Effects of North Korea’s Economic System on its Relationships with Other Nations
North Koreas Government and Economic System
In 1974, Richard Easterlin, a professor of economics from the University of Pennsylvania, formulated the Easterlin paradox (Clark et al., 2008). This paradox suggests that the level of happiness is determined by the nation’s income and its relationship with other countries. This paradox has been studied numerous times since it was formulated, and most results show that there is indeed a correlation between a nation’s economy and its citizens’ happiness levels (Clark et al., 2008). There are various types of economic systems that are being used around the world today, including capitalism, socialism, and communism (Schaefer 2011). These economic systems display very different happiness levels in the nations they are used in.
North Korea is a communist nation with a centrally planned economy. In North Korea’s case, a centrally planned economy, a communist or command economy, is an economic system controlled by a central authority, the government (Cargill and Parker 2010) (Schaefer 2011). Accordingly, this central authority makes financial decisions regarding what to produce, how to produce, and who the consumers are. Additionally, all the companies that do all these manufacturing and distribution are state-owned enterprises, meaning that the government controls them. Many economists have always criticized this kind of economic system because it suffers from numerous financial problems associated with poor incentives, informational constraints, and inefficiency.
Various determinants are used to analyze a country’s level of happiness based on its economic system. The first is the gross national product and the gross domestic product. Both of these typical national financial measures are indicators of successful policies. Citizens in wealthier countries have been shown to have a higher level of happiness than those in poorer ones. In 2021, according to the Index of Economic Freedom, North Korea’s GDP was at 19 billion dollars. Additionally, its economy is severely repressed, and since the initiation of the Index in 1995, North Korea has ranked the lowest in the world every year.
The second determinant is an individual’s income. In 2010, Daniel Kahneman and Angus Deaton conducted a study and found out that high-earning individuals had more satisfying lives and that a person’s everyday emotional well-being improved as their earnings improved as well. Using this determinant to look at North Korea’s citizens’ level of happiness, one would conclude that they are not a merry country. For instance, entrepreneurial activity is not allowed and is even seen as a threat to political control. Besides, resource flows to and from enterprises and individuals are controlled directly rather than through a neutral fiscal policy. Further, the government is riddled with corruption and bribery.
The fourth determinant of the level of happiness is economic freedom. Even though countries with financial freedom continue to have increased wealth inequality, studies show that the residents’ satisfaction levels are high. However, in North Korea, with a centrally planned economy, there is no economic freedom, prices are controlled by the government, industries are owned by the government’s and any private companies allowed are used to boost the government’s revenue. Individuals are bound to be unhappy and stressed with such strict and oppressive rules. Additional economic determinants of happiness that North Korea does not meet include providing financial security to its people and high unemployment rates. According to the Index, in 2021, the unemployment rate in North Korea was at 25.6%