What India can learn from Finland’s UBI experiment

Amid the flurry of interest in India over a Universal Basic Income (UBI) or “near Universal Basic Income” (for instance, the Congress’s announcement of a proposed minimum income plan for all poor families and former Chief Economic Advisor Arvind Subramanian’s proposal), countries as diverse as Finland, Kenya, Italy, Netherlands and Scotland have experimented with the scheme. The results of a trial in Finland are now out, and it could tell us a lot.

Finland introduced the UBI trial in 2017-2018. The trial was not a UBI in the strictest sense, however. It applied to 2000 randomly selected people who had received an unemployment benefit in November 2016. The trial ensured that they would continue to receive the basic income even if they obtained a job and steady income. A fully-fledged UBI is of course automatically available to those who are working and for those who are not. This selected group was compared to a “control” group who were not chosen to participate in the trial.

Some failures…

The main aim of the Finish experiment was to consider the effects of the basic income on employment and subsequent income. The notion is that with a basic income, people would have the security of developing skills, building personal and professional credentials, and taking the time out to seek gainful and meaningful employment, and start businesses. In this regard, the experiment was not a stunning success. There was little difference between the benefit and control groups, with the basic income recipients achieving only half a day extra employment in the open labour market compared to the control group, with only 1% more people in the recipient group having any other earnings and income from self- employment compared to the control group. The amount of subsequent income was in fact lower for the trial group. However, importantly no disincentives to work surfaced.

…But not all bad

The real benefit of the trial, however, lies in the broader and potentially long term positives in terms of greater empowerment and fulfilment.

Recipients of the basic income reported greater levels of confidence, not just about finances, but about their own capabilities, ease of starting a business down the track, prospects for the future and ability to influence societal issues, compared to the control group. In addition, compared to the control group, beneficiaries of the basic income reported better health (55.4% compared to 46.2%), less stress (54.8% compared to 45.6%), and a greater ability to concentrate on tasks.

Interestingly, recipients expressed greater trust in politicians than the control group, although differences in trust in other institutions was not marked. Undoubtedly this would be music to the ears of political leaders implementing such schemes. As might be expected, a higher percentage of beneficiaries believed that such a scheme should be implemented on a permanent basis—85% for the recipients and 75% for the control group.

Why India should pay close attention

Although the trial was limited in ambition and nature, and noting there are vast differences in the economic and social systems in Finland and India, there are some cogent lessons to learn for India.

First, that any mooted large scale policy changes of this kind, as with Finland, needs to be trialled to encourage learnings, obtain realistic information and garner insights as to the full benefits and costs of a UBI.

Second, India needs to trial a system that pertains to both employed and unemployed people, in the more true sense of the UBI, and which covers the much greater economic and social diversity in the country, including by education levels, location (urban vs rural contexts), gender, ethnicity and differing labour market conditions.

Further, an important threshold question that needs to be sorted out is what level a UBI should be set at, either on a trial or permanent basis. Too high a level is potentially a drain on the public purpose (although the full extent of that would depend on what other welfare programs are disbanded) and could create disincentives to work, while too low a level would be ineffective in addressing core issues of income inequality and poverty alleviation. A level of UBI aligned with the costs of a range of goods and services, and some additional disposable income could be a starting point.

Another core lesson is that nations should not necessarily be jumping to a UBI just because it is perceived to be the “flavour of the month”. A UBI needs to be carefully compared with other mechanisms such as conditional transfers or vouchers, (for education, for instance), and extensions and reforms to unemployment insurance.

Notwithstanding these caveats, an important lesson for India from the Finland experience is to look longer term and beyond the immediate aspects of employment in thinking about a UBI. The broader health and less stress benefits that were observed have both important economic benefits, such as less burden on the health system and a more productive workforce, as well as positives for individual and societal well-being.

Anand Kulkarni is a consultant and principal adviser for planning and performance at Victoria University.

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