North Korea on the Brink of Peace

It is difficult to know for sure what happens inside North Korea’s border. The despotic Kim dynasty has ruled there for over seven decades and has become ever more isolated from the international community. That is until this year. In 2018 the DPRK reached out to its neighbour, with whom it has been in a state of war since 1950, South Korea. North Korean athletes have crossed the demilitarized zone to form a part of a unified delegation at the Winter Olympics in PyeongYang. North Korea’s rhetoric of belligerence has given way to a call for ‘all Koreans at home and abroad [to] promote contact [and] cooperation between North and South Korea.’

The states protectionism, and the Kim’s totalitarian regime, has come at a great cost to North Koreans. Living standards are abysmal, lacking in basic necessities and any semblance of freedoms. Between 2004 and 2014 it is estimated, by Amnesty International and the US state Department, that defence made up almost a quarter of GDP. This is the highest in the world by some margin. Oman is a distant second spending 13.7% of its GDP on defence. The basic equation seems simple, Kim Jong Un is building nuclear rockets when his people need food. It may then seem obvious that North Korea could stand to gain from the demilitarization of its economy. However, as discovered by the international communities failed attempts to break the regime through economic sanctions, the sums aren’t so simple. In 2016 North Korea’s economy in fact saw a 17 year high in economic growth; rising by 3.9%. In fact this is not unusual for a military industrialised state.

The American Model

The simple historical truth is that there is no greater agent of economic growth than a war economy. The world’s number one in military spending, America, is a testament to this uneasy fact. Although America 2016 military spending, $611.2 billion dollars, comes in at, a comparatively paltry, 3.3% of its GDP it is built on a bedrock of military profit. America’s highest ever period of growth came during World War II. The war not only dragged America out of its greatest recession, the great depression, but propelled it to the largest economy in the world. It hit its record high in growth in 1942 at an incredible 18.9%. Perhaps even more incredible this was sandwiched between two years in which GDP similarly exceeded 17%. During this period America’s defence industry was a staggering 40% of its GDP.

Proliferating Productivity

Few deny that America greatly benefited from WWII economically. However the prevailing narrative is of a gargantuan effort, mobilising an idle workforce into mass productivity. The American war effort was no doubt an incredible feat but what this narrative ignores is one of the major reasons for the great depression. The previous century saw the industrial revolution, and the beginning of the 20th century saw the creation of Fordism. There was an almost unfathomable explosion in the potential for productivity growth in the Western world. Machines, factory, electronics, telecommunications and automobiles sped production and slashed the costs of comparatively expensive wages. Unemployment skyrocketed and with it any chance to profit from the low cost commodities being created. The chance for investors to collect revenue from their fabulously efficient production lines evaporated.

Public Purse to Private Profit

The war in Europe created a new market and balanced the equations of American over-productivity. America had to borrow to invest, their national debt rose from $3 billion in 1939 to $45 billion by the end of the war. This money was ploughed into American industry, facilities and equipment were lent to corporations who then sold the goods back to the state and to allies in Europe. Business was booming, and research was increasing productivity capacity even further. Following the war the infrastructure was sold to these corporations, often for a fraction of their original cost. Further to this, financiers, insurers and investors who were funding the American state’s spending spree were pocketing huge returns on stable investments. As the blood stopped flowing the market dried up.

Real growth did not return until the Cold War and with it the need to arm the ‘defenders of the free world.’ An objective historian would recognise these buyers as sometimes democrats, sometimes dictators – always great sources of revenue. Once again corporate profits and American living standards skyrocketed in line with government borrowing. By the end of the Cold War American debt stood at $3.2 trillion. National debt can be misleading. The debt itself does not matter so much as the ability of the state to meet interest payments on these loans and therefore keep themselves solvent. The money to do this has to come from taxes. However the corporations whose profits were massively accelerated by the war actually reduced their share of the tax revenue generated, from 50% in 1945 to 1% today. Working and middle class families in America, now employed by these businesses have footed the bill. 

Declaring War on Low Living Standards

North Korea has struggled to replicate the American war economy for one major reason. Kim Jong Un’s stunted growth is a result of a dearth in foreign trade. Recent booms, including that of 2016, align with the huge expansion of Chinese military power, the major importer of North Korean goods and armaments. North Korea will need war to pull its people from poverty, just as America did in the Great depression. America has one more valuable lesson to teach.

In the modern era America has sated its need for war in the Middle East. The fortuitous circle has continued for corporations. The boom has been paid for with lives in the middle east and taxes on the working and middle class. But the effectiveness of the ‘war on terror,’ to lubricate the war economy, shows something vital. The positive impact of war on economic growth is not slowed by abstraction. It is not interstate war, nor arms races that create these optimal conditions. The benefits resonate from a system of mass-investment, increased profits and taxation. Production capacity being necessitated by demand.

If Korea reunifies it is likely that much of South Korean wealth will be needed to aide the North Korean people. This should take the form of Universal Basic Income. By gifting a population a living wage they would create demand which modern production capacity is well-equipped to meet. Businesses and corporations would have the war they need to grow. A workforce able to survive, but not flourish, without work also allows businesses to pay lower wages, increasing their profitability. A bottom line that is already improving rapidly due to the possibilities of automation. The debt burden of the state of course would have to be paid in the long term, just as it has been in the past. The best way of doing this would be through capital gains tax and corporation tax, so that the ensuing swell in profits sustains its own growth. North Korea, and the world, should declare war on low living standards.

 

 

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