North Koreans’ lives—except for those who happened to
be part of the very small ruling elite around Kim Il-Sung and,
later, his son and successor Kim Jong-Il.
It should not surprise us that the economic fortunes of
South and North Korea diverged sharply. Kim Il-Sung’s
command economy and the Juche system soon proved to
be a disaster. Detailed statistics are not available from
North Korea, which is a secretive state, to say the least.
Nonetheless, available evidence confirms what we know
from the all-too-often recurring famines: not only did
industrial production fail to take off, but North Korea in fact
experienced a collapse in agricultural productivity. Lack of
private property meant that few people had incentives to
invest or to exert effort to increase or even maintain
productivity. The stifling, repressive regime was inimical to
innovation and the adoption of new technologies. But Kim
Il-Sung, Kim Jong-Il, and their cronies had no intention of
reforming the system, or introducing private property,
markets, private contracts, or changing economic and
political institutions. North Korea continues to stagnate
economically.
Meanwhile, in the South, economic institutions
encouraged investment and trade. South Korean politicians
invested in education, achieving high rates of literacy and
schooling. South Korean companies were quick to take
advantage of the relatively educated population, the
policies encouraging investment and industrialization,
exports, and the transfer of technology. South Korea quickly
became one of East Asia’s “Miracle Economies,” one of
the most rapidly growing nations in the world.
By the late 1990s, in just about half a century, South
Korean growth and North Korean stagnation led to a tenfold
gap between the two halves of this once-united country—
imagine what a difference a couple of centuries could
make. The economic disaster of North Korea, which led to
the starvation of millions, when placed against the South
Korean economic success, is striking: neither culture nor
geography nor ignorance can explain the divergent paths of
North and South Korea. We have to look at institutions for
an answer.