North Korean Economics

Editor’s Note:  This is the first post by one of the candidates for the second writer position. If you would rate the post at the bottom, it would greatly help with the search process. Mr. Cameron Moubray is also a Freshman at Washington University in St. Louis, and aside from routine editorial corrections, the post below is entirely his work.  He may be reached directly at cameron.moubray@gmail.com

Everyone’s favorite dystopia is at it once again, but this time the Dear Leader has taken a break from playing games of nuclear brinkmanship and fallen back upon the Democratic People’s Republic’s perennial pastime – making North Koreans’ lives yet more miserable.

On November 30th, the North Korean government announced the surprising decision to revalue its currency, the Won, resulting in a sudden nationwide freeze of all cash transactions.  The revaluation entails the issuance of entirely new currency, rendering all old bills completely useless. Old Won notes may be exchanged for the new notes, but with two caveats – firstly, the rate of exchange between old and new Won is 100-to-1.  This means that an old 1,000-Won note can be exchanged for just 10 Won. Also, the government has imposed a cap allowing only 100,000 Won to be exchanged per family.

At official exchange rates, this works out to approximately 475 Pounds Sterling, which would be meager enough, but the Wall Street Journal reports that the unofficial rate of exchange effectively puts the cap at something closer to a mere 40 US Dollars.  If a family happens to have more than that amount saved, their excess savings are now completely worthless.

Although the move seems to have been predicated, economically, upon a desire to curb inflation, the end result is that the cash reserves of much of the North Korean population – those lucky enough to have cash reserves, at any rate – have been wiped out. This was likely intentional – a calculated move to destroy the DPRK’s nascent middle class, which began to emerge following the 2002 market reforms that introduced limited free markets as alternatives to state-run shops. These markets, at which people can buy a range of imported foodstuffs and other goods, have become important parts of life for wealthier North Koreans, as state stores offer ever-fewer goods.

By all accounts, the popular reaction to the government’s decision has been decidedly unenthusiastic. Although open dissent is exceedingly rare under Kim Jong Il’s brutal regime, there are reports of unrest in some parts of the country, as in the city of Hamhung, where, according to the Wall Street Journal, protesters burned old Won notes and vandalized government buildings. Reports indicate widespread desolation among the population – the BBC quotes a North Korean defector speaking of general “despair,” while the Times Online cites the suicide of a couple in the north of the country following the revaluation. Possibly as a reaction to these sentiments, on December 4^th the DPRK issued “Shoot to Kill” orders to its border guards with regards to anyone attempting to escape the country illegally.

The ultimate result of this abrupt and striking development is as yet unclear. For such a clearly dysfunctional regime, the DPRK has proven surprisingly resilient in the course of its sixty-one-year history. It is unlikely that this will provoke such a degree of civil unrest as to topple Kim’s government, but there is always the hope that, in heaping one more inequity upon its long-suffering people, the abominable North Korean regime has weakened itself just a little bit more. The market reforms of 2002 allowed the North Korean people to experience a very limited degree of free-market prosperity. Having glimpsed that, they now have something of a point of reference with which to compare Juche socialism. The Dear Leader cannot change the laws of economics, and if his regime is unable to provide the people with the goods they are now to be denied for lack of funds – if people see once again that all the Great Economist can offer them as a replacement is austerity – then perhaps it will constitute one more chink in the armor of his monstrous regime.

Is Palin Going Political, Or What?

Some of you may remember, over the summer, former Governor Sarah Palin of Alaska stepped down for what she called “personal reasons”.  At the time, many political observers wondered if she was truly gone from the spotlight for good, or if she wanted to take time off in order to strengthen her appeal as a candidate for the 2012 elections.  Today, it certainly seems like it was the latter.  Earlier, Gov. Palin appeared at the CLSA Investors’ Forum in Hong Kong.  From the report, it seems as if Governor Palin is attempting to increase her visibility, as well as her foreign-policy credentials.  While this development in itself is big, this was only the first speech she has given outside North America, and it was apparently not without its missteps.

Governor Palin was speaking to a politically neutral group of businessmen and women, and her speech appealed to their issues- specifically those relating to the People’s Republic of China.  In addition, her speech was not limited to business issues; she apparently touched on human rights issues in China, the Tibet issue, and even criticized President Obama, which, according to the  article in the Wall Street Journal, is a large political risk.  I tend to agree with this sentiment; any public figure giving a speech overseas is representing America’s image above all.  Talking about differences in opinion on a given government  policy sends a message to other nations, one that should not be sent.  Such a message undermines official diplomatic efforts, and may cause other ramifications that Gov. Palin may not have been thinking of.

Essentially what Governor Palin did in Hong Kong today was give a campaign speech on foreign soil, to an audience that may not even matter in the grand scheme of American politics.  International business is a whole different thing altogether, but some parts of the speech were ill-suited for the audience and venue, and inappropriate for a non-governmental speaker to say out of a campaign season.  What the speech did is essentially to clarify that Governor Palin is going to be on the political stage for a while.  So much for fading into obscurity; Palin’s gone political, and this will be interesting to watch over the next couple years.

Protectionism or Fair Practice?

Well, here we go again. The U.S. is in yet another trade dispute with China.

After President Obama announced the imposition of a tariff on tire imports from China, the PRC retaliated with a similar measure placed on American automotive products and chicken meat, while complaining about the U.S. actions to the World Trade Organization.

On the surface China appears to be right in calling protectionism on the U.S. In reality, it is a fair move by the federal government in imposing the steep tariff. Currently, the trade imbalance is such that for every dollar spent on American goods flowing into China, the U.S. spends $4.46 on goods flowing in the opposite direction, as stated in the article linked above. What’s more, the Chinese government maintains the imbalance by keeping its national currency, the Yuan, unnaturally low in value, thus making Chinese goods cheaper than the same goods made elsewhere.

The way I see it, the issue boils down to this one simple idea: China wants to maintain this favorable trade relationship, while the U.S. wants to make things fair. The Chinese government complains that the tariff will cause jobs to be lost. However, tires make up a small sector of the Chinese economy, while entire cities in the Midwestern U.S. have been devastated by jobs lost to the trade imbalance. Trade is fine, when it is fair. However, trade with China is not fair at the moment. There is nothing wrong with outsourcing jobs to places that can provide labor cheaper, except in cases such as this when the cheaper price is obtained through unfair practices.