Chart of the Day: Kim Jong il’s Heritage: North Korea’s Earth Hour from Poverty

North Korea has been one country that has practiced what environmentalists celebrate as “Earth Hour”. I have earlier posted this.

Seen from a satellite photo, while South Korea has been prominently lighted at night (lower portion), North Korea stands in the dark (upper portion) where the only place lit is that of the palace of Mr. Kim. [yeah equality]

But there is a fundamental difference.

The North Korean exercise has not been designed to fulfill environmental preservation goals but has been driven by dire poverty…

This can be seen by the above chart from Reason and Washington Post

Writes the Washington Post

During the early 1970s, North Korea’s economy stagnated, with GDP per capita flatlining until Kim Il Sung’s death. Then, in 1994, after Kim Jong Il took over, the economy started shrinking noticeably, per capita incomes fell, and the country became dependent on emergency U.N. food aid to stave off famines that had already killed as many as 3 million people. North Korea became, as Eberstadt puts it, “the world’s first and only industrialized economy to lose the capacity to feed itself.” (That said, there’s evidence that North Koreaw as growing weakly in the last few years of Kim Jong Il’s rule).

At the moment, North Korea’s per capita income is less than 5 percent of the South’s. As the Atlantic Council’s Peter Beck puts it, “Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy.”

Overall I see several lessons

The thrust of most environmental politics has been directed at atavistic policies, or attempts to retrogress world conditions similar to the medieval times or to one of absolute poverty (ala North Korea).

Second, there is no exemplary way to achieve atavism than to adapt the paragon of statism/socialism/communism—Kim Jong il version. In North Korea almost everyone is equally poor and equally without lights, except the political leaders.

Third, the concrete evidence of attaining economic prosperity can be seen in the diametric paths of governance undertaken by two Koreas: South Korea’s capitalism or market economy vis-à-vis Kim Jong il’s brand of statism/socialism/communism.

Yet bizarrely, many fantasize about having successful economic development by the taking on the latter’s path.

Video: Propoaganda Amidst Kim Jong il's Death

In watching the video below, you would wonder if all the mawkishness shown are for real or are representative of hired/professional mourners (moirologists) meant for propaganda. Maybe both. (hat tip: Tom Palmer)

Yet the above only exhibits North Korea's cult like political management or political zealotry. Importantly, the lobotomization of a society.

And as I have been saying, it is likely that we are already witnessing the transitional downfall of North Korea's withering communist regime in process.

And unless the successor (yet to be named) would be insane enough to gamble their privileges away, starving North Korea, who has been also poorly equip or armed, can't afford a war and won't likely take the military conflict route, but will continue with foreign policy based on brinkmanship to gain aid (for the benefit of the leaders).

Nevertheless, I do hope the average North Koreans will awaken from their hypnotic trance soon.

Will A War Break Out In The Korean Peninsula?

``The market economy involves peaceful cooperation and bursts asunder when people, instead of exchanging commodities and services, are fighting one another.”- Ludwig von Mises

I doubt so.

Not unless the North Korean political leadership have gone bonkers and take upon a suicide mission that would put to risk their political privileges.

Yet the Kim Jong-il regime is a prime example of what mercantilism and protectionism leads to—absolute despotism. A centrally planned economy led by a tyrant, who sees the nation as his personal fiefdom.

Such totalitarian state has engendered massive poverty represented by rampant shortages of many goods and services which includes the rationing of electricity that has personified what “earth hour” truly means[1].

And in spite of the North Korea’s vaunted war machinery, wherein much of the misallocation of the nation’s resources had been directed, the North Korean army is in a state of dilapidation and obsolescence: they seem ostensibly good for parades and for taunting, but not for real combat.

A clue from CNN[2],

The main weakness of the North's military is a chronic shortage of computers, modern command and control and electronic warfare assets -- in other words, much of what makes up the 21st-century battlefield. At the same time, South Korea has used its economic strength to modernize its armed forces: for example, building three $1 billion Aegis-class destroyers to counter ballistic missiles...

To compensate for obsolescence, the North deploys boots on the ground in great numbers. Jane's estimates that its standing army numbers just over 1 million personnel, with reserves estimated at more than 7 million. But North Korean soldiers are poorly fed, according to analysts and reports from defectors, and rarely train due to scarcity of fuel and ammunition.

Thus, based on socio- political-economic and military calculations, the North Koreans are unlikely to pursue a path of war, because the odds are greatly against them. And their political leadership is aware of this.

The NoKors can only use political brinkmanship as leverage to extract economic concessions from other countries for the benefit of the ruling political class. This essentially is the geopolitics of blackmail[3]—the desire to extend the politics of plunder channelled through the taxpayers of other nations.

