That’s the title of a disturbing new study conducted by a team of experts from the Peterson Institute for International Economics. It concludes that “the prospect of hunger-related deaths occurring in the next several months is approaching certainty.”
Here is a summary:
North Korea is on the brink of famine. The aggregate food picture appears worse than at any time since the famine of the 1990s. The margin of error between required grain and available supply is now less than 100,000 metric tons. Local food prices are skyrocketing faster than world prices. The regime has soured its aid relationships with key donors, and its control-oriented policy responses are exacerbating distress. Support for aid has been further eroded by evidence of diversion of food aid to the military and the market. Hunger-related deaths are nearly inevitable, and a dynamic is being put in place that will carry the crisis into 2009.
The long-run solution to North Korea’s chronic food insecurity problems is a revitalization of industry, which would allow North Korea to export industrial products, earn foreign exchange, and import bulk grains on a commercially sustainable basis. In the short run, North Korea should openly acknowledge the growing crisis and conclude negotiations with the World Food Program and other donors so that assistance can begin to flow. The United States can provide aid in ways that maximize its humanitarian impact while limiting the degree to which aid simply serves to bolster the regime. It should also exercise quiet leadership with respect to North Korean refugees.
North Korea has said in the past that nearly a quarter million people died during the great famine that occurred in the latter half of the 1990s; independent experts think the real tally is much higher, in excess of one million. The United States and North Korea’s neighbors should do whatever they can to stave off this crisis, first and foremost for humanitarian reasons, but also because a widespread famine in North Korea could make the government behave in unpredictable ways.
If you read Charles Jenkins’s new book on his stay in North Korea or watch “Crossing the Line”, the documentary film on James Dresnok, both of them say (Dresnok very emotionally) that despite famine conditions in the countryside, they never missed a meal and the government provided for them despite the fact that they were more or less just useless parasites, even worse than useless, to the regime. I mean, Jenkins taught English to cadets at the North Korean spy acadamy, and if you have ever heard him speak, you would think he was mentally deficient.
North Korean famines are indicative of regime priorities and are not accidents. The United States shouldn’t enable them. What is wrong with a country that keeps an army that numbers 5 percent of the country when resources are desperately needed elsewhere? At this point, perhaps hundreds of thousands of refugees streaming into Northern China on the eve of the Olympics will make the Chinese finally deal with the problem on their border.
“revitalization of industry, which would allow North Korea to export industrial products, earn foreign exchange, and import bulk grains on a commercially sustainable basis”
This “solution” is rather unrealistic —- there are very little industries that are capable of being revitalized beside ones like resource extraction (gold mining, for example). The ones that might earn some foreign exchange are the ones selling things like controlled substances from narcotics to clone drugs, to things like missiles, etc. DPRK is also a big exporter of seafood to its neighbors.
About the only hope is for areas adjacent to the neighbors (like ROK and China) to play host to export processing zones where the zone is able to import virtually everything including power from the neighbor and is free to export the stuff out again.
Even if ROK went all out on these ventures, it will not generate enough income / foreign exchange to begin to address the needs of North Koreans scattered throughout the country.
While I have no facts on DPRK agriculture, I suspect that the lack of productivity enhancing things like high tech seeds, greenhouses, fertilizers, pesticides, energy / fuel for selective mechanization like powering water pumps and plows, and just simple good management of farms is the root cause of the problem of shortages.
Importing grains can be an expensive stopgap, but revitalizing agriculture (which means they have to somehow pay for modern inputs based on petroleum products and capital equipment), is probably where you will find a bigger bang for their foreign exchange.
You should both actually read the article, as opposed to jumping to conclusions based on a short summary.
calipygian — you’re right that famines are the result of regime priorities, but that’s really simplistic and doesn’t get to the heart of the matter, which is how to prevent potentially hundreds of thousands of innocent North Koreans from dying.
Lao Tao Ren — the report’s principal authors, Haggard and Noland, are the best in the business on the North Korean economy (along with Eberstadt, of AEI), and you really should read the article in its entirety as opposed to reacting to a single snippet in the summary — you’ll see they go into as much detail about North Korea’s agricultural economy as is possible, given inherent limitations on the quantity and quality of reliable data.
Widespread famine in North Korea could make the population behave in “unpredictable” ways, too…if “unpredictable” is a code-word for “suddenly violent”.
