Finland: Anti-Welfare Welfare

Brave New World

Finland is embarking on a grand experiment.  It is going to scrap all welfare payments and pay every adult a flat amount of 800 euros per month (which roughly equates to around $1,000 per month).  It will be a universal entitlement.  No means testing.  

The objectives are clear and laudable.  All welfare systems and entitlements become exorbitantly complex to administer, requiring large bureaucracies.  The complexity means economic inefficiency and high transaction costs.

Secondly, all means tested benefits--particularly generous ones--erect barriers to work and self-sufficiency.  This is particularly the case with unemployment payments.  There is little incentive to get out and look for work, let alone take a job, when it means a reduction in state unemployment payments.

These failures and weaknesses of the welfare system in Finland are in the sights of the government in its proposal to scrap all means testing and all welfare benefits, and just dole out a flat amount of money to every citizen regardless of their circumstances.

Under proposals drafted by the Finnish Social Insurance Institution (Kela), the tax-free payments would replace all other benefit payments, and would be paid to all adults regardless of whether or not they receive any other income.

While it may sound counterintuitive, the basic income is intended to encourage more people back to work in Finland, where unemployment is at record levels. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments. More than 10 per cent of Finland’s workforce is unemployed, rising to 22.7 per cent among younger workers. [National Post]

Will it last?  Not at all.  There are two huge rocks upon which this naive proposal will founder.  The first is the prevailing belief in "social justice" where justice is predominantly defined in socio-economic terms.  The wealthy will get something for nothing which they do not need.  The indigent and the poor will never have enough to support themselves in the lifestyle to which they aspire.  The "reform" will always be seen as implicitly unjust.

A second, related obstacle is the widespread belief in socio-economic egalitarianism.  The ideal of justice is when everyone has the same.  Very quickly, the social justice warriors and the egalitarian storm troopers will demand yet more for the less well off.

We predict that under such pressures the hull will buckle and the long, slow sinking will begin.  The end result will be as happened in New Zealand.  Middle and upper class welfare rapidly becomes locked in and impossible politically to roll back.  The "egalitarian" head-count payment to all citizens will never be removed.  But the demand for more welfare and compensation to be paid over to the less well off will not abate at all.  It actually increases in intensity.

The end results?  A vast expansion in state welfare transfer payments, rising fiscal deficits, and a bigger dead weight state sector weighing on the economy.  Stupid move, Finland.