Monday, June 21, 2010

The Road To Serfdom In North Korea

Max Borders at the Washington Examiner enumerates the "vital concepts" from Friedrich Hayek's legacy "The Road To Serfdom" which most recently hit the top spot in Amazon (due to Glenn Beck's promotion).

From Mr. Borders:

Spontaneous Order
- Complex society and open markets cannot be planned. Period. Human beings just ain’t smart enough. Instead, the extended order emerges - unplanned and undesigned - due to humans interacting in complex ways according to simple rules. These rules do not specify certain social ends, but rather bring order to the diverse ends of billions of people pursuing happiness.

The Knowledge Problem - It is impossible for a single mind or group of minds to predict, plan or control the innumerable inputs, outputs and actions in a market. Instead, knowledge is dispersed among billions of people. Entrepreneurial opportunities are seized by individuals with particular, local insights, and/or expertise in some specific area the bureaucrate cannot possess.

Price System - Entrepreneurs also respond to information flows communicated through the price system. Bureaucratic control of an economy is impossible due to the loss of information communicated through prices, and due to the inability of one to gain the right kinds of information at the right times and right places. “Prices are signals, not marching orders.”

Competition as a Discovery Procedure - The circumstances of time and place are critical to the success of competitive market actors. The idea that we can aggregate economic data - like macroeconomic data - in order to say something meaningful about how things should to be coordinated is, well, a bad idea. Competition among market actors looking for opportunities to offer a previously unnoticed value to consumers is basically crowd-sourcing value creation. Innovators compete, you win."

And a fantastic example of how a society operates without or with little of these elements is North Korea.

This from the Washington Post, (all bold highlights mine)

Bowing to reality, the North Korean government has lifted all restrictions on private markets -- a last-resort option for a leadership desperate to prevent its people from starving.

In recent weeks, according to North Korea observers and defector groups with sources in the country, Kim Jong Il's government admitted its inability to solve the current food shortage and encouraged its people to rely on private markets for the purchase of goods. Though the policy reversal will not alter daily patterns -- North Koreans have depended on such markets for more than 15 years -- the latest order from Pyongyang abandons a key pillar of a central, planned economy.

With November's currency revaluation, Kim wiped out his citizens' personal savings and struck a blow against the private food distribution system sustaining his country. The latest policy switch, though, stands as an acknowledgment that the currency move was a failure and that only capitalist-style trading can prevent widespread famine.

"The North Korean government has tried all possible ways [for a planned economy] and failed, and it now has to resort to the last option," said Koh Yu-hwan, professor of North Korean studies at Dongguk University in Seoul. "There's been lots of back and forth in what the government has been willing to tolerate, and I cannot rule out the possibility of them trying to bring back restrictions on the markets. But it is hard for the government to reverse it now."

Because North Korea operates in secrecy and isolation, outside observers rely on informants and accounts from defectors. In this case, experts agree that the food shortage is dire. Several analysts who monitor and travel to North Korea said that in recent weeks, Pyongyang has abandoned almost all its rules about who can spend money and when. That would seem to indicate that Kim -- who once equated free-market trading with "egotism" and a collapse of social order -- now wants to rehabilitate the markets damaged in November...

``In the mid-1990s, amid a total collapse of the central planned economy, somewhere between 3 and 5 percent of the population -- perhaps 1 million people -- died of starvation. Meanwhile, North Koreans increasingly turned to small markets for trading and buying supplies."

Bottom line: The Road To Serfdom is about shortages, death and poverty. Even the North Korean leadership now recognizes that they can't subvert economic laws.

(hat tip
Greg Ransom)


No comments: