Abstract
This chapter seeks to move beyond conventional economic thought on the nature of the North Korean economy by examining the factors that have altered the centralized planned economy into one so dysfunctional that it will never achieve sustained development and modernization without a radical paradigm shift, founded on market-oriented reform and opening. This chapter makes an important distinction between outright privatization and the regime’s attempts at introducing cosmetic improvement measures, as well as a system of benign oversight which involves the deliberate acquiescence of state-owned enterprises for unofficial use. Finally, it defines what the contemporary North Korean economy looks like and whether it resembles any socialist state to which it is often compared.
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Notes
- 1.
Fifield, Anna. 2019. The Great Successor: The Secret Rise and Rule of Kim Jong Un. New York: John Murray.
- 2.
Armstrong, Charles King. 2005. The Two Koreas. London: Routledge; Eberstadt, Nicholas. 2009. The North Korean Economy. London: Routledge. p. 78; Kim, Byung-Yeon, Kim, Suk Jin, & Lee, Keun. 2007. “Assessing the Economic Performance of North Korea, 1954–1989: Estimates and Growth Accounting Analysis.” Journal of Comparative Economics 35: 564–582.
- 3.
MOU. 2019. “Weekly Report on North Korea.” Retrieved from https://www.unikorea.go.kr/eng_unikorea/relations/infoNK/weekly/; OECD. 2019. “GDP.” Retrieved from https://data.oecd.org/korea.htm
- 4.
By ‘marketization’ I refer to a bottom-up process, competently autonomous and spontaneous, that began in the aftermath of the humanitarian crisis of the 1990s and the famine that ensued. As I explain further down in the chapter, the process is not related to any top-down decision or policy by the North Korean government, which ultimately chose to reluctantly accept this phenomenon as the lesser of many evils, because the state apparatus and particularly the public distribution system was on the verge of collapsing, therefore citizens could no longer rely on it for food security and survival.
- 5.
In this book I take for granted that the reader has a basic understanding of the two main economic systems in place today: capitalism and socialism, and their major variations. Although a detailed disquisition of these terms goes beyond the scope and purpose of my work here, it is important to clarify that in this book I look beyond the traditional systems. Originally, Adam Smith and Karl Marx presented two ideal economic types: the ‘free market economy’ of capitalism and the ‘planned command economy’ of communism. In time, there have been developments of numerous mixed systems since states and markets play varying roles in different countries. We can witness this in capitalist economies within the same type of political economic system, where important variations exist such as those between the United States, Italy, Great Britain, Japan and Germany. See: Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214.
- 6.
Although a full disquisition of economic terminology (private property, property rights, privatization and collectivization) lies beyond the scope of this chapter it is necessary to provide at least a condensed explanation. As a noun, Privatization indicates “the transfer of a business, industry, or service from public to private ownership and control.” See: Collins Business English Dictionary. n.d. Retrieved from https://www.collinsdictionary.com/dictionary/english/privatize. The word privatization may however mean different things depending on the context in which it is used. It can mean moving something from the public sphere into the private sphere, but it may also be used to describe something that was always private, but heavily regulated, which becomes less regulated through a process of deregulation. The term may also be used descriptively for something that has always been private, but could be public in other jurisdictions. There are also private entities that may perform public functions. These entities could also be described as privatized. Privatization may mean the government sells state-owned businesses to private interests, but it may also be discussed in the context of the privatization of services or government functions, where private entities are tasked with the implementation of government programs or performance of government services. Gillian E. Metzger has written that: “Private entities [in the US] provide a vast array of social services for the government; administer core aspects of government programs; and perform tasks that appear quintessentially governmental, such as promulgating standards or regulating third-party activities.” Metzger mentions an expansion of privatization that includes health and welfare programs, public education, and prisons. See: Metzger, Gillian E. 2003. “Privatization as Delegation.” Center for Constitutional Governance 103 (1367): 1369. Private Ownership—usually defined as Private Property instead indicates the “Tangible and intangible things owned by individuals or firms over which their owners have exclusive and absolute legal rights, such as land, buildings, money, copyrights, patents, etc. Private property can be transferred only with its owner’s consent, and by due process such as sale or gift.” See: Collins Business English Dictionary. n.d. Retrieved from https://www.collinsdictionary.com/dictionary/english/private-property. Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property, which is owned by a state entity; and from collective (or cooperative) property, which is owned by a group of non-governmental entities. Private property can be either personal property (consumption goods) or capital goods. Private property is a legal concept defined and enforced by a country’s political system. Finally, the terms Right to Use indicates “A personal servitude conferring a specified use of an estate that is less than full enjoyment”. See: Merriam-Webster. n.d. Retrieved from https://www.merriam-webster.com/legal/right%20of%20use. Easement represents a similar legal concept: “the right to use the real property of another for a specific purpose. The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes. Typical easements are for access to another property, (redundantly often stated “access and egress,” since entry and implication of exodus are over the same path), for utility or sewer lines both under and above ground, use of spring water, entry to make repairs on a fence or slide area, drive cattle across, and other uses.” Easements can be created by a deed to be recorded just like any real property interest.
