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

The strategy of the gradualists is oriented towards tinkering, such that deep changes in institutions are put off for an uncertain and unspecified future. One major problem of this piecemeal approach is that the source of distortions is obscured. As suggested above, there is a tendency to confuse symptoms of the hangover with the prescription for the cure.

A common argument set forward by gradualists is that conditioning under socialism leaves afflicted populations ill-prepared to confront the harsh realities of capitalism. A counterpoint to these claims is that Chinese peasants, despite their complete lack of experience with the market, adjusted with great alacrity to agricultural reforms begun in 1979.

Even if the theoretical arguments are inconclusive, the actual results of transition provide interesting results. Beginning with an evaluation by region, experiences in Europe provide evidence in support of the "accelerationist" approach. Among Big Bang economies, Estonia and Poland shot out of the starting gate with high economic growth. The Czech Republic was among the economic growth leaders with low unemployment and Hungary attracted massive amounts of foreign capital.

In the Asia-Pacific region, New Zealand had success with Big Bang policies by shaking off the interventionist stranglehold imposed by successive socialist governments.

Among countries relying upon gradualism, Russia's economy remains a pre-modern construct of a Soviet-style system were murky private property rights and political corruption run rampant. Latvia and Lithuania soon found themselves in the grip of chronic "stagflation" common to countries that follow gradualist policies. While afflicted by civil war and ethnic conflict, Georgia and Yugoslavia are sad cases of gradualism and the Ukraine and Romania are also economic laggards.

Proponents of gradualist reform seem unable to understand that high rates of unemployment and sagging production are elements of the residual failures of state socialism. While rapid transition forces "hidden unemployment" into the open, the gradualist approach continues the charade.

Whereas most European transitions began with democratization, many Asian reformers operate authoritarian regimes. Democracies allow citizens to seek out the means for improving their own conditions. The democratization of socialist economies requires shedding the practice of the state hoarding labor.

Success in transition in North Korea should involve rapid withdrawal of the "Communist" state sector from the economy, through privatization and restructuring. Reluctance to reduce state intervention will worsen future growth prospects by interfering with emergent private entrepreneurs that are the engine of economic growth while misusing the necessary fuel of private savings.

Christopher Lingle is a professor of economics at Universidad Francisco Marroque in Guatemala.

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