[INTERVIEW] Universal basic income unnecessary for Korea in long term: Nobel-winning economist

Abhijit Banerjee, Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology (MIT) / Courtesy of Abhijit Banerjee

Gov't needs to strengthen public education system for the underprivileged

By Lee Hyo-jin

The coronavirus pandemic has exacerbated inequality in many countries, and Korea is no exception. Nearly two years into the pandemic, the country is seeing deepening polarization in various areas of society, including education, employment, access to healthcare and housing.

The unprecedented health crisis has had an especially hard impact on the vulnerable and poor, pushing them further into poverty, while the share of wealth owned by the rich has soared.

As such, addressing the issue of increasing inequality between the haves and have-nots, will most likely become an even more pronounced long-standing trend even after the pandemic ends. This has become an urgent issue of concern for Korea's policymakers.

One of the solutions floated by some policymakers and politicians here and abroad is the universal basic income (UBI) plan, under which the government offers unconditional subsidies to all residents on a regular basis to revitalize the economy and support those suffering from financial hardship.

Ruling Democratic Party of Korea presidential candidate Lee Jae-myung announces his campaign pledge to provide basic income to all citizens during a press conference at the National Assembly in Seoul, July 22, 2021. Joint Press Corps

While the pandemic has served as a good opportunity for policymakers to test various models of a UBI, debate continues within political circles about whether emergency relief funds should be offered to all residents or selectively to those who are in urgent need of support.

In a recent email interview with The Korea Times, Abhijit Banerjee, winner of the 2019 Nobel Prize in Economics, said that the two ideas do not conflict with each other.

"I don't see why it needs to be either one or the other. The government should not worry too much about being selective, precisely because of the urgency," said the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology (MIT), who specializes in development and behavioral economics, as well as political economy.

He proposed two ways to implement the emergency cash handout, saying, "One way to do this is to send everyone a bank transfer right away, since the effects of the pandemic took some time to play out and right at the beginning it was not clear who would not need the help.

"Another way to do this is to offer it to everyone, but impose a small cost of collecting the weekly installment so that those who don't need it stay away," he added.

When asked whether the UBI scheme will be applicable in Korea, Banerjee, said, "I wouldn't necessarily support UBI in Korea as a long-term social program, but it's a smart emergency response.

"Korea has good public records, it should be possible to quickly identify those who are in economic pain at any point of time and channel help to them. In the long run, it may be better to target those who have had a spot of bad fortune or lacked opportunity with extra help, while keeping a UBI as a special tool for crises," he explained.

Debate over the basic income plan has heated up here, as Lee Jae-myung, the presidential hopeful of the ruling Democratic Party of Korea, has been promoting it as the core of his economic policy.

If he wins the election in March, Korea may become the first country in Asia to adopt the payment as a national policy.

The longtime advocate of UBI has vowed to roll out the policy by providing 250,000 won ($200) to all residents and another 1 million won ($835) to people aged 19 to 29 every year.

"To maintain the capitalist market economy, the basic income scheme serves the role of creating a minimum level of consumer demand. It can boost consumption to maintain demand, and this will assist the economic virtuous cycle as well as alleviating social and economic polarization," Lee said during a recent interview with The Korea Times.

'Head start' needed for children from low-income households

Banerjee said that the COVID-19 pandemic has exposed and exacerbated existing inequalities that date back to before the Covid-19 pandemic, and education is one sector showing a widening in inequality.

"As far as education is concerned, the children of middle-class parents who can help their kids and have good internet connections and a quiet place to study have a huge and obvious advantage over the children of less educated and less well-off parents," he said.

In this regard, Banerjee highlighted the importance of strengthening public education as a key way to overcome COVID-19-induced inequalities.

Students attend a class at an elementary school in Dobong District, Seoul, Nov.22, 2021. Joint Press Corps

"Now that children are back to school, teachers have to deal with the fact that the children from worse off families have fallen further behind than the rest," he said, expressing concerns that these students may be abandoned in the classroom, left to their own devices while the class moves on.

Against this backdrop, he stressed the government's role in strengthening the public education system so as to ensure that children from lower-income families be provided with the same educational environment as that given to the middle and upper classes, in order to enable all children to shape their future.

"It is critical that the government provides extra resources to schools to help the lagging children catch up, and encourage the teachers to do what it takes to retrieve these children (and bring them) into the mainstream of the education system."

He also emphasized the importance of giving such children a "head start" through preschool, so that they can start with an advantage.

"Poor children often lack the stimulation at early ages that richer children get and start school less prepared. Given that they are the ones who are already at risk of falling behind 'after they join school,' this is backward. We want the poorest children to have a head start, to start with an advantage. They need subsidized, high-quality preschools."

The Indian-American economist also shared his thoughts about the wealth tax, a policy he had earlier called on the Indian government to reintroduce in order to tackle the widening wealth inequality there.

In Korea right now, a so-called comprehensive real estate tax is levied on high-priced homes, which make up the core of the wealth of many taxpayers. But the tax does not exclude debt, prompting a backlash from the public, who believe it is unfair for the state to tax unrealized capital gains based on a home's official assessed value.

Regarding this situation, Banerjee said: "I don't want to argue that every kind of wealth tax is equally good. There are reasons to exclude debt, since net wealth should count. But now, rich people seem to live by borrowing against their unrealized capital gains, and therefore avoid all taxes. This huge hole needs to be plugged."

The Nobel laureate said that the pandemic has highlighted inequalities in many other sectors of society as well.

Regarding access to healthcare, he said, the fact that the best hospitals are located where the better off live is well documented, providing them with quality healthcare as well as updated understanding of the latest COVID-19-related information.

In terms of employment, while people with white-collar jobs have been able to work from home, those who work in factories have been deprived of such opportunities, and thus have faced a higher risk of infection.

Embracing migrant workers

Migrant workers work on a farm in Chungju, North Chungcheong Province, Jan.22, 2021. Korea Times photo by Lee Han-ho

The MIT economist also observed that Korea should focus more on the positive impact brought by the increasing influx of migrants in the domestic labor market, many of whom fill low-wage jobs.

"Evidence suggests that low-wage migrants do not crowd out low-wage domestic workers. This is likely to be especially true in an aging country like Korea."

For young Koreans, who are living in one of the most competitive societies in the world, the Nobel-winning economist said, "Think hard about what you are aiming for in life. It is often too easy to join the rat-race because everyone else is also joining."

He advised them to seek career paths that may be more rewarding, even if they do not seem to make them rich or famous.

"And maybe if there is enough demand for that kind of 'alternative life style,' the government will find ways to make those occupations better paid, to avoid the mental health crisis among the young that seems to be looming everywhere," he added.