- 7.
The law of value (German: Wertgesetz) is a central concept in Karl Marx’s critique of political economy first expounded in his polemic The Poverty of Philosophy (1847) against Pierre-Joseph Proudhon with reference to David Ricardo’s economics Generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are socially necessary to produce them. See: Oishi, Takahisi. 2001. The unknown Marx: reconstructing a unified perspective. Foreword by Terrell Carver. London: Pluto Press; Eaton, John. 1963. Political Economy: A Marxist Textbook. Reprinted 1970. p. 29.
- 8.
In 1922, Professor L. Von Mises of the Austrian School of Economics pointed out this concept in his paper “Socialism: An Economic and Social Analysis”.
- 9.
Boettke, Peter J. 1990. The Political Economy of Soviet Socialism: the Formative Years, 1918–1928. New York: Springer Science+Business Media New York.
- 10.
Hayek, Friedrich A. 1980. “The Uses of Knowledge in Society.” Individualism and Economic Order. Chicago: University of Chicago Press, p. 80.
- 11.
Von Mises, Ludwig. 1922. “Socialism: An Economic and Social Analysis.” Austrian School of Economics.
- 12.
Hayek, Friedrich A. 1944. The Road to Serfdom, University of Chicago Press, pp. 91.
- 13.
Hayek, Friedrich A. 1944. The Road to Serfdom, University of Chicago Press, pp. 92.
- 14.
Although the proportion of marketization in the country’s GDP is now estimated to be around 50%, meaning that it is not just nominal but real, this is insufficient to qualify the North Korean economy as one which is in any way transitioning or changing as other former socialist systems did.
- 15.
Kornai, János. 1980. “The dilemmas of a socialist economy: the Hungarian experience.” Cambridge Journal of Economics 4: 147–157; Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton, NJ: Princeton University Press.
- 16.
While the process of marketization is a necessary condition to economic modernization, it must be accompanied by opening . A more detailed discussion of these conditions can be found in Chap. 3.
- 17.
Kornai, János. 1980. “The dilemmas of a socialist economy: the Hungarian experience.” Cambridge Journal of Economics 4: 147–157; Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton, NJ: Princeton University Press.
- 18.
Smith, Hazel. 2005. Hunger for Peace. Washington, DC: USIP; Woo-Cumings, Meredith. 2002. “The Political Ecology of Famine: The North Korean Catastrophe and Its Lessons.” Asia Development Bank. Research Paper Series (31); Snyder, Scott & Flake, Gordon. 2003. Paved with Good Intentions: The NGO Experience in North Korea. Westport: Praeger.
- 19.
Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton, NJ: Princeton University Press.
- 20.
Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton, NJ: Princeton University Press.
- 21.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214.
- 22.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214 (citing Bardhan and Roemer, 1993, p. 3).
- 23.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214.
- 24.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214; Stradiotto, Gary & Guo, Sujian. 2007b. “The Nature and Direction of Economic Reform in North Korea.” Political Studies 55: 754–778.
- 25.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214; Stradiotto, Gary & Guo, Sujian. 2007b. “The Nature and Direction of Economic Reform in North Korea.” Political Studies 55: 754–778 (citing Weisskopf, 1993, p. 122).
- 26.
Stradiotto, Gary & Guo, Sujian. 2007a. “Market Socialism in North Korea: A Comparative Perspective.” Journal of the Asia Pacific Economy 12 (2): 188–214.
- 27.
