Comparative Analysis ofNorth Korea, South Korea and IndonesiaBy Brad Miller and Joshua Maxwell
Background North Korea
Formed out of WWII Population: 24 million Communist government
South Korea Formed out of WWII Population: 48 million Republic form of government
Indonesia Declared itself independent from Japan & Dutch
after WWII Geography: composed of nearly 17,000 islands Population: 240 million Largest Muslim population in the world Independent republic government
6 Institutional Frameworks
Allocation Mechanism Forms of Ownership of Land and
Capital Role of Planning Types of Incentives Income Redistribution Role of Politics
Allocation Mechanism North Korea
Command (Primary focus)▪ N. Korean leader Kim Il Sung adopted a strong central planning policy without a free market,
Stalinism▪ Production and pricing controlled by central government▪ Country considered to have foremost command economy in the world
Traditional▪ Follows idea of “juche,” which means self-reliance▪ Concept has led to political, economic, and social self-reliance and no influence by foreign actors▪ Cult of Personality devoted to Kim Il Sung▪ Country is considered one of the most secretive in the world as a result
South Korea Free Market Economy (Primary focus)
▪ Some indicative planning that places restrictions on companies▪ Promotes exports, industrialization, innovation, and technology
Traditional▪ “Chaebol,” allows for many companies to be connected through family ties
Indonesia Market economy w/ similarities to command
▪ Govt. decides prices on products such as fuel (oil), rice, and electricity▪ Companies allowed to sell products in a free market economy once prices are set▪ Member of the G-20
Forms of Ownership of Land and Capital
North Korea Socialism Central govt. own companies and industries
South Korea Capitalism Foreigners have the same property rights that citizens do
Indonesia State capitalism: capitalistic economy under state control, owns
139 enterprises 2011 Economic Freedom Index (Business Freedom)
South Korea: 91.6 Indonesia: 54.9 North Korea: 0
Role of Planning
North Korea Done by Central People’s Committee (CPC) Has resulted in forced labor, food rationing, and media
restrictions South Korea
Indicative planning Has lessened recently; country focusing heavily on exports and
trade relations Indonesia
Indicative planning Most is done by State Ministry of National Development
Planning Current plan focuses on economic growth and innovation
through a reformed tax structure
Types of Incentives
North Korea Moral Incentives
▪ Follows Confucianism and Maoism▪ Ran moral incentive campaigns to encourage production, including military
production▪ Filial piety: respect for family and elders
South Korea Material incentives
▪ Believes in strong market orientations and profit maximization▪ Does not believe in isolationism▪ Has one of the longest work weeks in the world, average 49.3 hours
Indonesia Mix of Moral and Material incentives
▪ Muslim influence provides moral incentives▪ No price fixing or hoarding, everyone should have free information on supply
and demand▪ Material incentives include economic growth and free market capitalism
Income Redistribution
North Korea Government has no tax system Government plans and operates all parts of economy Decides peoples’ income based upon need Universal welfare coverage
South Korea Follows Austrian school of thought Little redistribution Highest Income Tax = 38.5% Highest Corporate Tax= 24.2%
Gov. Exp. As % of GDP = 29.3% Well-defined property rights and equal opportunities
Indonesia Follows Austrian school of thought as well Highest Income Tax = 30% Highest Corporate Tax= 25% Gov.
Exp. As % of GDP = 19.2% Lower income tax rates than South Korea Does very little to redistribute income
Role of Politics
North Korea One political party, Korean Worker’s Party No free elections, only one candidate to select, Kim Jong Ill
99.9% of vote South Korea
Legislative, Executive, and Judicial Branch Numerous political parties all play a role in indicative planning
Indonesia Similar govt. system as South Korea, but govt. owns many
enterprisesCountry
Political Freedom Index
(Scale 1-7)(1-Complete Freedom, 7-No
Freedom)
Civil Liberty Index
(Scale 1-7)(1-Complete Freedom, 7- No
Freedom)
Freedom From Corruption
(Scale 0-100)(0-No Freedom, 100-Complete
Freedom)
North Korea 7 7 5.0
South Korea 1 2 55.0
Indonesia 2 3 28.0
9 Criterion
Level of Output GDP Growth Composition of Output Degree of Static Efficiency Degree of Dynamic Efficiency Macroeconomic Stability Economic Security of an Individual Degree of Economic Equality Degree of Economic Freedom
Level of Output
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
GDP per Capita (PPP)
North KoreaSouth KoreaIndonesia
U.S
. D
ollars
GDP Growth
1999 2001 2003 2005 2007 2009
-10
-5
0
5
10
15
20
25
30
35
GDP per capita growth
North KoreaSouth KoreaIndonesia
% C
hange
North Korea experienced abnormal growth from 2004-2005, Why? South Korea and Indonesia have had consistent growth overt time
North Korea’s Black Market
In 2003, North Korea allowed private farmers markets so people could buy produce and other items locally.
GDP per capita went up by 30% for two consecutive years
Farmers markets created a huge black market where people would sell items such as electronics, drugs, and other luxury items.
