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The Scandinavian countries are often seen as role models for welfare states. These countries are known for having very high taxation rates. However, many experts claim that these countries also have mechanisms to ensure that the money collected as taxes is plowed back to the people. Lately, Finland has been in the news for experimenting with an idea called the “Universal Basic Income.”
This idea is basically socialist in nature. However, it has been recommended by some of the most prominent capitalists in the world. Entrepreneurs like Mark Zuckerberg, Elon Musk, and even Richard Branson are of the opinion that universal basic income is the only way forward. In this article, we will have a closer look at Finland’s failed experiment with universal basic income
Universal basic income is an unconditional payment from the government to each and every one of its citizens. This payment is unlike other forms of welfare. This is because people are not supposed to prove that they are sick or unemployed in order to obtain the cash. The idea behind universal basic income is that the overheads for distribution of welfare need to be removed. The money so saved should also be distributed to the people. The funding for universal basic income is often obtained by setting aside funding received from nationalized assets.
Entrepreneurs like Elon Musk are of the opinion that the future economy is going to be a gig economy. This means that very few people will have full-time employment. This is because of advances in information technology and robotics process automation. In the future, robots may be able to do a better job than humans. Hence, it is likely that humans will face large-scale unemployment. Therefore, it has been suggested that a universal basic income which should be enough for basic human needs should be given to all people. This basic income should help individuals survive in between jobs.
The idea of universal basic income seems to be right in theory. However, in practical life, it is riddled with problems.
The universal basic income does not eradicate poverty. In fact, it is likely that the poverty situation worsens because of this scheme. This is because the government gives a basic income to everyone. However, in order to do so, they have to either borrow money or print more money. In both cases, this causes large scale inflation. As a result, the value of the money that has been given out to the recipients reduces. In fact, the amount of the money earned by people also decreases. As a result, the poverty line simply changes to a higher number. Hence, even though the income of the people increases, the number of people in poverty remains the same or even increases.
The problem with Universal Basic Income is that it is paid out to people regardless of whether they work or not. This income is high enough for the people to sustain their daily expenses.
Prior to Universal Basic Income, unemployment allowance was paid out only to people who were out of a job. Hence, if they received $15000 as unemployment allowance, they would not take a job if it paid them $20,000. This is because effectively they would be earning only $5000 extra and will have to work extremely hard. Hence, the first $15,000 was effectively being taxed at 100%.
The reason why Universal Basic Income was favored over unemployment benefits is that in theory, it did not reduce the incentive for people to work. This is because UBI is paid regardless of employment status. Hence, if a person gets a job for $20,000, they don’t need to let go of other benefits that they are already receiving.
In practice, however, the experience has been very different. Universal Basic Income is meant to provide expenses that help a person survive regardless of employment status. Since many entry-level employees are content with that life, they don’t want to work more. UBI, therefore, becomes a system wherein the government is paying its labor force to prevent it from being productive.
Also, the government cannot give something to someone unless they have already taken it from someone else. Hence, in order to pay universal basic income, the government first has to raise income taxes. This makes production more expensive since the factor costs increase with the increment in taxes. The government is effectively sabotaging its own economy, i.e., it is discouraging productive people from working whereas simultaneously providing incentives for workers to stay idle. Over a period of time, productive people will abandon the economy and the government will be left only with the idle people.
When workers have a lot of free time and money for survival, social problems are created. Idle time is often associated with alcoholism and recreational drug abuse. This results in increased medical bills for the government. Also, the government has to strengthen the workforce in order to maintain law and order in society.
The bottom line is that universal basic income is a failed idea. Finland’s very expensive failed experiment is proof that the rest of the world need not repeat the mistakes.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