Arnold, N. Scott. 1992. “Market socialism.” Critical Review 6 (4): 517–557; Wan-wen Chu. 2010. “Market socialism, Chinese style: bringing development back into economic theory.” China Economic Journal 3 (3): 307–312; Zheng, Ping & Scase, Richard. 2013. “The Restructuring of Market Socialism in China: an ‘Agency’ Perspective.” Thunderbird International Business Review 55 (1).
- 28.
Chu, Wan-wen. 2010. “Market Socialism, Chinese Style: Bringing Development Back Into Economic Theory.” China Economic Journal 3 (3): 307–312.
- 29.
Parts of the argument made by Chu (2010) go beyond the scope of this chapter, but they are worth mentioning. Since the 1978 reforms, institutional arrangements encouraged China’s sustained growth through increases in aggregate supply rather than aggregate demand. China’s market socialism resulted in the greater government intervention because of a larger gap between supply and demand, a greater need to socialize investment risks, and an imbalanced development process. Chu makes a convincing argument also for the advantages of Chinese market socialism , building on the argument made by Gerschenkron’s argument that ‘the development of a backward country may, by the very virtue of its backwardness, tend to differ fundamentally from that of an advanced country’. The speed and character of the industrial development can have some differences, because latecomers have to implement institutional instruments that have no counterparts in the industrialized countries. The degree of backwardness is also important. The latecomer does not possess enough capital, trained human resources , entrepreneurship and well-developed market institutions to start and sustain industrial growth. Gerschenkron argues that the more backward the latecomer, the bigger the tension between the current economic state and the great promise inherent in industrial development. In this view, if one assumes sufficient resources and removed barriers to development, the potential of industrialization will depend on the degree of backwardness as well as the size of the backlog of technological innovations. Development will occur as a big spurt, not a gradual change. Overall, the bigger the gap between the backward and the advanced countries, the more inadequate the necessary supplies of capital, infrastructure and human resources in the latecomers. The Chinese government has largely intervened in socializing investment risks and promoting growth. The goal of economic development , and specifically a target rate of growth, was issued as a downward command from the central to the local government.
- 30.
Everard, John. 2012. Only Beautiful, Please: A British Diplomat in North Korea. Baltimore: The Brooking Institution. pp. 94–95.
- 31.
Hassing, Ralph & Oh, Kongdan. 2009. Hidden People. Maryland: Rowman & Littlefield Publishers. pp. 82–96.
- 32.
Haggard, Stephan & Ryu, Jaesung. 2010. “Kim Jong Il on the Market: North Korea: Witness to Transformation blog.” Peterson Institute for International Economics. Retrieved from http://www.piie.com/blogs/nk/?p=2495
- 33.
Chung, Young Chul. 2004. “North Korean Reform And Opening: Dual Strategy and ‘Silli (Practical) Socialism’.” Pacific Affairs 71 (2): 283–304.
- 34.
Chung, Young Chul. 2004. “North Korean Reform And Opening: Dual Strategy and ‘Silli (Practical) Socialism’.” Pacific Affairs 71 (2): 283–304.
- 35.
Chung, Young Chul. 2004. “North Korean Reform And Opening: Dual Strategy and ‘Silli (Practical) Socialism’.” Pacific Affairs 71 (2): 283–304.
- 36.
Cohen, Roberta. 2012. “Human Rights in North Korea: Addressing the Challenges.” International Journal of Korean Unification Studies 22 (2): 29–62; Kim, Soo Am, Kim, Kook Shin, Kim, Young Yoon, Lim, Soon Hee, Jeong, Eun Mee & Park, Young Ja. 2012. The Quality of Life of North Korean: Current Status and Understanding. Seoul: KINU.
- 37.
Fifield, Anna. 2019. The Great Successor: The Secret Rise and Rule of Kim Jong Un. New York: John Murray; Tudor, Daniel & Pearson, James. 2015. North Korea Confidential. Clarendon: Tuttle Publishing. p. 22; Smith, Hazel. 2015. North Korea: Markets and Military Rule. Cambridge: Cambridge University Press.
- 38.
Smith, Hazel. 2000. “Bad, Mad, Sad or Rational Actor? Why the ‘Securitization’ Paradigm Makes for Poor Policy Analysis of North Korea.” International Affairs (Royal Institute of International Affairs 1944–) 76 (3): 593–617; Smith, Hazel. 2005. Hunger for Peace. Washington DC: USIP; Snyder, Scott & Flake, Gordon. 2003. Paved with Good Intentions: The NGO Experience in North Korea. Westport: Praeger.
