Forum explores rural basic income's role in developing "local circular economies"

Posted on : 2021-05-01 20:03 KST Modified on : 2021-05-01 20:03 KST
Gyeonggi Province hopes to launch the rural basic income program in the second half of the year
A discussion is underway about what role rural basic income could play in activating local circular economies. In the photo, farmers are planting seed potatoes in a field in the countryside. (Yonhap News)
A discussion is underway about what role rural basic income could play in activating local circular economies. In the photo, farmers are planting seed potatoes in a field in the countryside. (Yonhap News)

For a long time now, South Korea's strategy for balanced regional development has been focused on creating incentives for major institutions, corporations, and basic infrastructure — which are largely concentrated in and around the capital of Seoul — to the countryside. As part of that strategy, the government has relocated state-owned enterprises and government agencies to "innovative cities" in rural areas and has also designated industrial parks, free trade zones, free international cities, and free economic zones at various sites around the country. Furthermore, it has built large-scale transportation facilities in different areas, including trunk roads and high-speed railways and bridges connecting islands with the mainland.

But these projects have been limited in their impact; sometimes, they have even proven counterproductive. Innovative cities tend to suck in the workers and resources around them, while corporations with factories and branches in those areas transfer a significant portion of the wealth they create to their headquarters in the capital region. High-speed railways and other transportation networks have only increased access to the capital region. In effect, policies that were supposed to benefit the provinces have ultimately drained them of the wealth created there.

An alternative narrative that has emerged amid the failures of current policy is the local circular economy. This refers to a system in which the economic value created in a given area is circulated through distribution, consumption, and production in that area rather than being diverted to other regions.

How would efforts to build such a local circular economy be affected by a rural basic income, or in other words, a basic income program focused on residents of rural areas? That was one of the questions discussed in depth at the 3rd Rural Basic Income Policy Forum, held at the office of the Hankyoreh on April 20.

The forum's topic was the role that rural basic income can play in a local circular economy that's designed to be self-sufficient and mutually beneficial. The forum was organized by the Hankyoreh Economy and Society Research Institute, the Gyeonggi agroFood Institute, the Basic Income Korean Network, LAB2050 (a private-sector policy institute), the Institute of Governmental Studies at Korea University, the Korea Regional Development Foundation, the National Assembly's Basic Income Research Forum, and the Gyeonggi Provincial Assembly's Basic Income Research Forum.

Rural basic income is a policy that Gyeonggi Province plans to implement in the second half of 2021. Basic income refers to cash payments distributed regularly and unconditionally to every individual in a given population. Therefore, rural basic income is a cash payment distributed unconditionally to everyone living in a rural area.

Under the rural basic income plan that Gyeonggi Province is developing, 4,000 people living in a rural area would be given 150,000 won (US$134.68) each month for five years. While the program doesn't apply to everyone, it's still unconditional, individual, regular and cash-based within a specific group. That makes it categorical basic income.

Categorical basic income programs have been administered to the poor and unemployed in countries such as Finland, India and Namibia. But Gyeonggi Province's initiative is set apart by the fact that it covers all residents in a specific area. Before the province can initiate rural basic income, it needs to finish deliberations with the central government and the Ministry of Health and Welfare about setting up a new social welfare program and then receive approval from the Gyeonggi Provincial Assembly.

Figures from the central government and the Gyeonggi Provincial Assembly expressed their opinions about the rural basic income in messages that they delivered in the forum on April 20.

"The residents of farming and fishing communities struggle with their livelihood because they were marginalized in the process of state industrialization. I've heard that Gyeonggi Province will soon test out basic income in rural regions for the first time in the 36 member states of the [Organization for Economic Cooperation and Development]. I hope that these efforts will help elevate the national minimum standard of living for people in farming and fishing communities," said Kim Sa-yeol, chair of the Presidential Committee for Balanced National Development.

"The fact is that concerns have been raised [about basic income] such as that it undermines the desire to work and that we can't afford it. By combining agriculture and basic income, I think the rural basic income will play an important role in protecting the agricultural sector and serving as a test case for basic income," said Jeong Seung-hyun, a Democratic Party lawmaker in the Gyeonggi Provincial Assembly.

