Economic freedom

Last week I wrote about the effectiveness of sanctions, basically saying that they aren't. Recently I came across a Wall Street Journal article from late December that seems to support my thinking.

First some brief background: A few years ago North Korea implemented some limited economic reform measures that included things such as price liberalization and the allowance of small markets to operate. I remember thinking at the time that either the whole thing was a sham or that it wouldn't last. I just couldn't imagine North Korea actually allowing anything remotely resembling free markets to take place inside the country.

Anyway, here's the latest:

[North Korea] is reversing liberalizing steps taken starting in the summer of 2002 that were designed to increase the role of markets in its socialist economy. Wages were increased and state enterprises were instructed to focus on profitability. Decision-making was decentralized and private sales of food and manufactured goods were legalized.

Much of the focus was on agriculture. Collective farms had to deliver a portion of their output to the state-run Public Distribution System for sale to citizens at subsidized prices. But the rest could be sold at higher prices in the market. Farmers also were permitted to till private plots and sell produce in small markets that had sprung up around the country....

But recently, the government abruptly changed course. Soldiers were deployed to guard fields and monitor the harvest to make sure all rice and other grains ended up in government warehouses. Aid workers say the government purchased the grains at prices well below those prevailing in the market.

The apparent goal is to revive the ration system, say aid workers and experts. Instead of going to the market, women now queue up in food-distribution centers, where officials behind a bank teller-like window dispense grain through a chute, aid workers say. People are allowed to purchase a fixed amount of grain at subsidized prices....

The revival of the ration system also gives the government an important tool to control the population. "The government's influence over its people has diminished with the rise of the market," says Lee Young Hoon, an economist who tracks North Korea for South Korea's central bank. "The government doesn't want to stand by and let this happen."

Under the current system, says Mr. Frank, the University of Vienna economist, people who are employed receive larger rations than those who are unemployed, a sign, he says that the government is using food in an effort to prod people to return to state-run factories. Many have largely abandoned their jobs in the centrally planned system in order to earn a living by trading and working in the informal sector. "They're very uncomfortable. They want to have people back in the system," says Mr. Frank.

Taking control of food sales also allows the government to clamp down on flows of money that have created rival power centers. "Some in the elite started making money. And power groups started to form around the flow of cash," says a senior U.S. official involved in North Korea policy. "There is a high level of discomfort with the redistribution of wealth and the new loyalty groupings that have been forming around people with access to money."

The biggest threat to dictatorship is free markets and free trade. It's a virus that I am convinced would absolutely destroy Kim Jong Il if given the chance.