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Cleaning out my inbox, I stumbled across a Yonhap story titled “North Korea more stable since Kim Jong Un took power: World Bank.” This caught my eye partly because of the opinion that North Korea has become “more stable,” and partly because the source was the World Bank. North Korea is not a member of the World Bank, and as a consequence, work on that country is very limited within the Bank. The headline implied that the Bank had a view on a political issue on which it was unlikely to have much competence.
Reality is more mundane. The Bank produces a set of cross-national indicators of governance called the World Governance Indicators. It collects perception data from more than 30 sources, then aggregates them into six broad indicators using a technique called an unobserved components model, and then converts the results into a normally distributed variables with mean zero and standard deviation of one. The six aggregate indicators are:
1. Voice and Accountability (VA) – capturing perceptions of the extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media.
2. Political Stability and Absence of Violence/Terrorism (PV) – capturing perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically‐motivated violence and terrorism.
3. Government Effectiveness (GE) – capturing perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.
4. Regulatory Quality (RQ) – capturing perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.
5. Rule of Law (RL) – capturing perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
6. Control of Corruption (CC) – capturing perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests.
Given the normalization, the variables effectively range over the interval (-2.5, 2.5) though it is possible in extreme cases, as we will see in a moment, to exceed those bounds.
The table below reports the North Korean data for the last two years. The country is below the mean in all dimensions. Yonhap was indeed correct that North Korea’s political stability score did rise by 0.22 points, from -0.32 to -0.10 between 2011 and 2012, though I doubt that this was a statistically significant improvement. But it registers in the bottom decile on the other five indicators. The country showed some statistically insignificant improvement in voice and accountability, rising from last place (212th out of 212), to third from last place (210th). However on government effectiveness it dropped, falling one position from 208th out of 210 to 209th out of 210.
But on regulatory quality, which addresses perceptions of the ability of the government to pursue policies and regulations that enable private sector development, North Korea flat lined in last place for the past two years, in the most recent year actually scoring -2.53 putting it into the extreme negative tail of the distribution. If nothing else, it suggests extreme skepticism in the world at large about the content of North Korean economic policy, and might make one question the supply-response that will be obtained by a field of dreams economic development strategy.
So, does North Korea really have the world’s worst economic policy? I don’t know. And honestly, I don’t know how seriously anyone should take these results from the World Bank. My guess is that many of their respondents don’t have a very deep understanding of the North Korean economy. Or its political stability for that matter, either.
Witness to Transformation blog: We read Yonhap so you don’t have to!