That their government is insane seems a poor reason to prop it up, and to label such a move “humanitarian” questionable.
Even if the famine becomes widespread enough to be killing millions, the only way the regime would topple would be if food supplies for the military were dramatically affected. To prevent that from happening, KJI will just order his military to forcibly steal any and all of the meager rations that are left to the general population. This is how they have survived past famines.
To argue that we shouldn’t save hundreds of thousands of lives so that we can have an infinitesimally small chance that the Chinese won’t do what they always do and swoop in and stabilize the regime to prevent a refugee flood, is pretty barbaric. People on the brink of starvation typically don’t have the energy to pick up a gun and revolt. Yes, I do understand that many of the conditions people normally live under in Nkorea are also considered barbaric (work camps etc.), but I wouldn’t make the call to allow starvation for the unlikely chance to incite chaos. I guess that makes me a softy.
Instead, I think that the route the US is pursuing which mandates port to mouth monitoring of food aid, including random inspections, as well as discussions over the best type of food to provide (not just rice), is the best way to go.
Eli makes some excellent points. And you’re not a “softy” at all — you’re a realist. Those who don’t take the humanitarian dimension seriously are naive at best, immoral at worst.
In their study, Haggard and Noland offer some insightful practical recommendations on how to distribute food aid to those most in need. For example, aid could provided on condition that it go to specific regions where the need is greatest (most elites are concentrated in Pyongyang). This can be effectively verified.
In addition, donors could tailor the types of foodstuff in order to minimize the risk of diversion by elites. For instance, millet and barley could be provided instead of the rice and corn that the elites prefer.
None of these are foolproof, of course, but I’m willing to put up with some diversion if it means saving innocent North Koreans from starvation.
Dear Mr. Grotto,
You are in effect conceding calipygian’s “simplistic” point. If the policy that you propose is implemented, there will be no incentive for North Korea to provide food for her people. What do you suggest we do about that?
Karl — It’s not that simple. Read Haggard and Noland’s article.
The claim that propping up this regime in response to either nuclear or nutritional blackmail is “the humanitarian dimension” is not made stronger by mere repetion, nor by namecalling at those who don’t buy into the proposition, even while further claiming to be “realistic”.
Being insensitive is not a good foreign policy, certainly not in the long range. I guess this is one of the reasons US (and Israel) are almost universally hated. NK should be helped because they need help and the West must do it now. The rest of the world hears the US preaching about its high values and morality all the time. Not helping now the Chinese, Burmese and NK will have only one interpretation and not a very complimenting one.
Since the hard hearted must be presented with a short range benefit in order to be humane I’ll remind you that helping the NK people is the best chance now for a regime change. Help NK and stick a leaflet about your high values to every millet and barley package but do it.
“the report’s principal authors, Haggard and Noland, are the best in the business on the North Korean economy….., and you really should read the article in its entirety as opposed to reacting to a single snippet in the summary”
The complaint that a document has to be read in its entirety as opposed to reacting to a single snippet is often used by Mormons, Scientologists, and the likes of that kind who feel that they have been misunderstood and misquoted. Even though the quote was the one that the authors and the poster elected to select to summarize their research findings, I went ahead and read the entire paper just to give the authors the benefit of doubt.
After reading the entire report, I was able to find precisely TWO places where the link between rising energy prices and food cost is mentioned:
“increasing fuel prices (which affect both input and transportation costs)” (Page 8, Column 1 “Evidence from Fuel Prices”)
“The source of the difficulties included not only the aggregate constraint on supply but also shortages of electricity for threshing and fuel for transportation.” (Page 11, Column 1”)
The authors use a price action / supply-demand framework that apparently is ignorant of the basic, primary link between energy prices and the cost of food.
The link goes beyond just “competition” between food for fuel, like the corn ethanol programs and other bio-fuel programs that directly compete with the food supply.
A basic exposition of the link between energy prices and food production can be found in: “The Oil we eat”. http://www.harpers.org/archive/2004/02/0079915
I suspect that it is no co-incidence that DPRK agriculture collapsed co-incidentally with the ten fold plus rise in oil prices between 1998 to today.
While DPRK have some coal and gas, it is known that it relies on imports for most kinds of liquid fuel —- which is required as an input for simple things like pumping water where electricity is not available.
