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

See all articles by Jisoon Lee

Jisoon Lee

Seoul National University

Byung Wook Lee

Seoul National University - School of Economics

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

Lee, Jisoon and Lee, Byung Wook, From a Disaster to a Miracle: Suggestions for North Korea (November 30, 2016). Seoul Journal of Economics, Vol. 29, No. 4, p. 439-456, 2016, Available at SSRN: https://ssrn.com/abstract=2878319

Jisoon Lee (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Byung Wook Lee

Seoul National University - School of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742
Korea

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