Foreign and Defense Policy, Asia

North Korea vs. South Korea, a natural economic experiment

South Korea ranks 35th out of 179 nations on the Heritage Foundation’s 2011 Index of Economic Freedom: “Business freedom remains strong and serves as a source of vibrant economic growth. The competitive regulatory framework facilitates dynamic entrepreneurial activity. Business formation and operating rules are efficient and allow innovation. …  Private property is secure, and expropriation is highly unlikely …”

And nation number 179? That would be North Korea: “The state continues to regulate the economy heavily through central planning and control. Entrepreneurial activity remains virtually impossible. … Property rights are not guaranteed. Almost all property, including nearly all real property, belongs to the state, and the judiciary is not independent. … As the main source of employment, the state determines wages.”

So what we have here is a natural economic experiment. Markets vs. State. Freedom vs. Oppression. Capitalism vs. Communism. And here are the results:

I think we have a clear winner. IHS Global Insight, the consultancy who made the chart, draws this conclusion: “The massive economic development gap between North and South Korea reflects the abject failure of North Korea’s centrally planned economy since 1945.” But, the firm says, there is hope:

However, should North Korea seize this political opportunity to come in from the cold, it could move gradually towards a path of economic liberalization linked to improving political relations through the framework of the Six Party Talks. Such a path of gradual economic liberalization would likely open the door for increased international economic co-operation with North Korea, including through the Bretton Woods institutions of the IMF, World Bank and World Trade Organisation. Reduced military tensions on the Korean peninsula would also offer scope for much greater economic co-operation from South Korea. …  In such a scenario, North Korea could undergo a period of much more rapid GDP growth and economic development, achieving significant improvements in living standards over the medium term.

Under relatively conservative assumptions about the more rapid economic growth rate and exchange rates in the upside case, North Korean GDP per person is projected to rise to around USD 2,900 by 2020 under policies of gradual economic liberalization and détente, around 50 per cent higher than under the status quo policy scenario.

And as I have written, the cost of reunification would be heavy on South Korea. But not nearly as heavy as the continued cost of the utter human misery in the hostage nation of North Korea.

The dark side

5 thoughts on “North Korea vs. South Korea, a natural economic experiment

  1. Brings a tear to my eye to see that the only lights being used are in the capitol. Now THAT’S how you do an energy policy!

    Later! Got a few more million dollars to burn on my vacation…

  2. Jim,

    Assuming the satellite photo is from 2003, what’s your point. Do you believe that if we took another satellite image tonight it would look different? Doubt it!

  3. It’s really kind of an insult to communism to call the Kim dynasty’s rule by that name. It’s not even “successful” enough to be a Stalinist regime; Juche is little more than a xenophobia reserved for any person not related to Kim Il-Sung by ancestry. It may have logically-traceable roots to Neo-Confucianism, but it’s ultimately just a totalitarian dictatorship.

    • Luke,
      In Norht Korea:
      - The state regulates the economy heavily through central planning and control.
      - Entrepreneurial activity remains virtually impossible.
      - Property rights are not guaranteed.
      - Almost all property, including nearly all real property, belongs to the state
      That not sound communist to you? If walks like a duck… you know.

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