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What the failure of universal income in Finland reveals

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Laurent Pahpy* shows that in real life, universal income and Socialism, which have been tried in the northern European country that the Socialist Democrats are taking as an example, are destructive. He shows that their promise that “socialism works” is false. He doesn’t talk about theories, thoughts, promises or fantasy, but about reality.

To see if [Universal Income] works in practice, the Finnish government tried the experiment for one year on a group of 2000 unemployed people randomly selected. They each received 560 euros [$ 635] per month over the period 2017-2018.

No effect on employment

This is the conclusion of the universal income experiment conducted in Finland on a test population. This is not the first time that this popular idea has been evaluated in the field. But failure is always there. Universal income does not create value. It doesn’t reduce unemployment.

Repeated failures

With universal income, everyone is entitled to a monthly subsidy of a few hundred euros per month, regardless of age, status or salary. This subsidy is financed by a flat tax from the first euro of income.

With less economical constrains, the poorest could meet their basic needs. They would have greater ease in finding a job while avoiding the stigmatizing paternalism of the state welfare.

Administrative simplification, independence for everyone, restoration of free will, fight against technological unemployment, elimination of threshold effects, the advantages would be numerous and the idea is emulated by many politicians, from Benoît Hamon [In France] to Barack Obama [and now Bernie Sanders and Alexandria Ocasio-Cortez].

Slightly less stress, but no increase in employment

The preliminary study of the results shows that while beneficiaries report slightly less stress, universal income did not increase their employment relative to the control group.

This is not the first time that such full-scale studies have been conducted. Between 1968 and 1982, the United States federal government funded four such experiments. As a result, it is even a significant drop in employment that is observed every time.

A false good idea to fight unemployment

While the idea of universal income may seem attractive at first glance, it fails to get test populations out of dependency.

And that makes perfect sense. For the example, let’s take Frederic, a rich guy living out of his wealth, and Charles, an unemployed with no income.

First case scenario: universal income. The State takes $635 out of Frederic’s pocket and give it to Charles. Certainly Charles has an income, but only for one month, he is kept in dependency, because he is still unemployed. Frederic didn’t get anything in return. It is a zero-sum game (even negative if we take into account the cost of bureaucracy).

Second scenario: investment. Frederic invests the $635 in a productive activity. This capital makes it possible to create a company that will produce new wealth. To do this, the company will need manpower and it will be able to hire Charles. It’s a positive sum game: Charles creates value and earns a salary, Frederic creates value and earns a return on investment, and the consumer benefits. It is a win-win situation for all, it is the foundation of free trade and a market economy.

Rather than subsidized income, an inclusive labour market

Universal income does not help Charles out of dependency because it does not create value. While it can relieve some economic constraints in the short term, it keeps Charles in the poverty trap of long-term assistance.

In Finland, as in France, the relatively high unemployment rate of 7.4% (9.2% in France) is mainly due to an inadequate training system and a regulated and inflexible labour market that creates entry barriers for young people with low skills.

“Social progress” is a question of incentives that can only be achieved through a competitive and innovative market economy. All countries adopting it are currently experiencing employment shortages. The labour market must remain inclusive. For this, there is no need for a universal income. Above all, it is essential to reduce barriers to entry such as extended collective agreements, minimum wages, the legal overprotection of insiders at the expense of outsiders and the mismatch between vocational training and labour demand.

A moral bankruptcy in addition to economic failure

Beyond an announced economic failure, universal income opens the door to a dangerous collectivist drift. This positive law allows the State to take charge of each individual from cradle to grave and creates an almost unlimited dependence on the administration.

Electoralist increases in the amount of universal income, the introduction of progressiveness, financing by bank notes or debt (therefore by future generations)… The political excesses of such a system will not be long in coming.

Universal income could also suggest that the mere fact of existence gives a right to enjoy the work of others. Its defenders praise the autonomy it confers, but it actually creates an even greater dependence on the rest of society. This moral fault leads to the destruction of responsibility, the essential foundation of civilization.

Denying universal income does not mean denying solidarity, it means restoring it

Helping others in a situation of disability or misfortune requires a sincere, responsible and committed donation. Frédéric Bastiat sounded the alarm more than 150 years ago: “It is absolutely impossible for me to separate the word brotherhood from the word voluntary. It is quite impossible for me to conceive of the legally forced brotherhood, without Liberty being legally destroyed, and Justice legally trampled underfoot.”

* Laurent Pahpy is an entrepreneur and coordinator for the Students for Liberty network in Paris. He is also an analyst for the IREF, the European Institute for Research in Economic and Fiscal issues.

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