The Nordic region is often misunderstood from the outside: The most common confusion among Americans is that these nations are “socialist” when they are anything but. They are capitalist, market economies that sometimes even outrank the U.S. in economic freedom. Even so, American liberals like to praise these countries for their generous social welfare programs, arguing the U.S. should follow suit.
Those Americans should pay attention now, as Finland gives up on an experiment with universal basic income in favor of an “activation model,” which is another way of saying welfare with a work requirement. In the midst of our domestic debate about work requirements and other reforms to our safety net, we can learn from Finland’s example: Welfare should encourage work, and beneficiaries will respond.
Roughly two years ago, the Finnish government adopted a pilot programthat gave 2000 people $690 per month, tax-free. This equates to $8,280 per year. The program had no work requirement, or any requirement, for that matter. The government initially planned to expand this program, but is now scrapping it in favor of an 18-hour-per-week work requirement. If beneficiaries don’t comply within 3 months, they lose some of their social assistance. This change is in hopes of incentivizing work.
The Finnish government recognized that help can sometimes hurt. Work is good for people: It’s associated with better health and financial security, and it provides a sense of what president of American Enterprise Institute Arthur Brooks called “earned success.” We should all favor policies that lead to these better outcomes for people. In fact, the impetus behind Finland’s basic income experiment was to reduce the effect of other unemployment programs in the country that discouraged work. The country feared that beneficiaries were not taking jobs or raises for fear of losing support as their wages rose.
Still, the country has not found the results of their basic income experiment – as initially designed – to be satisfactory. Thus the change toward the activation model.
The reality is that similar problems exist in the U.S. welfare system, where individuals and families can sometimes face “benefit cliffs,” or “poverty traps” which mean that if their wages and income rise even a little, they can lose major welfare benefits. (Think of a family earning $100 too much to qualify for Medicaid, for example.) This discourages work and keeps Americans trapped at lower levels of income.
Part of the problem in the U.S. is that our safety net is quite messy. At the federal level, there are at least 92 anti-poverty programs that are intended to help with housing, energy, health care, food and other necessities. These programs are not all housed within the same federal agency. Some work in conjunction with states. Often, the policies for reducing or eliminating benefits as income rises overlap in unhelpful ways.
This messiness has prompted some to suggest a universal basic income, which would essentially trade the various government welfare programs – and minimum wage regulations – for a cash benefit that beneficiaries could use as they see fit.
Certainly, there’s room to improve our social safety net by consolidating programs and making them more efficient. That’s why even free-market economists like Milton Friedman have supported the basic income idea (in the form of his “Negative Income Tax”). Because of his advocacy for such a policy shift, the U.S. actually conducted similar experiments to the Finnish one, but back in the late 1960s.
While the debate about the universal basic income continues, the U.S. at least learned then (as the Finnish are learning now) that incentives to work do matter. As Guy Sorman wrote for City Journal, the findings from these experiments ultimately became important to the national policy discussion under former President Bill Clinton, who signed welfare work requirements into U.S. law in the 1990s.
This is why it’s so odd that today’s progressives are so opposed to even the possibility of work requirements – technically “community engagement” requirements – that states may impose on programs like Medicaid and other anti-poverty programs. It seems there are double standards at work: Clinton gets a pass for recognizing the importance of encouraging work, while Trump is a heartless boogeyman. And of course it’s also inconsistent to think that the U.S. shouldn’t adopt commonsense policies that other nations – even those admirable Nordic countries like Finland – are moving to adopt right away.
No matter what direction the U.S. and other nations take with regard to welfare reform, we should keep the focus on the ultimate goal: Welfare should encourage work and self-sufficiency. This isn’t just to protect taxpayers, but most importantly, to protect those living on the margin of poverty from falling into it without a clear path out.