The Kim Dynasty vs. the Stationary Bandit Model

“There is a great deal of ruin in a nation.”

i believe the stationary bandit model is flawed. an individual dictator, or other powerful agent, does have almost no incentive to max wealth before extracting her share. a poor country provides enough wealth for the political elite to live very well and to pay the “police”. diminishing marginal utility makes even more unnecessary. secondly, relative status is more important than absolute status if one cares to listen to the behavioral folks.

Not all bandits seek to maximize their income.

Was South Korea’s authoritarian leaders ever as rich as North Korea’s?

North Korea is more akin to the Soviet Union than to Singapore. All markets have been destroyed. The stationary bandit has limited the economic freedom so as to be able to remain in power for much longer but at the cost of not being more wealthy. I guess this could be because the utility function of the bandit (a)saturates at some point(i.e. he doesn’t care for more money) and (b)consists of terms other than wealth, such as power.

So short answer: the assumptions about the utility function of the stationary bandit are not satisfied in the case of North Korea.

The best explanation I’ve heard regarding the Kim Dynasty is something that was attempting to explain the oil states: in a place where you have a ruling family + oil, the rest of the population is simply a troublesome bother. You may need a few to provide you with your servants, but since you can hire experts from outside to pump the oil, etc, everyone else in the country is just a pain in the ass who may revolt randomly (so you need secret police, etc).

This applies as well to North Korea, where they may not have oil, but they’re quite skilled at basically holding their own population hostage to get goodies from the US or South Korea. Also, what little industry they do have is around weapons, which they sell and use to get cash from the South, China, and others in a sort of protection racket. Letting millions of non-Kims die isn’t a problem, and can be a “marketing” element to shake out more aid.

But the Kims don’t need to be hyper-rich in a material sense, although their wish is anyone around them’s command. They have to stay *in power*, as they’ll otherwise end up dead.

The stationary bandit model appears to imply that rulers have a strong incentive to improve nominal wealth and places little emphasis on the value of sheer power. It seems possible that a ruling family may be more concerned with relative wealth in their nation and place a high value on relative power. By suppressing freedoms of production the Kim family ensures their relative position within North Korea, although they may become relatively less wealthy in a global context. At the same time, the Kim family could claim to hold greater relative power over a single nation than most other leaders today. The combination of these desires, not addressed by the stationary bandit model, could seemingly lead to the realized outcome.

the problem that now faces North Korea is that even if Kim Jong Il’s successors want to move toward markets, the upper echelons of the North Korean power structure are stocked with elites whose lavish lifestyles depend on the status quo.

Many of those elites are in the military and few rulers pick a fight with their own military.

groups whose political power is eroded by progress will block technological advance

If agents are economic losers but lack political power they cannot impede progress. if they have and can maintain political power, they have no incentive to block progress

the elite blocks if they have political power and fear losing it if there is progress. they have both the ability and incentives to block progress.

The stationary bandit model assumes that the bandit is intelligent and educated enough to know how to create prosperity. It is sort of Hayek squared. Not only is centralized power unable to get the information required as promptly and efficiently as the de-centalized market, the centralized power may not know what to do with the data it does get.

Moreover, the typical bandit who becomes a territorial despot is usually an expert in violence and terror, not economics.

If you think about the “enlightened despots” of early modern Europe, they were not generally soldiers (Frederick the Great being an exception) and arose after the legitimacy and power of the crown had become virtually unchallengable. They picked many of their agents from the economically sophisticated bourgeoisie. After 1789, enlightened despots essentially disappeared from Europe because they were no longer able to trust the bourgeoisie and their legitimacy and power were under constant attack.

The stationary bandit model assumes more economic rationality and a longer time horizon in individuals of a certain background than historical experience warrants.

The following are Bryan’s own comments on Socialist incentives, from an earlier paper which I can’t seem to find now (I only have the excerpts I saved from it). Comments in square brackets are my own.

I do not blame the failures of real-world communism just on “inadequate incentives to work” (GS 2005, 2*), but also on perverse incentives throughout the whole system. The problem was not just workers who shirked, but also border guards who prospered as long as no one escaped alive, scientists who got dachas for building hydrogen bombs, Party members who knew they would be expelled or worse if they advocated economic reforms, and rulers who stayed in power no matter how many of their people died. “Socialists valued other things – such as ideological purity and power – more than economic results.”

