Wednesday, January 5, 2011

Juche and International Trade

The Juche Tower in the background, overlooking self-reliant North Koreans.
The North Korean doctrine of Juche is, at its simplest, a call for self-reliance. It is used interchangeably in the DPRK as a rallying cry for workers, a justification for military actions, and an explanation of economic policies. Regardless of how it is bandied about, Juche is, at its core, the foundation of North Korean isolation. It is also the cornerstone of North Korean problems.

The history of human progress marked by the interaction and co-mingling of different cultures and peoples. New ideas, technologies, and philosophies can be shared between people with different perspectives and the resulting offspring of ideas pushes the human race forward. Humans are a social organism. We have no claws to arm ourselves, no thick hides to protect ourselves. We have only our brains and each other. And these powerful brains, if not challenged by new ideas and perspectives, will eventually rot away in their own assumptions.

International Trade:
Which is all a little heady for an article that intends to be about international trade theory and how it relates to North Korea. Daily NK has an article reporting that trade between North Korea and China is operating on a barter system instead of a monetary basis. In so explicitly recognizing its own short-comings, could the North Korean leadership be tacitly admitting the flaws in the Juche idea, at least when applied to trade?

That's a lot of agriculture.
An economist can clearly describe the benefits of bilateral trade between countries with differing comparative advantages. Tweaking the textbook example slightly, let's assume China is currently producing 500 units of food and 200 units of steel. China is a rapidly developing country with ample fertile farmland and a shift to urbanization. It is not producing enough steel to satiate its growth but can't shift resources from farming to steel production without sacrificing food. Meanwhile North Korea has terrible farmland but rich natural resources and an able workforce with which to extract these resources. North Korea's hard economic times mean it does not need all the steel it can produce but is in dire need of food. Let's assume North Korea is currently producing 50 units of food and 150 units of steel. Without trade, both countries consume 100% of what they produce.

Initial Situation: No Trade

China - NK: No Trade
Country Food Steel
China 500 200
N. Korea 50 150
TOTAL 550 350

Thanks to China's fertile belt, ample soil, and strong farming population, they have a comparative advantage in the production of food. Reducing their steel production by 100 units would yield a 300 unit increase in food. (Of course, we're assuming that all the shuttered steel resources and workers would immediately and efficiently starting planting crops, which is a bit of a stretch.) Meanwhile, North Korea enjoys a comparative advantage in steel production in which shutting down their abysmal food production entirely would result in a 100 unit increase in steel. (Ironically, the immediate shift in resources from farming to steel production seems somehow more realistic in the centrally-controlled North Korean economy than in the more free-market China.)

Situation 2: Production Advantages from Trade

China - NK: Trade (Production)
Country Food Steel
China 800 100
N. Korea 0 250
TOTAL 800 350

China and North Korea have now increased their production of food by 250 units net without losing any steel. Taken together, their aggregate production of basic goods has increased. Assuming they have a strong trading relationship, both countries can benefit from this situation. Remember that China needs more steel for its rapid urbanization while North Korea needs more food to survive the winter.

Situation 3: Consumption Advantages from Trade

China - NK: Trade (Consumption)
Country Food Steel
China 500 300
N. Korea 300 50
TOTAL 800 350

Let's say China trades 300 units of food for 200 units of steel with North Korea. China has maintained its total food consumption of 500 units but increased its steel consumption to 300 units and is now better off than before. Meanwhile North Korea has lost some of its steel production but doesn't need that much anyway. In exchange, North Korea received an additional 250 units of much needed food. Both countries are now better off thanks to trade agreements that allow them to leverage their comparative advantages in production to achieve more optimal consumption.

This is an extremely simple representation of the benefits of trade that can fall prey to any number of variables.  However, it is an example that seems to be happening at this moment between China and North Korea. The universality and simplicity of these economic models are being experienced by North Korea right now. This begs the question, with the proof laid out in front of them in real economic amounts, how long can Juche ideology continue to determine economic policy in North Korea?

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