[Essay] Rural Basic Income and the Social and Solidarity Economy: Toward an Economic Mechanism

 

An Economic Case for Linking Local Demand, Local Supply, and Community Institutions

If we see rural basic income simply as an income-support program, we miss more than half of the challenge. The central question is not only how much money is paid, but whether rural communities can use new purchasing power to rebuild local market capacity that has weakened alongside depopulation and economic decline.

International reader’s note. In this essay, “rural basic income” is used descriptively for regular individual payments to residents of designated rural communities. It is a place-based policy concept and should not be read as a claim that every such program satisfies all criteria used in the universal basic income literature (see Basic Income Earth Network, n.d.).

The Question Behind Rural Basic Income

The combination of rural basic income and the social and solidarity economy (SSE) is often framed as a matter of income support or an expansion of welfare. That captures only part of what is at stake. The deeper challenge is economic: when rural markets become too thin to sustain essential providers, can communities rebuild the capacity to produce, purchase, and circulate essential goods and services from within? This use of SSE follows the internationally agreed framework adopted by the International Labour Conference, which emphasizes voluntary cooperation and mutual aid, democratic or participatory governance, autonomy, and the primacy of people and social purpose over capital (ILO, 2022). The United Nations General Assembly subsequently recognized the SSE as a policy framework relevant to sustainable development (United Nations General Assembly, 2023).

This essay offers an economic explanation of how that might work. Rural basic income can strengthen household purchasing power and local demand, while the social and solidarity economy can help organize the local supply capacity needed to meet that demand. If the two are deliberately linked, some spending that would otherwise leave the area can be re-spent through local providers, workers, and businesses, supporting both employment and the provision of essential services. This is especially relevant in depopulating places, where declining economies of scale can make service provision increasingly difficult (OECD, 2025).

The argument can be understood through three economic lenses: the local multiplier effect, effective demand, and endogenous development. Together, they describe a potential sequence in which an external income injection does more than raise household consumption.

Income Injection → Demand Aggregation → Local Supply Formation → Local Recirculation

1. Plugging the Leaks: The Local Multiplier Effect

LM3 and the economics of local recirculation

The Local Multiplier 3 (LM3) framework developed by the New Economics Foundation shifts attention away from the amount of money that first enters a local economy and toward what happens next. LM3 follows an initial inflow and two subsequent rounds of local spending to show how much money is retained and re-spent locally (Sacks, 2002). It is best understood as a practical local-spending metric rather than as a national-accounts measure of GDP.

The “leaky bucket” problem. A transfer or public subsidy cannot, by itself, prevent economic leakage. If a rural community lacks local shops and essential service providers, new purchasing power can quickly flow to large retailers outside the area, online platforms, or hospitals and service providers in nearby cities. When that happens, the second and third rounds of local spending are cut short, weakening the local multiplier effect (Sacks, 2002).

This is why the amount injected into a rural community is not the only variable that matters. Equally important is the community’s capacity to retain and recirculate part of that spending. Without local supply, even a well-funded income policy may generate only limited local economic activity.

A hypothetical multiplier of 1.5–2.5

Consider a simple hypothetical example. Suppose a resident receives KRW 100,000 in rural basic income and spends it through a local payment system on transportation, care, or another locally provided service. That payment may then become part of a local worker’s wage. If the worker spends part of that income at a neighborhood restaurant or grocery store, the original KRW 100,000 has already generated additional rounds of local transactions.

If, purely for illustration, one assumes a local multiplier of 1.5 to 2.5, an initial KRW 100,000 could correspond to KRW 150,000 to KRW 250,000 in cumulative local transactions under that assumed multiplier. The range is a hypothetical teaching example, not an empirical LM3 estimate and not a claim about regional GDP. The economic point is narrower: a local payment mechanism can have a larger local effect when it is paired with actual local supply capacity, because more of the initial spending can be retained and re-spent within the community (Sacks, 2002).

2. From Need to Market: Effective Demand and Collective Purchasing Power

Re-reading effective demand through a rural lens

Keynes’s formal concept of effective demand is macroeconomic: in The General Theory, it is defined at the point where the aggregate demand and aggregate supply functions intersect, determining the level of employment (Keynes, 1936, ch. 3). In this essay, I borrow the underlying intuition as a rural-development heuristic rather than using the term as Keynes’s formal model: needs alone do not sustain a local market unless they are backed by purchasing power and translated into actual spending.

Rural communities can have substantial unmet needs while still generating too little market demand to sustain local providers. Older residents may urgently need transportation, care, healthcare access, prepared meals, or home support. Yet when incomes are low and populations are sparse, those needs may not translate into a market large enough to support commercial provision. This problem is consistent with the wider challenge identified in depopulating regions: population decline can reduce economies of scale and place growing pressure on local service delivery (OECD, 2025).

