Mayor Lee Jae-myung. Credit to: Pangyo Techno Valley.
On December 9, 2016, the National Assembly of the Republic of Korea voted to impeach Park Geun-hye over a corruption scandal with her lifelong friend Choi Soon-sil. Due to the impeachment, the next presidential election in Korea is expected to take place early, in April or May 2017 instead of December, 2017. As the details of the scandal have emerged, a previously less well-known presidential candidate has been rising in opinion polls – Lee Jae-myung, the current mayor of Seongnam city. This city is located to the southeast of Seoul and is one of many municipalities of the Gyeonggi province.
In two months, Mayor Lee has emerged as a so-called “dark horse” candidate with a poll approval rating of 18%. He has been ranked as the third most popular of the presidential candidates. The strongest driving force of his rise is attributed to his prompt action in advocating for the impeachment of President Park. He was the first among the presidential candidates to call on the National Assembly to impeach Park Geun-hye. Lee is also famous for his clear stance against powerful vested interests, including the “ in Korea.
Yet, there is another important factor that grabs attention. His major campaign promise is about providing universal basic income. Mayor Lee has successfully implemented the youth dividend policy, which pays an annual dividend of one million Korean won (approximately 850 US dollars) to individuals who are 24 years of age and who have lived in Seongnam city for three years or more. The policy finds its philosophical roots in the idea of universal basic income. The Park Geun-hye administration used several strategies to deter the implementation of the local youth dividend policy, however, Mayor Lee eventually fulfilled his promise.
A survey of 2866 youth distribution recipients shows that 96.3% of youth who received the benefit are satisfied with the policy. Some responses revealing satisfaction and even gratitude include the following: “Upon receiving the youth credit, I have gained confidence, which is more valuable than money”; and “Society looked after me for the first time”.
In his presidential candidacy announcement speech for the 19th Election, Lee Jae-myung said he will expand the universal basic income system to the national level. More specifically, he outlined a detailed plan to provide the ‘life-cycle dividend’ and ‘special dividend’ shortly after his inauguration.
The life-cycle dividend will pay a child dividend to individuals aged between 0 and 12, a teen dividend to those in the 13-18 bracket, a youth dividend to 19-29-year old, and an elderly dividend to individuals who are 65 or older. The special dividend is aimed at specific populations, such as farmers, fishermen and people with disabilities. The amount of the annual dividend is set at one million Korean won per person (874 US$/person), regardless of the kind of dividend. Lee explained that he finds it feasible to allocate 28 trillion won, which accounts for about 7% of the total budget, to the dividend policy by tightening central government spending.
Moreover, Mayor Lee has also promised that he will secure a total of 15.5 trillion Korean won (13.6 billion US$) by establishing a new ‘land holding tax’. He argues that the revenue from the land holding tax should be used as a source of a land dividend, which provides an annual dividend of 300,000 won (approximately 255 US dollars) to all citizens of the Republic of Korea. Not only can this tax collect a portion of all rents from real estate publically, it can also help realize the idea of universal basic income. Lee firmly believes that land is a common property for all citizens.
In fact, the Republic of Korea is a country that appreciates the ‘publicness’ of land. The Constitution of the Republic of Korea states, in Article 122, that “The State can fulfill necessary restrictions and obligations related to the efficient and balanced use, development, and preservation of land, which is the basis of production and living of all citizens.” In the past, when the government has attempted to implement policies in the spirit of this clause, the country has witnessed numerous attacks from powerful vested interests, the so-called “top 1%”. Most of the time, the government has thus had to withdraw from such policies. However, Lee Jae-myung is seen as a well-equipped candidate with the ability and courage to fight against the powerful elites in Korea and successfully implement this policy.
Mayor Lee’s ideas about basic income
Lee Jae-myung’s basic income policy combines two ideas of basic income theory: 1) the state is responsible for ensuring the de facto freedom of all citizens; and 2) land, natural resources, the environment, and knowledge are common property that must be shared by all members of society. On these grounds, his basic income policy is thought to have positive prospects and much room for growth, particularly in terms of the payout amount. Thus, proponents of universal basic income around the world should pay attention to Lee Jae-myung in Korea.
If Mayor Lee is elected as the next president of the Republic of Korea and successfully fulfills his campaign promise on basic income policy, he would be able to address many problems currently undermining Korean society, such as income and wealth inequalities, unfair competition, and real estate speculation. Then, Korea might be able to follow a path of inclusive growth, which will eventually lead to a fair and equal society.
About the author:
Gangsoo Jun is a professor of economy at the Catholic University of Daegu, South Korea, and is involved in Lee Jae-Myung policymaking team.
More information at:
Se-young Lee, “전국민에 연간 130만원 … – 이재명 ‘기본소득 마케팅’ [Annual Dividend of 1,300,000 won to All Citizens … – Lee Jae-Myung ‘Basic Income Marketing’]”, The Hankyoreh, 18 January, 2017.
