Systemic reforms should take priority over resource development in North Korea

There have been recent claims that the advantageous geopolitical location and abundant natural resources of North Korea offer favorable conditions for economic development.

However, the advantage of geopolitical location is not the only factor to consider in a country’s economy.

For example, Mexico borders the United States and by extension would therefore be in an advantageous geographical position. However, the wealth and technology of the US do not flow into Mexico as much as one might expect.

The same is true for North Korea. Countries with stronger economies such as China, Russia, Japan, and South Korea are its neighbors, but North Korea remains one of the world’s poorest nations.

Meanwhile, Australia’s geopolitical position is undoubtedly disadvantageous, yet the country thrives. And the “factor endowment theory” argues that a country abundant in minerals and natural resources is in an economically advantageous position compared to a country that does not have such means.

According to this theory, we might reach the conclusion that South Korea, where there are no significant natural resources and the geographical location is unfavorable because it is functionally an island state, should be much less prosperous than North Korea – which has abundant mineral reserves and a favorable geopolitical position. Yet, the reality is different.

Meanwhile, Hong Kong is littered with rock formations and surrounded by sea. Moreover, it does not even have rich fishing grounds. Even so, Hong Kong has been, and still is, better off than mainland China, which has plentiful resources.

This also holds true for Israel, a country located on the Arabian Peninsula. The oil that flows freely in the neighboring countries is nowhere to be found in Israel. What is worse is that the land is barren. Nevertheless, Israel remains the wealthiest country in the region.

Let us think together for a moment. Which country do you think would be wealthier economically? A country that has abundant natural resources such as lead, zinc, and coal but implements a planned economy under a rigid economic structure? Or a country that lacks such resources but has a flexible political structure and market economy, and is filled with educated individuals that have intelligent minds and brilliant new ideas?

North Korea and most regions of Africa are rich in various metals. However, the names of these countries are often synonymous with poverty.

The estimated distribution of natural and mineral resources in North Korea is outlined in the following table.

Source: Analysis from the “Korean Central Yearbook” (Pyongyang: Korean Central News Agency)

According to Daily NK sourcse in Ryanggang Province, the region’s top zinc mine has barely met 50 percent of its production quota in 2017. The annual production quota for this mine was set at 2,786,732 tons. However, by the end of 2017, the production volume was 1,567,193 tons. Such outcomes are common in North Korea, and there are many mines that cannot produce yields at all due to shortages of electricity, labor, and equipment, etc.

North Korea’s woes are due to the fact that those in power sell resources for personal gain and refuse to innovate, learn, and make investments for the benefit of the nation and the happiness of the people. What is most precious to them is power, a magic wand that guarantees personal pleasure and a life of luxury.

This was the exact type of painful mistake that occurred in the heartbreaking modern history of the Korean Peninsula. At the beginning of the 19th century, when extravagant Joseon Dynasty-style pottery was still being produced, the Kingdom of Joseon had gained enough wealth through the Industrial Revolution to defeat Japan, which had introduced capitalism, and also had a somewhat advantageous geopolitical location.

However, the conservative bureaucrats of the Joseon Dynasty at the time were fearful of the ideas of capital development and free markets. As a result, the Korean Peninsula was eventually subjected to a miserable 40 years of colonization by Japan.

The modern-day bureaucrats of the Workers’ Party in North Korea have been unable to move away from the archaic idea that they can achieve prosperity with their “self-rehabilitation” spirit, abundant resources, and favorable geographical location, and they continue to make petty excuses for their failures. They continue to repeat that, “If it weren’t for the imperialists who forced us into isolation and pressure, we would be thriving.”

But no nation on Earth likes the idea of North Koreans starving. The spirit of international cooperation displayed during North Korea’s economic difficulties is proof. The North Korean government may have turned a blind eye to mass deaths from starvation, but the conscience of the world did not.

The most critical needs for North Korea are the introduction of economic wisdom, a flexible economic structure, and pro-market policies. The history of market economies demonstrates that success favors the hungry, the cold, and the quick. Looking at North Korea, we generally measure wealth by geopolitical advantage, cheap labor, precious metals, and mineral resources. However, the source and value of wealth should be defined by the people’s standard of living.

An abundance of mineral resources does not always mean more food for the people. Wealth should be measured from the perspectives of the citizens of the country. Policies that allow only leaders and a small number of merchants to accumulate inordinate amounts of wealth are of no help to the people. The actual driving force behind economic prosperity is the motivation, inventiveness, and innovation that comes from the people under a free market. Adam Smith, regarded as the father of modern economics, said, “By pursuing his (the individual’s) own interests, he frequently promotes that of the society more effectually than when he really intends to promote it.”

We must also accept the criticism of Ludwig von Mises, who noted in his 1920 article “Economic Calculation in the Socialist Commonwealth” that no government can calculate all things necessary to achieve an efficient economy. Granting privileges such as monopoly rights and protective policies to a select elite will result in paralysis of the economy or chaos in the political system.

*The author of this piece holds a PhD from Kyungnam University and is originally from North Korea.