Flat Cheque Government Support

A flat cheque government benefit scheme is a form of provision scheme in which residents of a country are given a cheque regardless of whether or not they are working. This essay delves further into the topic by reflecting on the situation in Finland, how the scheme has been applied, and what people think of it. The article investigates two economic theories: Karl Max’s and John Maynard’s. The thoughts and observations of these two philosophers are further debated in this article, as is the association of their economic claims with the Flat cheque government funding system. The article analyses the flat cheque government system in Finland, the economic arguments that support and refute the benefits scheme and how it has impacted on the general welfare of citizens.

Keywords: Flat cheque government support, Karl Max economic theory, John Maynard Keynes economic theory, economic welfare.

Flat Cheque Government Support in Finland

Introduction

The flat cheque government support in Finland is a nationwide pilot scheme by the government of Finland where all unemployed Finns aged 25 to 58 would receive a guaranteed sum of $876 each month. It was planned that the income would replace their existing social benefits and the citizens would be paid even if at some point they got employed. In other words, the government of Finland wanted to reduce the rate of poverty which is mainly caused unemployment-when individuals are unable to afford the standard of living because of their financial status (Statistics Finland, 2017). Poor economic situations in most instances are usually caused by unemployment. The government-backed scheme is expected to cut the government spending by making welfare and other payments more efficient. The flat cheque government support was supposed to discourage low-income earners to work because when they took jobs, they got less money than when they are claiming benefits. Such policies are usually expected to reduce the administrative burden and other problems associated with the distribution of support through the regular tax and transfer system.

The primary income is expected to be paid as a ‘payment made quid proquo’, and one does not need to declare his/her other sources of income, to benefit from the scheme. The flat cheque government support system brings forth a sense of equality as the unemployed and the employed are all brought to a level where they can afford the standard of living (Investing.com, 2017). Lack of employment becomes no problem anymore since the citizens are able to cater for their basic needs using the funds provided by the government. The flat cheque government income is subject to income tax.

The flat cheque government support scheme may have a lot of effects on the motivation of the citizens However, the government may find it expensive to offer the flat cheque income, if the total national revenue isn’t sufficient to fund all the government projects. The revenue deficiency may compel the government to consider external funding, for example, signing for a loan with the World Bank (Internationbal Monetary Fund, 2010).

In the past, Finland has had a substantial economic problem-the country’s economic performance has been rated the worst performing economy in Western Europe in the quarter of 2015. Finland has a sluggish economic growth rate-as indicated in the financial report of 2015, the country registered an overall economic development rate of 2.5%. (Statistics Finland, 2017).

Preliminary research done by the International Monetary Fund has shown that giving people cash doesn’t keep them from working hard. Such a program was once used in China and making the payments displayed more entrepreneurial behavior as most of the citizens opted to invest with government funds. The universal basic income could encourage individuals to be more creative and take more business risks, to create more revenue that could adequately cater for their financial needs (Internationbal Monetary Fund, 2010). Implementing the flat cheque government funds policy raises some economic questions which are best answered by the analysis of the country’s financial performance after the implementation of the policy.

The idea of the flat cheque government support can be analyzed critically using the approach of different economic thinkers. In this case, the primary focus will be on Karl Marx and Maynard.

Karl Marx

Karl Marx was a German historian-philosopher and an economist. Karl Marx studied political economy and the philosophies related to economic development. Marx thoughts have influenced different organs of the society, including governments and their decisions on various economic policies. The social, economic and political theories by Karl Marx evidently suggested that development in the general society has always been through the struggle between the different social classes. (Schumpeter, 2014).

Marxism

Marxism connects the relationships between the political, social and economic ideas and explains how the three can work together for the betterment of the society. The theories also explain the historical development aspects and how they have led to the modern economic transformations. (Schumpeter, 2014). Capitalism, the main element in Marxism theory suggests that the private sector owned all ways of production and the distribution of products. However, the theory suggests a free entry and exit into the market structures, and that competition levels are fair to all businesses.