Without feedstocks like natural gas in abundance, and imports of phosphates, it is not possible to manufacture basic things like fertilizer and pesticides.
Thus, the inability of DPRK to afford to import supplies of petroleum and other fossil fuels, and fertilizer ingredients as prices rose sharply over the past 10 years, without a doubt have a direct causal relationship with the low agricultural productivity of agriculture.
China, on the other hand, have adopted modern means of farming which are energy intensive, but substantially improve productivity with such basic improvements as using powered pumps for irrigation, mechanized agricultural equipment, fertilizers, greenhouses, and of course, harvesting, storage and distribution.
Had the authors of this report saw this link between energy prices and food, they would have recognized that it has a much greater impact than many other issues —- including alleged floods.
Then there is the problem of the internal inconsistency of the authors recommended “treatment” for DPRK: To export industrial goods in sufficient quantities to buy foodstuff on the international markets.
The premise of being able to manufacture industrial goods is that the economy have —- at least islands —- of sufficient infrastructure, modern energy such as electricity, fuel, etc. to operate industrial plants to make them.
It would seem to me that a economy that is so desperate that it barters for miserably small deliveries of fuel oil for terminating a nuclear program and is running short of electricity to operate things like irrigation pumps for farms is in no position to aspire to exporting industrial goods which require large inputs of energy and manufacturing facilities and raw materials to make.
If DPRK had such inputs as electricity, gas, and petroleum and phospates in abundance, they would be far better off to deploy them to improve agricultural productivity rather than to speculatively attempt to turn them into industrial products that may or may not sell on the open market.
For the authors of this report to assume that DPRK industrial exports can compete with China, who is able to manufacture everything they can make at lower prices, is a fantastic argument better suited to Science Fiction than this scholarly blog.
The data —- about the severe shortage of modern energy in DPRK —- is virtually public. Not long ago, a night time map of DPRK was featured in a US Government briefing showing that there are virtually no “light pollution” from DPRK —- indicating a total lack of availability of modern energy for such basic things like street lights taken for granted in places like China.
Under such circumstances, I must, respectfully, find Messr. Grotto’s comments that the single snippet is unrepresentative of the lack of analytical quality of the entire report to be unsupported by the entirety of the report.
The report is clearly written by authors who have either none, or an extremely limited understanding of how agriculture operates either with or without modern energy / inputs like fertilizer and pesticides and even a cursory attempt to understand how the sharp rise in global energy prices in the past decade without a concomitant increase in DPRK’s ability to earn foreign exchange is the root cause of much of DPRK’s food shortages.
Their market price / supply-demand framework was applied with nearly zero attention (for example, by citing how input prices like fuel and fertilizer changed) to rising fuel / energy prices and its relationship to food output as the use of modern inputs dwindled.
Since I am able to put this picture together with public sources of data about DPRK’s dire situation with respect to energy, I cannot accept Meesr. Grotto’s excuse that the authors’ analysis is limited by the availability of data about DPRK.
I would certainly hope that the United States, with its vast resources and intelligence capabilities, could get better information than this report.
All it would require is careful monitoring of the amount of fuel imported into DPRK (mostly by train, and a few tankers), and some cursory estimates of the outputs of the few coal mines in DPRK.
If I had this data from the IC, I would be able to do a much better job than this “ad hoc” analysis here.
The authors of the report demonstrate a shocking lack of understanding of the fundamental link between modern energy production / availability and the production of food.
If this report represents the “best in class” from the United States, I am afraid that it would rank in the same class as intelligence about uranium exports to Iraq from Niger.
LTR – Wow, I struck a nerve. Don’t take it so personally.
The study’s authors are of course right to say that North Korea’s only long-term hope of survival is to introduce market reforms that give it the ability to export and acquire foreign exchange. And the authors note that this is wishful thinking, at least in the foreseeable future. So I don’t understand all the bile you’re throwing at the report.
Also, there are some fundamental problems with your economic analysis. For example, you say that “The authors use a price action / supply-demand framework that apparently is ignorant of the basic, primary link between energy prices and the cost of food.” Actually, energy is a factor of production and captured by the price of food, so the authors’ analysis does account for energy inputs. They note this explicitly (see the two snippets you noted in your comment).