Yet there may be other possible reasons for such showcase of aggression.

This could be a diversion from internal troubles.

Recently, to arrest growth of the underground ‘capitalist’ economy, the Kim regime massively devalued her currency that reportedly triggered widespread political unrest[4]. And one way to rally public support or ease political discontent could be to divert the public’s attention via a strawman: conjuring a phony threat and an enemy as seen through the military provocation of her South Korean neighbour in the name of defence.

Another related factor could be the succession of Kim Jong-il’s son, according to the English Chosun[5],

The North's uranium enrichment program and provocations are part of efforts to puff up the image of North Korean leader Kim Jong-il's son Jong-un in line with the Songun or military-first doctrine.

Other reasons reportedly included a supposed power struggle among factions in the ruling class or an attempt by the Kim regime to intervene in South Korean politics so as to “gain control over inter-Korean relations”[6].

Vetting On China’s Role

So aside from derangement, the only likely way for Kim Jong-il’s North Korea to pursue an all out war would be under the consent or the prodding of its patron and ally China.

Much have been said about the strategic position of the Korean peninsula as historical staging point for expansionism and for North Korea’s role as a buffer against a ‘policy of encirclement’ against perceived enemies of the West. But such an argument misleads when applied today.

While it is true that China and the North Korea has shared political experiences such as in the Korean War[7], where the two nations (along with USSR) engaged a common enemy—the Allied forces led by the US, China then was led by communist Mao Zedong’s People’s Liberation Army.

Today, China remains an avowed ‘communist’ but dons the ‘capitalist’ clothes. This means that the governing political economic framework which drives geopolitical or foreign policymaking considerations are far distinct than during the olden days.

While China may lend vocal support for her ally, she would be less interested to promote geopolitical antagonism that may undermine her interests.

One must be reminded that the success of China has been in the opening of her economy to the world. And this arises partly out of the politics carved from China’s idiosyncratic geographic landscape, which according to Stratfor’s George Friedman[8],

China is an island. We do not mean it is surrounded by water; we mean China is surrounded by territory that is difficult to traverse. Therefore, China is hard to invade; given its size and population, it is even harder to occupy. This also makes it hard for the Chinese to invade others; not utterly impossible, but quite difficult. Containing a fifth of the world’s population, China can wall itself off from the world, as it did prior to the United Kingdom’s forced entry in the 19th century and under Mao Zedong. All of this means China is a great power, but one that has to behave very differently than other great powers.

In other words, the geographic limitations of China have led to the experiment with communist isolationism which apparently ended as a grand failure, and thus, the epiphany by the present leadership to adapt an alternative option—globalization.

This also only implies that it isn’t in China interest to see world trade stymied by militant or belligerent foreign policies. Hence, in my view, the chances that China would support North Korea’s tantrums would seem small.

Bottom line: In my view, Korea’s stock markets could be accurately reflecting on the assessment that a broad based deterioration in the geopolitical conditions in the Korean Peninsula could be contained.

Said differently, though we can’t rule out fatuousness from hubris, the odds are against this.

Tenuous Relationship Between Wars And Market Collapses

Yet wars don’t necessarily lead to collapsing markets.

Figure 2: S & P 500 and The Invasion of Iraq

The Invasion of Iraq in March 20 to May 1, 2003 didn’t cause a downside collapse, instead the Gulf War of the new millennium coincided with inflating markets (red circle Figure 2). One might be tempted to link the war as having a positive effect, but this would be misguided, because it was the US Federal Reserve’s low interest rate policies that fuelled the inflation of the marketplace.

Nevertheless, past performance may have not lead to the same outcome.

Should a war occur, such event risk would depend on the participants involved and their degree of involvement. And given the above circumstance, and the deepening world acceptance of globalization, it is less likely that a war at the Korean Peninsula would escalate into a world war.

So for bears selling the war as an excuse to allege for, or predict, a market collapse, they are likely misreading and misdiagnosing the events and are most likely wrong.

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[1] See Earth Hour: North Korean Version March 31, 2010

[2] CNN.com North Korea's military aging but sizable, November 25, 2010

[3] See North Korea: The Geopolitics of Blackmail, November 24,2010

[4] See The Road To Serfdom In North Korea, June 21, 2010

[5] English Chosun, Why Did N.Korea Attack?, November 28, 2010

[6] Ibid

[7] Wikipedia.org Korean War

[8] Friedman, George Chinese Geopolitics and the Significance of Tibet, Stratfor.com April 15, 2008