Participants in the 3rd Rural Basic Income Policy Forum are debating local circular economies at the Hankyoreh office, in the Gongdeok neighborhood of Seoul's Mapo District, on April 20. (Jo Hyun-kyung/the Hankyoreh Economy and Society Research Institute)
Participants in the 3rd Rural Basic Income Policy Forum are debating local circular economies at the Hankyoreh office, in the Gongdeok neighborhood of Seoul's Mapo District, on April 20. (Jo Hyun-kyung/the Hankyoreh Economy and Society Research Institute)
" Money has to stay in the area for a circular economy to function"

In his presentation, Yang Joon-ho, a professor of economics at Incheon National University, began by explaining the conditions for a local circular economy.

"The basic conditions for a local circular economy are for not only income earned in the area to be spent there, but also for as much production and business as possible to be situated there as well, so that money stays inside the region," Yang said.

For a local circular economy to function properly, there needs to be a high level of education, culture, medical care, and welfare services in the region. Other important conditions are a high capacity for self-government and a high degree of interest and participation by residents.

Yang identified rural basic income as a program that could ease the transition to this kind of local circular economy.

"Earlier programs for balanced national development, such as innovative cities, have actually increased inequality between urban and rural areas, while programs for supporting farming communities such as cash subsidies have caused polarization between rural residents, too. Enacting a rural basic income could put the brakes on these balanced development projects and be a major opportunity to switch to a new local circular economy," Yang said.

Another observation made by the professor is that local currencies have brought more visibility to the idea of a local circular economy.

"As more local governments promote local currencies, people are getting more interested in keeping money inside the region. In order to maximize the benefit of local currencies, it's important for local economies to be self-contained," Yang added.

Kang Nam-hun, a professor of economics at Hanshin University and chair of the Basic Income Korean Network, discussed the current debate about the efficacy of local currency in a presentation titled, "When Local Currency Meets Basic Income: The Possibility of a Local Circular Economic System."

First of all, Kang recounted what happened when the city of Seongnam launched a "youth basic income" in 2016 as a program that combined the concepts of local currency and basic income.

Seongnam, which was seeking to implement basic income, didn't have the authority to set up a tax system as the central government or the National Assembly did. That forced the city to design a program with limited beneficiaries that wouldn't strain the city budget. The resulting program was a "youth basic income" for people aged 24.

The challenge was to build consensus about a program to aid young people. It was hoped that paying the basic income in the form of a local currency would persuade small business owners to back the program and ultimately unite both young people and small business owners in support of expanding welfare.

"By incorporating local currency, the youth basic income gained the energetic backing of young people and small business owners," Kang said.

Does local currency divert revenue from big companies or from other areas?

But there are conflicting assessments of the effect of local currency. One view was expressed by Song Kyung-ho and Lee Hwan-oong, analysts at the Korea Institute of Public Finance, in a report titled "How the Adoption of Local Currency Has Impacted Local Economies," published in December 2020. Song and Lee contended that the benefits of local currency are gained at the expense of reduced sales at retailers in neighboring areas. They went on to argue that when the cost of issuing and spending local currency and the fact that consumer choice is limited to local retailers are taken into account, these programs have a significantly negative impact.

In their report, Song and Lee suggested that the local currencies issued in various regions be merged into the existing "onnuri gift certificates," which can be used around the country but not at large retail stores, and that the funds used to run the counterproductive local currencies be directly given in subsidies to small business owners.

Kang offered a rebuttal to the report's arguments during his presentation in the forum.

"The goal of the local currency is not to steal revenue from other areas but to redirect revenue from large companies to small business owners inside a given area. While issuing [the currency] incurs a cost, the program can be seen as fit for purpose as long as revenue shifts from large companies to small business owners," he said.

