Bryan Caplan  

The Kim Dynasty vs. the Stationary Bandit Model

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Question from the final exam for my graduate Public Choice class:
The Kim family has ruled North Korea for three generations.  Doesn't the stationary bandit model imply that the country should be prospering?  If so, what's wrong with the stationary bandit model?  If not, why not?
No one gave quite the answer I was looking for.  Care to share yours?

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COMMENTS (40 to date)

"There is a great deal of ruin in a nation."

dafydd writes:

[Comment removed pending confirmation of email address and for policy violations. Email the to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

petrik runst writes:

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.

jsalvatier writes:

One of the things the Kim family consumes is "being in charge".

Jody writes:

Not all bandits seek to maximize their income.

Brandon Berg writes:

N = 1.

david writes:

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

Philo writes:

The autocrat would like to be as rich as possible, but his main concern is to keep himself in power. As the ruler of even a poor country, he will have plenty of consumer goods available to him, including the positional good of being the ruler, and the pleasure of picking his successor (e.g., his own son). Being the ruler of a rich, rather than a poor, country would be only marginally better for him.

If he can ensure his power while promoting prosperity (Lee Kuan Yew, Queen Victoria), he will do so. But if his power depends on his promulgating a plausible but misguided ideology (Lenin, Stalin, Mao, Kim), he will do that, even though it leaves his country impoverished.

Sid writes:

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.

Vladimir writes:

Insecure property rights, especially with regards to inheritance (i.e. succession). Plus some genuine ideological craziness.

Foobarista writes:

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.

James writes:

Well, the best I can do is bet that no one gave the answer you wanted because there are so many parts to it. Here's a poorly articulated and incomplete list off the top of my head:

- "An" incentive. While it's nice to have "more resources," some resources, like the power to kidnap people to attempt to create a film industry, are unique and priceless.
- Simple ignorance, or any other personal flaws. Don't assume rationality.
- Time and scale issues, preferably combined with ignorance. A dictator can be destructively extractive for some period of time and still maintain themselves and their necessary underlings. That might be longer than one or several lifetimes.

It might be more informative to consider historical powers whose lifecycle is essentially complete. Is or was there a longer standing bandit? Reading the SBM description reminded me strongly of the Huns and the theories of their attitude towards Rome.

Another reason I think you didn't get the answer you wanted is that your class is small.

Woj writes:

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.

Mike Harris writes:

Even stationary bandits can be incompetent

Jim Rose writes:

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.

Jared writes:

"No one gave quite the answer I was looking for. Care to share yours?"

In brief, the stationary bandit model assumes that the dictator-bandit has only instrumental preferences over wealth, and no expressive preferences. But being dictator of even a very small country implies a level of wealth that most can scarcely imagine. At such levels, the likelihood that individual leaders might place weight on their expressive preferences (i.e., "I have always wanted the policy to be X", irrespective of whether X works) is entirely plausible.

That is, rather than modifying the stationary bandit a la Wintrobe (wealth-power preferences), modify it a la Brennan & Lomansky. Being wrong about policy will scarcely change the lavish lifestyle of the Kims, but can kill millions. But getting one's way--when costless?--is also priceless.

JeffM writes:

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.

BLM4L writes:

Well, just to give a different answer and one that springs into my head: the roving/stationary bandit model just assumes that there is a single "bandit" with unitary goals and aims, ignoring what dynastic and clan-based societies knew as the "younger son" problem.

Even autocratic regimes have interest group politics within them. Here, I am thinking that the military and various forces within the bureaucracy are all competing for goods - like the old Red Army v KGB v Minister of Industry in the Politburo. Sure, it's all in these insiders interests to band together an not overpillage the country....but that is a collective action problem too.

And the ruler cannot wish this away because he needs the support of insiders to rule.

Another example is medieval europe (Charlemagne's sons come to mind)...another is Chicago drug dealers... see:

Ultimately, the model is like a humunculus - it basically assumes away the collective action problem, eliminating external rent-seekers and ignoring ones internal to the government.

Saturos writes:

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,:
with some portions discussed here: --Econlib Ed.]

Saturos writes:

I actually have a few related questions for Prof. Caplan, if he has a moment to answer.

