce the basic income, so working and … self-employment are worthwhile no matter what.” I had written in this column earlier that this statement is only partially true since there are two problems with every dole. One: it must be paid for by all citizens, which means higher taxes, and two: doles act as a disincentive for recipients who would otherwise be forced to go out and find paying work.
The Finnish government had said that if the trial was successful, the programme could be extended to include all adult Finns. The premise was that this programme could end up saving more money for Finland in the long run—as it was supposedly less expensive than maintaining current social welfare services for the unemployed.
However, the Organisation for Economic Cooperation and Development (OECD), an influential think tank, said income tax would have to increase by nearly 30% to fund a basic income. It also argued that basic income would increase income inequality and raise Finland’s poverty rate from 11.4% to 14.1%.
And now, Finland’s government has announced that the two-year pilot scheme which started in January 2017 will not be extended after this year, as the government is now examining other schemes for reforming the Finnish social security system.
This seems to me to be conclusive evidence that UBI programmes such as the one Finland has, or the one we have experimented with here in India, are simply not workable as an alternative to boost people’s income in return for job losses caused by automation, whether this automation comes through the simple mechanization of agricultural labour caused by using farm automation tools, or through advances in IT.
Apologists for the programme, including the New York Times, have claimed that it is not UBI that has failed Finland, but rather the reverse—that Finland failed UBI. They claim that the pilot programme was too limited in scope to produce meaningful results and that it should have been extended to a much larger population.
Essentially, this means several millions more need to be spent on a programme that has already seen trouble before we actually pull the plug on it. This logic is befuddling.
We would be better served spending the money to re-skill displaced labour to take on other types of employment. Mankind’s history ever since the invention of the wheel has been filled with continuous mechanization and automation, and we have adjusted to every new development by finding new ways to be productive.
That said, this debate is far from dead. Expect more UBI experiments.
Siddharth Pai is founder of Siana Capital, a venture fund management company focused on deep science and tech in India.