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North Koreas Government and Economic System

North Koreas Government and Economic System

In 1974, Richard Easterlin, a professor of economics from the University of Pennsylvania, formulated the Easterlin paradox (Clark et al., 2008). This paradox suggests that the level of happiness is determined by the nation’s income and its relationship with other countries. This paradox has been studied numerous times since it was formulated, and most results show that there is indeed a correlation between a nation’s economy and its citizens’ happiness levels (Clark et al., 2008). There are various types of economic systems that are being used around the world today, including capitalism, socialism, and communism (Schaefer 2011). These economic systems display very different happiness levels in the nations they are used in.

North Korea is a communist nation with a centrally planned economy. In North Korea’s case, a centrally planned economy, a communist or command economy, is an economic system controlled by a central authority, the government (Cargill and Parker 2010) (Schaefer 2011). Accordingly, this central authority makes financial decisions regarding what to produce, how to produce, and who the consumers are. Additionally, all the companies that do all these manufacturing and distribution are state-owned enterprises, meaning that the government controls them. Many economists have always criticized this kind of economic system because it suffers from numerous financial problems associated with poor incentives, informational constraints, and inefficiency.

Various determinants are used to analyze a country’s level of happiness based on its economic system. The first is the gross national product and the gross domestic product. Both of these typical national financial measures are indicators of successful policies. Citizens in wealthier countries have been shown to have a higher level of happiness than those in poorer ones. In 2021, according to the Index of Economic Freedom, North Korea’s GDP was at 19 billion dollars. Additionally, its economy is severely repressed, and since the initiation of the Index in 1995, North Korea has ranked the lowest in the world every year.

The second determinant is an individual’s income. In 2010, Daniel Kahneman and Angus Deaton conducted a study and found out that high-earning individuals had more satisfying lives and that a person’s everyday emotional well-being improved as their earnings improved as well. Using this determinant to look at North Korea’s citizens’ level of happiness, one would conclude that they are not a merry country. For instance, entrepreneurial activity is not allowed and is even seen as a threat to political control. Besides, resource flows to and from enterprises and individuals are controlled directly rather than through a neutral fiscal policy. Further, the government is riddled with corruption and bribery.

The fourth determinant of the level of happiness is economic freedom. Even though countries with financial freedom continue to have increased wealth inequality, studies show that the residents’ satisfaction levels are high. However, in North Korea, with a centrally planned economy, there is no economic freedom, prices are controlled by the government, industries are owned by the government’s and any private companies allowed are used to boost the government’s revenue. Individuals are bound to be unhappy and stressed with such strict and oppressive rules. Additional economic determinants of happiness that North Korea does not meet include providing financial security to its people and high unemployment rates. According to the Index, in 2021, the unemployment rate in North Korea was at 25.6%

Effects of North Korea’s Economic System on its Relationships with Other Nations

Like any other system in the country, North Korea’s economic system is dominated by communism. This has largely affected all of North Korea’s foreign relationships with other countries. Most if not all, international allies that North Korea has have communist governments. For instance, North Korea has extensive trading relationships with China, Russia, and a few Eastern European countries. Besides, according to North Korea’s constitution, any foreign trade will be done by state organizations or enterprises. The communist government would be in charge of any transaction with foreign companies. Knowing that the goal of communist societies is essentially global communism, most nations tend not to associate themselves with North Korea.

Nevertheless, in the 1990s, North Korea faced multiple natural disasters, like floods and drought. These events forced the country to open up to form relationships with other countries, mostly the U.S. and Japan, in efforts to secure aid from them (Park 2004). However, this relationship between the U.S. Japan and North Korea did not last long; by 2006, there had been practically zero trade except for U.S. aid deliveries. According to Nanto et al. (2009), North Korea had cut off any trade activities with the U.S. and Japan, except for accepting the aid deliveries from the former. Additionally, the report states that at the time, in its international trade accounts, North Korea had been running an estimated one billion dollars, which it funded mainly through receipts of foreign assistance and foreign investment, through exports of arms and several problematic activities, creating bad credit for the country. Furthermore, being a country with an economic disaster, with a majority of its resources going towards weaponry, other countries are wary not to form any kind of association with North Korea.

