15698_6.11_000007748517XSmall

Grading North Korea

Jun 11, 2010 • Developing Economies, Thinking Economically • 119 Views    No Comments

Just like teachers, the writers of the Index of Economic Freedom give grades. Instead of students, though, countries receive their grades after being “tested” on such economic issues as starting a business, tax policy, and private property. The highest grades are earned by the countries that give citizens the most freedom to produce and distribute goods and services without government interference.

For the 2010 Index of Economic Freedom, Hong Kong, with a grade of 89.7 was first. Ranked last at #179, North Korea’s score was “1″. The United States was #8 with an average of 78.

A recent NY Times article illustrated why North Korea fared so poorly. Demonstrating a citizen’s lack of monetary freedom, the North Korean government devalued its currency last November. Suddenly, a family’s life savings of $1560 became $30 (4,050 North Korean Won). In the business sector, with all factories run by the state, production is stagnant and workers, sometimes, are not paid. In agriculture, (as with the former Soviet Union) individual plots of land are far more productive than large state-owned collectives. The results? The North Korean economic system has produced massive poverty and inadequate food.  

The Economic Lesson

Countries produce and distribute goods and services through three basic economic systems: tradition, command, the market system. North Korea’s centrally commanded economic system is government controlled. While the United States primarily has a market system in which people are free to function economically, still there is some command whenever government policies affect market activity.  

 

 

Related Posts

« »