I’m particularly puzzled by this statement:
“For the authors of this report to assume that DPRK industrial exports can compete with China, who is able to manufacture everything they can make at lower prices, is a fantastic argument better suited to Science Fiction than this scholarly blog.”
I take it you think that since China’s manufacturing sector is much healthier than DPRK’s, the Norks could never hope to compete with it. Well, that’s simply not how international trade works. Countries can gain from trade whenever the relative prices of commodities differ in the absence of trade, so even a small, impoverished country like North Korea can benefit from international trade.
“Actually, energy is a factor of production and captured by the price of food, so the authors’ analysis does account for energy inputs.”
It is not captured by the price under the following circumstances:
If DPRK had a certain supply of energy and petrochemical inputs for fertilizer, say, in 1998, and since then, supplies dwindled because they cannot get what they used to get, then what you will have is sharply lower productivity out of the same land / inputs of what they do have like labor.
Higher prices of food – reflect the higher costs in production and shortages – but it does not necessarily capture higher energy prices —- because the issue is not higher prices, but simply non-availability at any price of energy and fertilizers. The “market” price of food does not capture out and out shortages of inputs where there is no market to begin with.
The larger point is higher prices of food in a North Korean style economy do not necessarily stimulate more production when the basic inputs that are needed to do so (petrochemicals and energy) are simply not available at any price. What supplies that there are would have been diverted to the regime’s “essential” functions including fuel for the cadre’s vehicles. They can throw more bodies at food production, but it cannot substitute or replace modern energy, fertilizers and pesticides.
What you have in DPRK is, IMHO, a crisis caused by declining inputs of modern energy and petrochemicals since the 1990s as prices went up 10X and their primary supplier (the Chinese) got fed up with sending them larger and larger gifts and cut back.
That simple fact —- increasing scarcity or simple non-availability of energy and petrochemicals causing reductions / slow growth in food supplies is in no way reflected in this report.
Conversely —- the simple fix —- supply DPRK with fuel and fertilizer and pesticides to increase agricultural output, is not even mentioned as an alternative to supplying them with free food.
If you are going to be handing out charity, does it matter if you give them a finished product or inputs that allow them to create their own finished product?
Now, as for the notions of gains from trade from the text book, um, in the real world, things do not work that way. First, DPRK’s economy is not even a quasi market economy. It is a command economy where prices and market signals need not have any relevance to actual scarcity and supply and demand.
Sure, you may get some textbook gains from trade if they adopted market reforms, but you don’t solve the problem that what you have is an economy that basically have no means to pay for imports of modern energy (except for the ones I outlined above, which are not sold in sufficient volumes to cover imports of modern energy even at the late 1990s level. Beside the items enumerated above, what does the DPRK have to offer the rest of the world except cheap labor whose price, adjusted for productivity and the lack of infrastructure in DPRK, is probably higher than in many areas of Asia?
Now…. About competing with the Chinese. The Chinese are able to manufacture many of their exports inexpensively not just because of low cost labor, but because they have an excellent infrastructure in place and because they are a major producer of modern energy in the form of coal, and in the early years of the reforms, petroleum. If you look at the energy content of much of the Chinese manufactures (like steel products), it is basically exports of cheap domestic energy embodied in a manufactured product.. There is no way for DPRK to compete with that without a similar cheap domestic source of primary energy (like vast coal deposits that China have) and an infrastructure which they have no money to build.
Furthermore, DPRK have very little unexploited sources of energy (like hydro, coal, etc.) that are not already tapped. Sure, they might increase output of energy with some real improvements in how they operate mines, etc. but there is not a 10 or 20X rise possible —- maybe 3X or 5X in the medium term.
What you are really looking at in DPRK is what happens to a economy when their primary energy sources run “dry”.
Oh, yes, I have rather unpleasant reactions to analysts running around with text book models which have little relevance to reality —- like the Haggard monographs.
If DPRK followed their advice to just introduce market reforms, it would turn into another Haiti. Market reforms do not necessarily result in more exports that earn foreign exchange unless the markets so created come up with competitive products or services and have an infrastructure capable of delivering them.
For a real good analysis of what ails the DPRK economy, try this:
“Take Energy as the Key Link”
rather than,
“Take Grain as the Key Link”.
