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North Korea's Game
Thursday, 04 February 2010 06:20

The global financial crisis has revived debates about the impact of globalization on economic development.  So, let’s look at one of the extreme cases, North Korea.






This country is perhaps the least developed country in East Asia, if not the world.  GDP per capita is low (somewhere between $600 and $1700 per capita), food shortages and starvation are recurrent, and freedom is extremely limited.  And most importantly, the government has a monopoly on information which is made available to its population through restrictions on access to radios, books, travel, etc.


North Korea is also perhaps the world’s least globalized economy -- even though it does participate in some of the darker sides of globalization – trade in arms, drugs etc, as well as human trafficking.  It is also totally out-of-loop of the global information society


First, let’s set out some of the basics.  Globalization, or the growing integration of the world’s economies, has been mainly driven by the increasing freedom that people have to undertake economic transactions (trade, investment, finance) with people from other countries, and also free access to information.


One indicator of this is the Heritage Foundations Index of Economic Freedom.  This is defined to be the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.


Not surprisingly, the highest ranking countries in terms of economic freedom are: Hong Kong, Singapore, Australia, Ireland, New Zealand, United States, Canada, Denmark, Switzerland and United Kingdom.  Even if some of these countries, like Ireland, US and UK abused and misused their freedoms and created a global financial crisis, in general these countries are the world’s richest and most developed.  And what’s more, these crisis countries have seen the most open debates about the nature of their crises.


At the other end of the spectrum, there is North Korea which has the lowest level of economic freedom of the 179 countries measured.  North Korea does not score well in any single area of economic freedom.  The Communist Party controls and commands almost every aspect of economic activity.  It also promotes false images of North Korea as an island of happiness and prosperity.  And it uses false propaganda to demonize the US and promote hatred of all other nations.


It impoverishes the nation through massive investments in military expenditure representing one-quarter of GDP, with its army of approximately 1 million.  Military provocations and nuclear, biological and chemical weapon programs are used to hold the rest of the world to ransom and force it to provide assistance – while giving its population the impression of national importance.


Why do governments restrict freedoms?  Restrictions on trade in certain goods and services are put in place to give privileges to certain local or national producers.  Widespread restrictions on freedoms are often the mechanism whereby certain elites establish and maintain their power in society.  And this certainly seems to be the case in North Korea, where the whole political and societal machine seems to be designed to keep the regime of KIM Jong-Il in power.


How is the North Korean economy organized?  The economy is essentially based on the philosophy of self reliance, state ownership and central planning.  As in all central planning systems, industrialization was the priority.  The result has been massive inefficiency, and corruption.  Economic output has declined substantially since 1990, by about one-third.  Poverty and starvation are rife.


In recent years, it has relied on the World Food Program, China and South Korea to feed parts of its population. During the Cold War period, survival of the North Korean population and regime was facilitated by assistance from the USSR and trade with the Soviet bloc.  This was taken away after the end of the Cold War, and China moved in to provide assistance.  Normal trade and other economic co-operation are limited, although there is limited trade with, China, Korea, Thailand, Russia and India.  While exports are necessary to finance imports of minerals, petroleum, machinery etc, most trade is de facto aid.  Illegal private trade occurs across the Chinese border.  And much exports are missiles, narcotics, counterfeited cigarettes, etc.


Over the years, there have been flirtations with economic reforms to improve efficiency.  In times of food crisis especially (like the 1990s famine which killed 2 million people), the government has tolerated the emergence of markets.  But when food crises pass, the government typically clamps down again on free markets.  Black markets are subject to the same cycles of sprouting and repression.  But the government is having increasing difficulty in maintaining economic controls – badly paid government officials are open to bribery.  Three-quarters of family income is generated through private economic activities.  A recently-bungled currency reform, aimed at curbing private sector activities, forced an unprecedented apology, and a retreat on cracking down on free markets.


Why doesn’t North Korea follow the Chinese path of gradual reforms?  This would open the society to information about the rest of the world, and especially the state of South Korean prosperity.  This would undermine the power and control of the regime.  Already smuggled radios and DVDs are opening cracks in the system, as are the stories of returnee illegal refugees.


What should we do?  Negotiation or coercion?  Perhaps neither will work, the regime is hanging on to its power until the bitter end.  Andreo Lankov recommends a strategy of weakening the regime’s monopoly on information through policies of engagement, information dissemination and support for emigrants – in the same way that knowledge of the West’s prosperity undermined popular support for communism in Easter Europe.  This could include radio broadcasts, distribution of computers, academic and student exchanges (even if it they only initially benefited the ruling class), education programs for refugees who may return in event of regime change.  This rather than the nuclear issue, could be a real benefit of the 6-party talks.


How much support would there be for such an approach?  Perhaps not much.  China would prefer stability, rather than having to deal with millions of North Korean refugees.  South Koreans also seem to prefer stability, rather than the burden of subsidizing their Northern brothers.  And Americans are so obsessed with North Korea’s nuclear arsenal that they do not see anything else.





Heritage Foundation, 2009 Index of Economic Freedom – www.heritage.org/Index/

The Winter of Their Discontent: Pyongyang Attacks the Market, by Stephan Haggard and Marcus Noland.

Policy Brief, January 2010.  Peterson Institute for International Economics – www.piie.com

Changing North Korea: An Information Campaign Can Beat the Regime, by Andrei Lankov.  Foreign Affairs, November/December 2009 – www.foreignaffairs.com

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