In the capitalism, labor force provides its services for unproportioned financial returns-the wages are much below the standard rates of pay for a given task. Karl Marx clearly outlined that each category or rather the social class is defined by the relations between them and different ways and means of production (Peters, 2014). The workers in the case of capitalism are paid little wages to support their families. The amount is usually not enough for the normal living standards of a citizen. Workers have no control over the output or even the cheap labor provided. The products produced by the workers are sold by the capitalists at an equivalent value as related to the labor involved. The recession in economies results from the inability of the working class to obtain all the products they labored for, and the capitalists on the other hand are unable to put all the surplus output into consumption. The economy therefore adjusts to this system of imbalance by

The simple idea by Karl Marx was that all the societies have a base in economies. This is seen to be the central core and focus of the society. The main motivation behind all the system is that everyone is in pursuance of wealth (Internationbal Monetary Fund, 2010). The only problem is that it does not come as a benefit to all because the rich get richer and the poor get poorer in this type of system, and this leads to social inequality. Capitalist system gives a lot of motivation to individuals to invest more and have the desire to be prosperous. Capitalism has encouraged competition, an urge for individualism, a lot of consumption which is a visible sign of progress and materialism.

The view of Marx is that the capitalist society is a split society (Schumpeter, 2014). It is made up of those who control and have a lot of power, and those who do not have any authority and as a result, have to sell their labor for a minimal pay and often have no share of the profit. The number of individuals who have no wealth and power in the society has risen above the number of those with wealth and extreme power, and this raises the question, ’why can’t the poor not rise and overthrow their masters?’

The media has been used by governments to show that the economic system is fair to everyone, by citing development projects financed by the government in areas of low economic potential. This encourages the poor and reassures them that the world is as it should be, and that nothing should be done about it. Their ignorance is taken advantage of, and they are rendered unaware of the true nature of exploitation and the kind of their exploitation and the unfairness of the system they live in.

Communism, on the other hand, tries to create a society that ran on different lines of capitalism. It is based on factors such as; there should be no private ownership of business or industry, and as a result of this, no one individual can get all the profit (Investing.com, 2017). Also, all work and share in the outcome common ownership. In communism, there are no social classes, and so no class of self-proclaimed individuals can set themselves up for others. When compared with communism, capitalism categories the population into social classes, and the class of individuals depends on their power in the society and their amount of wealth. A citizen’s level of income, power and economic contribution to the state determines their societal levels of importance. This usually makes them take advantage of the less fortunate in the society, that’s why the rich are considered to get richer and the poor on the other hand get poorer. Communism also advocates for the equal involvement of all classes of the economy in business activities. The theory explains that the contribution of small businesses are equally significant for a country’s economy. Communism led to the establishment of free trade policies and the creation of benefit schemes for the less fortunate within the community.

The state also controls the media which is usually a tool that is used to provide the poor with false awareness about the state of affairs by convincing them that the prevailing living conditions are the best. When the media is state controlled, it will make sure that the ignorance of the poor is not taken for advantage (Maxwell, 2013).

The idea of communism was meant to eliminate the problems experienced in capitalism, and this could in some way reduce poverty levels. Karl Marx would not support what the government of Finland is trying to accomplish because according to him unemployment is necessary for capitalism and that industries need to obtain cheap labor to increase their profits and this can only come from the poor.

John Maynard Keynes.

John Maynard Keynes was an economist who was also a philosopher. He spent his years working in a company in the eastern part of India and was mostly referred to as ‘the father of economics’. John Maynard was precisely famous for the Keynesian economics which can be described as a theory that discussed and tried to offer solutions to unemployment and its causes (Keynes, 2012). At some point, john Maynard proposed full employment and addressed government intervention as one of the ways and means to reduce poverty and unemployment.

Principle of Keynesian Theory of Economics

Keynesian theory of economics is based on a principle that states that in a case where economic investment goes beyond the government revenue reserves, inflation may occur (Keynes, 2012). Some instances usually result in the economic investment being far below the amount of the savings that has been made and this may lead to economic recession. According to Keynes, an increase in economic expenditure may cause a decrease the rate of unemployment and consequently an economic recovery.

