Opinion and Economic Analysis

Hicks: North Korea is epitome of an economic system

January 4, 2014

When I speak with people about economics, we inevitably use the phrase “economic system.” We of course are surrounded by systems such as the school system, the wireless telephone system and all sorts of things devised, organized and implemented by man.

The problem is that the economy is not a system; it is a series of markets that by their very nature cannot be organized. This observation infuriates many on both the left and right who refuse to surrender hopes that grand pieces of the economy can be crafted to suit their goals.

Like almost all economists, I dismiss the “systems control” approach to the economy as fantasy, but it might be better to make an intellectual voyage to the places treating the economy as a true system. I advise going right to the contemporary bastion of economic systems: the People’s Republic of Korea.

North Korea is the most centrally planned state of modern times. Others include Cuba, the former Soviet bloc countries and even wide swatches of China.

South Korean men grow more than 3 inches taller than their northern kinsmen, due to the failure of “the system” to deliver food effectively. The comparison between economic system and market on the Korean Peninsula offers real insight into the differences the approaches make in the lives of citizens.

Some might argue that North Korea is an ill-run anomaly that poorly represents the benefits of an economic system. That is mistaken. North Korean central planners are the best in the world. They have been at it since the 1940s, and failure is punished rather harshly.

The simple truth about the effectiveness of managing an economic system has important implications for American public policy.

Take, for example, the Affordable Care Act. The apparent failure of the website wasn’t actually a failure. It did exactly what a dozen government agencies wanted it to do. Sadly, only one of them worried much about its ability to connect consumers to insurers.

That is only the beginning, as nearly all facets other than marketing failed. A complete overhaul of the law is in the cards.

Still, right now, some central committee of the North Korean government is chuckling at us. They knew the ACA would fail because it is too complex and we are too accustomed to personal liberty to submit to its demands.

So, if we are going to make the economic system of the ACA functional, we are going to have to ditch a good many personal liberties, and we’ll need the help of some smart North Korean planners.•

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Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at cber@bsu.org.

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