Some Basic Income History

To understand why basic income failed, it’s helpful to start with some historical context. Although basic income is seen nowadays as a new, hot idea embraced by tech tycoons in Silicon Valley (and presidential candidate Andrew Yang), it is hardly a new or even novel idea in Finland. Mainstream political parties in Finland have been talking about a basic income for over forty years. In previous iterations, it had been called a citizen’s wage or a citizen’s income. Starting in the 1970s and 1980s, two of the four largest parties in Finland — the Green Party and the Centre Party — began discussing the idea. These conversations became sufficiently serious that a working group made up of members of all the major parties and stakeholders was formed to draft a book about the possibility of a basic income in Finland. The book, titled Basic Income: Citizen’s Salary, was released in 1992.

Unfortunately, in the 1990s Finland fell into one of its deepest and longest recessions of the past century, so it hardly seemed like the right time for aggressive spending proposals. Like much of the rest of the Western world in that period, Finland had abandoned Keynesian approaches in favor of austerity to solve its recessionary crisis. Jan Otto Andersson, a member of that early working group and one of Finland’s most long-standing advocates for a basic income, argues that this experience in the 1990s highlights one of basic income’s biggest challenges: “When times are good, people say, ‘Well, we don’t need this kind of stuff. Everyone can get work and so on.’ And then when there’s a deep crisis, like the one in the 1990s, people say ‘Well, we have no money, we can’t afford it.’”

Finland eventually recovered from the recession of the 1990s, and over time, basic income began to resurface as a popular policy idea, especially within the Green Party. Prior to the 2007 Parliamentary elections, the Green Party commissioned social scientist Pertti Honkanen to design a basic income proposal. Some hoped this would be basic income’s moment in Finland. But as one might guess, the same story repeated itself and the concept faded away in light of the global financial crisis of 2007–8.

Eight years later, Finland continued to be in an anemic recovery from this catastrophe. Hampered by its use of the euro, international trade sanctions on Russia (one of Finland’s biggest trading partners), and the collapse of Nokia, Finland still had an unemployment rate of 8.7 percent in 2014. For context, the US unemployment rate had fallen to 6.7 percent, and some of Finland’s neighbors — Norway (3.5 percent) and Denmark (6.6 percent) — had begun to bounce back. In response to this feeling of economic stagnation, the Centre Party in Finland ran in the 2015 elections, in part, on the promise to experiment with basic income. After the Centre Party’s victory in the elections in April 2015, the experiment began in January 2017, and yet by April 2018, the government had already decided not to continue.

So how did support for this long-standing idea evaporate in three short years? The answer one gets will depend in large part on who you ask; however, three main themes tend to arise: partisan politics, bureaucratic constraints, and social norms on conditionality.

Politics

A defining feature of Finnish politics is its multiparty parliamentary system. With anywhere between four and five major parties at a time, one party gaining an outright majority is practically impossible. For example, when the Centre Party “won” the elections in 2015, they earned just over 21 percent of the vote. This pattern, with the first-place party only winning between 20–25 percent of the vote, has been extremely consistent in Finnish elections over the past twenty years.

As a result, all parliamentary elections lead to the formation of coalition governments. At times, this need to form a coalition can lead to some surprising partnerships between left- and right-wing parties. For example, between 1995 and 2003, the Finnish coalition government was made up of the center-right National Coalition Party (NCP), the liberal Social Democratic Party (SDP), and the socialist Left Alliance party, among others. In general, Finns will point out that their election system cultivates a culture of compromise among the major parties.

However, in spite of this political culture of compromise and coalition-building, very real ideological differences still exist between the parties. The Centre Party — formerly the Agrarian League — represents many farmers and rural interests in Finland. Given the comparatively low and often volatile incomes in rural areas, the Centre Party’s positions on social welfare programs have often supported universal, flat-rate benefits, as opposed to more income- or employment-based benefits.

By contrast, the liberal SDP, which has strong ties to the unions, and the right-wing NCP, which stands for traditional free-market principles, both boast their support for “the culture of work” and seek to strengthen the employment-based social safety programs.

