In April, The Governor of Gyeonggi, Lee Jae Myung announced that all residents of Gyeonggi would receive 100,000 Korean Won equivalent to $79.85 US Dollars using Gyeonggi Pay which functions as an ‘alternative currency’ for the province which should be spent every three months. Gyeonggi is the first province in South Korea to implement an Anti – Disaster Basic Income in order to combat the harsh effects of the pandemic by increasing the economic circulation that would benefit the small, traditional and local businesses. Lee Jae Myung’s move to implement a Universal Basic Income (UBI) was not foreign as in 2019, Gyeonggi Pay provided a specialized youth dividend program of 250,000 Korean Won for every 24 year olds in the province each quarter for a year.
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Lee Jae Myung, who grew up in poverty, mentioned in a Bloomberg interview that UBI would “fix and further” capitalism. He warned there will be a failure in the system should there be poor consumption and demands. Without across the board income, the unsupported consumption can threaten the economic stability thus furthering income inequality.
With an eye on presidency in 2022, Lee Jae Myung’s recent move has massively sparked support for him. KStat Research surveys showed as of late September, 26% of respondents support Lee for the next presidency. UBI would be Lee’s trump card for the next election as South Korea’s main fiscal policies.
What is UBI?
UBI is a governmental guaranteed periodic cash payment programme unconditionally delivered to all individuals according to Basic Income Earth Network (BIEN). Hence, the Gyeonggi version of UBI is not the first nor will it be the last. With the COVID-19 pandemic, other countries have adopted their very own UBI programmes. However, The core purpose is the same which is to allow individuals to have a fair chance at financial security.
In 1516, English Philosopher Thomas More mentioned the first idea of UBI in his book Utopia. As time went on, renowned intellectualls began to further elaborate the idea of UBI. As such, The Economist, Milton Friledman’s proposal of a negative income tax for the poor. This proposal allowed the poor to receive tax payments if their families’ income is below the National Poverty Line. Recently, Andrew Yang, a previously Democratic Presidential candidate, ran a campaign around the UBI design called Freedom Dividend. The Freedom Dividend allows every American adult over the age of 18 to earn $1000 US Dollars per month.
Plenty of countries such as Germany, Finland and Kenya ran pilot UBI programmes to study the effect on its participants. Iran is the first country to establish a nation-wide UBI scheme in 2010 which entitles every Iranian to $40 US Dollars per month. During this pandemic, economists welcome countries to test their largest UBI programmes yet to see how citizens choose to spend their ‘free money’.
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Boost Local Economy
The Gyeonggi Research Institute manifests a positive correlation between volume and currency distribution and economic growth. Upon the introduction of the Gyeonggi Pay UBI incentives, sales revenue of local businesses soared by 45%. The growth in revenue can also be attributed to other Gyeonggi Pay benefits essentially the 6% discount for every purchase. Consequently, local businesses are able to compete with conglomerates by reinvesting their extra earnings in research and development for business growth.
Increase Standard of Living
A Gyeonggi undergraduate student mentioned in an interview that she was able to quit her part-time jobs due to UBI. She took advantage and used the trade-off time to focus on her studies which makes her less stressed. This aligns with the results of a UBI project based in Namibia which allows 1,000 villagers in Otjivero to receive $7 USD each. The results were astonishing as with the UBI, the school attendance increased by 92% and childhood malnutrition diminished by 32%.
Helps Technological Unemployment
MIT economist Daron Acemoglu’s new research predicts that robots will assume 15% of jobs by 2024. As automation and globalization disrupts the employment market, part-time and contract jobs are just not enough to make a living. With South Korea being one of the most automated countries in the world, they will be badly affected. Therefore, Silicon Valley big shots such as Elon Musk and Chris Hughes vouch for UBI to be the solution to technological unemployment.
Falling Labour Force Participation Rate
Dr.Stephen Davies and Oren Cass argued that UBI will cause recipients to be lazy and economically unproductive. This is due to the fact that recipients would rather live on free income than get a job. This issue can be apparent in an aging population which captures South Korea’s demographic due to low birth fertility rate.
Increase in Government Intervention
Assistant Professor of University of Pennsylvania Ioana Marescu suggests that the government can exert political pressure from the UBI programmes. For instance, Gyeonggi Pay can use the data collected to violate one’s privacy and freedom. However, Gyeonggi Pay assures it only collects aggregate data to study the effectiveness of the UBI. Besides, Gyeonggi Pay asks individuals for consent before the data is being collected.
In essence, there is still inconclusive data on how UBI will work on a nation wide basis. Small sample populations, restricted budget and varying results from different countries reduces the ability to identify patterns that ensure the success of UBI. Moving forward, the concept will require further refinement for it to function as an expansionary fiscal policy tool. With the exception that the UBI programmes must subside the challenges of feasibility and politics.
Written by Lutfil Hadi Rusli.