North Korea: The command economy system

Ever wondered what is the situation in North Korea and the type of economic system it has? 

North Korea is one of the world’s most centrally planned and least open economies. North Korea follows the command economy system. The basic questions: 1) what gets produced? 2) how is it produced? and 3) for whom it is produced? are all answered by their government. Their government basically owns most of the resources the country has and makes most of the economic decisions.

There are disadvantages of a country having command economy system. One major setback of command economy system is that the country is unable to efficiently allocate their resources because of the limited knowledge by the government. When the government can’t allocate their resources efficiently, there will be either shortage or surplus for a product. This situation is shown in North Korea. According to a website from Thomas Reuters Foundation, they wrote about North Korea facing chronic food shortage. They highlighted one reason for the food shortage to happen is that the government misallocated the country’s resources and instead spent on the military because of their country’s ‘military first’ policy. Due to the food shortage, many people in North Korea have died. This shows that their government is inefficient in allocating their resources.

Furthermore, country with command economy system lacks innovation to create new things/solutions because there is no incentive given to innovate. In North Korea, there is very little innovation because the government will not give incentive to innovate as the government only wants the essentials only. The government would rather spend on their military instead because of the ‘military-first policy’. The lack of innovation makes the standard of living in North Korea to be very low.

Overall, North Korea faces a lot of problems because of their command economy system. The people in North Korea are not living in a good condition. In my opinion, North Korea should not follow the command economy model/system because of the disadvantages command economy system has. They should instead follow their neighbour country, China who has been successful in the world's economy after they moved away from following a purely command economy system. Beginning in the 1970's, China’s economy has both the element of a command and a free market economy system. Although China’s political system is still very centralized, their economy is much more decentralized now (Taylor and Weerapana, 2012, p.15). This has caused China to have a rapid economic growth in recent years. Therefore, North Korea should emulate China and have an economy system which has both elements of command and free market economy system so that the North Koreans will have a better living condition.

Written by

Loo Tungwye (0315235)

Reference:

Taylor, J.B. and Weerapana, A. (2012) Principles of Economics. 7th ed. Canada: South-Western Cengage Learning.

Thomas Reuters Foundation (2013) North Korea hunger. Available from: http://www.trust.org/spotlight/North-Korea-hunger/?tab=briefing [Accessed 8 July 2013].