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by inoljt

How North Korea Fell Behind South Korea, Part 2

12:05 am in Uncategorized by inoljt

This is the second part of two posts examining how North Korea fell behind South Korea. The previous part can be found here.

As the previous post found, for several decades North Korea kept up with South Korea. Then, during the mid-1970s, the country started falling behind. Ever since then the gap between the two countries has widened.

This post will explore several factors behind what caused North Korea to fall behind. There seem to be three main causes: the failed ideology of juche (self-reliance), the end of Soviet aid, and Kim Jong-Il’s incompetent rule.

Juche

If one looks at Gapminder’s graphic, North Korea and South Korea are neck-and-neck until the mid-1970s:

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Then North Korea falls behind:

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What caused this? Well, in 1972 North Korea adopted the ideology of juche into the constitution. Juche stands for self-reliance. There’s a lot of fancy Marxist philosophical complexity behind the idea, but in its essence it seems to be basically a fancy form of protectionism.

Juche was very harmful to the North Korean economy. Here is North Korea before the official adaptation of juche:

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As is evident, North Korea was progressing during this period. This is not to say that juche wasn’t part of the state’s ideology in these years. Rather, it seems to have played less of a role.

A description on this website provides a good description of the progress during this time:

The 1954-56 three year plan repaired the massive damage caused by the war and brought industrial production back to prewar levels. This was followed by the five- year plan of 1957-61 and the seven year plan of 1961-67. These plans brought about further growth in industrial production and substantial development of state infrastructure. By the 1960s North Korea was the second most industrialized nation in East Asia, trailing only Japan. While a number of internal limitations appeared, such as in the production of consumer goods, the national standard of living was considered by many third-world nations as an alternative to the capitalist model of development sponsored by the United States. Building upon the ruins left by the Korean War, the North Korean economy by the late 1960s provided its people with medical care, universal education, adequate caloric intake, and livable housing.

Here is what happens after the official adoption of juche:

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The website continues with a description of North Korea’s economic decline. I will quote the discussion in full because it’s quite comprehensive:

In the 1970s the expansion of North Korea’s economy, with the accompanying rise in living standards, came to an end and a few decades later went into reverse. A huge increase in the price of oil following the oil shock of 1974 hurt the economies of countries throughout the world, North Korea among them. North Korea has no oil of its own, and it had few export commodities of interest to the west. Compounding this was a decision to borrow foreign capital and invest simultaneously in the military and mining industries. North Korea’s desire to gain as much independence as it could from China and Russia prompted the expansion of its military power. They believed such expenditures could be covered by foreign borrowing and increased sales of its minerals in the international market. North Korea invested heavily in its mining industries and purchased a large quantity of extractive machinery and tools from abroad. However, soon after making these investments, the international prices of for many of these minerals fell, leaving North Korea with large debts and an inability to pay off the debts and provide a high level of social welfare to its people.

Adding to the above, the centrally planned economy, which emphasized heavy industry, had reached the limits of its productive potential in North Korea. Juche repeated demands that North Koreans learn to build and innovate domestically had run its course as had the ability of North Koreans to keep technological pace with other industrialized nations. By the mid to late-1970s some parts of the capitalist world, including South Korea, were advancing into new phases of technology and economic development and phasing out the coal-and-steel-based economies of the earlier period.

Kim ll-sung, trapped in an ideology that had once been highly successful, was unable to respond effectively to the challenge of an increasingly prosperous and well-armed South Korea, which undermined the legitimacy of his own regime. Having failed at their earlier attempt to turn to the market and conduct market-economy reforms such as those carried out in China by Deng Xiaoping, Kim opted for continued ideological purity. The DPRK by 1980 was faced with the choice of either repaying its international loans, or continuing its support of social welfare for its people. Given the ideals of Juche, North Korea chose to default on its loans, and by late 1980s its industrial output was declining.

One should note that the images above are models of North Korea’s economic path rather than based on North Korean statistics. Since North Korea doesn’t reveal its GDP, people have to make educated guesses. The people on Gapminder put North Korea as slightly wealthier than South Korea in 1944 and then modeled equal economic growth rates until the mid-1970s. At that point they put 0% GDP per capital growth to model North Korea’s stagnation during that period. Finally, they use slightly more accurate estimates after the fall of the Soviet Union to model North Korea’s famine and its most recent years.

