Presidential hopeful wants universal basic income to ease economic disparities
By Kim Jaewon
Original article: https://asia.nikkei.com/Spotlight/Asia-Insight/Cash-for-all-Lee-Jae-myung-s-radical-plan-to-reshape-South-Korea
SEOUL — Universal basic income, which has been gaining buzz on the fringes of mainstream economic thought, has become a central pillar in the platform of a South Korean presidential candidate.
Should Lee Jae-myung, the ruling Democratic Party’s pick, come from behind in the polls to win in March, South Korea could become the world’s first major economy to adopt a version of UBI.
The lawyer-turned-politician is pledging to hand out 1 million won ($840) to every citizen and 2 million won to 19- to 29-year-olds. The annual payments would begin in 2024. The plan has ignited debate over how best to distribute wealth in a country suffering from a widening gap between haves and have-nots.
“The Republic of Korea is now an advanced economic nation,” Lee said in his acceptance speech last month. “On top of increasing national wealth, we should guarantee people’s basic livelihoods. I will make [South Korea] the first country in the world to pay universal basic income, guaranteeing basic livelihoods with basic housing and basic finance.”
Universal income has been suggested and tested in many countries. In a landmark experiment, Finland in 2017 gave 560 euros ($642) a month to 2,000 randomly chosen unemployed people for two years. Andrew Yang — an entrepreneur who ran for the Democratic nomination for president in the last U.S. election cycle — advocated monthly $1,000 checks for all Americans. In Japan, Nippon Ishin no Kai (Japan Innovation Party), wants to consolidate much of the country’s social welfare system into a UBI program.
Lee’s plan has the potential to shake up Asia’s fourth-largest economy, one that has adopted a version of capitalism that has many of the country’s 51.7 million surviving on the margins.
South Korea’s growing wealth gap is driving the UBI debate. Disposable income for the top 20% was 5.59 times higher than that for the bottom 20% in the second quarter, according to Statistics Korea. A year earlier it was 5.03 times. The country had a Gini coefficient (0 = complete equality, 1 = complete inequality) of 0.345 in 2018, making it more unequal than neighbor Japan (0.334), according to the OECD.
There are concerns that the gap will widen in the medium- to long-term, as advancements in artificial intelligence and other technologies eliminate manual labor positions.
South Korea is an industrial powerhouse with major companies such as Samsung Electronics and Hyundai Motor. But it is also where college graduates struggle to find quality jobs and where many elderly collect cardboard in the street to make ends meet.
Lee, 56, knows the margins. He was born into a poor family in Andong, North Gyeongsang Province. After graduating from elementary school, he worked at baseball glove and watch factories in Seongnam, Gyeonggi Province, while studying for his middle school and high school diplomas. He went on to read law at Chung-Ang University in Seoul, passing the bar in 1986.
He built his political career by paying “youth dividends” of 250,000 won per quarter to 24-year-old Seongnam residents when he was the city’s mayor. He went on to adopt the program in Gyeonggi Province, the country’s most populous, after becoming governor in 2018.
Lee’s UBI would be distributed in the form of a regional currency, an experiment Gyeonggi Province has already tested with coronavirus-linked assistance. Each resident last year received 100,000 won worth of a regional currency but had to spend it within three months so as to hasten the circulation of money in the local economy.
On top of the national plan, Lee has touted basic housing and basic finance programs. The public housing plan would provide 1 million low-rent houses where residents can stay for up to 30 years. The finance plan would enable any resident to borrow 10 million won at a low-interest rate.
Young people who have benefited from Lee’s basic income in Seongnam and Gyeonggi Province have welcomed his national plan, saying the money has helped them enjoy some previously unaffordable luxuries.
A 24-year-old college student in Seongnam said Lee’s youth dividends allowed her to have a family photo taken in a professional studio for the first time.
“It also eased my burden to get nail care and buy clothes,” said the student, who asked to be identified as N, in an interview with Korea Labour & Society Institute. “It would be better if I get more, but I know that it is not a realistic idea.”
Whether the government can afford to make good on Lee’s annual payments is a major issue. South Korea’s sovereign debt has increased sharply under the Moon Jae-in administration. The International Monetary Fund last month said the country’s general government net debt-to-GDP ratio is expected to reach 20.9% this year, up from 9.6% in 2017. The IMF forecasts that the ratio will increase to 36.3% in 2026, marking the fastest pace among 32 advanced economies.
Park Cyn-young, an economist at the Asia Development Bank, said the UBI would help gig economy workers but dig a hole in the government’s finances.
“Providing this UBI as cash transfers is quite comforting for many people,” Park said. “As we go more digital and move to a gig economy you are likely to have less employment tied [to] social protection. The full shift to UBI is going to be very costly. There can also be considerations like having a quasi UBI, which can be a bit more targeted [toward the most] vulnerable groups.”
Private sector financial institutions also see UBI programs on the horizon. Japan’s Nomura said earlier this month the pandemic has pushed governments to focus on redistributive policies.
“Increased appreciation for front-line service sector workers [cleaners, delivery people] will likely sharpen the focus on how the benefits of growth are and should be shared between labor and capital, with an increasing focus on minimum wages and minimum working conditions,” Nomura said in a report. “We could even see some progress towards universal basic income type policies in some countries.”
Political opponents and some economists slur Lee as a populist.
“I am afraid that Lee may spend too much money on the universal basic income program if he becomes president, hurting the country’s fiscal soundness seriously,” said a senior economist at a foreign investment bank, who asked not to be named.
Yoon Seok-youl on Nov. 5 was named the presidential candidate of the main opposition conservative People Power Party. More than 10 percentage points ahead of Lee in several opinion polls, he did not hold back on attacking Lee in his acceptance speech.
“This presidential election is a battle between Yoon Seok-youl with common sense and Lee Jae-myung with nonsense,” he said. “It is a battle between a rationalist and a populist.”
Yoon last month said universal basic income does not make sense, without elaborating.
The national government remains wary of the idea. “Our priority right now is overcoming the coronavirus crisis, and the debate on basic income can wait,” Finance Minister Hong Nam-ki said last year. He has since avoided the topic.
The public also appears worried. In a poll conducted by Mono Research last month, 65.1% of respondents said they oppose the program, with 34.9% supporting it. Those against the plan fear it might create moral hazards and hurt the country’s financial stability.
A Finnish government agency found that the country’s experiment had small employment effects, but provided better perceived economic security and mental wellbeing. McKinsey wrote in a report that “a critical lesson of the Finnish experiment is the complexity of implementing a basic income. Policy makers need to decide how it should interact with a large number of other policies, such as child benefits, housing benefits, pensions, health insurance, and taxation.”
Universal basic income may be the only meaningful policy debate ahead of the election, as the candidates appear more focused on slinging mud, bringing up scandals and spotlighting the negative.
Should he win, Lee appears determined to push through with his plan and is looking at ways to finance the program.
“For the universal basic income program, which pays all citizens equally, I think we need to create new revenue streams,” Lee told senior local journalists last week. “What I am considering is to impose taxes on carbon emissions and land ownership.”