A local currency can help retain spending locally—but only if there is something local to buy. Paying rural basic income through a local currency or restricted-use payment system can reduce immediate leakage by limiting where the money can be spent. But payment restrictions are not a substitute for supply. If residents cannot obtain the essential goods and services they need locally, the policy may simply create inconvenience.

The critical design principle, therefore, is to develop the payment mechanism and the local provision of essential goods and services together. Rural basic income provides residents with new purchasing power. Local restrictions can help retain that purchasing power in the area. Local providers are what allow the retained spending to become effective demand inside the rural economy.

Mutual aid and demand that can create supply

Why does rural basic income not automatically restore a functioning market in remote areas? The decisive constraint is often the absence of supply. An individual resident receiving KRW 100,000 or KRW 150,000 per month may gain meaningful purchasing power, but that purchasing power is still small and fragmented from the perspective of a potential service provider.

This is where mutual aid becomes economically important. Here, mutual aid means pooling resources to address shared needs or risks collectively rather than purchasing solutions only as isolated individuals. That principle is central to the ILO’s international definition of the SSE (ILO, 2022). Korean communities have long had related traditions, including gye, rotating savings and credit associations, and dure, forms of cooperative labor. The institutional forms change over time, but the underlying principle is the same: many small individual contributions can be turned into collective capacity.

Individual Basic Income → Mutual-Aid Pooling → Guaranteed Demand Base → New Local Supply → Sustainable Service Provision and Local Recirculation

Aggregating purchasing power through mutual aid. If 100–200 residents commit, for example, KRW 30,000–50,000 per month from their basic income to a mutual-aid fund or group subscription, the resulting annual revenue base could reach several hundred million KRW. That is no longer a scattered collection of tiny purchases. It becomes a predictable revenue stream and a much stronger signal that demand is real.

Creating a guaranteed demand base. Where residents make genuine recurring purchasing commitments through a subscription, membership arrangement, or mutual-aid mechanism, pooled demand can form a guaranteed demand base: a pool of demand backed by recurring commitments from participating residents. Such a demand base can reduce uncertainty for a provider considering whether to offer transportation, meals, care, or another essential service in a thin rural market.

Demand that creates supply. At sufficient scale, stable and concentrated demand can do more than purchase what is already available. It can make entry economically viable for a new provider—or enable residents to establish a cooperative, community enterprise, or social enterprise themselves. This mechanism can be described as supply-creating demand.

Lowering the path to break-even. A predictable subscription or membership revenue stream reduces initial demand risk. That can make it easier for a local provider to reach its break-even point and maintain services that might otherwise be commercially unviable in a sparsely populated area.

3. Building a Locally Circulating Economy: SSE and Endogenous Development

The missing condition for endogenous development

The logic of endogenous development is to strengthen a region’s capacity to mobilize its own assets, institutions, income, and relationships rather than depending primarily on external transfers or externally driven investment. This is consistent with the OECD’s long-standing shift toward place-based rural policy, which emphasizes places rather than sectors and investment rather than subsidy alone (OECD, 2006). More recent OECD work likewise stresses place-based strategies for regions facing demographic decline and service-delivery pressures (OECD, 2025). For rural communities, this requires more than keeping money geographically inside a boundary: it requires local organizations capable of receiving that spending, turning it into wages and purchases, and spending again.

Local supply capacity is a precondition for local recirculation. Income cannot circulate locally if there are no local providers able to receive it. Transportation services, care providers, meal services, shops, and other essential functions form the economic infrastructure through which household purchasing power can become local revenue and employment.

The core bottleneck in remote rural areas is the erosion of supply itself. As commercially viable markets contract, providers disappear. Once that supply network is gone, additional household income is more likely to be spent outside the community, limiting local re-spending and weakening the prospects for endogenous development.

Needs-based effective demand as a foundation for new supply

The practical question is therefore not merely how to increase rural income, but how to rebuild sustainable provision where commercial markets have thinned or collapsed. Rural basic income and mutual aid can work together to create needs-based effective demand: demand rooted in essential everyday needs and backed by pooled, predictable purchasing power.

Needs-based effective demand can become an economic seed for new supply. When basic income provides purchasing power and mutual-aid arrangements aggregate part of that purchasing power into recurring commitments, prospective providers can see a more reliable revenue base. In this sense, supply-creating demand does not merely consume existing goods and services; it can help bring new providers and service networks into being.

The social and solidarity economy can play a particularly important role where conventional for-profit providers can no longer operate sustainably. Cooperatives, community enterprises, social enterprises, mutual organizations, and other resident-led entities can organize essential services around social purpose and member needs while still building viable operating models. ILO guidance specifically identifies cooperatives and other SSE organizations as important instruments for productive employment and improved living and working conditions in rural economies (ILO, 2019); the OECD has also adopted a Recommendation supporting SSE ecosystems and social innovation (OECD, 2022).

