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After successfully containing the coronavirus epidemic by adopting an aggressive testing and contact tracing strategy, the South Korean government had another problem on its hands, how to deal with the economic effects of the pandemic. Rising income inequality and forced closure of local markets had a deep impact on people belonging to the low-income category group. The South Korean government needed to rethink its economic policy.
Gyeonggi Province Governor Lee Jae-Myung introduced a universal basic income of 500,000 Won ($430) a year per person this year. The concept behind Universal Basic Income is simple, a sum of money is given to individuals at regular intervals of time with no means-test or work requirement. Both the left and right identify benefits under this scheme. While it helps people out of extreme poverty and achieves a basic quality of life, it reduces the burden on the state’s welfare system and enables the maximum exercise of individual choice.
(Source: Getty Images)
Local-level Governments Setting Emergency Basic Income
The UBI project is being funded budgetary adjustments and will cost South Korea about $21.3 Billion a year. It was initially implemented on a trial basis by local governments and municipalities and then gradually expanded. Seoul decided to give a selective emergency benefit to those whose income falls under the 70th percentile. The announcement of the UBI program also came at an interesting point in time since the national elections are around the corner and it gave Governor Lee Jae-Myung considerable momentum to contest the elections with.
How Is It Helping Local Vendors and Daily Markets?
The payments rolled out in Universal Basic Income to the people of Gyeonggi province has set limitations to it in terms of spending. The money is only allowed to be spent in local markets and domestic shops to increase the money supply in the local economy and help reduce the rising prices of products that come in daily use. This model has also gained momentum at the national level since one of the agendas behind UBI is also to compensate for job losses due to automation in many industries. Local stores had lost the majority of sales and needed money supply to sustain in business. The Gyeonggi-pay credit cards were made available to 30 million people along with the coronavirus stimulus to boost small business revenue and sustain local vendors and daily markets in the province.
The universal coverage of the scheme increases the amount of money circulating in the economy. The purchasing power of people belonging to the low income or extreme poverty bracket is raised and this, in turn, boosts the local economy as there is increased demand to suffice the supply conditions and make the local economy reach its equilibrium and stabilize the recessionary cycle in the economy. The Gyeonggi-Pay credit cards cannot be used in big retail stores, department stores, or entertainment stores. The Scheme limits the spending of the money in the basic income stimulus only to local markets to help the province grow out of the economic fallout.
The Gyeonggi Research Institute released the “Satisfaction Survey Report on the youth basic income in Gyeonggi Province” to analyze the effects of the policy. The survey demonstrated that 80.6% of the respondents were satisfied with the basic income program. The major reason highlighted for satisfaction was because it was paid to all youths aged 24 residing in Gyeonggi province, it was paid out in Gyeonggi regional currency which could be used like cash, and there were no conditions set to receive the basic income like being employed or having job-seeking opportunities.
Initial analysis suggests that the policy was applauded by the youth since recent graduates from universities aren’t able to find an ample amount of jobs due to the economic slowdown caused by frequent lockdowns, discrepancies in industrial functioning, and increasing automation in various sectors. Unlike the unemployment benefits being given by several countries, the Universal Basic Income doesn’t set any conditions or hidden terms to receive payments that can be used to carry out daily activities and makes the state more responsible towards its citizens living in apathy.
Electoral Success from the Basic Income Program
Apart from being a welfare measure in the political structure, the Gyeonggi Basic Income program has also helped the governor in electoral success and popularity among the youth. Massive fiscal spending by budgetary adjustments instead of uncontrolled taxation is helping Lee Jae-Myung gain popularity amongst the youth and the working class of the country. As the current President’s term nears its end in 2022, Governor Lee Jae-Myung’s ambitions to run for President look stronger than ever due to the introduction of the Basic Income Programme and recent research surveys conducted by KStat show that 26% of respondents prefer Lee Jae-Myung as the next President from the Democratic party.
As Lee lays down a roadmap for the next 10-15 years to introduce a Universal Basic Income law in the country, with a vision to gradually move from 500,000 won/annum to regular monthly payments under the law, the plan seems to be thorough and practical in the long run to provide a safety net to the vulnerable classes of the society suffering from frequent shocks in the economy.
Income inequality in South Korea is a big issue. Chaebols virtually drive both the economy and the government. This limits the widespread distribution of wealth and the trickle-down effect. The need for a stringent UBI plan. A recent Realmeter Polls shows that a majority of the population prefers a universal basic income program. The data shows that Lee Jae-Myung’s policy map is going to be well received in his election campaigns as income inequality has become one of the most pressing issues in South Korea with a rising gap between the rich and the poor. How well can Universal Basic Income achieve the target of income equality will only be visible if the Basic Income Law comes into practice and is implemented as per Lee’s roadmap if the election results come in his favor but it’s going to be a tight race as every politician aims at introducing their versions of the UBI to gain mass support.
Apart from UBI, the South Korean government has launched a slew of other economic measures. It has launched a fairly aggressive fiscal response, pouring around $12.2 billion, or about 0.7 percent of the country’s GDP, into the pockets of businesses and citizens in early spring. It has also provided support in the form of loans and guarantees totaling about $230 billion. The combination of stimulating consumer demand using UBI and providing support to businesses will limit the long-term effects of the virus. These timely interventions have resulted in the economy contracting by 1.2-2.5% which is much lower than the OECD average of 6-8%.
South Korea has also introduced plans to bring big structural changes to transform the economy. It has unveiled a Digital New Deal to build a digital economy and promote establishing digital infrastructures in areas such as data, network, and artificial intelligence. At the same time, major infrastructures including those for transportation, water resources, urban planning, and logistics will be digitized. Further, it plans to move towards a net-zero society by supporting ongoing policies such as the 2030 target for greenhouse gas emissions reduction, and the plan to have renewables account for 20% of the country’s generation capacity by 2030.
Ayush Jha is a second-year undergraduate student pursuing B.A. (Hons.) Political Science Delhi College of Arts and Commerce, University of Delhi. He has an immense interest in international politics and economics and writes on these issues.