Olli Kangas, head of the research team that designed the basic income experiment in Finland, describes how this agrarian-industrial divide has played out historically on the issue of pensions, and how it continues to affect politics today: “The reason we have income-related pensions run by trade unions and employer federations is because our first national pension law — passed in 1937 — was totally contribution-based. The intention was that individuals were contributing 2 percent of their income to their pension fund and they would then be paid a pension according to funds, so that it was totally contribution-based, totally funded, and a totally defined contribution system. But then in 1956, Parliament decided to reform the whole system to divide all of those contributed funds evenly on a flat-rate basis to everybody. The unions and representatives of workers or employed persons in cities viewed this as an income transfer from their pocket to the countryside because the countryside is mostly farmers and they contributed mostly nothing. Trade unions would never ever again rely on the agrarians.”

Because of this political history, the disagreement between universal, flat-rate benefits and employment-based social policy is a core tension in the Finnish system. It plays out in a number of policy debates (e.g., the childcare benefit, unemployment insurance, pensions, etc.). So, too, would it prove to be a defining feature of the political debate surrounding basic income. Essentially, the Centre Party held up the basic income as another universal, flat-rate benefit that would boost employment for all Finns, while the SDP saw it as a way of undercutting the income-based unemployment insurance system.

Just as Social Security is called the “third rail” of US politics, the earnings-based unemployment benefit system is sometimes thought to be similarly untouchable in Finland. These benefits are collected and administered by the trade union and employer associations, and with unions representing nearly seven in ten Finnish workers, Olli Kangas suggests that unions have perhaps the most influential voice in Finnish politics.

In fairness, the unions have mostly framed their opposition in economic terms. Ilkka Kaukoranta, chief economist at the trade union confederation SAK, crystalizes their argument: “The problem with this experiment is the cost. To implement it on a national level would increase the government budget deficit by something like 5 percent of GDP. This experiment does not involve any tax increases and only introduces a new benefit, so of course it would be tremendously expensive. A realistic basic income would be coupled with a tax increase that would fund it, and that would be quite a different model. My fear is that that sort of cost-neutral, economically feasible basic income model would actually decrease the incentives to work because the tax rate would be so much higher, which would make it less appealing to work than our current system, which is contrary to the arguments of many basic income folks.”

To make matters worse for the Centre Party, the political obstacles that troubled basic income were not just coming from the opposition parties, but also from factions within the coalition government.

After the 2015 elections, the Centre Party formed a coalition with the NCP and the True Finns. As is customary in Finland, since the NCP came in second place, they were given the post of minister of finance, which is considered the most powerful and influential position after the prime minister.

During the planning of the experiment, NCP member Petteri Orpo was the minister of finance and a vehement critic of the basic income experiment who used his position in the Cabinet to sabotage it. For example, as Kaukoranta mentioned above, a major criticism of the basic income project was that it did not include any taxes. Markus Kanerva, cofounder of the Finnish think tank Tänk and senior specialist at the Experimental Finland task force in the prime minister’s office, speculates, “I think [the reason they had no taxes in the experiment] was that the tax authorities were not interested a bit in the experiment. I don’t know if the reason was that the minister of finance has been from the National Coalition Party, and they don’t have a big stake in the basic income idea at all.”

With these attacks from the left and the right, the Centre Party found it increasingly difficult to hold on to this controversial experiment, and eventually decided to abandon it.

Bureaucracy

Although the political aspect of the story fits certain preconceived notions of why some policies succeed and others fail, the role of the bureaucracy is just as important in this case. Two major constraints from a bureaucratic design and implementation standpoint existed: a short timeline and a limited budget.

Not Enough Time

Marjukka Turunen, the director of change management at Kela and the lead on implementing the basic income experiment, explains that the timeline imposed on the research and implementation groups was nearly impossible: “We didn’t have time because the decision [to experiment with a partial basic income] was made in May 2016, and this experiment had to start at the beginning of 2017. So, we had a very narrow time in there — only a few months, because it had to go to the Parliament, and you know the processes there take a long time. After the [Parliamentary] summer vacation, the Ministry gave the legislation to the Parliament in October. After that, it went through the Parliamentary process there. They accepted it, and the president confirmed it in December, and in December we gave the decision out. The experiment then started on the first of January 2017.”

