Curing the ‘Ghost Island’: Why Taiwan Needs Basic Income

Curing the ‘Ghost Island’: Why Taiwan Needs Basic Income
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What you need to know

Sun Yat-sen believed that the benefits from natural resources, monopolies and property should be shared amongst all citizens. This is precisely the philosophy behind UBI, argues Tyler Prochazka.

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Ask any college-aged student in Taiwan about their financial security, and they will likely tell you they have none. Many others will say they are trying to leave the island-nation altogether.

This insecurity reflects Taiwan’s stagnating wages, long work hours and growing income inequality in an economy that was once remarkable for its ability to develop in an equitable fashion.

The spirit of Taiwan as an “Asian Tiger” is gone and, for many, Taiwan is becoming a “Ghost Island.”

The entire world is approaching what I call the automation cliff. It is the point where escalating automation eliminates a destabilizing number of human jobs in a period of time insufficient to allow restructuring and retraining for affected employees. Taiwan is already ranked number six in the entire world for per capita robots, slightly above the United States. And the number of robots in Taiwan has continued to grow, increasing 17 percent a year from 2010 to 2015.

Taiwanese workers are particularly vulnerable to this disruption, then, as robots threaten to automate half of all current human jobs. The changing structure of the global economy has already displaced many Taiwanese, and Taiwan’s social safety net has left many of them behind.

Clearly, Taiwan must prepare for the disruption. A flexible, transparent and universal system, should be put in place before the ripple effects of the automation cliff leave even more Taiwanese without a safety net. A Universal Basic Income would provide a monthly paycheck to every Taiwanese citizen, without work conditions or means tests. It would guarantee the human right to a minimum standard of living for all Taiwanese people.

Thus, with a UBI, the creative destruction of innovation could instead lead to new opportunities for all.

Rather than acting as a burden on the economy, a basic income would unlock a new spirit of risk taking and entrepreneurialism in Taiwan where people could pursue their passions instead of a mere paycheck.

Another common refrain from young people in Taiwan is that they feel too financially insecure to have children because of the potential expense. By 2025, Taiwan, with the third lowest fertility rate in the world, will have an elderly population of 20 percent and a dangerously low working age population. This will leave Taiwan with an insufficient working-age population to care for the elderly and run the economy.

Over time, Taiwan’s population will shrink away, giving new meaning to “Ghost Island.”

UBI, however, could provide enough financial stability to encourage Taiwanese to start families and, thereby, ensure sufficient numbers to care for and support the elderly. That is, UBI would prevent Taiwan from permanently becoming a “super-aged” society.

For those worried that the Taiwanese will stop working altogether can take solace in the fact that the Taiwanese globally rank fourth in longest working hours. A strong work ethic in Taiwanese society would continue to prevail. Meanwhile, UBI would allow many Taiwanese to spend more time with their children or parents, or just take time for a better work-life balance.

Although, this strong work ethic is not translating into better financial security for the average Taiwanese person.

Average wages are not only stagnating but when factoring inflation wages are decreasing for most sectors of the economy. This decline has made Taiwan one of the worst performing economies for wages in the world. For women, it is even worse as they face lower wages to begin with in Taiwan.

At the same time, Taiwan’s real estate market is one of the most expensive in the world. In the last decade, housing prices have doubled. And inequality has reached all-time highs, with the richest 1 percent earning nearly 10 times more income per year than the rest of society.

Many believe that the correct path to address these problems is more means-tested programs with many conditions. Taiwan’s experience shows this is not the answer.

Research shows that during the 2008 global financial crisis, universal benefit programs in Taiwan were more effective than means-tested programs at lifting families and children out of poverty and keeping them out of poverty. This is because the universal programs were “more comprehensive and the benefit levels were higher” than the targeted programs.

Social programs that were made for everyone were better for people in poverty than social programs meant just for people in poverty.

In Taiwan, the strict conditions for qualifying as poor have created “poverty traps” where individuals are afraid to get jobs because they will lose all of their assistance. Some Taiwanese that are facing financial hardship will intentionally reduce their income to qualify for these benefits.

This demonstrates what basic income advocates have pointed out all along. Conditions on assistance usually hurt the very people being supposedly helped.

Moreover, selective favoritism in Taiwan partly determines who receives benefits and the amount. A universal system to replace much of the current biased system of overlapping benefits would resolve this issue and create a fairer, more transparent system for all.

Even if it is a fairer, more robust, and more efficient system, many still believe Taiwan simply cannot afford to fund UBI.

At present, Taiwan spends an average of five to six percent of its GDP on social welfare, which is much less than OECD countries, and still less than South Korea and Japan.

Contrary to popular belief, Taiwan has more than enough economic growth and wealth to fund a UBI. When adjusted for purchasing power parity, Taiwan ranks 22 in the world for its GDP per capita. This is higher than France, Finland, the U.K., Japan, and Denmark. Astonishingly, Taiwan has the fifth largest foreign reserves in the world as well. Taiwan is not a poor country. The issue is that most of this wealth does not benefit the average Taiwanese person.

From 2006 to 2010, NT$17 trillion (US$561 billion) was created in wealth in the equity and property markets alone, and almost none of it was taxed. In 2010, Taiwan had the world’s sixth lowest tax burden ratio, demonstrating there is plenty of room for taxation.

Taiwan also spends NT$18 billion (US$620 million) a year on fossil fuel subsidies that should be given to Taiwanese citizens, instead of encouraging consumption of dirty fuels.

Even without tax reform, Taiwan spent NT$153 billion (US$5 billion) in 2015 on non-medical social welfare. This includes a range of various cash and in-kind programs, many of which could be consolidated and used to fund a UBI. This would save money and time for the government and Taiwanese citizens. More importantly, it will make sure no one is excluded that needs a UBI.

As an example, if all 23 million Taiwanese received NT$10,000 NTD (US$329) a month, that would amount to around 19 percent of Taiwan’s GDP annually, which is less than the 22 percent average spent on social welfare in OECD countries, including many with lower GDP per capita than Taiwan.

In fact, the system to implement UBI in Taiwan has essentially already been tried. During the 2008 economic downturn, Taiwan sent cash to the entire country without conditions to stimulate the economy.

Think a UBI could not possibly happen in Taiwan? The ideology behind UBI actually has deep historical roots in Taiwan’s government and among the people.

Sun Yat-sen, the founder of the Nationalist Party and government located in Taiwan, was heavily influenced by Henry George, who was in favor of Universal Basic Income. Dr. Sun believed that the benefits from natural resources, monopolies, and property should be shared amongst all citizens. This is precisely the philosophy behind UBI.

Creating a universal and unconditional basic income system in Taiwan will ensure no one is excluded, there is no stigma against those in poverty, no wasteful bureaucracy is created, and everyone is free to pursue their passion.

Taiwanese must come together with new ideas to truly cure the “Ghost Island.”

Let’s work together to bring back the spirit of innovation and equity to Taiwan. Let’s work together for a Universal Basic Income.

Find out more:
PODCAST: Can the Universal Basic Income Save Asia from the Automation Cliff?

Editor: Edward White