Universality of Universal Basic Income
By: Alex Ha, Ivey Business School
Universal Basic Income on South Korea Social Welfare
Universal Basic Income (UBI), also known as Freedom Dividend, is arguably the most ambitious, costly economic policy of all time. According to International Monetary Fund, Universal basic income is an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions.
The idea of UBI arose from a UK chancellor Thomas More’s book about connecting crime and social insecurity, where he mentioned: “Instead of inflicting these horrible punishments, it would be far more to the point to provide everyone with some means of livelihood, so that nobody’s under the frightful necessity of becoming, first a thief, and then a corpse.” The publicly financed universal support aims to serve as a safety net for people, particularly the young working class to reduce their financial stress yet allocating their effort pursuing their own personal and professional goals, for example upskilling, starting businesses, looking for an ideal job, instead of making compromises.
Until today, despite numerous researches suggesting that Universal Basic Income will do well more than harm, however, the economic policy was not officially deployed in any countries in the world, due to the amount it cost for the government to implement. For example, if we deploy UBI today in the United States, distributing $10,000 to 300 million Americans, the program will cost the federal government 3 trillion, representing 85% of the $3.5 trillion federal income collected from federal tax (both individual and corporate). To emerging countries, the number could have easily surpassed its federal income or even exceeding a country’s GDP. In most instances, if the governments decide to pursue UBI, they deploy a combination of three alternatives to finance the project: (1) Increasing Tax, with Carbon Tax, Robot Tax, and Revenue Tax being suggested by various countries, (2) Reducing Government Expenditure, including public health facilities, unemployment benefits, social grants, and programs, etc. (3) Incur a fiscal deficit by financing through national debt, with a hidden option of increasing the money supply. However, the challenges UBI post to different countries are different from one and the other based on the workforce distribution, reliance on trades, and working culture.
South Korea is particularly interesting for UBI because of its ongoing workforce automation transformation. South Korea’s rapid economic development is primarily fueled by its success in the manufacturing industry, it is the largest memory chip manufacturer, second-largest semiconductor manufacturer, fifth-largest carmaker, and few of the world’s largest shipbuilders and steel manufacturers, all of which are exported around the globe. With manufacturing occupies over 7% of the nation’s GDP in 2019, the advancement of workflow automation technology has continued to help companies remained competitive, however it poses threats to the citizens as populations are outgrowing the level of job availability.
Gyeonggi province, named as the Silicon Valley equivalent technology hub in Korea, has begun considering a test trial of UBI in addition to its planned virus relief funds during the pandemic. This additional subsidy plan is called the Gyeonggi Province’s Youth Basic Income program, which is made available for all 24-year-old citizens who have lived in Gyeonggi Province for three consecutive years or who have lived in the province for more than 10 years in total are given 250,000 won (~ USD 225) in the form of “local currency” every quarter for a total of 1 million won over the course of one year. “Local currency” referred to spending credits that apply to purchases at registered small businesses in Gyeonggi, including cafes, farmer markets, craft shops, tutoring companies. The spending credits are restored and will not be accumulated; Thus it encourages teenagers to spend all the grants before the end of every quarter.
“COVID-19 has suddenly brought early the 4th Industrial Revolution, that our society was going to face the so-called end of the labor era” Lee Jae Myung, Governor of Gyeonggi, who has also run for the South Korean presidential election in 2017 mentioned. 4th Industrial Revolution, also known as Industry 4.0, indicated that advanced technologies, for instance, artificial intelligence (AI), Internet-of-Thing (IoT), cloud computing networks could reinvent the labor-intensive manufacturing sector, as well as a variety of industries. It is estimated that 15% of South Korean jobs are going to be automated in 2024, further widening the employment gap between millennials and Generation Z.
With UBI, Gyeonggi has roots to solve its rigid labor problem – students not able to find a job after their high school or university graduation immediately, thus they commit to a low-paying job and refuse to seek jobs in the high-income bracket due to the high switching cost. UBI serves as a safety net for South Koreans to take time off from work to upskill themselves in a financially stress-free environment, which could ultimately lead to greater availability of talent pools in South Korea, result in greater productivity and innovations.
Other the other hand, according to Gyeonggi Research Institute, after implementing the UBI initiative and the stimulus-response to COVID, the small-medium enterprise has seen an increase of 45% in late 2020 comparing to the beginning of the pandemic in March. To local businesses, UBI has increased participation from domestic purchases, yet helped local businesses to survive through the pandemic. In the post-COVID-19, UBI serves as an excellent tool to protect small-medium enterprises from large-chain international competitors.
The rise of UBI will essentially mark the decline of existing welfare programs, which includes unemployment benefits, disability grants, shelter services, food stamp programs, government-funded scholarships, etc. The flaws of welfare programs include the inability to track cost-benefits for these programs, poor allocations of funds, bureaucratic organizational structure. One of the worst things about welfare programs is often creating a glass ceiling for people, where it creates an illusion that people might be better off receiving unemployment benefits to perpetuity because finding a job will cancel their eligibility for these benefits. In addition, most of the time, the spending wasn’t not properly tracked, yet a lot of them have gone into salaries for the government employees.
The viability of UBI differs depending on the country, some are better (digitally) equipped, some are cheaper to implement (less populated), and some are culturally flavored (places with a high wealth gap). Governments are increasingly aware of this democratized economic policy, as it is proven that it will have a substantial impact on job-seeking youths, and socially disadvantaged groups, and technological innovation.