By Jasper Kim
In the recent Trump-Kim summits, both world leaders expressed hope based in part on a "mutual gains" model. Such a model is predicated on a "win-win," where both sides can come out better ahead.
Such a successful outcome is seemingly predicated, at least in part, on economic development utilizing aspects of free market principles, such as foreign investment and even real estate development.
North Korea today, unbeknown to many, exercises some level of free market capitalism today. Most don't think or hear about free markets in the DPRK, mainly because, when it comes to regular citizens, such activity has largely been rendered less than free and deemed illegal, thus largely relegated to an underground economy. At the macro-level, North Korea has already implemented several free economic zones to incentivize foreign investment, which in itself constitutes a derivative form of free market capitalism.
But suppose that the DPRK does decide to further, rather than dampen, free market capitalism in its own interpretation and perception, similar to the economic growth stories of Vietnam and China. And suppose that as its economy begins to strengthen, how should the state trust its citizens to pay their "fair" share of taxes? Conversely, how would the people trust its government that such collected funds (taxes) were being used properly and for the greater good of the people?
Taxes represent an important revenue source for many economies. And as individual and corporate tax rates gather steam, so would government revenue. The issue then becomes how to assess and collect taxes with minimal administrative burden while securing the "greatest good" for both the people and state.
If the people do not trust the state with this objective, then tax avoidance (where taxpayers attempt to minimize tax payments) or even tax evasion (where taxpayers do not pay owed obligations) may occur, by which the state would not benefit. In economic parlance, this would be a non-Pareto outcome, which, in plain language, simply means that more tax revenue could have been collected if greater trust in the tax system existed.
One possible solution may come from "Radical Markets." This is a concept based on a recent book by two economists, Eric Posner (University of Chicago) and E. Glen Weyl (Microsoft).
Posner and Weyl propose a radically different approach to taxation and governance that may appeal to capitalists, socialists and Stalinists (DPRK) alike: "Imagine a world in which all major private wealth (every factory, patent or plot of land) is constantly for sale at a fair price and where most of the value of this property is paid out equally to all citizens as a social dividend.
"While one might be tempted to believe the wealthy would dominate such a hyper-market world, in fact most private wealth would become social wealth and would be shared equally by all. With most value of assets accruing to the public, every asset would become cheaper to (partially) own, democratizing the control of assets and offering everyone new opportunities to start businesses or households. At the same time, because there would be a price on every asset, large-scale projects, like high-speed trains, would become far easier to develop as holdouts could no longer block the right of way."
To implement such grand new deal, they propose a new property system, called the Common Ownership Self-Assessed Tax (COST). In the newly devised COST system, every person or entity (corporation, non-profit, etc) would "self-assess" the value of their owned assets and pay about a seven percent tax on those self-assessed values.
All such owned assets would be required to be sold to any buyer willing to purchase such assets at such self-assessed price ― a type of auction system ― whereby all private property would be listed and viewable (say, via an online registry viewable by all, in the spirit of total transparency).
Because of this auction-style feature, owners would be greatly incentivized to assess the true "fair" value of their owned assets. After all, if the owner sets too low a price to lower her taxes, then that would increase the chance of a party buying that asset since it would seem like a good deal (relative to other similar products/services). On the other hand, if the owner sets too high a price to keep the asset out of the hands of would-be buyers, then that would lead to greater taxes assessed for that owner.
The tax revenue raised should be sufficient to "repeal and replace" other taxes on capital (such as corporation tax, capital gains tax, property tax and inheritance tax), while "significantly reducing" personal income taxes. Such collected tax revenues would also help in paying down public (state) debt.
The proceeds of such collected "auction-style" self-assessed tax revenue by the state would be returned to the people in the form of a "large social dividend" ― a form of universal basic income (UBI). In the U.S. case, this would amount to about $24,000 for a family of four people (separate from any other income). The remaining funds would be used to subsidize (pay for) free public resources such as public transport, highways and other infrastructure for the 21st century.
The COST auction-style tax system is also estimated to increase the economy by about five percent.
Another added benefit would be a "healthier relationship" with property. This would be in stark contrast to today's commercial culture, arguably overly predicated on fetishization of ownership of non-necessities, such as luxury goods and conspicuous consumption to signal wealth (a form of "keeping up with the Joneses," a hamster wheel-type phenomenon whereby something is never enough).
Other advantages include a shared goal of increasing the value of the wealth of a nation while strengthening community bonds.
Given that North Korea's tax base is arguably at a nascent stage, the cost-benefit analysis may tilt now or later toward implementation of this bold approach, in whole or part, for greater tax revenue, trust and transparency that both the people and the state would consider a "mutual gain" and a "win-win."
The "Radical Markets" system may appear unorthodox now ― but so too were the original unorthodox ideas of free markets, democracy and the invisible hand when first proffered.