Keynes theory of economics states that a good economic output and properly budgeted expenditure can boost each and every economy. Keynesian economics clearly outlines that lack of employment in an economy is usually caused by poor or very low rate of expenditures which as a result leads to a low aggregate demand.

When recession occurs there may be a respective decrease in the government expenditure and as stated earlier it is very important to increase the level of spending because it leads to the decrease in unemployment. During a period of economic recession, unemployment rates and poverty levels increase due to the fall in the aggregate demand.

Keynes suggested that the best way to save the economy of any given country out of recession, the government must consider corporate loans, for example, loans from the World Bank. The money should then be put into a lot of spending in order to increase the levels of spending and therefore increasing the aggregate demand. It is therefore evident that Keynes believed that government intervention could be a cure for unemployment (Keynes, 2012).

According to the Keynesian economics, it may be reasonable and expected of every individual to reduce the amount being spent in times of recession. The consumption function according to the Keynesian economics, suggests that spending by consumers by determining the changes in income and their incomes. A reduction in consumer expenditure increases the aggregate savings proportionally as the gross domestic product. The idea is to create a relationship between the amount of disposable income and consumer spending (Schumpeter, 2014).

Keynes also introduced a theory called the liquidity preference theory. This theory suggests that due to the future economic uncertainties in the currency value and the availability/price of products. He suggests that when interest rates rise the money holders are encouraged to invest their money hence holding less at hand. This, in other words, encourages investment and as stated earlier increases spending ends reducing unemployment hence, in the end, reduces poverty (Keynes, 2012).

In the case of the flat cheque government support system, it is evident that the government spending is increased, and as outlined by the Keynesian theory, the increased expenditure aims at reducing poverty and unemployment.

Karl Marx and John Maynard would have agreed with each other because Karl suggests that unemployment is necessary for capitalism, while the reduction of unemployment was one of the main reasons for the implementation of the Flat Cheque government support. John Maynard indicates that government intervention can be able to reduce poverty by reducing unemployment (Schumpeter, 2014). The reasoning of Karl Max and Maynard on unemployment are therefore not in agreement with the aim of the Finnish government-to create unemployment for the citizens by providing a universal payment.

Many other policies can be used to tackle the problem of precarious work, inequality and the administrative inefficiencies of the welfare state. “First dangerous job” refers to a low standard employment that offers a very poor pay and is also unprotected. Usually, this kind of employment never supports any household because the salary it provides is meagre (Keynes, 2012). On the other hand, there are lots of administrative inefficiencies and policy ineffectiveness in the welfare of the state. Governments that often carry out high transaction costs are usually victims of administrative inefficiencies at the managerial government level. Almost every nation has the problem of unemployment affecting it. This always leads to inequality because it often leads to the development of social classes, for example, the poor and the rich.

Many other policies can be used to approach the problem of unemployment apart from the above mentioned. They include the following

Fiscal Policy

By increasing the aggregate demand and the economic growth rate, monetary policy can help to reduce unemployment. In this case, the government will have to cut back on the taxes and increase measures for expansion which will improve the rate of spending of the government. Low tax rates and increased government spending increases the amount of disposable available hence increase the consumption rate. This, in the long run, ends up increasing the aggregate demand (Peters, 2014).

An increase in the aggregate demand will also lead to an increase in the Gross Domestic Product. With an increase the Gross Domestic Product, firms will end up producing more and this will mean an increase in the demand for labor and will bring forth an opportunity for the employment of more workers and this way unemployment is reduced.

On the other hand, with a higher aggregate demand and robust growth in the economy, fewer firms will go bankrupt hence leading to fewer job losses because mostly firms usually lay off workers when they are faced with a financial crisis due to a decline in the market industry.

Education and Training

This is especially a policy that reduces the supply side unemployment. Education and training offer platform whereby the long-term unemployed can be taught new skills that can give them a chance to find new jobs. Stoneworkers can be retrained and offered I.T. skills, and this will provide them with an opportunity to secure employment in the service industry (Internationbal Monetary Fund, 2010).

