| North
Korea: Roll over Kim Il Sung
 Author:
Luke Brown - 2002
Posted: 6 October 2002
One wonders how advocates for centrally planned economies still
gain a voice. The concept that a relative few on a committee of
sorts should be given the power to effectively manage a country's
economy is seen by many as a good thing. The justification for this
point of view is largely an emotional one, often delivered with
a high moral tone. True, there are various theories propagated to
support this view, but they are fairly easily dismissed due to their
illogicality. That a relative few could be capable of amassing,
interpreting and then acting upon the masses of information in a
country that relates to its scarce resources and the needs, wants
and desires of its citizens is logically and indeed morally flawed.
It is morally flawed because it implicitly assumes that a relative
few should and indeed only can determine what the masses need, want
and desire. And it is logically flawed because these relative few
are not omnipresent gods. What they cannot hope to know is what
people need, want or desire, the amount of scarce resources available
for the production of these final consumer goods or for intermediary
producer goods (used in the production of consumer goods) and therefore
how these scarce resources should be applied to their most valued
ends (i.e. what people need, want or desire).
With millions of pieces
of constantly changing information swirling around a country, it
should be quite clear that a relative few cannot deal with this
situation adequately or efficiently. What is needed then is a means
of coordinating and matching up what people need, want or desire
with said scarce resources in the most efficient way possible. As
supplies of resources are not limitless and people's needs, wants
and desires are unique to each individual, the most efficient way
of identifying and addressing these supplies and demands is through
the price mechanism. Generally speaking, the more a good is demanded
in relation to its supply, the higher the price that will be paid
for the good. This acts as a signal to the suppliers of this particular
good that more is desired. The more of a good that is subsequently
provided the lower its price will be, as supply adjusts to the demand
for a particular good. (It is important to reiterate that while
we can generalise about the effect of demand and supply on prices,
each individual will demand and supply goods in accordance with
satisfying their own particular needs, desires or wants. The prices
they are willing to pay or accept are dependent on their values
and are constantly subject to change). The above-mentioned process
can only be efficiently fulfilled in a market. The multitude of
individual participants in a market (ultimately all consumers and
producers), through voluntary and peaceful means and with mutual
respect for private property, can ensure that they achieve their
own aims as efficiently as possible. And in this way resources are
applied to their most valued ends, the much derided profit-motive
assisting increased innovation, technology and productivity that
guides entrepreneurs to maximise output.
It follows that the less
interference and use of force found in a market economy, the more
efficiently a market economy will operate and therefore the greater
its output shall be. This is so because whenever the government,
through its legal monopoly of force, intervenes in the workings
of the market, it misdirects resources and investment away from
their most valued uses, as usually determined in the market. Conversely,
the more centrally planned and controlled an economy inherently
deficient in markets, the more arbitrary decisions shall be, resulting
in inefficiencies and waste and ultimate disaster.
It is no accident that
recent developments in North Korea are a reaction to these deficiencies
in centrally planned economies. As it has recently been reported,
the Stalinist North Korean regime has appointed Yang Bin, a highly
successful 39-year old agricultural and manufacturing magnate
from China, to run the newly-created "special administrative
region" of Sinuiju, next to the border with China. The aim
is to turn it into a "totally capitalist region" that
"will have its own legislative, judicial and executive powers
without any interference from central government." The North
Korean leader, Kim Jong-Il, handpicked
Mr Yang for the job, apparently so that the world could see that
North Korea is experimenting with change. The 50-square-mile zone,
near the city of Sinuiju, will be free of communist ideology. Private
capital
will be sought from China, Japan, South Korea and the West, and
foreigners will have open access to the "international financial,
trade, commercial, industrial" zone, which will have no import
or export tariffs and a fixed income tax rate of 14 percent. The
zone will be free from government interference for a period of 50
years. However, a wall
will be built to keep North Koreans out. Some 500,000 people currently
living in the area will be removed over the next two years and 200,000
migrants brought in to work in the various industries expected to
be set up.
This latest announcement
follows on from a series of reforms of late: limited "market
reforms" such as the scrapping of ration coupons and the
freeing up of wage and price determination, allowing
foreign investors to own more than 50% in North Korean companies,
devaluation of the currency, weaning companies off subsidies, plans
to build road and rail links with South Korea and sending
a delegation of bankers to China to study financial reform. Quite
simply, North Korea has had no other choice. Famines in the mid-1990s
caused the deaths of an estimated two million people and Pyongyang
was forced to accept food aid from old enemies South Korea, the
United States and Japan, as well as accept the need for economic
reforms.
So what is one to make
of this latest announcement of this "experiment"? On the
face of newspaper reports this particular new region sounds very
encouraging. (North Korea had previously
set up a special economic zone near the border with Russia and China
in the early 1990s but it was a disaster, drawing limited investment
and suffering massive government interference.) It will be free
of communist ideology (presumably commencing after 500,000 residents
have been forcefully removed) and be a "totally capitalist
region." One must be a little sceptical. For starters, there
is no such thing as a "totally capitalist region" anywhere
in the world. Politicians in power always find ways to be interventionist,
whether granting special favours, printing money out of thin air
or in other ways. While Pyongyang says that there will be no interference
from their side, it is tough to imagine this from such an oppressive
regime that attempts to control the lives of their citizens at every
opportunity. And the very concept of an "experiment" implies
that this is a test. But a test of what? That capitalism is superior
than socialism or centrally controlled economies? North Korea is
sufficient proof of that. No doubt Pyongyang sees this venture as
showing the world that it is open to change. It also must see this
as a money-spinner. It can use the proceeds to improve its shattered
economy whilst mostly keeping silent to its people the source of
this newly found wealth. No doubt its elite will continue to be
pampered, its people lied to about the failings of the concept of
Juche (self-reliance), more large monuments built in honour of their
demented Dear Leader and his late father, all while people starve
and die from malnutrition.
This is not to say that
the whole of North Korea should be expected all of a sudden to transform
itself into a "totally capitalist" country, let alone
a functioning market economy. The experience of formerly communist
countries is testament to this. Decades of extreme economic structural
deficiencies and the accompanying degradation due to its centrally
planned economy cannot magically be instantaneously fixed.
A functioning market
economy requires effective private property
rights, political
strength, respect for the rule of law, a society relatively
free from corruption, free labour markets, competitive tax rates,
currency reform and so on. Political change is also paramount and
must be accompanied by a respect for an individual's rights. And
importantly, the benefits of free markets must be conveyed to the
public at large. The latter is hard enough to achieve even in the
market economies of the West. There are so many misconceptions and
outright lies told about the free market, whether at the hands of
critics (who, for example, blame the free market for unemployment
when a free labour market does not exist) or the hypocritical actions
of supposed Capitalists, who call for free trade but practise Protectionism
and attempt to manage trade through elite world economic organisations.
The supreme irony that
can be drawn from this announcement is that the leadership of arguably
the most closed and repressed society in the world and the last
vestiges of hardline socialism in the world is willing to countenance
capitalism and the market; albeit on a limited scale. This is what
the apologists for socialism and centrally-planned economies, living
very comfortably in the West, thanks in no small part to the market,
still cannot bring themselves to do.
Author: Luke Brown
Email: editor@polosbastards.com
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