Kang stressed that digitally issued local currencies can be used for various purposes in the future. "When local governments make programs to support artists, it's not easy to select beneficiaries for those programs. Another problem is that local newspapers depend on advertisements from their local government. So an alternative to directly supporting artists and the press would be to issue residents local currency that could only be used to subscribe to local newspapers or to attend concerts and art exhibits."

Another presenter at the forum argued that a new indicator could measure the economic effect that rural basic income has on the region.

Seo Jae-kyo, director of the Korean Institute for Social Economics and a researcher at LAB2050, unveiled a model based on the economic concept of the fiscal multiplier. A fiscal multiplier refers to the chain reaction caused by the change in a single factor. In economics, it signifies the impact that such factors as investment and consumption have on total output. The Local Multiplier 3 (LM3) is a methodology developed by the New Economic Foundation in the UK in 2002 that applies the fiscal multiplier at the local level to measure the flow of currency there.

"It's widely thought that Korea has been largely unsuccessful in reversing the decline of its rural regions despite the large amount of money it has spent on such programs. One tool for assessing that empirically could be the LM3, which represents the local fiscal multiplier. If the rural basic income were issued as local currency in the form of a card with a magnetic strip that uploads transactions to a computer database, it would be easier to measure the fiscal multiplier," Seo said.

There have, in fact, been some instances when the fiscal multiplier has been higher when cash payments are made not in standard currency but local currency.

"In the Barcelona Minimum Income experiment, which paid [between 100 and 1,676 euros a month depending on family size and financial situation] to 1,000 households in a poor area in Spain, 25 percent of the money took the form of a local currency called Recurs Economic Ciutada. Studies have found that the fiscal multiplier of the local currency was five times greater than the euro payments," said Yang, the professor at Incheon National University.

"The rural basic income and local currency are linked to each other in the sense that they are both programs that impact the local community, and they are amenable to a high degree of integration," said Moon Jin-su, executive director of the Seoul Credit Guarantee Foundation and a discussant at the forum.

"It's already become difficult for farmers to support themselves through farming alone, and a lot of farmers are also doing other work on the side. Paying them a rural basic income in the form of local currency would encourage not only economic activity such as side jobs but also non-paying activities that would benefit themselves or their communities," said Lim Kyung-soo, head of job growth at the Gyeonggi Province Job Foundation and another discussant at the forum.

The forum also included research that could be applied to Gyeonggi Province's rural basic income. Jung Hae-il, a professor of public policy at Korea University, brought up major indicators that could be measured through surveys in a presentation titled "Research About Designing Surveys to Verify the Efficacy of Rural Basic Income."

Jung classified these indicators according to the impact they have on individual quality of life, the local economy, and the community. The 13 indicators in the presentation included individual happiness, spending and leisure activity, employment impact, social networks, intention to stay in the area, perception of the community, and perception of the environment.

"Gyeonggi Province's social experiment with rural basic income goes beyond the categorical basic income that has been tested so far. It's a particularly significant proposal since we'll be able to gauge how it benefits the community," said Seo Jeong-hee, a professor of social welfare at Kunsan National University and a member of the board at the Basic Income Korea Network.

Seo argued that these indicators should be used to assess community benefit in particular and offered the following example.

"We're trying to assess whether the time freed up by basic income will actually enable people to invest in self-improvement, upgrade their abilities, and get better jobs. But if the idea is to benefit the community, people need to use their extra time to do something that's socially meaningful rather than for self-improvement."

In response, Jung offered the following explanation. "In addition to time spent on work and earning income, time spent on family and community is included in the major indicators to be measured [after rural basic income is paid]."

The forum was moderated by Jung Geon-hwa, a professor of economics at Hanshin University and director of LAB2050.

"When it comes to our economic activity, what we exchange for wages is only the tip of the iceberg. An important task is to create indicators that link various meaningful activities with basic income rather than superficially dividing and offsetting those activities," Jung Geon-hwa said.

"I'd like there to be more discussion about how a local circular economy could be used to transform an economy that outstrips the earth's ecological capacity," Jung Geon-wha added.

By Yoon Hyeong-joong, visiting fellow at the Hankyoreh Economy and Society Research Institute

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