Economy of North Korea

North Korea had a socialized, centrally planned, and primarily industrialized command economy isolated from the rest of the world. Command economic system can be defined as an economic system in which basic economic problems will be solved according to the commands given by the central planning authority or the government.

How does planned/ command economy answer the basic economic questions?

What To Produce:

• This question is effectively answered by the government.
• Consumer needs are often given lower priority as the government gives priority to medical research,scientific and space research and military production.

How To Produce:

• The production method decided by the government is labour-intensive.

For Whom To Produce:

• Goods and services are produced for everyone or for the community.
• Total distribution of production is also assisted by central planner's price fixing and the rationing of scare goods and services. This helps to minimize disparity in income gap.

Another significant fact is majority of property and resources owns to government where the government has the ultimate power. The government of north Korea owns and controls all resources. These include all natural resources, capital resources and labour resources. All transport facilities and the whole financial system are also government-owned. The government allocates all resources according to the central plan. The goal is to use the nation's capital, labor and natural resources in the most effective way possible. This pretty much eliminates unemployment by promising to use each person's skills and abilities to their highest capacity. Not only that, prices of consumer goods and services are fixed by government but not based on market forces. In North Korea, enterprises receive guidance and directives from the government regarding production capacity, volume, modes of production and course of their actions. This is because no firm is privately owned. The government is the final authority to take decisions regarding production, utilization of the finished industrial products and the allocation of the revenues earned from their distribution. Besides, the central plan sets the priorities for production of all goods and services. The goal is to supply enough food, housing and other basics to meet the needs of everyone in the country. In addition, it may have other priorities, such as mobilizing for war or increasing the nation's economic growth.

Well, there are some advantages and advantages of command economy. Firstly, the advantage is low level of unemployment.There is more equal distribution of wealth
and income,thus the income gap will become smaller. Besides,prices are kept under control and thus everybody can afford to consume goods and services. 

In North Korea, the government failed to satisfy people's needs and wants. This is because they have a little choices when buying good and services . Besides, resources will be wasted due to misallocation as they do not consider demand and supply. Another disadvantage is lack of innovations. There is little motivation for technological innovation by outsiders in a command economy. While the central government can sponsor research and development by individuals trained in the specific fields that interest the government, other individuals tend not to innovate without the profit motive.

By, Lee Sin Yee
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