- 39.
Eberstadt, Nicholas. 1999. The End of North Korea: 98–102. Washington, DC: The AEI Press.
- 40.
Woo-Cumings, Meredith. 2002. “The Political Ecology of Famine: The North Korean Catastrophe and Its Lessons.” Asia Development Bank. Research Paper Series (31): 24.
- 41.
Ahn, Christine. 2005. Famine and the Future of Food Security in North Korea. FoodFirst. Policy Brief (11); Smith, Hazel. 2005. Hunger for Peace. Washington DC: USIP.
- 42.
Smith, Hazel. 2005. Hunger for Peace. Washington DC: USIP; Howe, Brendan & Kim, Kah-ul. 2011. “North Korea: Policy Failures, Human Insecurity, Consequences, and Prescriptions.” Korea Observer 42 (2): 281–310; Haggard, Stephan & Noland, Marcus. 2006. The North Korean Refugee Crisis: Human Rights and International Response. Washington, DC: U.S. Committee for Human Rights in North Korea; Haggard, Stephan & Noland, Marcus. 2011. “Gender in Transition: The Case of North Korea.” East-West Center, Economics Study Area Series (124); Noland, Marcus. 2003. “Famine and Reform in North Korea.” Institute for International Economics; Frank, Ruediger. 2005. “Economic Reforms in North Korea (1998–2004): Systemic Restrictions, Quantitative Analysis, Ideological Background.” Journal of the Asia Pacific Economy 10 (3): 278–311.
- 43.
In hindsight, it is worth asking whether a different set of choices and attitudes on part of the government could have mitigated the disastrous events of 1994–1998. The first step to answering this question is to understand the factors that contributed to the food shortages: an extractive planned economic system, the military-industrial complex prioritized over the agriculture sector, droughts, and the collapse of trade with the Soviet Union upon its dissolution in the 1990s. In 1945, socialism began with the state’s seizure of all property and collectivization of the country. All farms and factories were nationalized in order for the state to control the means of production and then to redistribute food and goods among the population. With the state’s seizure of control of the economy comes the state’s responsibility to look after the needs of the people, though for a limited time, the regime chose, instead, to redirect funds generated by the agricultural sector to the development of heavy industry for industrialization. This prioritization is vividly illustrated in an article published in 1964 in the Labor Daily newspaper (Rodong Sinmun), ‘Like our country which was predominantly a backward agricultural country, having achieved the socialist revolution, we succeeded in spurring the country’s industrial growth in a limited time. The necessary funds must be secured from the agricultural sector’. See: Chan, Young Bang. 1995. The Democratic People’s Republic of Korea at a crossroad. Seoul: Park Young-sa. pp. 99, 232–233. There are numerous statements from Supreme Leader Kim Il Sung that confide how North Korea had to pay such a high price to spur the industrial growth for a strong national defense, for example, ‘To achieve a rapid industrialization with the development of the military industrial complex, the state had to pay an enormous price’ (Kim, Il Sung. 1983. The collected works of Kim Il Sung[Kim Il Sung Jeojakjip]. Pyungyang: Chosun Rodong Dang publishing company. p. 157) These direct sources demonstrate that Kim Il Sung didn’t have any illusions about how the health and nutrition of the people were being exploited in order to build a strong military to defend the fatherland at all costs.
- 44.
Yoon, In Ju. 2012. The Privatization Phenomenon in North Korea [Bukhanui sayuhau hyonsang]. Seoul: Korean Academic Information.
- 45.
Fifield, Anna. 2019. The Great Successor: The Secret Rise and Rule of Kim Jong Un. New York: John Murray; Tudor, Daniel & Pearson, James. 2015. North Korea Confidential. Clarendon: Tuttle Publishing. p. 22; Lankov, Andrei. 2013. The Real North Korea: Life and Politics in the Failed Stalinist Utopia. Oxford: Oxford University Press. p. 131.Smith, Hazel. 2015. North Korea: Markets and Military Rule. Cambridge: Cambridge University Press.
- 46.