In the first eighteen months of its government, the Centre Party lost popularity and fell in the polls, so it turned to the basic income experiment as an opportunity to score a political victory. However, the same party dynamics described above — as well as opposition from key bureaucratic leaders — made even this small experiment quite difficult.

Heikki Hiilamo, a social scientist at the University of Helsinki, applied to lead the research design team, but looking back on how things played out, was quite happy he did not get chosen: “So, I actually ended up writing a competitive proposal, and our proposal wasn’t chosen. Eventually, I was quite happy about it because it involved so much work. There was a lot of resistance among the civil servants. So, it wasn’t an easy project.”

As mentioned above, Minister Petteri Orpo — head of the ministry of finance (and as a result, of the tax authority) and a vocal critic of the basic income project — used his powerful position to prevent Kangas and his design team from incorporating any tax component into the experiment. Some have discounted the entire experiment as futile because it does not include a tax structure on the payments.

However, it wasn’t just Minister Orpo that posed bureaucratic opposition to the project. In August 2016 — four months into the planning process and five months before the experiment was set to begin — there was a change in leadership in the Ministry of Social Affairs and Health. Hanna Mäntylä stepped down as minister, and she was replaced by Pirkko Mattila. Olli Kangas explained that the outgoing minister Mäntylä was supportive of the experiment, saying, “She was very interested in the experiment and would often call me to ask what was going on. I had a very nice working relationship with her.” However, Kangas adds, “She was dismissed and replaced by somebody else [Pirkko Mattila] who was not at all interested in the experiment.” The lack of support from two key Cabinet members only exacerbated the time crunch for Kangas, Turunen, and the rest of the design team.

Despite all of this opposition from the administrative agencies, Kangas and Turunen worked together with their teams — often requiring working late nights, weekends, and during summer vacations — but they eventually got it all done, barely in time. Kangas explains: “The legal process began, and it was in December 2016. I was very unsure if the Constitutional committees would accept it on this basis because this is a very unique experiment. . .but they said yes it’s okay, and I think it was after Christmas when the president promulgated [it on] something like the 28 of December and everything started three or four days later.”

The rushed nature of the process had some negative consequences, to be sure. If there had been more time, the research group could have explored more policy design options, the prime minister’s office might have been convinced to expand the budget (discussed below), further negotiation and compromises with the minister of finance might have led to the inclusion of taxation, and a stronger political coalition could have been built to support the experiment. However, the fact is: the eight-month window that the prime minister’s office imposed prevented these possibilities from happening, which is why the experiment was viewed as less than perfect by all parties, and this widespread disappointment seems to have played a role in its ultimate demise.

Not Enough Money

In addition to the tight timeline, the prime minister’s office allocated a very small amount of money to the experiment’s budget. Kangas mentioned he hoped the sample could be around ten thousand people, but the limited budget made this unrealistic. Originally the plan was also to run multiple experiments, with control groups of different ages, employment statuses, education levels, and other varying labor market characteristics. The larger sample size and different demographic groups were both intended to capture a holistic understanding of how basic income would interact with the Finnish economy and social safety net.

However, as Kangas explains, the limited budget allocated by the prime minister’s office was a significant constraint: “We had planned to have different levels of basic income and different taxation linked to those different levels, and that we would do a randomized nationwide sample combined with local experiments. But then there were a couple of problems. One was the financial limitations. We were stuck with the twenty million euros, so we had to reduce the number of people in our sampling.”

The prime minister’s office refused to expand the budget and required Kangas to stick to the original timeline. This rejection by the prime minister’s office forced Kangas and his research group to design a far-from-ideal social science experiment. Instead of a ten-thousand-person sample including several different demographic and employment groups, the research team had to limit its scope to a population of two thousand persons.

Kangas and his team chose to test the basic income with unemployed persons between the ages of twenty-five and fifty-eight for a few reasons. First, Kela already had the administrative information on unemployed persons, making it much easier to collect and track their information.

Second, the unemployed persons chosen were a specific subsection of the total unemployed population. In particular, they were not receiving the generous income-related unemployment benefits from the unions; rather, they were receiving the basic unemployment benefit distributed by Kela. The basic unemployment benefit is the lowest level of unemployment insurance in Finland, and the average amount was comparable to the basic income amount. In addition to the administrative ease this provided, it also satisfied constitutional concerns about treating individuals differently.

