S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.29 no.1~4 (2016)
From a Disaster to a Miracle: Suggestions for North Korea
- Lee, Jisoon; Lee, Byungwook
- Issue Date
- Seoul Journal of Economics, Vol.29 No.4, pp. 439-456
- Utilizing a model of income and population growth specialized to a dual-class (master-slave) economy, we show that the lack of ownership for the majority of people may have been the main culprit why North Korea has remained stagnant in the past. The slave-workers, for whom ownership (and freedom) is denied, end up with a subsistent level of income. However, the masters, who own not only property but also slaves, end up with a big income. When the slave-workers are liberated to become property owning free people, their income will increase far above the subsistent level. However, the former master-owners income will shrink sharply. Knowing this fact, masters have strong incentives to maintain the slavery and slaves have equally strong incentives to overturn it. If a binding commitment can be made, under which the masters free the slaves and the freed slaves give back portions of their increased income to their former masters, a smooth transition to a free economy can be engineered.