Nevertheless, these models are based off what happened in real life. It’s undeniable that North Korea was stagnating during the late ’70s and ’80s. It’s also undeniable that there was a famine during the late ’90s. So while the graphic isn’t perfect, it’s a decent representation of reality.

The End of Soviet Aid

Juche seems to have been the main turning point in North Korean economic history. Nevertheless, it’s worth noting that there are in fact two “parts” of North Korean economic decline. The first part, during the late ’70s and 80s, is stagnation – when North Korea doesn’t go forward but doesn’t go backwards. The second part starts in the ’90s, when North Korea actually starts going backwards.

What caused this?

Well, for all of its economic history North Korea depended extensively on communist aid. The Soviets were determined to prove that their system was superior and, like the Americans, gave lots of aid to their allies. Eventually it turned out that their system was in fact not superior, and by the end the Soviet Union couldn’t really afford to give out that aid. In 1991 the Soviet Union collapsed and all Soviet aid withdrew.

This hit North Korea hard:

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In fact, it eventually created a famine. This graphic shows North Korea after the fall of the Soviet Union. This is the second part of the country’s economic decline, when it actually starts going backwards. Soviet aid was particularly important because the Soviet Union sold North Korea oil at low prices. North Korea’s inefficient economy and agricultural system depended badly on petroleum, but it couldn’t afford to buy petroleum at market prices. When the Soviets stopped giving North Korea oil, North Korea collapsed.

Here’s a comparison with South Korea:

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Kim Jong-Il

Kim Jong-Il’s rule was incompetent and terrible for North Korea. Let’s take a look at North Korea under his father Kim Il-sung, until his death in 1994.

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We see progress throughout most of Kim Il-sung’s rule. During his final years, however, stagnation and finally decline sets in. Nevertheless, one could say that Kim Il-sung did good for North Korea.

What happens under Kim Jong-Il?

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Decline. Indeed, there’s a startling coincidence between Kim Jong-Il’s path to power and North Korea’s economic decline. Kim Jong-Il began taking power during the 1980s. During that time North Korea is well into stagnation. He takes over the armed forces in 1991. North Korea then begins going backwards. His father dies in 1994, leaving him in absolute control. North Korea then suffers a famine from 1994 to 1998.

Here’s North Korea and South Korea during Kim Jong-Il’s rule:

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Conclusion

It seems that there were three main events that caused North Korea’s economic decline: juche, the end of Soviet aid, and the incompetence of Kim Jong-Il. Juche turned economic growth into stagnation. The end of Soviet aid turned stagnation into absolute decline. This backwards path gained momentum as Kim Jong-Il gained power and ruled incompetently.

North Korea’s tale is fairly unique. It’s the story of a country which achieved a decent standard of living and high industrialization under communism. Then the strains of the system became apparent, such as the overreliance on petroleum, and it eventually collapsed. This is why one hears of a lot of North Korean factories that used to work but now don’t. One hopes that the new leader Kim Jong-un will turn things around for his people.

by inoljt

How North Korea Fell Behind South Korea, Part 1

5:37 pm in Uncategorized by inoljt

This is the first part of two posts examining how North Korea fell behind South Korea. The second part can be found here.

The story of the two Koreas is a common American tale amongst the educated classes. As the fairy tale goes, once upon a time there was one Korea. By chance, one day this Korea was divided amongst the communists and the capitalists. The communist Korea fell into chaos and poverty. The capitalist Korea became rich and a democracy. Beware communism!

The general thrust of this tale is true. But there are some interesting complexities behind how North Korea and South Korea became the way that they are. After the Korean War, it wasn’t as if South Korea immediately began pulling ahead. For a long time it wasn’t obvious which Korea was doing better.

This is what happened:

The 1940s
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To write this analysis, I utilized the website Gapminder. Run by a Swedish professor, Gapminder shows graphics of different levels of every imaginable type of statistic amongst the world’s varying countries.

This is the most basic graph: it shows wealth and health in 1944. The y-axis is life expectancy. The left axis is income per person (in dollars adjusted for inflation and purchasing power parity) put on a logarithmic scale (so that the difference between $1,000 and $2,000 is just as important as the difference between $10,000 and $20,000; this makes comparing things much easier). As one would expect, wealthier countries generally have higher life expectancies. The main exceptions, such as Germany, are busy fighting World War II.

This graph shows the state of the two Koreas in 1944. The South is relatively more populous and relatively poorer. One ought to note that at this time there were no good statistics; the figures here are estimates.