Here is a fairly recent article about how “broke” the agricultural system is in DPRK: exhausted soils, not enough chemical fertilizer (which need imported ingredients like petroleum and phosphates to make), and a program to use microbial fertilizers with a 3 year payback which collapsed because it required grain (rather than imported sugars that they cannot afford) to make the fertilizer.
It also require energy and petroleum to run the plants, distribute the product, and use it.
What North Korea really is is the canary in the mine that tells us what happens when there is an absolute (not relative) shortage of primary energy inputs like petroleum, natural gas, coal, etc.
Another article that is slightly dated, but valuable, by Kwon Tae-Jin on the fertilizer situation is here:
Fertilizer, How Much Is Necessary? Kwon Tae-jin
http://www.ieas.or.kr/vol11_3/kwontaejin.htm
Note that this article — certainly a key one to understanding the North Korea situation in English, was not cited in the Haggard and Noland report. Nor was the information about the failure of the microbial fertilizer program and why. This support my conclusions the authors are ignorant of the most basic facts about the failure of DPRK agriculture.
When there is an absolute shortage, nice little text book economics models do not apply because the supply curve goes vertical —- which is what happened inside DPRK with supplies of petroleum, fertilizers, and other imported inputs needed to revitalize agriculture.
If they can’t afford the inputs, they probably can’t afford to export industrial goods to pay for imported foods made from the very same inputs either.
Under such circumstances, the “long term solution” proposed of exporting industrial products makes no sense, nor does withholding food aid.
The only certainty is that the withholding of food aid would lead to the death of hundreds of thousands or millions of North Koreans.
The question is, how to pair food aid with a massive “take over” of the management of agriculture and how to pay for it, and how to get the Kim regime to accede to a program of massive intervention by an outside power to “fix” the problem.
The death of a few million North Koreans may not matter much to the United States, but South Koreans and Chinese (many of whom have relations in North Korea) may find that solution rather like a “final” solution which went out of style in Europe and Americans, so I thought.
——————————
http://www.dailynk.com/english/read.php?cataId=nk01500&num=2897
North Korea Shuts Down Most of Its Complex Microbial Fertilizer Factories
By Moon Sung Hwee, from Jagang in 2006
[2007-11-11 22:33 ] Read in Korean
▲ A Complex Microbial Fertilizer Factory
A source inside North Korea reports that most of the country’s complex microbial fertilizer factories built during the mass starvation period in 1990s for increase of food production have been shut down.
The source said, “Those factories built between 1996 and 1997 in Kyongsung county of North Hamkyung Province had produced fertilizers only for one year following the construction. The year after, they were shut down. Now, the factory buildings are cleared”
North Korean media has praised till quite recently about North Korea’s advanced technology for producing complex microbial fertilizers. They said that the country’s fertilizer-producing technology and nature farming methods helped solve the food crisis and protect the ecosystem of North Korea. South Korean media have also once positively reported upon North Korea’s new fertilizer-producing technology.
However, the source said, “The situation is pretty much the same across the country. Most factories had stopped operating the year after the construction. It was Kim Jong Il who gave orders to build those fertilizer plants. But many factories fell into ruins.”
North Korea had built more than one hundred complex microbial fertilizer plants throughout the country during the mass starvation period in 1990s because it needed quite an amount of fertilizers to increase crop production.
The agricultural technology, which uses complex microbial fertilizers is a natural farming method developed by Dr. Teruo Higa, a professor at Ryukus University, Okinawa, Japan and the founder of Effective Microorganisms(EM) technology. Since complex microbial fertilizers contain 100 times more nutrients than ordinary fertilizers, they are used in many places in South Korea such as Yichu city of Kyungki Province where environment-friendly agriculture method is being practiced.
When crop production rapidly decreased in the mid 1990s, the failure was attributed to soil acidification, and Kim Jong Il urged his people to spread burnt soil, decomposed grass and compound fertilizers composed of soil, manure and chemical fertilizers over the field.
Unfortunately, that did not work. Then, Kim Jong Il gave another order to produce complex microbial fertilizers in large quantities in an attempt to increase crop production. Upon his order, North Korea started promoting the construction of complex microbial fertilizer plants through Chongryon (General Association of North Korean Residents in Japan) and built more than one hundred factories nationwide for the period of one year including ‘Patriotic Center for Complex Microorganism,’ whose construction work was completed in June, 1997.
