A Lesson in Basic Economics from North Korea

From an entry on the excellent North Korean Economy Watch, a simple (and unintentional) lesson in the merits of "trickle-down economics."

The report in question is by Kim Young Jin based on interviews with North Korean citizens visiting relatives in China. It concerns the relatively recent phenomenon of open markets - called "Jangmadang."

The report goes something like this: first we get the typical communist complaint that the new market economy is making people selfish. This is standard fare (and undoubtedly true); we heard all the same complaits when East Germany collapsed. To this day, most people nostalgic for the old days in the former DDR cite as the number one thing they miss the sense of comraderie and cooperation they used to enjoy in their collectives. Market economies destroy this.

Now here's the key quote:

Despite this, selling itself is not so bad. Compared to the times where we were all poor, at least now since there are some rich people, we can sell goods, and we have come to live more independently.

This is the point about Capitalism that the Socialists always miss. The standard argument you hear from a Socialist is that Capitalism fosters a system where a handful of people own all the wealth and everyone only looks out for themselves.

It's true that Capitalism promotes economic inequality. Because of free competition, it is simply impossible in a Capitalist system that everyone will end up the same. This is because people are not the same. We all have different levels of ability. All men are NOT "created equal," as it were. In order to make people equal, you have to impose equality from above - so the Socialists are quite correct when they say that only Socialism (i.e. heavy government regulation of the economy) can promise economic equality.

Where they are wrong is when they conclude from this that the rich get wealthy at the expense of the others. This is simply not true. They have it completely backward, in fact. All accumulations of wealth are ... well, accumulations of wealth. More people with more money means more opportunities for people who don't have as much to earn some. Rich people, put bluntly, are a Good Thing.

Socialists labor under the delusion that the money the rich have is money that would have existed anyway under Socialism and that the problem is that it isn't distributed properly. In fact, just the opposite is true. The money that rich people accumulate for themselves under Capitalism is, generally speaking, money that would not have existed under a comparable Socialist system, and it isn't "proper distribution" to give money to people for free who haven't earned it and aren't capable of producing it.

In other words - the tradeoff between Capitalism and Socialism is a tradeoff between equality and security on the one hand and wealth and freedom on the other. People may not be "equal" in the strictest sense of the term in a Capitalist society - but the truth is that even the poor are better off than they would be under a Socialist society. Because there is more wealth around, the general standard of living is higher - even if it means that it isn't evenly distributed.

As for the "freedom" part - Socialists will want to say that true freedom is only possible with equality - but this is simply nonsense. As Ronald Reagan once aptly put it:

But beyond that, "the full power of centralized government"--this was the very thing the Founding Fathers sought to minimize. They knew that governments don't control things. A government can't control the economy without controlling people. And they know when a government sets out to do that, it must use force and coercion to achieve its purpose.

People will complain that this is simplistic - but true things usually are. There is no possible counterargument here: you cannot control the economy without controling people. Controlling people means restricting their freedom.

People continue to wonder why Socialist economies generally do poorly and generally turn into police states. This is why. As this North Korean has seen firsthand - when even some people are allowed to accumulate wealth, everyone does better for themselves, even if they are no longer equal.