The basic income trap

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The basic income trap

Hong Sok-chul
The author is a professor of economics at Seoul National University.

The standard of living has long been the focus of economics. Alfred Marshall, who pioneered the field of economics as social science in his 1890 book “Principles of Economics,” defined economics as “a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.”

The goal of economics therefore is to better wellbeing. Wellbeing is a broad concept referring to the quality of life, welfare, living standards,and contentment. Economists have persistently developed models to measure wellbeing and studied the long-term trends to decipher the factors behind wellbeing and policies to improve them.

Gross domestic product (GDP), a metric invented by Simon Kuznets in 1940s and developed from national income, is a popular gauge of national wellbeing. But non-physical factors like health, environment and social relationship are as important factors to individual wellbeing as physical aspects such as income. Still, per capita GDP has become a popular measurement as it is easier to quantify and has correlation with non-physical factors. Economic performance is measured by the annual growth in GDP, as it can be an indicator of how much average living standards rise or decline.

From the mid-2000s, many scholars have questioned the limitation of measuring living standard based on economic gain. The focus on growth could neglect other aspects of life. In 1972, economist Richard Easterlin did an empirical study finding a paradox in which higher income does not correlate to a higher level of happiness. Over the time and with study, economists looked beyond income to other aspects, like health, environment and education, that can influence the quality of the society and individual’s life. The academic study goes in line with the national goal of enhancing welfare benefits to raise overall social quality. The government intervened more to address social problems that cannot be solved by individual endeavors.

Basic income, which is gathering steam politically, is a more radical concept to narrow income inequalities and improve the overall quality of life of the broad population. But can basic income suddenly enrich our lives as in the northern European states? According to 2020 social data on Korea, satisfaction in life increased in tandem with income levels. But from the threshold of those earning more than 3 million won ($2,614) a month, contentment level remained more or less the same. Basic income, therefore, would just help low-income people and could be less effective than other welfare policies.

Even if the state doles out 500,000 won a month to every adult on a 300-trillion-won budget a year, the contentment ratio of South Koreans won’t suddenly jump to 80 percent of the levels in north European states from the current 60 percent. Easing an income gap cannot be enough to enhance satisfaction in life for Koreans. An annual spending of 300 trillion won is 1.5 times greater than this year’s total budget earmarked for healthcare, welfare and employment. Using the funds to strengthen other lacking social benefits could be more effective.

A survey by the Gyeonggi Research Institute found eight out of 10 citizens approving of basic income, most saying it is the best way to improve living quality. Nobody would say no to cash handouts. True welfare is producing public assets that can enrich livelihoods and comforts and using them at the right time and place. It should be realized in the form of adequate social and natural environment, infrastructure to promote good health and education, more jobs and the offering of basic care services for the needy. If such welfare services are not available in the market or are too expensive to afford, basic income alone cannot make up for them.

According to the Better Life Index compiled by the Organization for Economic Cooperation and Development, Korea ranked 30th of the 40 surveyed countries. Korea scored poorly in environmental issues, social relations, healthcare, life satisfaction and life and work balance. Easing income inequality is important. But without addressing other issues, Korea’s life quality will stay behind welfare states. Without having the basic welfare infrastructure, basic income would be in vain. Money must first go to tending to the main areas of weakness.

Translation by the Korea JoongAng Daily staff.
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