By Shahid Mehmood
Originally published in The News, 8th January, 2017
Welfare and welfare states have been constants in the socio-economic affairs of modern-day nation states, at least from the time of Otto Von Bismarck’s Germany (formerly Prussia). Since then, there has been a gradual move towards establishing a welfare-oriented state. One of the major attractions of the industrialised West – for those who migrate to these regions – is the welfare-based nature of society and government.
Politicians, dictators and those who govern swear by it. It forms a basis of the slogans of all the parties competing for a right to govern (it’s another matter that they rarely follow up on it, especially in countries like ours). But that is all in terms of similarity and agreement on the meaning of what actually constitutes welfare. Its evolution and the programmes covered under it are not necessarily the same and vary from country to country. Within these programmes, there are variations with different implications for different countries and regions.
A recent experiment in Finland is a testament to this fact. The government has embarked on a cash handout programme (which is a part of welfare initiatives) that could redefine the fundamental nature of welfare and welfare handouts in the 21st century. This experiment in state-led welfarism is being perpetuated on the basis of universal basic income, a concept that has been doing the rounds for many years. In the aftermath of economic crisis of 2008, this concept has found an increasing number of adherents.
In short, this concept advocates the payment of a monthly basic income for lifetime to individuals in order to enable them to meet their basic requirements. My main concern here is the Finnish government’s experiment in the small town of Oulu, situated in northern Finland just below the Arctic Circle. It’s not just about a government-led initiative but also highlights a classic case of how, and on what basis, to design a welfare programme.
The town of Oulu is termed as the Finnish equivalent of the Silicon Valley. It has a highly educated, technically qualified and competent workforce. It was home to Finland’s technology giant, Nokia, which in recent years has succumbed to the ravages of competition in a more globalised world. Nokia’s demise has meant that quite a substantial portion of Oulu’s workforce is now unemployed. The welfare system in Finland guarantees that the unemployed workforce receives a certain amount of cash under the unemployment benefits, which makes life a bit easier for those who have lost their jobs.
Yet, it has been recognised recently that this particular way of implementing welfare may be counteractive and cause more damage instead of relieving misery. The laid off workforce in Oulu is educated and well-qualified. Studies over time indicated that they wanted to do something themselves rather than live on the government’s and taxpayers’ generosity. However, ironically, the system that was designed to enhance their welfare was becoming detrimental to their noble ambitions. The unemployment assistance in Finland is designed in a way that a person who starts earning above a certain limit becomes disqualified for unemployment assistance. The fears that have gripped the unemployed workers are: What if their gambit does not pay off? What if they start a business, take a risk and the business fails? They will not only lose the unemployment handouts in this case but also sink into further misery without any government assistance.
Recognising the problem, the Finnish government is now coming up with an offer for them whereby they won’t need to worry about meeting their basic necessities and expenses, even if their initiative fails. The government guarantees a basic income, regardless of whether people are working or not. The workforce has to try to start something, take a risk, look for work and embark upon a venture without worrying about failure or loss. The government states, “We’ve got that covered for you. Do what you want to do without worrying about the risk”.
This, in short, is the essence of this whole experiment. By transferring the risk from the individual to itself, the government is encouraging them to be free of the psychological fears that have gripped the unemployed. By doing this, the Finnish government is not just embarking upon a potential redesign of its welfare schemes, but, more importantly, is delving into the world of psychology and behaviour rather than just taking an economic initiative. Many feel that the results of this two-year experiment would have long-term consequences not only for the field of economics and public policy, but also for human behaviour.
Redesigning the welfare system is a part of this initiative by their government. There are also more pressing concerns that pushed this scheme towards practical implementation. The first was the generation of jobs. Some of the world’s better performing economies depend on private enterprise, individual creativity and new startups. Oulu, being the Silicon Valley of Finland, has the required entrepreneurial spirit and willingness –which was being impeded by the government’s own policy in the form of unemployment handouts. The government is giving them an opportunity to reinvigorate their creativity and entrepreneurial spirit, hoping that this will lead to job creation – not just in Oulu but in all parts of Finland.
Another concern is Donald Trump’s victory on the back of reactionary populism which has set alarm bells ringing all over the world. There is a widespread belief that Trump exploited those who had lost their jobs due to various reasons, such as globalisation and automation. His triumph, while met with worry and scepticism worldwide, was celebrated by European Right Wingers like May Le Pen (France) and Nigel Farrage (Britain). As Right Wing movements have gradually gained ground in Europe, so has the urgency to stop its rise. One of the best ways would be to address the frailties of the unemployed.
Finland is no exception to this case. Some of its main industries, such as commercial paper manufacturing, have lost out to forces wrought on by globalisation and international competition. The result is a large number of unemployed people, who might be vulnerable to exploitation by politicians carrying an extreme agenda. Not surprisingly, the government has made a move in addressing this concern.
Finland’s proposed experiment offers some interesting insights about economic policymaking. This policy was designed after careful studies regarding the implications of the existing welfare system. This is in stark contrast to policymaking in our country, where such schemes are implemented primarily to curry political mileage but without much background work. No wonder they are later revealed to be a disaster.
This scheme is limited to only a small portion of Finland and addresses the concerns of those who are willing to work but are hesitant to take the risk. If their government wanted, it could have started the scheme in all of Finland. But they are being pragmatic and want to test the waters before diving in for the swim. If it works well, they might extend it to the whole of Finland. Perhaps the most important lesson is that economic policies are also evolutionary in nature and should be reviewed and designed according to ground realities rather than being implemented because they represent a worldwide trend.