Sunday, June 27, 2010

North Korean economic history

There is a new book (in Swedish) about North Korea. It is written by Villy Bergström, a respected Swedish Social Democratic economist, and Benjamin Silberstein. Silberstein is a young guy who is obsessed with North Korea, has read everything about the country, and probably known as much about the hermit Kingdom than anyone in Sweden.

The book is largely based on two trips Bergström took to North Korea, one in 1971 (at the height of North Koreas success), and one in 2002 (when the country was near starvation). The diaries from the trips are quite fascinating; I could not put the book down once I started reading it. The cult around Kil Il Sung is unbelievable.

Some random observations on the book:

• Apparently North Korea in 1971 had a reasonable standard of living. In particular we can believe this observation through the fog of propaganda as Bergström compares his visit in 1971 with his visit in 2002. One reason was massive aid from the Soviet Union. Villy Bergström is a skilled economists, and tries to estimate the standard of living indirectly (the official figures are of course pure lies), for example through observing electricity production, how healthy the population looks and how they live and are dressed. In 1971 people seem well fed, but in 2002 some beg for food.

According to Maddison (who sadly passed away recently), Bergström is right. In the early 1970s North Korea was about as rich as South Korea, (about 2500$ per capita in 1990 dollars). The subsequent development is known to everyone.

Here is per capita income (as best estimated) in North and South Korea, between 1950-2008.


• We can also speculate that centrally planned economies do better the first few decades. When the revolutionary fervor is still high the incentive problems are mitigated. During the initial phase the country can grow through brute capital accumulation (forced savings) and by pushing everyone into the labor force. When they target a few heavy industries, such as steel production and military hardware, the information problem is less severe. But after a while the socialist economy inevitably runs out of steam, and starts to stagnate. They have never been able to solve the information problem to produce decent consumer goods.

• Even though Villy Bergström was a leftist, he showed a lot of integrity in his 1971 diaries, as he questioned the cult around Kim Il Sung and the lack of democracy. Apparently the Swedish left was very upset with him when he originally published the diaries.

• Bergström in 1971 gets to meet some North Korean economists. He asks if they study Keynes. “Of course” They reply. “The Kim Il Sung version!” The Korean economist also study Adam Smith and Ricardo, combined with critique of these classical economists written by Kim Il Sung…

• Villy Bergström writes beautifully. The skill to write well in Swedish is lost in my generation of economist, who only work in English. Since English is our second or third (in my case fourth) language, there is a natural limit for our ability to express ourselves. This makes it less likely for a broader audience of Swedes to read work done by Swedish economists. Quite sad really.

• The book is weakest in its analysis of foreign policy. While Villy Bergström is immune to North Korean economic propaganda, he completely accepts their lies about foreign affairs and the war (perhaps because of the Vietnam War atmosphere). He thus accepts the premise that the Korean War was a war of aggression by the U.S, “American imperialism” against “little North Korea”.

First of all, there is no serious historical dispute that North Korea attacked South Korea (supported by Stalin and Mao), not vice versa. The U.S would never have allowed South Korea to attack North Korea (and South Korea at any case had a very weak military). Second, the Korean War was largely between the U.S and allies and China, not betweeen the U.S and "little North Korea".

Bergström even believes absurd stories the North Koreans tell him about how Americans G.Is would come to North Korean villages, systematically round up hundreds of men, women and children, put them in a basement, pour gasoline on them and lit them on fire to burn to death. Sure, if North Korea propaganda say so, it must be true, who cares about historical evidence? Also, not a word is mentioned about the people who actually committed atrocities, the North Koreans (who murdered tens of thousands of civilians) and the South Koreans. Only America, the generally innocent party, is hated and lied about.

I like Swedes, but I will never accept their rancorous anti-Americanism.

• The chapters written contemporaneously are much more balanced in the historical foreign policy describtion.

• In 2002 about 20% of the North Korean population was members of the communist party. In George Orwell’s “1984”, 15% of the population is members of The Party (of which 2% are members of The Inner Party). Orwell was nothing if not insightful.

• Typical of Social Democratic ideology, Villy Bergström attributes everything to policy. He for example favorably notes that the North Korean school children have more advanced mathematic training than Swedes. Sure, there is absolutely no other explanation other than education policy why east Asians would be better at math than Swedes. Never mind that we notice the exact pattern in Japan, South Korea, China, Taiwan, Singapore, Hong Kong and among South Asian immigrants in the U.S (and Sweden...), despite different policies.

A richer theory of the world would account for, say, culture, and not automatically assume every social pattern is due to political decisions.

