How and Why North Korea Could Experience Economic Reform

July 12th, 2012
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In a recent interview with the Korean Economic Institute scholar Andrei Lankov argued that North Korea is not in a position to follow the path of economic reform witnessed in countries like China due to the onerous presence of South Korea. As he put it, “In China, reforms are possible because there is no South China.” But the notion that China was able to undertake economic reforms in a cultural or geographic vacuum does not seem well-supported by evidence.

What we do know is that when Deng Xiaoping started instituting economic reforms in China in 1978, the various countries with high populations of ethnic Chinese in the region – Singapore, Hong Kong, and Taiwan among others – had per capita GDPs as high as 15 times that of mainland China. Moreover, there was a sizable Chinese diaspora around the world numbering as many as 50,000,000 – a number of whom we might imagine would have been in contact with citizens of the mainland about outside levels of prosperity and opportunity. All of which is to say that an economically opened China, where the citizens often still live below the prosperity of ethnic Chinese elsewhere in the world or even in nearby Asian nations, is not experiencing the type of dramatic revolution that many like Lankov forecast for an economically opened North Korea.

The method of China’s reform could be valuable for the DPRK, not least of all because China has the organizational capacity to help achieve it in North Korea. Deng started reforms with what was referred to as the Household-responsibility system that partially privatized agriculture and provided people with ownership of plots of land. This increased agricultural output dramatically and was popular enough to have been adopted by 93 percent of the agriculture-based production teams by 1983. This has short term attractiveness in regard to boosting the food supply and making the country less reliant on foreign food aid, but it is also a good place to start economic liberalization because rural communities are the least likely to reach a critical mass of revolution and the most likely to be in the dark about outside prosperity differences.

Information Flows and the Nexus of Revolution

Of course information flows are capable of subverting regimes by virtue of connecting people both within a state and between states. Additionally, information can travel faster and farther than ever before in history, and North Korea does possess some of the physical infrastructure to facilitate such movement. But while this might be the source of a large existential problem for the Kim regime, the government has demonstrated before its ability to circumscribe the amount and type of information that permeates its borders. There is no reason to suspect that economic liberalization would equally demand full or even partial openness. China is a clear example of a country that thrives on market principles but has restricted access to information. The Great Firewall of China being one example, but the quick scrub job by the online censors of the Bo Xilai scandal is one too. There are plenty of other instances where regimes maintain tight control of information in conjunction with high levels of economic competitiveness and growth, such as Bahrain and Vietnam.

Even within the implausible context of everyone in North Korea becoming fully informed about the disparity in prosperity between themselves and the rest of the world, it would not necessarily indicate the undoing of the government. On the contrary, it might be sold to citizens as further evidence not only of the immoral culture of consumption that drives the West, but also of the past and continuing efforts of North Korea’s enemies to deprive the country of goods and resources. As North Korean defector Sohn Jung-hoon noted in a post by Reuters, “[The] regime won’t stop brainwashing and saying that poverty is because of our enemies.”

Additionally, the notion that rebellion would more easily foment, or would be guaranteed to foment, at the point where North Koreans are fully informed about the disadvantaged position is disputable. The Arab Spring was a pan-cultural idea that captivated and moved forward the spirit of an entire geographic region. While this is assuredly true, the number of countries that witnessed regime change as a result of popular uprising comprise a tiny margin of the whole. In very poor Sudan, where per capita GDP is around $3,200, protests have been minimal and the Arab Spring has been largely absent. This, despite the fact that the Sudanese are primarily ethnically Arabic like their neighbors in Egypt, a full magnitude poorer than their neighbors in Egypt, and reasonably aware of their relative poverty and lack of democratic process. While it is not necessarily fair to use another part of the world as analogous for the Korean situation, the landscape in the wake of the Arab Spring does provide some clarity about the reasons and incentives for outright revolution.

As it stands now though, many in North Korea are increasingly aware of South Korea’s wealth and material success. A number of recent reports, mostly stemming from a  recent Intermedia study,  indicate that “a substantial, consistently measurable portion of the population has direct access to outside media”. This has come through highly fictionalized accounts of life like South Korea’s famous dramas, but also through illegal file sharing, news reports and films. Whether or not citizens in the DPRK take these at face value is difficult to ascertain, but they do not seem to be pushing the country toward revolution. B.R. Myers and others have well-documented the cultural superiority that North Koreans are indoctrinated with by the state. It may be the case that this sense of cultural superiority can carry the country through a transition from an autarky to a developmental state.

How Liberalization Could Look

It is possible that North Korea could reform its economic engine relatively quickly. As Orascom figured out when implementing North Korea’s mobile network, the absence of many technologies and logistics frameworks means that upgrading the country to a high level of quality is not as difficult as it would be in, say, the United States or Western Europe where pre-existing redundancies slow down adoption and change. As China and East Asia’s other developmental states have shown, rapid economic growth can paper over weaknesses of governance or a lack of freedoms.

From a development standpoint, North Korea may well be in a fortuitous geographic location. Undoubtedly China and South Korea are interested in developing its economy and stabilizing the country, but it is also neighbors with Russia and Japan. In other words, it is surrounded by some of the largest exporters of both raw and manufactured goods in the world, as well as some of the largest markets.

The opening of trade financing opportunities and FDI could also see the government in a position of strength in terms of offering more welfare options for citizens in exchange for steady control over the population. While some countries would surely not go along with this set of circumstances unless there were promises for political reform alongside proposed economic reform, it is highly unlikely that its potential primary investment and trade partners – Russia and China in particular – would ask for these same conditions.

With the North Korean population constantly on the verge of famine due to poor resource allocation and the systemic inefficiency of the Korean economic model, Pyongyang has almost always relied on aid from other countries. After the collapse of the Soviet Union this was largely achieved through regional belligerence. But if March’s incidents were anything to go by, the current government may not as deft at pulling the levers of global economic manipulation as the previous one. The next time talks of providing aid are conducted the United States and others will be even more wary that Pyongyang will immediately renege on the agreement. If Kim Jong-un cannot effectively harass and cajole the United States and others into providing aid, his government may find that it has little other option but to liberalize the economy.

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About the Author

David Matthew

David Matthew is pursuing a Master’s degree in Public Policy at Edinburgh University in the UK with a focus on security, trade, and technology in the Asia-Pacific.

Join the discussion

  • Joe Callama

    This is an interesting article, I agree I think Lankov can be a bit too dismissive of China’s situation in the 1980s. It still risked a lot to reform, so there is no reason NK cannot either. but doing so would probably accelerate nk’s own demise… 

  • Fred Bauder

    I think the United States, and other countries, are quite willing to assist North Korea with economic reform if they negotiate and sign a peace treaty, abandon nuclear weapons, and crease egregious human rights violations.  Frankly, I think the door is wide open.

  • newageman

    Fred,

    You are confusing yourself and others!
    It is not NK that is refusing a peace treaty
    but Uncle Sam.

    NK may have been integrated into the world fully today
    with economic reform, liberalization, and no nukes,
    if US agreed to negotiate and sign a peace
    treaty proposed by NK from early 1970s.

    Wake up please!
    Uncle Sam is not such an angel
    as you may believe.