Can a New Leader Save North Korea's Economy?

[Music] so the wild ride of 2020 continued this week with news that the leader of North Korea Kim jong-un was in critical condition and that his continued leadership of the nation wasn't necessarily guaranteed this has of course generated all manner of speculation given how secretive the Hermit Kingdom is at the best of times but even more so now with its future really up in the air North Korea is a heavily authoritarianism a four on the channel and found that its economy is not great it is very poor is heavily reliant on foreign aid and it lacks the kind of stability that would inspire the long term investment that it needs to move into the modern world now all of this is true at the best of times if you throw in the potential of an authoritarian state losing its central authority well all of these problems have just potentially gotten a whole lot worse the fate of the supreme leader is anybody's guess at this point we may not know for a very very long time if he is still alive and potentially that just may exacerbate the issue but we are not here to speculate we are here to explore this world event and how it could affect a frail economy like North Korea's either that all we are here to cash in on a topical issue by loosely spinning economics into the mix that's up to you to decide anyway why this is so important is because the economy may actually be the most influential part of the North Korean narrative at the end of the day it is the people of North Korea that will be the victims of any kind of turbulent regime change and on the flip side if there is any potential for economic reform they will be the ones to benefit from it which should be one of the primary motivators for the international community because economically liberated citizens tend to be more politically liberated citizens if just a few things go right this may very well be the case study to explore for an economic turnaround in our modern day so with that on board there are a few key issues we must explore here what will be potential economic outcomes of a leadership change be why is it that a dictatorship inherently makes for a poor economy what the potential outcomes will be for North Korea into the future how countries have dealt with this type of situation in the past and perhaps initially what is it that would stand in the way of a country like North Korea embracing a modern economic system and what is it that keeps them poor last time we explored the economy of North Korea we found that it had been through a bit of a rough ride they had had sanctions levied against them public funding misdirected towards an overbearing military and systemic instability that has meant that no genuine wealth can grow within the nation of course these barriers to growth are self-inflicted it's not like North Korea is some little angel in here but it looks as if no productive steps are being taken to address these issues internally or externally the most disappointing part of this is that North Korea should be a wealthy nation it is on the doorstep of the second largest economy in the world which is also an ally it has a wealth of natural resources and for a long time it was actually more industrially developed than South Korea which is of course going on to massively exceed North Korea economically in every regard this is a common narrative amongst a lot of nations Venezuela will rich African nations a lot of the Middle East all the natural resources in the world can't make up for systemic problems in the nation because it just makes them too difficult to do business with long term now anytime we have explored countries like this in the past we have written it off as a lack of stability and confidence in fact it almost wouldn't be in economics explain video on an undeveloped economy without mentioning it at least once lack of stability means that people are not confident investing money into a nation because they are unsure if they are ever going to see that money in return just think to yourself if you were in a position to invest into a new property of would you rather buy up property in the United States or Sierra Leone even if the potential returns were higher investing in Sierra Leone chances are most people would steer well and truly clear because the risks do not necessarily make up for the reward it only takes one military coup were a war or the government seizure of assets to completely wipe out your entire asset position and for skittish people like investors this pretty much makes it a deal breaker on a wider level this means that potentially developing countries are denied critical funding from equity investors and by extension they miss out on being able to build factories and roads and bridges and all the stuff that makes advanced economies advanced to get around this many countries turn to the global equivalent of subprime lenders like the International Monetary Fund or perhaps government backed banks with ulterior motives if only these countries could get around this instability there is no reason that this would be a problem people aren't afraid of investing into poor nations they are afraid of investing into unstable nations it just so happens that more times than not those two factors go hand in hand now dictatorships like North Korea introduce an interesting dynamic to this dilemma if we think about it objectively dictatorships could actually offer a certain level of stability a single leader for a ruling period that could be decades long one central point of authority no chance that some madman could get elected and ruin your capitalist dreams sounds pretty good right I mean sure the system might be corrupt but that's okay businesses can work around corruption but it can't work around instability I can factor bribes into my annual discretionary expense account but I