Serving as one of the most well-known and influential conservative think-tanks within the U.S., the Heritage Foundation has become known in Washington for its championing of ‘free-market’ principles alongside a host of other values, such as limited government, “traditional” values and an independent and “strong” national defence strategy. Recently vocal in its opposition to Obama’s health care reform and environmental legislating, the Foundation has also reserved particular hostility for the notion that U.S. foreign aid can be of significant benefit to U.S. national interests, finding that “rather than focusing on the level of aid, America should focus its efforts on encouraging developing countries to adopt policies conducive to economic growth and development”.
Unsurprisingly, U.S. aid to North Korea has never proved to be a particularly popular strategy amongst those at the Foundation – both in economic and political terms. Arguing that those who depend on U.S. aid “are more likely to fall behind economically than they are to prosper”, the Foundation’s Index of Economic Freedoms aims to prove that aid “often stimulates rent-seeking behavior by the politically well-connected, weakens institutions of democratic governance, and perpetuates the corrupt regimes”. Indeed, and as has been stated elsewhere, it is no secret that the Index’s desire “to show the ineffectiveness of economic assistance in general and of the USAID program in particular” has long garnered the Heritage Foundation “an influential and supportive clientele in the US”.
Stating in the Index that “the choice is a simple one: for or against economic freedom”, the Heritage Foundation defines economic freedom as “a condition or state of being in which individuals can act with autonomy while in the pursuit of livelihood…[and where] the power of economic decision-making is widely dispersed, and the allocation of resources for production and consumption is on the basis of free and open competition”.
Putting its theory into practice, the Index measures ‘economic freedom’ in ten equally weighted categories – property rights; freedom from corruption; fiscal freedom; government spending; business freedom; labour freedom; monetary freedom; trade freedom; investment freedom; and financial freedom. Ranked on a scale of 0-100 in each category, the results are then averaged to produce each state’s score of economic freedom.
It may not come as much of a surprise that North Korea has continuously found itself at the bottom of the Heritage Foundation’s Index of Economic Freedom – ranked as the least economically free country in the world. Registering a score of just 1/100 in 2012, North Korea (179th) finds itself in the unenviable position of being behind Zimbabwe (178th: 26.3/100), Cuba (177th: 28.3/100) and Libya (176th: 35.9/100). Yet while many would not quarrel with the suggestion that North Korea’s ruinous economy is hindering the economic freedoms of its peoples, a number of questions concerning the Heritage Foundation’s assessment of North Korea –namely its methodology, data and motivations for even including the country in the Index – need to be addressed.
In terms of methodology, there have been questions posed concerning the Heritage Foundation’s data modelling from both the left and right. Typical criticisms of the Index’s methodology have mainly focused upon two issues. Firstly, the equal weighting that the Heritage Foundation affords to a state’s score in each of the ten categories has attracted criticism on the basis that certain categories, such as fiscal freedom, may impinge on one’s economic freedoms far more than others, for instance freedom from corruption (as will be discussed) – meaning that the Index’s overall averages can be poor indicators of a state’s economic freedoms.
Secondly, the Index’s belief that economic freedoms can somehow be divorced from political freedoms, such as those listed by Freedom House, may be seen as overly reductionist. Whilst the segregation of economics from the political or social sectors is commonplace within academia, this fills a purely analytical purpose and falters when transposed to the ‘real world’. Consequently, any index that ranks Singapore (2nd) or Bahrain (11th) above either the U.S. (10th) or the UK (14th) in terms of ‘freedoms’ is always going to leave itself open to criticism.
The data used by the Index presents further problems when assessing North Korea. North Korea’s score of 1/100 comes by way of it scoring 5/100 in both the Property Rights and Freedom from Corruption categories – a point that many Chinese and South Korean businesses that have entered the North Korean market may agree with. Yet, as Transparency International have repeatedly noted in their exclusion of North Korea from their Corruption Index, the near total absence of reliable data on these issues renders any reliable assessments unfeasible.
In terms of the Index’s ranking of North Korea’s regulatory efficiency – Business, Labour and Monetary Freedoms – shortfalls in the compilation of its data on the country are also evident. As North Korea fails to publish its budget with any statistics and is not a member of either the World Bank or the IMF (which would require hard data), it will always be tricky assess these areas within North Korea. Consequently, with the World Bank’s 2012 ‘Doing Business’ report acting as the Index’s primary source of data for its Business and Labour categories – and thus being useless for North Korea – its score is then based upon “qualitative information from reliable and internationally recognized sources” and “subjective assessments”. Similarly, when determining North Korea’s Trade Freedoms, the Index again uses the World Bank – this time its 2011 ‘World Development Indicators’ – despite this data offering little testimony to base a meaningful score upon.