Many North Koreans had to use pure grain to make complex microorganisms instead of costly granulated sugar. However, that was a bad idea because there was food shortage across nation and a great number of people were staving to death. Moreover, North Korea should not have wasted grain for microorganism production in such situation because it takes three years to see any effect of the use of microorganisms on crop production.
Kim Yong Hwa (pseudonym), a defector from Hyesan city of Yangkang Province, who used to work at ‘Patriotic Center for Complex Microorganism’ said, “350 kg of corn is used to make one ton of fermentation solution. That amount of corn is sufficient enough to feed one person for an entire year. Overall, the plant had used 38 tons of corn during its first two- year operation.”
The defector said, “The workers received food ration, but it wasn’t enough. So, many people stole corn power and even fermentation solution from the factory.” The defector added, “When people heard that we were using corn to make fertilizers, they found it hard to believe at first, but soon flared up in anger, saying ‘those microorganisms are eating us.’”
The defector said, “In addition, we did not know what to do with microorganisms we had produced because we didn’t have gas and a means of transportation. Sometimes, containers for storing microorganisms were lost or broken. We also had difficulty to move around microorganisms because they were produced in liquid form.”
Kim said the locals did not believe the expert’s explanation that microorganisms would produce germs three years later, which produce nitrogen gas, and therefore make soil rich. He said that the locals disapproved the use of corn for the production of microorganisms, and had no interest in sowing microorganisms in the field. Therefore, Kim said, the plant had to close.
South Korean experts have continued to point out the problem of soil acidification in North Korea and encourage the use of organic fertilizers. Nevertheless, many defectors criticized the use of grain for the production of complex microbial fertilizers for being detached from the realities of food situation in North Korea.
Lee Min Bok, a defector who used to work at North Korean Academy of Agricultural Science, said, “Staring with 1979, soil acidification became a serious problem, and Kim Jong Il has been giving orders to improve soil condition. The use of microorganisms can better the condition to some extent. However, North Korea needs to come up with comprehensive policies on its agricultural structure, anti-flood afforestation, and the establishment of production systems for chemical and organic fertilizers to solve the acidification problem.”
The source inside North Korea said, “In 1996, the authorities began praising about the effect of complex microbial fertilizers. Disappointedly, there weren’t any significant effect. So, starting with 1999, many fertilizers plants began to shut down.” The source added, “Most plants fell into ruin except few large factories such as Patriotic Center for Complex Microorganism in Pyongyang and a fertilizer plant in Rasun.”
North Korea began to display an interest in the production of complex microbial fertilizers because it had failed to produce enough manure and chemical fertilizers before. The South Korean government agreed to provide North Korea with 300,000 tons of chemical fertilizers this year and 400,000 tons next year.
According to Rodong Shinmun (North Korean state newspaper), Kim Jong Il spoke about the worldwide decrease in the production of chemical fertilizers, and stressed the importance of the use of microbial fertilizers in May, 2004.
Dear Mr. Grotto,
I have read the study. It is overflowing with things that North Korea “needs to” or “should” do, but it does not even attempt to address the question I have posed. Do you have anything else to say on the matter?
LTR — Frankly, I’m having a difficult time pinning down your critique. You say that energy prices are a factor in North Korea’s food shortage. I agree, and so does the study. If you’re complaining that the authors didn’t pay enough attention to energy, then I still think you’re missing the point. They offer an explanation (and sound a warning) for why North Korea is on the brink of famine today. Energy shortages have been a fact of life in North Korea for a long time, yet famine comes and goes. The question Haggard and Noland answer is why is this happening now, as opposed to one year ago, three years ago, or five years ago. The answer has primarily to do with the massive changes that have taken place in the international food market during the past 18 months; that is the intervening causal factor, not North Korea’s energy situation, which has changed little during this period.
Karl — Letting several hundred thousand North Koreans die will not give any incentive to the DPRK gov’t to reform in any meaningful way. The people that will die are likely to be rural peasants, not Pyongyang elites, and these peasants (as Eli points out) are simply in no position or condition to revolt. I’m all for pressuring the North Korean regime, but withholding humanitarian assistance in the midst of a famine is neither an effective way to pressure the regime nor a morally defensible foreign policy.