Mutual aid: a historical precedent, and a new challenge

The idea of turning many small individual contributions into collective capacity is not new. Friendly societies in eighteenth- and nineteenth-century Britain were member-based mutual-aid institutions in which workers and local residents paid regular contributions into common funds. These organizations played important roles in managing risks associated with sickness, death, and loss of earnings before the modern welfare state was fully developed (Cordery, 2003; Harris, 2018).

Friendly societies, however, were primarily institutions for pooling risk and providing mutual support. They should not be treated as historical proof of the specific rural supply-building mechanism proposed here. Their relevance is narrower: they demonstrate that recurring small contributions can be institutionalized as collective capacity (Cordery, 2003; Harris, 2018). Today, the question is whether that principle can be adapted—not copied—to help rebuild essential rural provision and keep more spending circulating within local economies.

There is no established formula that guarantees success. Combining rural basic income with the social and solidarity economy should therefore be understood as an institutional experiment: one that tests whether new purchasing power can be organized into stable demand, whether stable demand can sustain new local supply, and whether that supply can keep income and employment circulating within the community.

Conclusion: The Real Question Is What the Money Can Set in Motion

The three economic perspectives point to different parts of the same proposed mechanism. The local multiplier effect explains why reducing leakage and increasing local re-spending matter (Sacks, 2002). Keynes’s framework highlights the macroeconomic importance of effective demand, while this essay applies its intuition cautiously to the problem of turning rural needs into market transactions backed by purchasing power (Keynes, 1936). Place-based and endogenous-development perspectives explain why that demand must connect to local institutions and supply capacity if it is to contribute to a durable cycle of income, employment, and service provision (OECD, 2006; OECD, 2025).

Seen this way, combining rural basic income with the social and solidarity economy is not merely an income-support policy. It is a strategy for designing the conditions under which a rural economy can function again:

Effective Demand → Collective Purchasing Power → Essential Local Supply → Local Re-spending

The policy challenge created by rural depopulation is not only that residents have less income. It is that the commercial market mechanisms on which everyday life once depended may have weakened or disappeared. Rural basic income can inject purchasing power, but the decisive question is what happens after the money arrives. Can it be pooled when necessary, matched with local providers, and re-spent within the community? In other words, the key question is not simply how much money to distribute, but whether that money can be made to move—and keep moving—through the rural economy.

About the Author

Sung-gi Kim, PhD in Social Welfare

Director, The Care Biz Lab

Chair, SE Empower Social Cooperative

Email: skkwelfare@gmail.com

References and Further Reading

Evidence note. The causal chain proposed in this essay is a conceptual policy mechanism, not a claim that rural basic income and SSE institutions will automatically produce a given multiplier, new supply, or a self-reinforcing local economy. Outcomes depend on local provider capacity, participation, governance, labor supply, regulation, and the share of spending that can realistically be retained locally.

Basic Income Earth Network. (n.d.). About basic income. Accessed August 9, 2026. https://basicincome.org/about-basic-income/

Cordery, S. (2003). British Friendly Societies, 1750-1914. Palgrave Macmillan. https://doi.org/10.1057/9780230598041

Harris, B. (2018). Social policy by other means? Mutual aid and the origins of the modern welfare state in Britain during the nineteenth and twentieth centuries. Journal of Policy History, 30(2), 202-235. https://doi.org/10.1017/S0898030618000052

International Labour Organization. (2019). Building Local Development in Rural Areas through Cooperatives and Other Social and Solidarity Economy Enterprises and Organizations. https://www.ilo.org/publications/building-local-development-rural-areas-through-cooperatives-and-other

International Labour Organization. (2022). Resolution concerning decent work and the social and solidarity economy (ILC.110/Resolution II). https://www.ilo.org/resource/record-decisions/ilc/110/resolution-concerning-decent-work-and-social-and-solidarity-economy

Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. Macmillan. See especially Chapter 3, “The Principle of Effective Demand.” https://www.cambridge.org/core/books/collected-writings-of-john-maynard-keynes/principle-of-effective-demand/9B74DA5B920DD081BC02A026D39F62B3

OECD. (2006). The New Rural Paradigm: Policies and Governance. OECD Publishing. https://doi.org/10.1787/9789264023918-en

OECD. (2022). Recommendation of the Council on the Social and Solidarity Economy and Social Innovation (OECD/LEGAL/0472). https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0472

OECD. (2025). Shrinking Smartly and Sustainably: Strategies for Action. OECD Rural Studies, OECD Publishing. https://doi.org/10.1787/f91693e3-en

Sacks, J. (2002). The Money Trail: Measuring Your Impact on the Local Economy Using LM3. New Economics Foundation. https://neweconomics.org/2002/12/the-money-trail/

United Nations General Assembly. (2023). Promoting the social and solidarity economy for sustainable development (A/RES/77/281). https://docs.un.org/en/A/RES/77/281