Gorbachev (1987, p. 33) explained the essence of his reform as ‘based on dramatically increased independence of enterprises and associations, their transition to full self-accounting and self-financing, and granting all appropriate rights to work collectives’. See: Gorbachev, Mikhail. 1987. Perestroika: New Thinking for our Country and the World. New York: Harper & Row. p. 33. As was witnessed in the former Soviet Union and East Germany, any such reform to improve efficiency from within the system is bound to fail, and North Korea was no exception.
- 47.
Eberstadt, Nicholas. 2009. The North Korean Economy. London: Routledge. p. 78.
- 48.
KEI Korea Economic Institute. 2018. North Korean Economic Forecast at http://keia.org/
- 49.
Noland, Marcus. 2010. “North Korea’s Failed Currency Reform.” Peterson Institute for International Economics. Retrieved from https://www.piie.com/commentary/op-eds/north-koreas-failed-currency-reform
- 50.
Yang, Moon-soo. 2014. Economy and Society in the Kim Jong-un Era: New Relations Between the State and the Market [Kimjeongeunshidaeuigyeongjeawasahoe: gukgawasijangui saerowoon gwangye]. Seoul: Hanul Academy. p. 228.
- 51.
Mundy, Simon. 2014. “Elite splash out as Pyongyang keeps harsh reality away from prying eyes”, Financial Times.
- 52.
Lankov, Andrei. 2014. The Real North Korea: Life and Politics in the Failed Stalinist Utopia. Oxford: Oxford University Press. p. 131.
- 53.
Lankov, Andrei. 2014. The Real North Korea: Life and Politics in the Failed Stalinist Utopia. Oxford: Oxford University Press. p. 131.
- 54.
Ruwitch, John & Park, Ju-min. 2013. “Pyongyang losing grip on economy”, International New York Times.
- 55.
Ruwitch, John & Park, Ju-min. op cit 2013.
- 56.
Ruwitch, John & Park, Ju-min. op cit 2013.
- 57.
Tudor, Daniel & Pearson, James. 2015. North Korea Confidential. Clarendon: Tuttle Publishing. p. 22.
- 58.
Tudor, Daniel & Pearson, James. 2015. North Korea Confidential. Clarendon: Tuttle Publishing. p. 22; Smith, Hazel. 2015. North Korea: Markets and Military Rule. Cambridge: Cambridge University Press.
- 59.
It is worth specifying that in the new North Korean economy, there is no proper economic planning that comes from within the state. The reason for this is that there is no institutional support to normalize the economic cycle, no taxation system, no appropriate banking system. The consequence of this it is impossible to plan National because there are no real Investments made public social infrastructure worrying any infrastructure for production, also is no domestic currency that replaces domestic savings which means there is no capital accumulation for the National economy. The new class of Donju currently plays the role of banking the private sector. However, because there is no Central Bank, no budget can be allocated and no real efficient monetary system can be created. The current system of tolerated market activity and underground economy originated from the end of trade with the Communist Bloc in the 1990s which means this trade system currently operates without any real capital just as it receives no access to energy sources and no real means of production.
- 60.
Jo, Seong Ju. 2014. “Marketisation and Gender in North Korea.” In Economy and Society in the Kim Jong Un Era [Kim Jong Un Shidaeui Gyungjaewa Sahoe], edited by Yang Mun Su. Seoul: Hanul. pp. 319–320.
- 61.
Park, Kyung Ae. 1992. “Women and Revolution in North Korea.” Pacific Affairs 65 (4): 527–545.
- 62.
Woo-Cumings, Meredith. 2002. “The Political Ecology of Famine: The North Korean Catastrophe and Its Lessons.” Asia Development Bank. Research Paper Series (31).
- 63.
Lankov, Andrei, & Kim, Seok-hyang. 2008. “North Korean Market Vendors. The Rise of Grassroots Capitalists in A Post-stalinist Society.” Pacific Affairs 81 (1): 53–72.
- 64.
Yuzhe, Zhang and Ling, Wang. 2015. “Cheers, Fears for China’s Next Step Overseas.” Financial Times.
- 65.
Food and Agriculture Organization of the United States/World Food Programme. 2019. “Democratic People’s Republic Of Korea (DPRK)—FAO/WFP Joint Rapid Food Security Assessment. p. 22.
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Bang, C.Y. (2020). Economic Decay and Failures of Reform in the DPRK. In: Transition beyond Denuclearisation. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-15-4316-6_2
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