can't properly forecast what a change in leadership will mean it sounds like I am joking but on a small scale we saw a positive market movement when Bernie Sanders announced dropping out of the presidential race so we you might be thinking dictatorships sound like great long-term investments where can I go on by one but hold your horses there are two major problems here the first is what we are experiencing at the moment if there is a change of leadership it is often far far more turbulent than a scheduled election that takes place every few years or so often times authoritarian rulers are intentionally vague about their successor because it means that nobody will get any bright ideas today that has meant that we have a real game of throne style leadership battle going on in North Korea even while it looks like dear old leader may still be alive so yeah it's not great the second major problem is that authoritarian rulers don't necessarily want to be facilitators of great investments almost every world leader has a common motive which is to hold on to power there is a very good argument to be made that they would never be where they are today if they did not possess this innate desire now while this sounds bad it doesn't necessarily have to be if you think of world leaders that are democratically elected through a rigorous and fairly conducted election you think of people like Angela Merkel Boris Johnson Scott Morrison Justin Trudeau and yes even Donald Trump they all come to mind all of these people are relentless leaders that have been extremely ambitious to get to where they are today but it just so happens that the best way for them to hold on to this power is to keep the voting populations of their nation happy so that they will vote for them in the next election democracy is just an effective way of aligning the goals of the people with the goals of global leadership and this is why we see things like massive stimulus packages being released all over the world today it's by no means a perfect system but the leaders of democratic countries will still want to keep their people employed in jobs because it means that they will hold on to theirs dictatorships though are a little bit different if you remove the power of the people to determine their leaders the need to keep them happy goes away with it the only chance that you would have to actually remove a leader in this position is an outright revolution so you want to keep that [ __ ] to an absolute minimum if you are a dictator one of the best ways to do that is to keep the people extremely poor if people are grateful for their next meal they aren't going to have time to formalize to overthrow some government and on the opposite end of the spectrum as people become wealthier they become more politically motivated there is a strong correlation between economic wealth and voter turnout in the United States and the same kind of function is seen all over the world and nations that become wealthier more wealthy people means more access to information more education more free time and more of a propensity to shop around for a better ruler all very bad news for a would-be dictator all of this means that there is very very little motivation for a dictator to raise a middle class it's a much better option for you personally to just split the limited wealth of the nation amongst the people that will keep you in power to explore it's unique to elemér further go on watch CGP grades rules for rulers video after this one I am happy to bow to the better man here and note that I will never be able to explain it as well as he does but anyway what this means for North Korea is this when we think of how to deal with these malignant militaristic entities we tend to think of invasion strategies or clandestine assassinations and sure these feel good as some kind of vindictive justice but would likely only serve to make the problems worse perhaps we shouldn't be wondering how to topple this regime but rather how to make the people in it richer we live in a time of rapid wealth generation our global output has almost tripled since the turn of the new millennium and this rapid march towards better tomorrow shows no sign of slowing down nations like China and India going through a period of rapid industrialization has brought billions of people out of absolute poverty and has created the greatest time of human prosperity in history sitting at the top of this success is a handful of developed countries these are countries like the United States Canada Australia Western Europe and the like all nations with very strong economic indicators they have large GDP sure but they also have wealthy citizens with good qualities of life these are what almost every nation on earth aspires to be but the problem is getting into this exclusive club is harder than it looks there is no set criteria that makes a developed country developed but there are a few indicators the first is a GDP per capita of around 20 thousand US dollars anything less than that and you're probably not getting in but we tend to look more so at things like life expectancy literacy rates and most importantly the types of industries that make up the nation underdeveloped countries to employ a majority of their population in farming developing nations tend to be primarily employed in manufacturing and developed nations in services now Services is a broad term but it more or less refers to anything serving a customer outside of directly adding value to a particular product the reason that wealthy countries tend to be primarily service based is because they are rich and because they have strong capital to support this kind of industry for example an underdeveloped country with no infrastructure no factories or roads or an uninsulated population is not going to have much choice but to go out and farm people