Jasper Kim is the Director of the Center for Conflict Management at Ewha Womans University.
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| Jasper Kim |
Such a successful outcome is seemingly predicated, at least in part, on economic development utilizing aspects of free market principles, such as foreign investment and even real estate development.
North Korea today, unbeknown to many, exercises some level of free market capitalism today. Most don't think or hear about free markets in the DPRK, mainly because, when it comes to regular citizens, such activity has largely been rendered less than free and deemed illegal, thus largely relegated to an underground economy. At the macro-level, North Korea has already implemented several free economic zones to incentivize foreign investment, which in itself constitutes a derivative form of free market capitalism.
But suppose that the DPRK does decide to further, rather than dampen, free market capitalism in its own interpretation and perception, similar to the economic growth stories of Vietnam and China. And suppose that as its economy begins to strengthen, how should the state trust its citizens to pay their "fair" share of taxes? Conversely, how would the people trust its government that such collected funds (taxes) were being used properly and for the greater good of the people?
Taxes represent an important revenue source for many economies. And as individual and corporate tax rates gather steam, so would government revenue. The issue then becomes how to assess and collect taxes with minimal administrative burden while securing the "greatest good" for both the people and state.
If the people do not trust the state with this objective, then tax avoidance (where taxpayers attempt to minimize tax payments) or even tax evasion (where taxpayers do not pay owed obligations) may occur, by which the state would not benefit. In economic parlance, this would be a non-Pareto outcome, which, in plain language, simply means that more tax revenue could have been collected if greater trust in the tax system existed.
One possible solution may come from "Radical Markets." This is a concept based on a recent book by two economists, Eric Posner (University of Chicago) and E. Glen Weyl (Microsoft).
Posner and Weyl propose a radically different approach to taxation and governance that may appeal to capitalists, socialists and Stalinists (DPRK) alike: "Imagine a world in which all major private wealth (every factory, patent or plot of land) is constantly for sale at a fair price and where most of the value of this property is paid out equally to all citizens as a social dividend.
"While one might be tempted to believe the wealthy would dominate such a hyper-market world, in fact most private wealth would become social wealth and would be shared equally by all. With most value of assets accruing to the public, every asset would become cheaper to (partially) own, democratizing the control of assets and offering everyone new opportunities to start businesses or households. At the same time, because there would be a price on every asset, large-scale projects, like high-speed trains, would become far easier to develop as holdouts could no longer block the right of way."
To implement such grand new deal, they propose a new property system, called the Common Ownership Self-Assessed Tax (COST). In the newly devised COST system, every person or entity (corporation, non-profit, etc) would "self-assess" the value of their owned assets and pay about a seven percent tax on those self-assessed values.
All such owned assets would be required to be sold to any buyer willing to purchase such assets at such self-assessed price ― a type of auction system ― whereby all private property would be listed and viewable (say, via an online registry viewable by all, in the spirit of total transparency).
Because of this auction-style feature, owners would be greatly incentivized to assess the true "fair" value of their owned assets. After all, if the owner sets too low a price to lower her taxes, then that would increase the chance of a party buying that asset since it would seem like a good deal (relative to other similar products/services). On the other hand, if the owner sets too high a price to keep the asset out of the hands of would-be buyers, then that would lead to greater taxes assessed for that owner.
The tax revenue raised should be sufficient to "repeal and replace" other taxes on capital (such as corporation tax, capital gains tax, property tax and inheritance tax), while "significantly reducing" personal income taxes. Such collected tax revenues would also help in paying down public (state) debt.
The proceeds of such collected "auction-style" self-assessed tax revenue by the state would be returned to the people in the form of a "large social dividend" ― a form of universal basic income (UBI). In the U.S. case, this would amount to about $24,000 for a family of four people (separate from any other income). The remaining funds would be used to subsidize (pay for) free public resources such as public transport, highways and other infrastructure for the 21st century.
The COST auction-style tax system is also estimated to increase the economy by about five percent.
Another added benefit would be a "healthier relationship" with property. This would be in stark contrast to today's commercial culture, arguably overly predicated on fetishization of ownership of non-necessities, such as luxury goods and conspicuous consumption to signal wealth (a form of "keeping up with the Joneses," a hamster wheel-type phenomenon whereby something is never enough).
Other advantages include a shared goal of increasing the value of the wealth of a nation while strengthening community bonds.
Given that North Korea's tax base is arguably at a nascent stage, the cost-benefit analysis may tilt now or later toward implementation of this bold approach, in whole or part, for greater tax revenue, trust and transparency that both the people and the state would consider a "mutual gain" and a "win-win."
The "Radical Markets" system may appear unorthodox now ― but so too were the original unorthodox ideas of free markets, democracy and the invisible hand when first proffered.
Jasper Kim is the Director of the Center for Conflict Management at Ewha Womans University.