It is unclear how the Heritage Foundation complies its qualitative data on North Korea (is it through consulting NGOs, refugee accounts, WFP data or experts on Korea?), but if the data on North Korea is either unreliable, highly subjective or perhaps totally absent, why does the Heritage Foundation then insist upon entering North Korea into its index year after year – especially when competitor indices, such as the Fraser Institute’s Economic Freedoms of the World Index, exclude North Korea due to a lack of hard data – and when even the Index’s authors admit that “data collection is extremely challenging, and reported information is largely unreliable” for the DPRK? In a recent article for Foreign Policy, Marcus Noland touches upon these very issues of data collection, claiming that “when I am asked where I get my data, I normally reply, “I make it up.” And I’m only half-joking”.
What is more, North Korea’s inclusion appears even odder in relation to those countries which are not included in the Index, such as Iraq, Afghanistan or Lichtenstein. Surely data is easier to come by for these countries than for North Korea, so why does the Heritage Foundation keep on including the DPRK in its Index?
It may be of interest that the experts used in the Index have previously voiced serious grievances over the North Korean regime. For instance, Kim R. Holmes stated in a speech delivered to the Institute of Corean-American Studies in 2006 that “the most important issue is not how much oil we give to North Korea. And it wants a lot…It looks like too much was given away or punted down the road”. Similarly, Bruce Klinger is not well known as an aid-advocate for North Korea, finding the country to be “needy, but not yet worthy”, and “in the words of a Korean adage, “Pouring water into a cracked pot is worthless”.”
What is more, according to Sourcewatch, the Heritage Foundation received funds of $2.2 million in the 1980s – well before the Index of Economic Freedom was initiated – from the Korean Central Intelligence Agency, who later claimed that they ‘encouraged’, rather than directly provided, the donation. Similarly, Right Wing Watch also notes that the Foundation has received donations from the Korea Foundation, an organisation affiliated with the South Korean Ministry of Affairs.
These examples do not evidence or imply any concerted bias on behalf of the Heritage Foundation, but what they do suggest is the age-old struggle between structure and agency. Where a publically funded organisation’s self-stated mission is “to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense”, its output – the Index of Economic Freedom – can never be value-free.
If one is to argue that North Korea has been harshly treated within the report, are there indicators that point to any improvements in its economy?
The short answer is yes. Yonhap recently reported that North Korea’s per-capita GDP grew nearly 5% in 2011 (the CIA ranks North Korea 191/225 on this issue), whilst production at the Kaesong Complex rose 14.4% reaching $369.9 million, up from $323.3 million in 2010. Assuming that China’s statistics are also fairly reliable, one could also note that Sino-North Korean trade increased by a staggering 62.5% reaching $5.63 billion in 2011, up from $3.46 billion in 2010.
As was mentioned earlier, one may also argue that fiscal freedom within North Korea has risen in recent years, especially since its currency revaluation, with the proliferation of the black market. Acting as a wholly unregulated, informal and economically ‘free’ (in relative terms) sector, North Koreans that are engaged in black market activities are undoubtedly more ‘economically free’ than in previous years, which theoretically should push North Korea’s score up the Index. As Haggard and Noland’s working paper on bottom-up economic reform within North Korea showed, famine-induced marketisation “has become an enduring feature – a constant – of the North Korean economy” with many North Koreans deriving the majority, or all, of their incomes from private business activities, particularly trading.
Whilst these examples do not evidence a North Korean economy that has experienced dramatic or even noteworthy improvements – and it will be interesting to see if its new economic plan can instigate any growth – it does seem amiss for the Heritage Foundation to overlook these areas by viewing North Korea’s economy through a monolithic lens. Based on the available evidence, there is a much stronger argument that both the North Korean economy and economic freedoms for North Koreans have gradually improved over the last decade – although the correlation between the two is not necessarily relational. Indeed, Andrei Lankov has recently argued that improvements in the economic security of North Koreans can be measured in varying terms, such as starvation (rather than undernourishment) posing less of a risk to North Koreans due to the presence of food markets and the increasing numbers of entrepreneurs running private businesses. Of course, Lankov concedes that this does not indicate any “consumer paradise” within North Korea, far from it, but it does show that economic growth and increasing freedoms in both the formal and informal spheres are now “real and palpable”.
Heritage Foundation did not respond to a request for comment.
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