Tuesday, January 28

John Pomfret cites "an economist at the government-funded Korea Institute for National Unification in Seoul" who says that the failure of North Korea's new economic policy--an attempt to promote economic activity and improve living standards--is what has led to the current crisis, so the US is a scapegoat. Chinese sources close to North Korea's government argue Kim Jong Il has also manufactured the crisis because he fears without security guarantees and access to international lending institutions, his economy may collapse.

But why did the reforms fail?

Chinese experts noted that when China undertook its first major economic reform in 1979, it increased the price of grain by only 25 percent. Second, they said, when China began this process, 80 percent of its population lived in rural areas, so there was a huge pool of potential beneficiaries from the liberalized agricultural policies. But North Korea is highly industrialized: Two-thirds of its people live in cities.
Or, says Marcus Noland, at the Institute for International Economics in Washington:
the changes were either a desperate attempt to jump-start a half-dead economy or a backhanded attack against North Korea's nascent private economy. Increasing prices would reduce the value of currency held outside the state system, breaking the back of private entrepreneurs. But then again, he said in a recent paper, "the possibility that economic decisions are being made by people who do not grasp the implications of their actions should not be dismissed too hastily."
So the current Korean problem is not the US's fault, according to a South Korean expert, a Chinese expert, and an American (he's a free-trader, so I guess statists won't believe anything he has to say).

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