Third, and perhaps most acutely, unemployed persons were one of the key groups that the Centre Party sought to incentivize into employment through this unconditional basic income. The government was hoping to activate young persons who had fallen into unemployment after finishing their schooling, as well as long-term unemployed persons. Both of these groups were disproportionately receiving the lowest form of unemployment benefits, and so replacing this basic unemployment benefit with a basic income aligned with the prime minister’s expressed goals for the experiment.

The limited budget provided by the prime minister’s office also limited the size of the grant that the program could provide. While some proponents wanted the experiment to test a full basic income (somewhere in excess of €1,000 per month), the reality was that with the budget constraint they had, the research team would only have been able to give a full basic income to a sample that was too small for any potential findings to be statistically significant. (Some worry that even two thousand participants is too small for meaningful insights to be drawn.)

In order to maintain methodological viability, the research team opted for a partial basic income. Markus Kanerva adds, “It was relatively easy actually to choose a partial basic income. Full basic income seemed unfeasible because it would be very costly, and we were given the twenty million by the [government] for two years together, so our sample size would be pretty limited with a high-income amount. Plus, there was also the demand that the model that would be tested would be somehow budget-neutral. So, in that sense, it was lowered to a partial basic income, and in the partial basic income, the amount is equal to the minimum amount that [the unemployed] get today, so that no one is getting less.”

These bureaucratic limitations — not enough time and not enough money — may not be discussed as much as partisan politics, but in the case of the Finnish basic income experiment, its role was just as important in undermining the experiment’s success.

Social Norms

The third and final reason for the experiment’s failure is perhaps the most fundamental and radical: basic income’s underlying theory of fairness. Whether in the form of a “demogrant” or negative income tax, at its core a basic income asserts that individuals are entitled to a certain amount of money regardless of their life situation, behavior, and characteristics.

Many proponents of the basic income will talk about its ability to affirm “the right to say no.” To make the same point, some advocates will say basic income is a practice in “decommodification.” Both of these phrases highlight that the essence of a basic income is to provide individuals the right to choose to not participate in paid employment, while guaranteeing them access to economic benefits. The reasons for holding this view — and ultimately what draws people to support a basic income — are quite varied.

For some, like the academic Philippe Van Parijs who is perhaps the most famous proponent of basic income, the rationale is philosophical. In his view, the only way real freedom can be achieved is when the government provides each person the resources needed to survive, regardless of whether that individual chooses to work. Others support a basic income because it recognizes the unpaid labor that happens every day across the economy. Progressives, feminists, and others point to the market economy’s failure to recognize (i.e., to compensate) all forms of labor; while the market effectively compensates many types of activity through wage labor, other important tasks (e.g., caregiving, child-rearing, volunteering in a community, etc.) are just as valuable, but are not remunerated.

A basic income has been framed as a way for the government to formally compensate people for those everyday acts of labor. For others still, the justification is bound up in a growing sense of precarity due to forces like automation and globalization. With some books and think tank reports suggesting that in the not-so-distant future paid employment may be unable to adequately provide economic security to the masses, a basic income could serve as an alternative form of economic distribution.

The three arguments outlined above dominate much of the global discussion; however, they are almost wholly missing from the Finnish debates. Johanna Perkiö, a doctoral student at Tampere University, has studied the different rhetorical frames used in the Finnish basic income debate. She explains, “I think the main finding of my latest study was that there was a big shift in how basic income was framed after the economic recession of the early 1990s.” Prior to that recession, basic income — like much of the rest of Finnish politics — was discussed in terms of “equal rights and universalism” according to Perkiö.

However, the 1990s marked a larger political shift in Finland, and this shift changed the nature of the basic income debate. In Perkiö’s words, “Basic income was reframed to resonate with this activation thinking — that it would mainly be a tool to activate people to take part in low-paid or temporary employment.” A common phrase used by Parliamentarians since the 1990s in support of basic income has been to emphasize its ability to help “make work pay.” This particular frame was the entire motivation that the Centre Party provided for the experiment during the 2015 election: as a test of basic income’s ability to overcome bureaucracy and weak incentives, propelling the unemployed back into work.