The downside of this policy is that many unemployed people are unwilling to learn new skills. They have already accepted their current way of life, and it becomes tough to convince them otherwise or instead it would take quite a long time to equip them with such skills and so it is not a policy that can be used to solve quick problems.

Reducing the Power of Trade Unions

Trade unions are usually responsible for negotiating for the salaries and wages of employees. Sometimes the trade unions may settle for the minimum wage to be above the required threshold and this ends up causing real unemployment. Reducing the power of trade unions will be a solution for this or instead decreasing the minimum wage threshold (Maxwell, 2013).

Employment Subsidies

This is when firms are given tax holidays and breaks because of hiring the long-term unemployed. This gives them confidence and on the job training. This may be very expensive, and also some firms may decide to take advantage of this and replace all the current workers for new ones to take advantage of the tax holidays and breaks.

Improving Labor Market Flexibility

This, in other words, increases the minimum number of employment weeks so that employees can be hired and fired any time, which leads to the creation of job opportunities on a regular basis. It is not the best though because as some will be hired, others will have to be fired (Statistics Finland, 2017).

Stricter Benefit Requirements

The government should guarantee every unemployed that they will automatically receive all their benefits. They should bring forth a condition that they should either accept any job or risk losing their benefits. The government can also provide opportunities in the public sector and guarantee them the chance of being employed (Wolf, 2014).

Improved Geographical Mobility

Unemployment is usually concentrated in some specific parts. So the government should encourage some firms to set up base in depressed areas, and as an incentive for doing this, they should give them tax breaks to support them and provide them with the morale (Investing.com, 2017).

Importance of Social Support by the Government

Every government has significant responsibility for the wellbeing of its citizens. Many people usually have no other options, and they always depend on the help from the government. Poor people are also members of the society, and they cannot ever be cast because of the simple fact that life does not favor them (Internationbal Monetary Fund, 2010). That is why it is vital for the government to always support this person in every way required. And because they cannot always provide financial help without getting anything from them, the government should come up with policies to curb unemployment and techniques to ensure opportunities are provided for the unemployed. The government should always try to reduce the gap between the two major rifts between the social classes in the society, since this may be viewed by the rest of the world as a social injustice. Moreover, the inequalities may cause conflicts within the society, creating an environment that doesn’t favor the smooth running of economic activities.

Conclusion

The flat cheque government support in Finland was introduced for some economic reasons, including the government’s strategy to reduce economic inequalities in the country. The policy was also implemented as a government incentive to encourage investments and relieve the state of the excess budget on consumer needs. Previously, the government of Finland realized that 34% of the fiscal deficits are caused by foreign debts that were sourced for, to supplement the budget for consumer goods. However, three months after the first disbursement was made, the economic growth of the country had grown by 0.95 percent, and this validates the feasibility of the project. The project was also implemented to reduce the frequency of state withdrawal from the government revenue account, which was deemed a significant cause of financial deficits. The incentive program has received applause from several government bodies all over the world-some countries have considered implementing the same strategy for the efficient use of government revenue, and the improvement of the citizen’s living standards.

Karl Max and John Maynard theories of economic sustainability seem to be partially in agreement with the flat cheque Finland government policy, while in some aspect, the arguments are in disagreement with the policy. For example, Karl Max and John Maynard theories all advocate for economic development through the involvement of citizens at all levels of the economy. However, the assumptions dot advocate for the government support, citing that the policy drains a significant part of government revenue. Theories of capitalism do not encourage economic equality in any country. Therefore, it is reasonable for the government of Finland to strengthen the policy and make it a compulsory benefits scheme for all the legible citizens.

References

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Keynes, J. (2012). The general theory of employment, interest and money. New York: New York Publishers.

Maxwell, D. (2013). John Maynard Keynes and international relations: Econmic path. Oxford: Oxford University Press.

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Schumpeter, J. (2014). Ten great economists: From Marx to Keynes. Unwin: Unwin University.

Statistics Finland. (2017). Gross domestic product grew by 1.9% last year. Statistics Finland, 1-3.

Wolf, M. (2014). Finance and development. Berkeley: University of California.