• The book is hints at how crazy the ideological atmosphere was in 1971. As I wrote, Villy Bergström was a brilliant economist, and considered a centrist Social Democrat. Yet he writes in one point, favorably comparing North Korea with other nations:

“[Classical] liberalism and capitalism in South Korea has led to fascism and an upper class in ruthless luxury, with a destitute, hopelessly stagnant proletariat. This has happened in South Korea, Taiwan, South Vietnam, Pakistan, South America and southern Italy”.


Pakistan and South America in the 1970s were hardly free market systems. And are South Korea, Taiwan (and more recently Vietnam) really examples of economic ‘stagnation’?!?

And why focus only on one region in southern Italy, when we want to judge policy? Doesn’t all Italy have roughly the same policy? If we observe that most of Italy does well, and a couple of corrupt, low trust, low cooperation regions in the south do poorly, is the most reasonable explanation to blame capitalism?

According to Maddison, between 1946 and 1971 Italy had an average per capita growth of 5.6%. Would you call that stagnation? Bergström thinks the standard of living in southern Italy was the same or lower than North Korea, even though according to Maddison Italy at the time had 4 times higher per capita GDP (of course the south is poorer, but it is not really enlightening to compare the richest part of North Korea with the poorest part of Italy, and even there Italy wins with a big margin).

• The authors are impressed that North Korea recovered from the war by 1971. But it seems to me countries recover from war faster than people think. Conditional on institutions and human capital, physical capital is easily rebuilt.

• In 1971 the Swedish Social Democrats had brilliant economists like Villy Bergström, ideologically committed to their cause. Today people as smart and rational as Bergström rarely become Social Democrats. Much of the he talent in the working class has already moved upwards to becoming middle class, and no longer identifies with the workers movement. The academics they have are not top-economists, but cultural Marxists (feminists, multi-culturalism cooks, postmodernism etc). The decline in talent is perhaps the biggest problem facing the Social Democratic party.

• The anecdotes about Kim Il Sung worship are worth buying the book alone. It makes a great companion to “1984”, comparing Orwell’s fiction/fact with North Koreas bizarre mix of fiction/fact.

9 comments:

  1. Tino,

    Reflections on Reflections?

    Have you seen "A Nation of Racist Dwarfs" (http://www.slate.com/id/2243112) by Hitchens or "The Cleanest Race: How North Koreans See Themselves and Why It Matters" by B.R. Myers?

    Imagine if Sweden was dominated by a comparably intense racist regime?

    You comment that

    "But it seems to me countries recover from war faster than people think."

    Very true. Check the GDP rebounds in Japan and West Germany after WWII. An an anecdote, I once read that Rotterdam was so severely damaged in WWII, that it was expected to take 100 years to rebuild. Rebuilding was complete in 7 years.

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  2. Thank you Tino, I really enjoyed that. Paul

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  3. I read Hitchen’s article, very interesting. It seems these days it’s not enough to starve your population; a regime is only truly morally heinous if they can be accused of racism.

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  4. What happened in NK at the point of inflection when SK economy kept growing and NK economy suddenly flatlined.

    Either the estimation preflatlining is off and there was slower growth up until the flat line period or there must be some cause at work which just killed growth and killed it within a year.

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  5. Tino,

    "I read Hitchen’s article, very interesting. It seems these days it’s not enough to starve your population; a regime is only truly morally heinous if they can be accused of racism."

    That's a plausible interpretation, indeed it may be the correct one. However, perhaps this isn't Hitchen's view but what he thinks his target audience will appreciate.

    Either way a useful observation.

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  6. We can also speculate that centrally planned economies do better the first few decades. When the revolutionary fervor is still high the incentive problems are mitigated. During the initial phase the country can grow through brute capital accumulation (forced savings) and by pushing everyone into the labor force. When they target a few heavy industries, such as steel production and military hardware, the information problem is less severe. But after a while the socialist economy inevitably runs out of steam, and starts to stagnate. They have never been able to solve the information problem to produce decent consumer goods.
    A simpler explanation: the pathologies of public provision are dynamic and so get worse over time.

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  7. I think the line is straight untill the fall of the Soviet Union because it is so difficult to estimate North Korean GDP.

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  8. At least the author didn't hide his 1971 diaries, which is what most leftist intellectuals do.

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  9. The North should by now be freeing it's people of the isolation they had been under for the past 60 over years. I don't understand why they still want to be so different from the rest of the world. What do the president gain from this selfish, inconsiderate acts? The people there had been held captive like prisoners. They are acting like as if the 1st and 2nd world wars are still in existence today.

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