Photo: AFP
Photo: AFP

Finland and universal basic income

While UBI is well meaning, its administration will be a spectacular failure, except perhaps in countries where the welfare state has already been long established

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. In interviews during the latter half of 2016, President Barack Obama was quizzed on the concept of Universal Basic Income (UBI). He responded by saying that the concept of UBI is one that will be debated for decades to come as computer systems get ever more efficient, thereby causing job losses all over the world. He did not shy away from the fact that it will be a social issue of large import, which governments the world over will have no choice but to address. He has also said that advances in information technology, 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.

The concept of UBI has gained currency (pun intended) recently, as governments recognize that as robotic automation and cognitive and quantum computing take off in the next few years, many citizens will be left without jobs and for some while at least, without access to any way of earning an income. The proponents of UBI envisage a world where governments will step in and provide a guaranteed amount of basic income to all citizens. In its purest form, UBI is a potential source of income that could one day be available to all adult citizens, regardless of income, wealth or employment status. The premise behind UBI is not unlike the premise behind universal healthcare and other universal coverage systems. For instance, in the earlier days of telecom, the US government mandated “universal service"—a concept that ensured that every home would be wired for a telephone, even when that home was far away from any other human settlement. This meant that the hapless telephone company (AT&T) had to run a twisted pair of copper wires from the nearest telephone pole all the way up to the hermit customer’s premise so that the hermit could have access to a telephone. Consequently, every US telephone customer’s bill carried a cess—levied so that universal service could be provided nationally. 

There are welfare states, especially in Scandinavia, that 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 is not surprising that Finland, one of those Scandinavian nations, is the first to begin experimenting with the concept of UBI. Two thousand Finns will be the recipients of a guaranteed income beginning this year as the government finally rolls out its UBI trial. This pioneering UBI programme was launched by the Finnish federal social security institution Kela. It will give €560 a month, free of tax, to these 2,000 randomly selected Finns. The only requirement is that they have to be already receiving unemployment benefits or another income subsidy. Finland is just one government considering a UBI trial in 2017. There will be another trial this month in the city of Utrecht in the Netherlands. Canada and, surprisingly, Uganda are also preparing for it.

The programme allows unemployed Finns to continue receiving the UBI dole even when they try out casual employment at odd jobs. A spokesperson for Kela said, “Incidental earnings do not reduce the basic income, so working and ... self-employment are worthwhile no matter what." This statement is only partially true since, unfortunately, 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. We have seen this demonstrated repeatedly, even in India in recent years, where laudable efforts to guarantee incomes to farm labour have also turned into a disincentive for the re-skilling of potentially large labour pools.

If the Finnish trial is successful, the programme could be extended to include all adult Finns. “Its purpose is to reduce the work involved in applying for subsidies, as well as free up time and resources for other activities, such as making or applying for work," said a statement by Kela. The Finnish government, as well as UBI supporters, think this programme can end up saving more money for Finland in the long run—as it is less expensive than maintaining current social welfare services for the unemployed. This sort of saving is relevant in a country like Finland, which already runs a large welfare state at great expense, but less relevant to countries such as the US and India. That said, many UBI proponents, including tech entrepreneurs such as Elon Musk, see UBI as the only solution to the problem of mass unemployment caused by advances in information technology.

As President Obama has foreseen, there is an ongoing debate, since UBI is controversial. In practical terms, the only real way to find out is to put the system to test—hence, Finland’s experiment. After its two-year run, the government will have enough data from the 2,000 participants and a control group of about 173,000 non-participants from the same background, and will be able to draw conclusions as to whether UBI can succeed.

In my opinion, while UBI is well meaning, its administration will be a spectacular failure, except perhaps in countries where the welfare state has already been long established.

Siddharth Pai is a world-renowned technology consultant who has led over $20 billion in complex, first-of-a-kind outsourcing transactions.

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