From a Disaster to a Miracle: Suggestions for North Korea
Seoul Journal of Economics, Vol. 29, No. 4, p. 439-456, 2016
18 Pages Posted: 3 Dec 2016
Date Written: November 30, 2016
Abstract
Utilizing a model of income and population growth specialized to a dual-class (master-slave) economy, we show that the lack of ownership for the majority of people may have been the main culprit why North Korea has remained stagnant in the past. The slave-workers, for whom ownership (and freedom) is denied, end up with a subsistent level of income. However, the masters, who own not only property but also slaves, end up with a big income.
When the slave-workers are liberated to become property owning free people, their income will increase far above the subsistent level. However, the former master-owners’ income will shrink sharply. Knowing this fact, masters have strong incentives to maintain the slavery and slaves have equally strong incentives to overturn it.
If a binding commitment can be made, under which the masters free the slaves and the freed slaves give back portions of their increased income to their former masters, a smooth transition to a free economy can be engineered.
Keywords: North Korean Economy, Ownership, Escape from Malthusian Trap
JEL Classification: O10, P50
Suggested Citation: Suggested Citation