Kang Jin-Kyu, “Seongnam mayor declares presidential bid”, Korea JoongAng Daily, 24 January, 2017.
Hyosang Ahn, “SOUTH KOREA: Seongnam City announced to implement ‘Youth Dividend’”, Basic Income News, 7 October, 2015.
Toru Yamamori, “SOUTH KOREA: Mayor of Seongnam City talks on his plan for ‘Youth Dividend’”, Basic Income News, 15 September, 2015.
I am in agreement that “special dividends” or guaranteed incomes are a good thing for many reasons. A question. Is the money for the program new money created by Bank of Korea, or does it come from the general revenue of taxes? I am a believer that fractional banking mostly benefits those who can cause industry, so with the needed money creation coming only from commercial banks, the aim becomes economic and monetary growth, which must be supported by population growth and a corresponding growth in natural resource consumption. Putting newly created money into the economy through a guaranteed income, or “special dividend”, sends money up the chain, instead of down, insuring industry earns it’s money by providing what the population wants. It also will lead to lower population growth, less consumption of resources and… happiness.
I believe that Land Value Taxation is the correct way for governments to provide income for the national purse and that (as proposed by Henry George in 1879 in his seminal book “Progress and Poverty”) it should be the only kind of tax being collected. If done properly there would probably be sufficient for paying a UBI to its community, but this is not really necessary because with LVT there is such a big advantage to almost everybody that the existence of poverty would cease and only a few unfortunate handicapped persons would need this kind of help. My essay below provides the full explanation:
Socially Just Taxation and Its Effects (17 listed)
Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just basis. Many companies employ their workers in various ways and pay them diversely. Since these companies are registered in different countries for a number of categories, the determination the criterion for a just tax system becomes impossible, particularly if based on a fair measure of human work-activity. So why try when there is a better means available, which is really a true and socially just method?
Adam Smith (“Wealth of Nations”, 1776) says that land is one of the 3 factors of production (the other 2 being labor and durable capital goods). The usefulness of land is in the price that tenants pay as rent, for access rights to the particular site in question. Land is often considered as being a form of capital, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category. The land was originally a gift of nature (if not of God) for which all people should be free to share in its use. But its site-value greatly depends on location and is related to the community density in that region, as well as the natural resources such as rivers, minerals, animals or plants of specific use or beauty, when or after it is possible to reach them. Consequently, most of the land value is created by man within his society and therefore its advantage should logically and ethically be returned to the community for its general use, as explained by Martin Adams (in “LAND”, 2015).
However, due to our existing laws, land is owned and formally registered and its value is traded, even though it can’t be moved to another place, like other kinds of capital goods. This right of ownership gives the landlord a big advantage over the rest of the community because he determines how it may be used, or if it is to be held out of use, until the city grows and the site becomes more valuable. Thus speculation in land values is encouraged by the law, in treating a site of land as personal or private property—as if it were an item of capital goods, although it is not (Mason Gaffney and Fred Harrison: “The Corruption of Economics”, 2005).
Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for community development. Then when this news is leaked, after landlords and banks corruptly pay for this information, speculation in land values is rife. There are many advantages if the land values were taxed instead of the many different kinds of production-based activities such as earnings, purchases, capital gains, home and foreign company investments, etc., (with all their regulations, complications and loop-holes). The only people due to lose from this are those who exploit the growing values of the land over the past years, when “mere” land ownership confers a financial benefit, without the owner doing a scrap of work. Consequently, for a truly socially just kind of taxation to apply there can only be one method–Land-Value Taxation.
Consider how land becomes valuable. New settlers in a region begin to specialize and this improves their efficiency in producing specific goods. The central land is the most valuable due to easy availability and least transport needed. This distribution in land values is created by the community and (after an initial start), not by the natural resources. As the city expands, speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their values to grow. Meanwhile there is fierce competition for access to the most suitable sites for housing, agriculture and manufacturing industries. The limited availability of useful land means that the high rents paid by tenants make their residence more costly and the provision of goods and services more expensive. It also creates unemployment, causing wages to be lowered by the monopolists, who control the big producing organizations, and whose land was already obtained when it was cheap. Consequently this basic structure of our current macroeconomics system, works to limit opportunity and to create poverty, see above reference.
The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which the work must be done. The useful land is monopolized by a landlord who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for this access right than what an entrepreneur, who seeks greater opportunity, normally would be able to afford.
A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1879, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward.
17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics
Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it replaces them.
2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all.
3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).
Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax.
6. The land owner pays his LVT regardless of how his site is used. A large proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
7. LVT stops speculation in land prices and the withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).
Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.
15. Bribery and corruption on information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs. Then earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced it will eliminate poverty and improve business ethics.