North Korean government decided to destroy black markets and hamper economic growth by redenomination of currency: 100 won – 1 won
Only allowed a small amount of money to be turned in for new currency, so black market and many other people’s money became worthless
http://www.youtube.com/watch?v=99VlXc5fwxA
Composition of Output
CountryMilitary
(% of GDP)Education(% of GDP)
Agriculture(% of GDP)
Imports(% of GDP)
Exports(% of GDP)
North Korea20%(2009) NA
29.2%(1997-2005)
9%(2009)
7%(2009)
South Korea2.6%
(2000-2009)
4.2%(2008)
3.6%(1999-2008)
49.2%(2009)
55.3%(2009)
Indonesia1.1%
(2000-2009)
1.2%(2008)
15.6%(1999-2008)
20.5%(2009)
27.4%(2009)
Degree of Static Efficiency
Unemployment Rate (2008) Indonesia: 8% South Korea: 3% North Korea: not published
Time Required to Start a Business Indonesia: 60 days South Korea: 14 days North Korea: N/A (private citizens cannot start businesses)
Corporate Taxes Indonesia: 25% South Korea: 24.2% North Korea: no taxes
Rankings: South Korea, Indonesia, North Korea
Degree of Dynamic Efficiency North Korea - Most volatile GDP per capita growth over time
South Korea - Consistent unemployment rates except for 1998-1999
Asian Financial Crisis
Indonesia - Cyclical Unemployment over time, also Structural Unemployment
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
2
4
6
8
10
12
Unemployment Rate
South KoreaIndonesia
% o
f Labor
Forc
e U
n-
em
plo
yed
Macroeconomic Stability
GDP per capita growth (2000-2009) North Korea - 80% growth, but extremely volatile and low GDP per capita South Korea - 73% growth, highest GDP per capita Indonesia - 60% growth
Inflation Rate South Korea – stable inflation kept below 5% Indonesia – unstable inflation, high economic growth and low interest rates
1998 2000 2002 2004 2006 2008 2010-5
0
5
10
15
20
25
Inflation Rate, GDP Deflator
South KoreaIndonesia
% I
nfl
ati
on
Economic Security of an Individual
GDP per capita (PPP)▪ South Korea: $27,168▪ Indonesia: 4,199▪ North Korea: $1,800
Life Expectancy▪ South Korea 80yrs▪ Indonesia: 71 yrs▪ North Korea: 67yrs
Mortality Rate▪ South Korea: 7.4%▪ Indonesia: 14.1%▪ North Korea: 14.6%
Healthcare costs covered by govt.▪ South Korea: 54.9%▪ Indonesia: 54.5%▪ North Korea: not published
Rankings: South Korea, Indonesia, North Korea
Degree of Economic Equality
Gini Coefficient (0 = perfect equality, 100 = perfect inequality) Indonesia: 37.0 South Korea: 31.5 North Korea: 31.2
Quintile Ratios (1 = perfect equality) Indonesia: 6.17 South Korea: 4.73
Degree of Economic Freedom
1999 2001 2003 2005 2007 2009 2011 20130
15
30
45
60
75
Index of Economic Freedom
North KoreaSouth KoreaIndonesia
Score
out
of
100
Future Predictions
North Korea Low output and no freedom for decades Dictatorship = Less Freedom Will continue to have low economic growth if current government is
in place, government will not allow prosperity. Example: 2004-2005 farmers markets
South Korea Becoming one of the biggest economies in the world Increased trade with United States and Japan All available information shows nothing stopping South
Korea from becoming even more economically prosperous
Indonesia High inflation and high unemployment, yet has seen great economic
growth Either increased economic growth or financial crisis Could become member of the BRIC’s (Brazil, Russia, India, China)
Lessons Learned
All three countries had connections to Japan in WWII
North Korea - Command South Korea - Free Market Indonesia - State Capitalism
South Korea and Indonesia have indicative planning
North Korea – Moral Incentives South Korea and Indonesia – Material Incentives
North Korea has experienced underground economy problems
South Korea focuses on international trade while North Korea follows “juche”
South Korea has a much higher GDP per capita output than North Korea or Indonesia
South Korea has highest score in Economic Freedom Index
South Korea established economic power, Indonesia emerging economy, and North Korea has little to no economic success.
Policy Recommendations
North Korea Should allow more private farmers markets, it worked in 2004-2005 Should allow more international trade and ignore their “juche” policy Allow more political freedom, free elections Only problem is that the current government does not care about economic
prosperity, only power.
South Korea Few problems, but loosening indicative planning even more would help Improve upon corruption problems
Indonesia Limit price controls on fuel and energy Privatize more companies, currently 139 state owned enterprises Get inflation under control, could create future problems, raise interest rates To solve unemployment problems, more spending on education and lower
minimum wage rate in country.
Works Cited
"2011 Index of Economic Freedom." The Heritage Foundation. Web. 03 Apr. 2011. “Background Notes By Country” U.S. Department of State. Web. 02 Apr. 2011. "Corporate Tax Rates." Trading Economics. Web. 10 Apr. 2011. "Country Facts: North Korea." Index Mundi. Web. 09 Apr. 2011. "Education Spending (% of GDP)." Nation Master. Web. 10 Apr. 2011. "Freedom in the World Comparative and Historical Data." Freedom House. Web. 9 Apr. 2011. Ihlwan, Moon. "North Korea Takes Aim at the Black Market." Bloomberg Businessweek. 1 Dec. 2009. Web.
09 Apr. 2011. “Indonesian War of Independence.” New World Encyclopedia. Web. 02 Apr. 2011. “Kim Wins Re-election with 99.9% of the Vote." The New York Times. 2009. Web. 9 Apr. 2011. "North Korea - Economic Planning." Country Studies. Web. 03 Apr. 2011. Rosser, Jr., John Barkley, and Marina V. Rosser. Comparative Economics In A Transforming World Economy.
Cambridge, MA: MIT, 2004. Print. "Share of Agriculture GDP." Food and Fertilizer Technology Center for Asian and Pacific
Region. Web. 10 Apr. 2011. "South Korea Business Indicators - Property Rights / Contract Law." Financial Standards
Foundation. Web. 03 Apr. 2011. "South Korea World Factbook." Central Intelligence Agency. Web. 03 Apr. 2011.
Funny Video
http://www.youtube.com/watch?v=gKH1PymutJQ
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