Nonetheless, even though most of North Korea’s international relationships are uncertain and fleeting, two nations remain its main allies: China and the Soviet Union. This is chiefly because these two nations sent troops and resources to North Korea during its war with South Korea, and they all have communist countries.

Attributing a Country’s Problems to its Economic System

Most problems in the world arise from scarcity. For instance, scarcity of food leads to hunger, shortage of healthcare services leads to more fatalities, and absence of job opportunities leads to unemployment, homelessness, crimes, and substance use. Additional problems are a lack of pay to employees and a lack of stable law enforcement leads to gangs, militia groups, and other instabilities (Dixit 2008). The basic definition of economics is essentially seeking to solve issues of scarcity. On the other hand, scarcity means that the human wants for resources, goods, and services exceed the resources available.

Every country must decide how to allocate its resources; for instance, North Korea chooses to devote a majority of its resources to making weapons, particularly nuclear ones. Sadly, with a centrally planned economy, there are not enough resources for the country to spend on weapons and still take care of its people. This leads the nation to numerous problems; for instance, in 2020, during the pandemic, the country’s economy shrunk the most in a period of 20 years since its previous economic disaster in the 1990s. Besides, the government is known to have an industrial capital stock that is practically beyond repair due to years of underinvestment, shortages of spare parts, and poor maintenance. Moreover, since only 14% of its land is usable for farming, the land has become overused and destroyed by chemicals and fertilizers over the years due to poor maintenance and poor farming methods. Consequently, a large portion of the population suffers from prolonged malnutrition and poor living conditions.

In conclusion, good economic governance is vital to building a solid economy with numerous investment opportunities, a high employment rate, poverty reduction, and a fight against corruption. Therefore, to help reduce the problems a country faces, it is crucial that an effective and well-governed economic system is set up.


Cargill, T. F., & Parker, E. (2010). Economic reform and alternatives for North Korea (No. 10-008).

Clark, A. E., Frijters, P., & Shields, M. A. (2008). Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46(1), 95-144.

Dixit A.K. (2008) Economic Governance. In: Palgrave Macmillan (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London.

Nanto, D. K., & Chanlett-Avery, E. (2009, June). North Korea: economic leverage and policy analysis. LIBRARY OF CONGRESS WASHINGTON DC CONGRESSIONAL RESEARCH SERVICE.

North Korea Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption

Schaefer, R. T., & Haaland, B. (2011). Sociology: A brief introduction (p. 512). New York: McGraw-Hill.

Park, S. B. (2004). The North Korean economy: current issues and prospects.


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Government and Economic Systems
In this week’s lecture, you learned about some of the economic systems that are being used around the world today – communism, socialism, and capitalism. In this assignment, you will choose a country to analyze in terms of how its economic system affects its citizens and its relationship to the rest of the world.

North Koreas Government and Economic System

North Koreas Government and Economic System

For example, you may want to analyze the relationship between the communist USSR and the United States during the Cold War. Or, you may choose to analyze communist North Korea or socialist Sweden.

Answer the questions below or others that you think are particularly relevant:

What is the level of happiness among citizens, and how is that happiness (or unhappiness) related to the economic system?
How has the economic system affected – positively or negatively – the relationship of that country to the rest of the world? Is the country involved in any conflicts with other countries or do problems exist within the country?
How, if at all, can a country’s problems be attributed to its economic system?

Use real-world examples and sociological concepts covered in this course to illustrate your position. Above all, your paper should clearly illustrate how the government and economic systems of a country are significant and relevant in terms of answering these kinds of questions.


Four double-spaced pages (not including the cover or references pages), 12-point font, and APA format.
Reference at least two outside sources in addition to your textbook, and cite your sources appropriately.
See the How to Score Well Rubric Download How to Score Well Rubric to understand how you will grade this written assignment.

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