need to eat and setting up basic farming does not require much startup capital but this type of farming does require a of labour to facilitate if there is just a little bit more investment into the economy a nation can start to operate modern farms that produce the same amount of food with far less human labour this means that people can find jobs in factories and add value to raw materials through manufacturing and hey presto you have become a developing economy if this investment into new infrastructure or education and technology keeps on going though things will logically keep on getting better and better suddenly a basic factory with hand tools and a hundred workers gets funded for a fully automated production line and only ten workers are needed but not to worry because this factory can now produce ten times the output the only limitation on how successful this Factory is now is how much of their product they can sell so they hire a marketing team and then they bring onboard consultants to make sure that they are developing the right type of product to meet consumer demand they employ an R&D board to develop a new product that they can manufacture even more cheaply and sell more profitably and suddenly the factory that used to employ 100 basic factory labourers is now employing just 10 laborers but using their most modern technology and ninety people responsible for directing the efforts of this production into the most efficient markets possible this sounds like a bad outcome filled with useless roles and look some of them marry well maybe useless middle management types that do nothing but desperately justify their own existence but this kind of structure is the reality of most modern companies operating in developed economies we dreamt of a future where robots would do all of the work for us and we would move into more creative roles or relax all day and you know what we are kind of already living in that reality now for those of you that feel short-changed are not being able to relax all day while a robot Butler does all your work just know it does kind of actually exist financial independence is a term thrown around a lot by business people or annoying YouTube ads but there are people that genuinely pay for their lifestyle with passive income from their investments now on a macroeconomic level those invest are ultimately into capital directly or indirectly they have been investing into those machines that made the work of a hundred men the work of ten and for that efficiency they are awarded by never needing to work again lucky then for everybody else well just be happy that you work in a cushy service role so the lesson here is that the status of an economy at the most granular level is determined by the capital that is available to them for their people to utilize of course there is no limit to the fine-tuning that goes beyond that with asset allocation taxation political systems and all of that fun stuff but it is very secondary to the bigger issue of capital making capital if we apply this logic to a nation like North Korea perhaps the best policy is to figure out how to get this kind of wealth into the nation without it being misdirected into naughty stuff like the military now not that I like to do it but I would kind of point the finger at China to be responsible for this one they have shown time and time again that they are more than willing to invest heavily into underdeveloped countries they are national allies with North Korea and China does want to maintain a communist buffer between itself and South Korea which you know what is probably fair enough so with that in mind an effective strategy may very well be just to enable and encourage this kind of productive foreign direct investment because there is a strong argument to be made that everything else will just work itself out so why is it that a dictatorship makes for a poor economy well that's the right question asked the wrong way it's simply that poor countries make for dictators the fate of the supreme leader of North Korea is anybody's guess at this point but this episode has shown that if nothing else a fragile economy like North Korea can be rattled by little more than rumors it's a great excuse for us to truly explore what is holding this kind of nation back is there all manner of geopolitical mind games going on in this region yes does the presence of nuclear weapons heat things up even more yes and is North Korea hard to do business with at the best of times well yes but if we can put all of this aside and look at what has the best shot to genuinely deal with these issues economic development looks like it would be a pretty good bet as the great jordan belfort once said i want you to deal with your problems by getting rich hi guys thanks for watching if you did enjoy please consider liking and subscribing if you really enjoyed please consider supporting the channel on patreon like these lovely people did it really helps to make these videos possible I also want to hear your opinions on the subject which you can share with me on our Q&A session post on our second channel or directly on a discord server links in the video description so hop on either of those guys thanks guys bye

Channel: Economics Explained

Views: 316,320

Rating: 4.8658972 out of 5

Keywords: the economics of north korea, kim jong-un, kim jong un, north korea economics, north korea economics explained, north korea's economy, north korea economy explained, the economy of north korea explained, the economics of north korea explained, dictatorship dilemma, the economics of north korea, what is the main difference between the economics of china and north korea, pyongyang, kim jon un economic policies explained, north korea economics policies, economics explained

Id: mRyi4xNi__k

Length: 18min 14sec (1094 seconds)

Published: Thu Apr 30 2020