Two thousand welfare recipients in Finland, chosen at random for an experiment, could well determine the future of welfare in that country.
Finland has become the first country in Europe to pay its unemployed citizens a basic monthly income, amounting to 560 euros ($587), in a unique social experiment which is hoped to cut government red tape, reduce poverty and boost employment.
Olli Kangas from the Finnish government agency KELA, which is responsible for the country’s social benefits, said Monday that the two-year trial with the 2,000 randomly picked citizens who receive unemployment benefits kicked off Jan. 1.
Those chosen will receive 560 euros every month, with no reporting requirements on how they spend it. The amount will be deducted from any benefits they already receive … Kangas said the scheme’s idea is to abolish the “disincentive problem” among the unemployed. The trial aims to discourage people’s fears “of losing out something,” he said, adding that the selected persons would continue to receive the 560 euros even after receiving a job.
This may sound like something for nothing, but it might actually be a better system of welfare than the current one. It is at least vaguely similar to what the libertarian economist Milton Friedman believed would be the best way of doing welfare: Simply give cash to the poor in the form of a universal refundable tax credit, rather than create expensive bureaucracies that mete out restrictive benefits (housing, food stamps, healthcare) to those willing to jump through the hoops.
Friedman called his idea a “negative income tax.” It would apply to everyone, regardless of income level. For most people, it would effectively just reduce their tax liability. But for very low-income earners, it would result in a modest income from the government, provided weekly or monthly, either on their pay stub or (if they don’t work at all) directly from the Treasury.
The closest thing we have to this today in the U.S. is the Earned Income Tax Credit. In this 1968 video, Friedman explained the concept to a fairly young William F. Buckley.
Friedman believed that the negative income tax was superior to the welfare system of his day (and by extension to most European welfare systems) because it treats welfare recipients like adults. It minimizes the irrational incentives that welfare creates not to seek work, and without the kind of exacting requirements (both on welfare recipients and the government) that strains the bureaucracy — that they, for example, spend so many hours a week looking for a job or undergoing training.
His insight was that a simple cash payment that does not disappear immediately upon one’s finding employment could potentially free the human spirit of those on public assistance, because some large number of them are only held back from taking a job by the perverse incentives that welfare creates. And this is precisely what the Finns are trying to do here. Friedman might criticize this experiment’s particulars, but the basic idea is similar.
In the U.S., some of welfare’s perverse incentives were abolished by welfare reform in the 1990s, but not all of them. It will be very interesting to see how this Finnish experiment plays out — whether it will prompt a greater number of recipients to find work than among those under Finland’s current system, or whether it will prompt more of them to spend their days on the couch watching whatever happens to be the Finnish equivalent of ESPN.