@Andy
I realized the problem almost right away as soon as you mentioned it.
“Frankly, I’m having a difficult time pinning down your critique.”
Here is where the crux of my critique lies: DPRK is NOT a market economy. It is a centrally planned economy —- probably the only one left in the world, but it is pretty much one.
As such, theories that are based, implicitly or explicitly on neo-classical economics, as Haggard, Noland and you are using —- are virtually irrelevant.
It is irrelevant in another way —- neo-Classical economics, and Political Economy, its poor cousin, is virtually incapable of dealing with issues that involve discontinuities in Supply and Demand curves, which is the case when severe surpluses or shortages exist.
Without diverging into a long discussion on the basis of ex ante vs. ex post facto planning, there is a real simple shortcut on this site.
A very commonly used method in Arms Control is the Material Balances approach, which originally was devised as a means of central planning. This technique later evolved into more sophisticated ones like using Leontief Input-Output Matrixes.
The reason we use these techniques in arms control rather than supply and demand market models is because it is explictely acknowledged that in trying to understand and track nuclear materials through the fuel cycle, markets and prices are irrelevant because the markets are “internal” —- like a planned economy.
Let me diverge for a second and give you an example.
Suppose we are to create a closed ecosystem consisting of a net energy importing state in the USA: Georgia
If you cut off its energy imports and imports of raw materials like phosphates for fertilizers (imagine it is surrounded by hostile powers who enacted an airtight embargo), then basically it has to rely on whatever it can generate internally.
There would be very little or no oil, some coal (which allow coal to liquids at a horrific cost in energy conversion costs), some hydro, whatever nuclear energy that can be kept running without outside support, and whatever wood or bio fuels that can be grown after a transition period. Within a very short time, chemical fertilizers run out, and cannot be manufactured except at prohibitive cost. Modern farming would collapse within a season as stocks of fertilizers and pesticides are used up. Under such circumstances, it is rather senseless to speak of their opportunities to benefit from “gains from trade” or exporting technology, services, etc. to pay for imports of energy.
Energy, in the form of petroleum and natural gas, is simply not available. Modern farming would collapse in short order and there would be starvation in Georgia.
That is pretty close to the condition that DPRK now find themselves. None of this can be extracted from a banal and fundamentally incorrect application of neo-classical economics based political economy.
There is, in neoclassical terms, a discontinuity in the supply curve where there are very small quantities of petroleum, chemical fertilizers available to the system (which is NOT a market economy), and basically, based on their specific problems with soil exhaustion, etc. it means that DPRK simply cannot produce enough food with the available inputs. There are no substitutes for these inputs —- human labor cannot substitute for fuel and fertilizer very well.
In the Haggard and Noland studies, there is not a single smidge of recognition of the issue of absolute scarcity (not relative) and the discontinuity of supply curves —- where once supply reaches “x”, the “price” so to speak, goes to infinity and the higher prices do not bring more supplies on the market. (FYI, that is the situation we are about to find ourselves in with regard to peak petroleum —- another related issue.)
Under such circumstances, the price mechanism only serves as a means of “demand destruction”, which, when applied to DPRK, mean those who do not have to political clout to get an allocation from the Central Planning Agency gets…. Nothing. No fertilizer for the fields, no fuel to run pumps, to run agricultural machines, etc.
What is needed, beyond just food for emergency aid, is for this centrally planned economy to, using whatever way possible (like testing a nuke), to get supplies of petroleum, fertilizers, etc. that it has no way to obtain otherwise —— certainly nothing to trade with. In fact, DPRK behavior precisely fits how a centrally planned economy under stress would behave.
It is not surprising that American analysts like Haggard and Nolan, basically failed to see the situation —- to do so would require a background in theories and applications of Centrally Planned Economic Management, a topic in, um, disrepute and not taught in 99.9% of the economics, let alone political economy classes today.
It would also require a background in agriculture, energy, and detailed knowledge of the specifics of the Korean situation.
To apply a price action model without this background, I am afraid, makes for disastrously wrong policy recommendations which, in my judgment, would lead to the starvation of millions of North Koreans.
I hate to say this, but I find that outcome, unacceptable.