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Korea was divided in two in 1945. I started a year earlier, and this chart makes clear why. The destruction of World War II did quite a lot of damage to both countries. By 1950 they still hadn’t recovered, unlike much of Western Europe and Japan. Both countries were generally poorer than your typical country.

Then the Korean War started.
Read the rest of this entry →

by inoljt

A Fascinating Graphic: Comparing Chinese Provinces With Countries

11:40 am in Uncategorized by inoljt

Several months ago The Economist released a fascinating graphic on China, titled “Comparing Chinese Provinces With Countries.” As the title implies, this graphic compares each of China’s provinces with different countries. The comparisons are GDP, GDP per person, population, and exports. There are a number of interesting things that the graphic shows.

Unsurprisingly, China does “best” in the population graph. While everybody knows that China’s population is the largest in the world, the sheer size of China’s population can still sometimes come as a shock. The province Anhui by itself has the same population as that of Great Britain, for instance. And there are seven provinces with higher populations than Anhui; the most populated province, Guangdong, has 58% more population than Anhui. On the low side of things comes Tibet, which covers a lot of space but has a mere 3.0 million residents (smaller than some American cities). It’s pretty astonishing to see how small Tibet’s actual population is, given the huge amount of news coverage devoted to it.

The exports graph is also interesting. Most provinces have absolutely tiny exports, belying China’s reputation as an exporting power. Beijing, for instance, exports only 29.2 billion in goods – about the same as Oman. Five coastal provinces account for 77% of China’s total exports; of those five, Guangdong alone is 30% of China’s total exports.

Humorously, the highest rated comment (by far) on the article goes “I cannot find Taiwan.”As a newspaper published by the United Kingdom, The Economist does not include Taiwan as a Chinese province. A Chinese version of the same graphic, of course, would include Taiwan.

Finally, there is one area where China does quite badly: per capita income. The average income each person makes for most provinces reads like a who’s list of Third World, developing countries – Angola, El Salvador, Namibia. This is after thirty years of enormous economic growth, which really makes one think about how poor China was back in the days of Mao Zedong.

The poorest province of China is Guizhou, in which GDP per person is only $3,335. GDP per person in Guizhou is lower than that of the African countries Congo-Brazzaville and Swaziland. But guess which country Guizhou’s GDP is closest to:

India!

GDP per capita in the poorest province of China – a province poorer than several sub-Saharan African countries – is the same as GDP per capita in India. It makes one realize that India, for all its recent economic success, is still really really poor.

–Inoljt, http://mypolitikal.com/

by inoljt

A Good Decade for Africa

11:17 pm in Uncategorized by inoljt

Africa is in the news these days, and not in a positive way. Events in Cote’ d Ivoire and Libya once again add to the stereotype of Africa as a continent of failed states, dictatorships and coups, and economic backwardness.

Yet despite the news in Cote’ d Ivoire and Libya, Africa hasn’t been doing too shabby in the 21st century. The past decade constituted a comparatively good one for Africa.

Things were best economically. Africa grew faster than the West – for the first time in many decades – especially in light of the Great Recession. Much of this was due to the influence of China. It’s vast appetite for commodities boosted economies throughout the continent, as did its foreign investment in infrastructure. Many complain that China built roads for dictators without regard to human rights, but from an economic perspective a road in Sudan is the same as a road in Ghana.

Politically Africa did not do as well. Even today there are precious few true multiparty competitive democracies in the region. Ghana is one, as are Botswana and Senegal. Many countries in Africa nowadays hold elections, but very few are free or fair. The Cote’ d Ivoire election is more the norm than the exception.

Yet things are still better than before. Compare the 2000s with the 1990s. In the 90s there was the Rwandan genocide, war in Congo, Islamist-fueled civil war in Algeria and Somalia, blood diamond civil wars in Liberia and Sierra Leone, and other civil wars in Angola and Sudan. These events led to millions of deaths.

Most of these conflicts were ended – or damped down – by the early 2000s. Since then, few events have approached the bloodshed of the 90s. Even the Darfur genocide is far less violent than the civil war that preceded it.

All in all, the recent decade constituted one of the better decades in Africa’s recent history. One wonders what this new decade will bring.

–Inoljt, http://mypolitikal.com/

by inoljt

Hugo Chavez’s Failure to Help the Poor

5:22 pm in Uncategorized by inoljt

The Economist, Great Britain’s magazine for the American elite, recently published a special report on Latin America. While the magazine noted the continuing challenges facing Latin America, it also perceived that Latin America has made great strides in the past decade. This has especially been the case with reducing inequality, a perpetual curse of that region in the world – and perhaps the greatest obstacle to economic advancement in Latin America.