1. If the famine in North Korea is caused by minimal production under collectivised agriculture, and if collectivised agriculture fails fundamentally due to lack of incentives, then can't Kim Jong-il quite legitimately say to his people: "Your starvation is your own fault. Because you are too lazy to produce, you are starving. I have not taken away any of your productive capacity, I am only redistributing your produce amongst you. You are still physically capable of producing enough to feed yourselves, and if you choose to yield to laziness because of a lack of individual incentive to produce, you are causing your own hunger. If each of you produced as much as before despite redistribution, instead of substituting leisure for work, then collectively you all would have enough to eat." Assuming he could plausibly deny any accusation of stealing from the people for himself (to them), and assuming that he would even bother to address his people like this, wouldn't he sort of have a point?
2. I was rereading Sheldon Richman, "War Communism to NEP: The Road from Serfdom", which I still think is the best brief overview of communism in practice. (Though your CEE piece isn't bad, either.) He quotes Jack Hirschleifer: "The attempt to run an entire economy like an army, extending to the requisition of crops, the conscription of labor, and the abandonment of money accounts failed utterly.'' Which begs the question - how is it that armies manage to operate as well as they do, if incentives are the prime economic problem? Isn't the 'incentive' armies most rely on obedience and coercion - and a sense of duty, self sacrifice and collective identification - the same ones used by Communism?
3. Where could I find more empirical information regarding the inefficiency of slavery in general?
4. You have said that you believe that the root cause of the Soviet collapse was basically that after a couple of generations, relatively decent people manage to get into power, creating enough political freedom for internal collapse to occur. I wonder how this meshes with Hayek's Road to Serfdom arguments? Anyway, if that's your theory, then what are the implications for North Korea? How do you expect history to pan out for this state? When and in what form do you expect a collapse to occur?
5. What's the quickest way to win an argument with a Marxist? [In a way that will actually shut them up, if not change their mind.]

Really, I would appreciate answers to any of these questions. Thanks in advance.

MikeP writes:

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.

PrometheeFeu writes:

First, as Daniel Kuhen recently pointed out, rational agent models aren't descriptive of reality. They do well at describing large numbers of people. But there is nothing but assumptions that stand for the proposition that a single individual (or small group of individuals) will act in their own best self-interest.

Second, I think it's a mistake to think of the Kims as a unitary actor. The DPRK faces collective action problems when various factions within the government strive for their own self-interest.

Third, there are diminishing returns to wealth and I would wager that the Kims have reached a level of wealth that is so great that there is very little they want and cannot get. From then on, why not indulge in their own policy preferences? There are many people willing to give a few bucks to their preferred political party. That's roughly what the Kims are doing. Except that their income and wealth is so great that millions is "a few bucks" for them.

Steve Sailer writes:

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]"

rapscallion writes:

"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 something as ethereal as being able to "impose their dogmas" counts as their incentive, then the bandit model is effectively empty and unfalsifiable.

Tracy W writes:

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.

Leo writes:

Maybe they have too few elites so there is less need to increase economic wealth to meet their needs.

Anomaly UK writes:

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.

Saturos writes:

Thanks, Lauren!

Warren writes:

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.

Greg G writes:

The problem with the model is that bandits are a lot dumber than economists. And economists fail to understand that other people often don't value economic efficiency as highly as they do.

By the way Bryan, another good exam question would be to ask why we don't actually have the high barriers to foreign made cars that Mancur Olson's theories predict. This one would also carry the risk of not quite getting "the answer you were looking for."

Rob writes:

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.

philemonloy writes:

With all the foreign aid coming in (mostly from China, but also from the US*), what incentive would the ruling cabal have to improve the lot of the average citizen? It's not as if they aren't already super rich--for the Kim family and a few generals, in absolute terms; for the rest, in relative terms--given present sources of wealth. And any attempt to improve the lot of the average citizen will most likely involve changes that will pose a danger to their hold over power (and hence their present access to wealth). Better to invest more in that nuclear/missile program to better blackmail concerned countries to pony up with the next round of aid...


Chris writes:

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.

Floccina writes:

Risk aversion.

Scott Scheule writes:

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

Foobarista writes:

I wonder how economists can use such "models" when they have so little basis in history? I don't know what the "stationary bandit model" is, but if it's supposed to explain merchant princes or something, it is being misapplied.

There is far more precedent for princes wrecking economies and actively keeping them wrecked to stay in power than there is for princes building the economy to stay in power. Arguably, modern China is an example of the latter, but in Chinese history, you have far more examples like abandoning Cheng He's treasure fleet by the Ming, blowing off British trade by the Qing, etc. The point, which princes/kings/dictators/whatever understand implicitly, is wealth in the hands of the populace weakens the power of the prince by creating possible rivals for power.

Shane L writes:

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.

Steve Sailer writes:

"Doesn't the stationary bandit model imply that the country should be prospering?"


it implies that North Koreans are better off than if the American and Chinese militaries were still fighting up and down the Korean peninsula for the last 60 years.

It's all relative.

Jim Glass writes:

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.

BLM4L writes:

Ok I think now Bryan owes us a response :)

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