Even though the official rationale for basic income is to promote paid employment, many critics of the experiment have attacked it as a program that encourages people to be lazy and stay home playing video games. Juhana Vartiainen, a National Coalition Party member of the Finnish Parliament, has been one of the most vocal opponents of basic income for a number of reasons, chief among them its lack of conditionality. He has referred to the experiment as “a deviation from the work ethic emphasis of our party and of the Social Democratic Party in Finland.”

This description of basic income recipients as lazy and undeserving is a tried-and-true attack on the concept. Precisely this sort of rhetorical distinction between the deserving and undeserving poor was used by opponents of a basic income in the United States and Canada, which helped sink the experiments of the 1960s and 1970s.

Although not a critic of basic income himself, Markus Kanerva understands why some Finns would be reluctant to sign off on a policy based on unconditionality. “A universal basic income would be a very unconditional system. But that’s against laypeople’s sense of morals. They think you have to do something for your benefits, so what they’ve been doing is discussing quite a lot lately about having these activation type of unemployment models to try to activate poor people to do certain things for their own benefits.”

Supporting Kanerva’s point — which resonates with many people’s natural inclinations — social scientists Jose Noguera and Jurgen De Wispelaere have researched the role of reciprocity in social security systems. They point out that one of the most difficult challenges for basic income to overcome is what they call “psychological feasibility.” Essentially, they highlight that most social safety net programs operate under the reciprocity norm — i.e., individuals are willing to pay taxes on their labor to fund social programs as long as they reasonably believe that recipients of these benefits are trying to get a job and will eventually pay into the system. Since a basic income does not impose that requirement on recipients, it can be quite difficult to build support because it violates the reciprocity norm.

Even in the most social-democratic and progressive countries, questions of worthiness and fairness are at the center of debates surrounding the welfare state. In fact, it is precisely in these Northern European countries where the fight is its most intense. Many of the Nordic welfare states were created and rationalized under the scheme of full employment. This is why benefit receipt — especially for unemployment insurance and retirement pensions — occurs through work.

For this reason, as employment rates have fallen and chronic unemployment has become more common in these countries, conditionality has arisen as a solution to maintain the traditional Nordic model. Work has always been a central principle of Finnish political and social life, and so a basic income has an especially steep uphill battle in Finland when it comes to resolving the reciprocity issues it presents.

Capitalizing on the strength of the reciprocity norm in Finland, many opponents of basic income have argued that to solve its unemployment issues, Finland needs to move toward more conditionality, not less. Vartiainen suggests, “The alternative is to establish a better standard of social security, so high unemployment benefits like we have had in the Nordic countries. But in that case, it must be means-tested and involve a lot of conditionality and workfare. This is more or less the Danish way.”

The prevalence of this reciprocity norm in Finland, as well as the Centre Party’s declining popularity, led to what felt like a 180-degree turn in government policy. In December 2017, just twelve months into the basic income experiment, the same government rolled out changes to the unemployment benefits system — the very same benefits that basic income was being tested to replace. In addition to the methodological challenges this caused the experiment, it also marked a dramatic shift back toward conditionality. These reforms (known as the activation model) required unemployed persons to show even more effort to find employment than was already required of them, or else they would see dramatic cuts in their benefits.

Whereas the basic income experiment was using the carrot approach to promoting employment, the activation model was solidly a use of the stick.

Although he opposes the activation model, Ilkka Kaukoranta has emphasized the importance of means-testing and conditionality in future social security reforms: “I think there will be a big focus — there should be a big focus — on ensuring high employment [levels], and that means maintaining the conditionality that pushes people in a gentle, but firm way.”

As basic income advocates try to strategize next steps in Finland, it seems that resolving the apparent issues connected to the role of conditionality will be paramount for basic income’s success in the future.

What’s Next for Basic Income in Finland?

On December 31, 2018, the Finnish basic income experiment officially came to an end. The next few months and years will be spent analyzing the data, trying to find some conclusions about this program’s effects on its participants. Although it will take time for scholars using proper methodological rigor to collect and evaluate all of the data, there have been some early results that offer a window of what some of the impacts may have been.

