I have argued in this paper that North Korea appears to have been a de facto slave economy, where an elite class of ‘masters’ let the mass of slave-workers work on or with the masters’ properties. I have done so not to deride the country, but to understand why she has remained so stagnant for so long and to understand what steps she can take to make the country prosperous.
Numerical exercises I have performed indicate that when one operates a country as a slavery system, the slaves would end up barely subsisting, whereas the masters could live affluently. For example, a slave’s income would only be $630, which is one tenth of a master’s income of $6,300.
If North Korean authorities want to make the majority of their citizens better off, they would be better to take the following advice. It is, to privatize, to liberalize, to open up, and to promote human capital growth of citizens and to foster faster technological progresses.
I have noted that perhaps it would not be easy for the North Korean authorities to take the advice. If they take them too rapidly, they may lose their privileges.
And they even lose their lives. Who would undertake such actions, if doing so may undermine their own (the masters’) interests? It is, therefore, important to design reform measures in such ways as to keep the interests of the elite class intact or even better to keep them growing. An option is a gradual and partial privatization, liberalization, and opening up. It would be worthwhile for North Korean authorities to improve upon what China has been doing in the last 30 years or so.
However, we need to be cautious here. Whereas China has maintained a collective leadership system ever since she undertook reforms, North Korea has never nurtured such a system. Indeed North Korea has maintained a one man ruling system: The senior leader Kim Il-Sung’s grandson Kim Jeong-Eun now rules the country, succeeding his father Kim Jong-Il. It is well known that both Kim Il-Sung and Kim Jong-Il had ruled the country singlehandedly. A collective system may be
more amenable to reforms. Under a collective leadership, top leaders may have acquired some tastes for compromise, hence they can be more willing to accept changes. On the other hand, a one man system may pull off reforms much more decisively, since that would depends mostly on the top leader’s decision. It remains to be seen whether North Korea’s one man ruling system is as capable or more capable to achieve the needed reforms as China’s collective ruling system has been able to do so.20)
Recently, interesting development is occurring in North Korea. Many people have apparently decided to take control of their lives and do whatever their self-interests dictate. They are new breeds of farmers, merchants, and factory operators. They dare to defy the authorities: Having nothing to lose, they have become fearless. In response to these initiatives, there have already appeared numerous markets. There appears an evidence that an extensive network of merchants is developing: Equipped with mobile phones, they not only intermediate the exchanges of goods, but also exchanges of information and credits. It is interesting to note that North Korean authorities appear to be unable to suppress this new development. They may have to accommodate the new development.
Recent announcements made on North Korean media that the country has decided to ‘liberalize’ the economy may turn out to be genuine commitments.21)
The paper is a very preliminary attempt to understand North Korea. It has many deficiencies. Here I just mention several of them and leave the task of dealing with them for future works.22)
The paper does not provide a literature survey. There have appeared quite a few papers on North Korean economy. Cleary such a review is necessary.
The paper does not discuss how human societies have evolved in the history.
Human beings have undergone a series of transformations from a very primitive society of long ago to a affluent and democratic society of today. In order to have more enlightened discourses on the slave system, we must view it in the context of actual human history.
How to transform the essentially extractive system that I call a slavery into more inclusive one is a very difficult issue. One can follow the ques offered by Acemoglu and Robinson’s Why Nations Fail? (2012) and other related works and try to understand the political economy aspects of system changes.
The interactions between the masters and slaves can be seen in lights of agency problems. The moral hazard or adverse selection issues might be critically important in understanding the behaviors of the North Korean leaders.
20) This paragraph is based on a suggestion from Ben Hong, who has kindly made numerous comments.
21) Refer to reports appeared recently on New York Times (2012 and 2013) and an Economist (2013) article on North Korea.
22) What follows below is based on suggestions offered by Professors S. Baik, K. Choi, J. Kim, D. Lee, S. Noh, J. Rhee, and J. Yoo.
Reference
Acemoglu, Daren and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity. and Poverty, Crown Business: New York, 2012.
Bank of Korea, ECOS, an Economic Statistics site, http://ecos.bok.or.kr.
Becker, Gary S. and H. Gregg Lewis, “Interaction between Quantity and Quality of Children,” in Theodore W. Schultz (ed), The Economics of Family:
Marriage, Children, and Human Capital, UMI, 1974.
Mei, Yuan, “Financing Cooperation between China and North Korea for Agriculture: Taking Xin Yi Zhou and Dandong cities as example,” in Korean Studies in China in a Changing World, Conference volume published by Liaoning University, 2013.
Lucas, Robert E. Jr., “Industrial Revolution: Past and Future,” in Robert Lucas, Jr., Lectures on Economic Growth, Harvard University Press, 2002.
Economist, “North Korea: Rumbling from below,” February 9, 2013.
New York Times, “North Korea May Take Action to Jolt Economy, Analysts Say,”
September 5, 2012.
New York Times, “Pyongyang Losing Grip on Economy,” June 3, 2013.