Fri, Feb 20, 2004 - Page 9 News List

North Korea: Symptom or cure?

Analysts are split as to whether the best approach toward reforming the hermit kingdom is a gradual reform or a swift, sharp shock

By Christopher Lingle

ILLUSTRATION MOUNTAIN PEOPLE

There is no consensus over the best course for the appropriate transition for North Korea from authoritarian socialism to an open society and market economy. Most observers favor either a "Big Bang" or a gradualist approach. Those supporting the Big Bang point to rapid institutional changes (short, sharp shocks) to introduce welfare-maximizing incentives. Gradualists promote step-by-step sequencing. Either way, the bottom line is to establish the institutional framework to support markets and private property rights as the basis for economic growth.

Supporters of gradualism conjure up nightmare scenarios of millions of refugees fleeing from a collapsing economy in North Korea or armed conflict triggered by internal chaos. But it is wrong to imagine reconstruction of communist economies as painless. Costs hidden in the seams of communist systems must be paid, whichever reform strategy is chosen.

So, it is a myth to imagine gradual transformation as a way to avoid these costs that can only be delayed. But gradualism is like a weak dam holding back mounting pressures of a rising flood that will eventually burst. In this sense, China's success at gradualism will be eroded.

And so, China is a poor model for the modernization of North Korea. Moving gradually towards a market economy under ironclad Leninist-fascism with tight controls on economic matters extends misery and delays hope for an open society.

Under the Chinese approach, economic development toward a market economy is seen to be impeded by democracy. North Koreans must not suffer indefinitely under the current regime.

An important observation often missing in discussing transition policies is that many observed economic problems are residual effects of communism and are not caused by markets, per se. As it is, the institutional framework of communism is the source of observed inefficiencies and irrationalities that emerge clearly during the transition process. Thus, the examination of post-communist regimes often confuses symptoms with cures.

As such, the selection and interpretation of actual transition policies may not clearly identify the nature of the systemic transition. Suggestions of a supposed "vicious cycle" of underdevelopment and chaos (shrinking output and rapidly rising prices) arises from choice of policies ignore the pre-conditions determined by communist institutions.

The Big Bang strategy departs from a commitment to real and rapid transformation. Economic as well as political rationales provide support for this approach. The economic effects of rapid and sweeping implementation convey political payoffs. Bunching reforms at the outset can involve a sort of "economy of scale" upon the structural incentive adjustments within both the polity and the economy.

In such situations, unavoidable costs of economic rationalization are offset by some immediate benefits. Implementing a rational pricing system and monetization of the economy is an important step. Hidden, non-price costs of socialism are exchanged for obvious costs that are mistakenly associated with the choice of the transition program. Slower transition will allow recollections and disadvantages of shortages to be more distant.

The low quality and the lack of imports under communism likewise become relics of a forgotten past.

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