In February 2019, Kela held its first public forum since the conclusion of the basic income experiment. The major takeaways from this event were (1) the basic income appears to have had no effect on employment in the first year of the experiment, and (2) participants did report that their overall wellbeing had improved (e.g., basic income recipients were more optimistic about their own state of health and reported lower levels of stress than the control group). Importantly, the employment results were based on data that was on a one-year lag, so the potential effects on work for the second year of the experiment will not be available until 2020.

About two months later, Kela held a follow-up forum where more findings were discussed. In this second round of presentations, Kela showed that recipients of the basic income were less likely to feel insecure about their current financial situation, with only 39 percent of basic income recipients finding it either difficult or very difficult to get by at their current income level as compared with 49 percent of the control group. Also, these results highlighted that the treatment group reported higher levels of trust in others and in social institutions.

While proponents and critics of the experiment alike have tried to use these findings in support of their respective arguments, researchers at Kela have been quick to emphasize the preliminary nature of these results. Evaluation of the program’s employment and wellbeing effects will continue through 2019, with the expected release of a final report coming in the spring of 2020.

In April 2019, Finland had its Parliamentary elections, and the results were mostly in line with what most experts expected. Juha Sipilä’s Centre Party lost eighteen seats, finishing in fourth place with thirty-one seats in the two-hundred-member Parliament. The top three parties were the Social Democratic Party which won forty seats, the Finns Party which won thirty-nine, and the National Coalition Party which won thirty-eight. The Social Democratic Party and Centre Party united with some smaller parties to form a coalition government. Antti Rinne — leader of the Social Democratic Party — is the prime minister, and Centre Party member Mika Lintilä holds the post of minister of finance. With the SDP in charge, it seems unlikely that a basic income will be tried again anytime in the near future.

Shaping Social Security Reform

Although the official findings will not be released for another year, that does not mean that the basic income experiment will disappear from Finnish discussions about social security reform. Rather, many experts expect it to play a crucial role in shaping that debate.

Olli Rehn — former Centre Party politician and current governor of Finland’s central bank — said, “To my mind, the focus should be shifted for the next Parliament to a comprehensive reform of the social security system, where in fact the basic income’s experiment serves as a very useful pilot study, and we should now look very closely at the OECD analysis and the UK universal credit.” Rehn’s comments hit the nail on the head in terms of how most Finnish experts see basic income fitting into the Finnish social security debate: the findings of the experiment will help inform the discussion, but ultimately that basic income will be overlooked in favor of another model (e.g., universal credit).

Back in the spring of 2018, representatives from the Organization of Economic Cooperation and Development (OECD) came to Finland and presented some findings they had collected from doing microsimulations with models using both the Finnish basic income experiment and a universal credit scheme. Their models suggested that basic income — as designed in the experiment — would increase poverty in Finland whereas a universal credit scheme modeled after the UK’s program would reduce poverty.

Universal credit, a concept made known through its use in the United Kingdom and elsewhere, also proposes providing individuals with a high level of benefits; however, it does so by combining several existing benefits (importantly, including the housing benefit), and it is highly conditional. Former finance minister Orpo previously indicated that he would be interested in experimenting with universal credit. In addition to Orpo’s support, scholars have suggested that they expect the universal credit scheme to be the next step. Heikki Hiilamo speculated, “I think there is a desire to introduce a universal credit system in Finland.”

Another possibility is that the Finns will follow the experiments in the United States during the 1960s and test out a negative income tax (NIT). During the original design period in 2016, Kangas and his team did consider a negative income tax as one potential model to use. Kangas explains, “We dropped a negative income tax as a potential model because at the moment we didn’t have a proper income registry in this country. In order to be functional, we need to have updated information of income that should be on at least a monthly basis or rather on a weekly basis, but it’s now working on an annual basis and it’s too crude a measure to be used in that kind of experiment like a NIT.”

Although the Finnish tax authorities did not have the technology for gathering that information at the time of the experiment, they will be rolling out a national income register that will provide the sort of accurate, up-to-date income information needed over the next few years. Some basic income proponents have suggested that this development may provide another opportunity for Finland to experiment with a negative income tax.

All of these directions seem possible, and it seems like the future of basic income will depend in large part on the makeup of the new government, the findings from the final report on the experiment, and the outcome of the social security debate over the next few years.