A few facts: DPRK’s energy situation and access to inputs to make chemical fertilizers changed drastically between 1998 to today —- their supplier the Chinese have balked at sending them the same quantities, let alone increased of fuel etc. at “friendship” prices. Ask the IC that tracks those shipments to give you the data. As for the rise in world food prices —- that is almost a function of rises in energy prices —- because most food production require sizable inputs of modern energy in the form of petroleum.
I hope this helps —- feel free to email me.
None of this is “personal” though I do have a low tolerance for third rate political economy analysts.
LTR — There’s a reason why “Centrally Planned Economic Management” is not taught in “99.9% of the economics, let alone political economy classes today” — it’s empirically and theoretically disreputable, and rests more on ideology than sound social science. Just as you have a low tolerance for third rate political economy analysis, I have a low tolerance for amateurish economic analysis. We’re just going to have to agree to disagree here, since we seem to be operating in different paradigms. That said, you still haven’t answered why the famine is on the brink of happening now, as opposed to one year ago, two years, five years, etc. That is what Haggard and Noland set out to do, and in my estimation they succeeded.
I would disagree with you that ex ante means of economic coordination is “empirically and theoretically disreputable”.
Having been taught both neo-classical economics and theories of central planning, I find that neither approach can claim to be not based on “ideology” and based on “sound social science”. It would appear that the Nobel Prize Committee holds theories of central planning in high regard: They awarded Waissly Leontief the 1973 Nobel Prize in Economic Science.
If you really want to get into a discussion of the ideological content of neo-Classical economics, lets start with Arrow and Debreu, which specified a set of necessary and sufficient conditions for free markets to exist, and then we can dispassionately go through each assumption to see how it jives with reality. Let’s see how ideological neo-classical economics really is!
On a more practical front, I seem to recall that every time nations that champion free markets get in a bind (like when they go to war), that approach seem to get dusted off and used.
Britain and the United States both resorted to rationing (a form of centrally planned economic management) during WWII.
My bet: If global petroleum supplies decline 20% or more within the next 7 years, global rationing will happen and so much for free markets in oil.
If you wish to a big believer in scientific neo-classical economics, I challenge you to go and apply the neo-classical framework to understanding / accounting for weapons grade nuclear materials!
Hint: Hire Arthur Anderson and Jeffery Skilling to help you, and ask Dr. Lewis if the material balances approach is taught and used in his business.
As for the specifics of famine happening now – the Chinese slashed their food shipments earlier this year (in case you haven’t heard), and that might have something to do with it together with what I suspect to be cuts in shipments of petroleum and fertilizers as well.
Too bad I can’t pound on some doors in Beijing and get you the hard answers! They are already kind of sick of me here.
BTW, was there a mention of the Chinese cut in food shipments to DPRK in the beloved Haggard and Noland article?
I want to be sure these great helmsmen of American Policy toward DPRK are properly quoted in the little blue book. Wouldn’t want to confuse it with some babblings of some dear leader.
Dear Mr. Grotto,
Simply sending food to North Korea, whether with inspectors or not, is a futile action. It will save North Koreans from starvation, but it will not save them from any other forms of murder inflicted upon them by their vile government, either now or in the future. What is needed is a set of punitive measures, both overt and covert, to be taken against the members of the North Korean leadership and their families until such time as all of them are dead.
The tragedy for Koreans (both North and South) is that the “armistice” resulted in a political deadlock as well.
China does not want to intervene directly in DPRK, nor would the other five parties welcome it (namely Japan, US, and ROK).
ROK cannot intervene in DPRK militarily without restarting the Korean war. Ditto for Japan and US.
In the mean time, the DPRK regime is behaving in a vile manner even as its own people are starving.
China’s reforms demonstrate that DPRK can do a lot better economically without the Kim Dynasty being threatened.
Yet, it is unlikely that the Kim regime will do what it takes to avert this tragedy beside of bartering their nuclear program for fuel and food.
Perhaps the only party that has the capability and means to intervene is China. But it would be unacceptable to the ROK for China to intervene and set up another government that would set back Korean reunification for another century.
This would not be the case should China and ROK were to jointly intervene under the aegis of the UN.
For this to happen, a pre-negotiated outcome based on the Austrian State Treaty would have to come first.
My question: Will the ROK produce a statesman like Bruno Kreisky and Julius Raab?
This solution to the Korean tragedy awaits the arrival of a great Korean statesman.