In doing this, The Economist published the following table:

This table indicates the rate by which a country’s inequality – measured by the Gini coefficient – has declined since 2000. The table stops at 2006 or a later date; unfortunately it does not say which countries have data until 2006, and which countries have data after that.

All in all the table paints a bright picture: inequality is down in most countries, from Brazil to Mexico to Argentina.

Several countries, however, stand out as exceptions. The most notable is Venezuela, which has been governed by President Hugo Chavez since 1999. Under Mr. Chavez, inequality has barely decreased. When compared to other countries, Venezuela has on done worse than average.

Since so much of Mr. Chavez’s political messaging rests upon his appeal to the poor, this is a startling failure. Mr. Chavez proudly characterizes himself as a socialist, determined to reduce income inequality and redistribute wealth more evenly. Yet after more than a decade of rule, inequality has barely budged – in stark contrast to the rest of Latin America.

One finds that this is the case with a number of Chavez-aligned countries. Anti-American President Daniel Ortega governs Nicaragua, and former anti-American President Manuel Zelaya ruled Honduras until 2009. In both countries the presidents are (or were) left-wing anti-American hardliners committed to socialism and helping the poor. In both countries income inequality has actually increased.

There are exceptions. President Evo Morales is as left-wing and anti-American as any Latin American leader, and Bolivian inequality has decreased substantially. Moreover, some of these leaders were not in power before 2006, so they may not be responsible for what the graph shows (although in some cases the data may be more recent). Their elections may have been a response to rising inequality – rather than to say that they failed at reducing inequality.

But Mr. Chavez has been in power since before 2000. He has no such excuse. When a president comes into office promising to help the poor, a good way to measure whether he or she has kept the promise is to look at how the poor have done relative to the rich. By that measure, Mr. Chavez – for all his about rhetoric about socialistic revolution – has not helped Venezuela’s poor.

–Inoljt, http://mypolitikal.com/

by inoljt

What’s Up With Germany?

9:36 pm in Uncategorized by inoljt

Germany is a power on the rise. Unlike much of the Western world, the country’s economy is humming along as if the Great Recession had never even happened. Indeed, in the last quarter German GDP grew by a heady 2.2.%. This was the highest growth rate since the Berlin Wall fell two decades ago.

German employment is also holding up. At 7.6% in August 2010, German unemployment is actually lower than it was before the Great Recession. For those familiar with the depressing figures of American unemployment, this is quite shocking. How did Germany do it?

Not with an economic stimulus package. Conventional economic theory – i.e. that espoused by the great British economist John Keynes – dictates that the best solution for a recession is government stimulus. This can take two forms: spending and cutting taxes.

Germany’s record of spending and tax cut-less economic success is hard reconcile with this theory. Indeed, when the economic downturn began, there was a great policy debate about whether to focus on economic stimulus or balancing the budget. Most countries, including the United States, came down on the side of Mr. Keynes. German Prime Minister Angela Merkel, on the other hand, stubbornly held onto the position that balanced budgets were more important. Germany did not pass a substantial stimulus package during the recession. And now Germany’s economy is the strongest in the entire Euro zone.

As the case of Germany shows, the application of Keynesian theory to the real world has had mixed results. Stimulus did not work for Japan in the 1990s. In America today, unemployment remains high for all the jobs the stimulus saved.

Yet Keynesians can also boast of powerful successes. Stimulus in the form of WWII ended the Great Depression. China entirely avoided today’s recession through something like a trillion-dollar stimulus.

And other factors are involved in German success. Before the recession, Germany engaged in large scale restructuring and reform; it is reaping the benefits of that today. There is also its enormous welfare and short-term work program, designed specifically to fight unemployment. This is called Kurzarbeit, and no less than Angela Merkel herself stated that, “It is only thanks to Kurzarbeit that more jobs were not lost.” Finally, German banks have by and large avoided the financial implosion that initiated today’s downturn, so Germany is far away from the recession’s epicenter.

Yet in the end this does not get rid of two facts. Fact 1: Germany didn’t do a stimulus, and German unemployment is below what it was before the recession. Fact 2: The United States did a gigantic stimulus, and American unemployment is still in a terrible state. It is hard to believe in Keynesian economic theory when presented with this, no matter what mitigating factors there are.

–Inoljt, http://mypolitikal.com/