But, GS (2005, 19*) ask, “wouldn’t socialist leaders also prefer, ceteris paribus, to rule over more economically productive societies?”– as Martin McGuire and Mancur Olson’s (1996) stationary bandit model of government suggests? Yes, but even under a traditional monarchy, the ceteris paribus condition is easily violated. Economic growth might allow subversive ideas into the kingdom, or strengthen rival power centers. A king who knows how to maintain a stranglehold over his backward society would be foolish not to wonder if he could retain control in the face of rapid progress. [I wonder how he explains China.] Furthermore, even a small, poor country can sustain an opulent lifestyle for one ruler. Due to the diminishing marginal utility of wealth, a king could make economic growth a low priority and still live like a king. [I wonder how he explains the poverty of African kings, relative to us, and their eagerness to escape it [see Blood Diamond]. And he forgets the need for enough wealth to create adequate incentives for the bureaucracy, even if only through extortion.]
For a government of revolutionary socialists, the Olson model is less relevant still. The whole point of their struggle, on which many bet their lives, is to impose their dogmas on their societies. If they have to choose between sacrificing their ideals and losing power, then they usually sacrifice their ideals, as Lenin did by adopting the New Economic Policy after the disaster of War Communism. On the other hand, if they have to choose between sacrificing their ideals and letting living standards plummet, they usually let living standards plummet. [Again, see China.]
If GS and Olson were right, the Soviet system would have eagerly adopted the link system. They could have raised lump-sum taxes substantially without even starving anyone. Instead, the experiments were closed down. Ivan Khudenko, the brains behind the biggest experiment, was sent to die in prison. As a Soviet journalist explained, “The experiment lasted only for one harvest and then it became clear that if Khudenko was right, the entire agricultural leadership was wrong” (ibid., 283). Once again, the bad incentives of socialist leaders were the foundation for the bad incentives of socialist workers.

[According to Google, quotes appear to be from a paper in Critical Review,: http://econfaculty.gmu.edu/bcaplan/pdfs/towardanew.pdf
with some portions discussed here:
http://www.econlib.org/archives/2006/03/the_socialist_c.html –Econlib Ed.]

I was going to answer: The Kim regime actually believes the Stalinist pap.

Jared wins by taking this one farther: The Kim regime can afford to believe the Stalinist pap. Plus the Stalinist pap has the added benefit of reinforcing their own role at the top.

Have you considered just how bad the 1950-1953 era of roving bandits was in North Korea? From Wikipedia:

“U.S. warplanes dropped more napalm and bombs on North Korea than they did during the whole Pacific campaign of World War II.[205] As a result, eighteen of North Korea’s cities were more than 50% destroyed. The war’s highest-ranking American POW, US Major General William F. Dean,[206] reported that most of the North Korean cities and villages he saw were either ruins or snow-covered wastelands.[207]”

Having read through the comments, I come to the opinion that the stationary bandit model is probably wrong.

I think that’s pretty much rapscallion’s take on it too.

It’s a good question; I was asked it in a debate last night.

I sort-of played with the answer last year: .

The short answer is that the regime’s power is very fragile, and depends on the legitimacy that comes more from being the ideological heir of the Great Leader than from being his physical heir.

I’d give an Acemoglu and Robinson story. If the Kims let up on oppression and allowed growth they would possibly lose power. If they did not lose power their wealth might not go up enough to justify the risk.

I agree with Warren. Suppose Kim undertakes policies to make the pie bigger. The only way to get the citizens to buy into the policies is to convince them that they will share in the gains. The only way to make sharing the gains a time consistent policy is to abdicate some political power. Abdicating political power however might undermine Kim’s ability to extract rents.

The stationary bandit model is flawed because it does not account for inflows of wealth via foreign aid. If foreign aid is tied to starving North Koreans then Kim has no incentive to create prosperity.

Mike Harris manages the most convincing answer and I’m betting he didn’t lose more than 4 seconds writing it.

I would say: prosperous compared with what? Would North Korea be richer if it was a chaos of multiple bandits and no security at all? I doubt it. North Korea could be worse than it is now.

In his Econtalk podcasts, Bruce Bueno de Mesquita specifically cites the Kim family as being able to keep control with the help of only a small number of other families. Thus they can all live in opulence extracted even from the minimal income of the North Korean population.

That is, the Ruler needs to grow the economy only to the extent his “electorate” is growing and/or expecting growing payoffs. In advanced economies the electorate is the general population, so the ruling political class invests heavily in public goods (govt-paid health care, pensions, etc) and must seek to grow the general economy to pay for them.

But if the “electorate” is small, such as the handful of military families in N. Korea, then the “divisor” of extracted wealth is small, and the Ruler and the electorate may be very happy to live plushly while securing their position of power against the disruptions that can be caused by economic development, by stifling it. They are rich already in the status quo, so making the country richer has little upside to them while it could cost them their wealth, power and necks. Taking steps to make the country prosper generally is a bad tradeoff for them.

In the podcasts he also emphasizes the importance of how specific conditions “on the ground” dictate the Ruler’s strategy with examples of how the same Rulers have acted very differently in different circumstances.

E.g., he cites Chiang Kai-shek as being a looter in mainland China where there was plenty of wealth to loot, and a ‘progressive’ economy-developer (by the standards of time and area) in Taiwan, which was poor and had to be economically developed for him to get anything out of it. Also King Leopold, an enlightened champion of the franchise, civil rights and free trade in Europe — and the mass murderer of millions as he looted the Congo.