Regrets about the Nobel Prize in Economics

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Regrets about the Nobel Prize in Economics

Published: 07 Nov. 2024, 20:01

Jwa Sung-hee
The author is distinguished fellow of the Korean Institutional Economics Association and former CEO of the President Park Chung Hee Memorial Foundation and the Korea Economic Research Institute.

The Nobel Prize in Economics has twice disparaged Korea’s economic Miracle on the Han River. The economic theories that won the Nobel Prize in Economics have disappointed Korea again this year, following 2019. The experimental economics theory of RCT (Randomized Controlled Trials) by MIT Professors Abhijit Banerjee and Esther Duflo — which won in 2019 — didn’t understand the success principles of the Saemaul Undong (New Village Movement) in the 1970s, the core economic development experiment that led to the economic Miracle on the Han River. This theory has been imported and is undermining the miraculous achievements of Saemaul Undong, harming the Korean economy. Furthermore, this year’s winning theory — the so-called inclusive growth theory by MIT Professors Daron Acemoglue and Simon Johnson and University of Chicago Prof. James Robinson — doesn’t correctly explain the economic Miracle on the Han. Yet, it pretends as if their theory explains it well, completely misleading the Korean economics community.

The RCT experimental economics of 2019 borrowed its idea from clinical trials in medicine and proved by experimenting with small groups of people that giving incentives changes economic behaviors. However, the RCT pales in comparison to the policy of the “economic differentiation based on performance,” which is, “never fail to reward a merit nor to let a fault go unpunished” that the Saemaul Undong experimented with on a national scale over 50 years ago. The former President Park Chung Hee, who made the miracle possible, adopted a strict reward and punishment policy that only supported successful villages and left out unsuccessful ones from the Saemaul Undong game, motivating all villages and villagers to work hard for better performance. This rivalry created a self-reliant populace and economic progress. This policy initiative generated miraculous economic results in less than 10 years by eradicating poverty and increasing income, leading rural incomes to surpass urban incomes.

Now, the RCT experiment, which has gained fame by winning the Nobel Prize, has created the myth that government support without a fault punished can overcome poverty and has been imported, becoming a poison that undermines the self-reliance spirit barely revived by the Saemaul Undong by guaranteeing income without a fault punishment through the name of basic income and safety income.

Furthermore, the Saemaul Undong starkly contrasts North Korea’s Chollima (swift horse) Movement, which failed without the reward and punishment incentive system while forcibly mobilizing the entire population. Park Chung Hee’s economic differentiation strategy according to the performance — which raised all citizens by saying he would abandon them if they don’t perform — saved South Korea from 5,000 years of poverty and realized an economic powerhouse that is now recognized worldwide, while North Korea — which boasted that it would save everyone equally — has fallen to become one of the poorest countries in the world.

This year’s Nobel Prize-winning theory claims to be based on such experiences of the Korean Peninsula. In short, it argues that if a country politically dictates and exploits its people like North Korea, it will fail. It sounds obvious that if a country follows liberal democracy, guarantees the rule of law and property rights, and allows freedom like Western advanced countries, it will develop, but it sounds like repeating claims that have been ineffective. However, according to the prize winners, Park Chung Hee, who led the Miracle on the Han, was a dictator that should never have happened, yet he made a miracle possible. Didn’t China, Taiwan, and Singapore, which joined the economic Miracle following Korea, also have dictatorships no less than Park Chung Hee? Has any developing country achieved such an economic miracle through Western-style democracy in the 20th century?

Moreover, didn’t the industrial revolutions of advanced countries, including Japan, succeed under incomplete democracies under absolute monarchies, exploiting colonies? Then, why do these so-called advanced economies — which are supposed to be models today by their standard — all suffer from low growth and polarization? History seems to imply that democracy may not be the sufficient or even the necessary condition for economic development. It rather implies that the question of what kind of democracy would be more conducive for development needs to be addressed.

In addition, this year’s winners seem less than frank. In interviews with the Korean media, they acknowledge the remarkable export achievements of Park Chung Hee’s Miracle because they cannot deny a fact. Still, they make somewhat absurd and contradictory claims that the Miracle was possible because of political democratization after the Park Chung Hee era. When asked how China succeeded, they give irrelevant answers that it will fail if it does not democratize in the future. They don’t seem to understand the basic principle of development that both democracy and dictatorship can only succeed if the economically differentiated incentive system of reward and punishment, like Park Chung Hee’s, can create a self-reliant spirit among the people, the necessary ingredient for development. Instead, they are advocating for Western inclusive, egalitarian democracy, leveling down everyone by demotivating with lax support without penalty for lousy performance. This author has shown that the current economic stagnation and worsening income distribution of the world may stem from the egalitarian (probably inclusive) democracy disregarding merit without fault recognition rather than the market democracy with the strict principle of the dispensation of justice by helping only those who help themselves, contrary to the popular arguments or this year’s Nobel prize-winning theory.

Has any developing country achieved such an economic miracle through Western-style democracy in the 20th century?