From a Disaster to a Miracle: Suggestions for North Korea

Jisoon Lee ; Byungwook Lee

Jisoon Lee, Professor Emeritus, Department of Economics, Seoul National University, Seoul 08826, South Korea, Tel: +82-2-880-6383 jisoonlee@gmail.com
Byungwook Lee, Corresponding author, Research Assistant Professor, Institute of Economic Research, Seoul National University, Seoul 08826, South Korea, Tel: +82-2-880-6395 econ2010@snu.ac.kr

JEL Classification: O10, P50

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

Acknowledgments

We are grateful to Professors Lucas, Stokey, and Hirano for their valuable comments on an earlier version. We also thank the referees for their comments, which were instrumental in revising the paper.

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