This is part of NK News’ series of opinion and analysis of the first five years of Kim Jong Un’s rule.
When Kim Jong Un took power just over five years ago, North Korea was something of an economic basket case, with stagnant growth, a crippled agricultural sector, and a system of economic planning riddled with corruption and mismanagement. The country’s saving grace, it seemed, was its burgeoning private marketplaces, providing goods that the state-approved planned economy simply could not.
Skip ahead to 2016 and much of this remains true. It’s estimated that economic growth remains negligible – somewhere around 1% a year. North Korea is not about to experience a China-style boom anytime soon.
But tufts of growth are emerging. From large-scale state construction projects and housing developments, to the expansion of mobile phone and taxi services, North Korea seems to be slowly transforming into a more consumerist, more market-focused society – at least for some of the population.
So what impact has Kim Jong Un’s reign had on this transformation? And what challenges does he face looking to the future? In the second part of a six-part series examining how Kim Jong Un has spent his first half-decade in power, NK News reached out to experts from across the world with three key questions on how North Korea’s economy have developed under his reign.
The following North Korea specialists responded on time for our deadline:
- Geoffrey K. See, Founder and Chairman of Choson Exchange
- Nicholas Eberstadt, political economist at the American Enterprise Institute
- Rhee Yoojin, a researcher from the KDB reunification department
- Benjamin Silberstein, Ph.D. candidate at the University of Pennsylvania and co-editor of NK Econwatch
- Nam Sung-wook, a professor of North Korean studies at Korea University
1. What have been the key focuses of North Korean economic policy under Kim Jong Un?
Geoffrey K. See: On the macro-level, three things: (1) agricultural reform, (2) creation of over 20 special economic zones and (3) slight loosening of controls over state-owned and affiliated enterprises.
Also, there is an attempt to curb foreign imports and institute import substitution.
Nicholas Eberstadt: Rebuilding the institutions and instruments of state, and attempting to restore and improve the North Korean economy were major long-standing objectives. This, of course, both included the defense industries and the non-defence industries as part of the Byungjin line.
The Kim Jong Un group has attempted to bring a measure of economic stability to the DPRK, and one of the most curious and remarkable and, frankly, quite puzzling aspects of North Korean economic performance during his reign has been the relative stability of the foreign exchange markets and the shadow markets for cereal prices.
Under his father’s rule, foreign exchange rates continually declined and prices for grains in DPRK Won continually increased, even when one takes the so-called reform into account.
But very much unlike a Soviet-type economy, we’ve seen relative stability in foreign exchange and in grain prices, and that suggests a measure of macroeconomic stability that one usually doesn’t see in this kind of economy.
Rhee Yoojin: I would say that light industry was certainly boosted under Kim Jong Un’s rule. By fully commencing the Socialist Corporate Responsible Management System, North Korea is focusing on revitalizing the production of the consumer goods.
Such a policy is aimed at countering the sanctions against North Korea, by localizing the production using its materials. By doing so, North Korea is trying to guarantee it can handle the rising need for consumer goods.
Benjamin Silberstein: The most important policy focus under Kim Jong Un has been developing the market system along the trajectory that his father laid out in the early 2000s. Kim Jong Un’s tenure certainly did not start the trend of increasing formalization and regulation of the private market economy, but he has taken some important steps to continue the process.
Most changes have not been clearly laid out in formal policy pronouncements, but there is enough anecdotal evidence and messages in North Korean publications to conclude that the development of the private economy and liberalization in enterprise management and the like has been a central focus of economic policy throughout Kim’s tenure.
Electricity is an essential resource to operate various kinds of factories and military facilities as well as critical infrastructure for people’s lives.
2. What impact has this development had on quality of life within the country?
Many of the supporting resources needed to make these policies succeed are lacking. For example, the agricultural reform is implemented partially, because of pushback from powerful interest groups.
The economic zones require stronger legal infrastructure and a more open environment to flourish, but these are slow in coming. However, legal reforms to improve the environment are taking place away from the current North Korea headlines.
Nicholas Eberstadt: It’s very hard for me to tell, because we’re dealing with a statistical vacuum for outsiders. I mean, we get impressionistic, anecdotal evidence in the form of construction in Pyongyang, things like that, and certainly for the Dongju things have maybe never been better. How this relates to the lives of people with less good Songbun who are living outside of the capital, it’s much harder to say.
Rhee Yoojin: The North’s past products made from its light industry lacked good quality. But, by developing its light industry and increasing both the quality and quantity of goods, the North will try to improve the convenience of life in the North.
Benjamin Silberstein: It is difficult to say overall since inequality is so staggering between different parts of the country. But a quick look at market price trends for the past few years shows a greater degree of price stability both for food and currency than in the past.
This suggests, in my opinion, that markets are somehow functioning more smoothly now than in the past, perhaps thanks to more transparent and less arbitrary regulatory frameworks, and therefore able to react better to shifts in supply and demand.
Trends such as these most likely impact different segments of the population in vastly different ways, but overall, the North Korean economy under Kim Jong Un seems to have been far less unstable and plagued by sudden shocks than before.
Nam Sung-wook: North Korea isn’t self-sufficient in agricultural production. For North Koreans, it is most urgent to solve the food problem, and moves to supplement the around 500,000 to a million ton annual food shortage should be taken as soon as possible.
The supply of electric power, too, is one of the principal challenges that the North is still facing.
3. What do you think the biggest challenge is facing North Korean economic policy-makers over the next five years? Can it be overcome?
Geoffrey K. See: Internally, North Korea has to cope with the key dilemma of balancing strict social controls and the openness needed to help the economy grow. For example, businesses struggle to communicate easily with their foreign partners, which is a basic need of businesses today.
Externally, while sanctions have limited influence on the 90% of North Korean trade with China, they deter a broader range of businesses that can bring useful management skills to the country. Lastly, economic technocrats, even if well-meaning, might lack influence or the knowledge to make effective economic policies.
Nicholas Eberstadt: I think the fundamental problem for the DPRK is whether the sorts of changes that will be necessary to revitalize the economy and boost productivity will be the ideological and cultural poison that the regime so often warns against.
External information and contact with people in South Korea and investment from abroad will be crucial for anything really worthy of the name regarding long-term development, but for not entirely irrational reasons the regime is terrified of such contact.
So there’s this box that the regime is in, and the question is how much international poison can the system really withstand? If the system can stand a little more poison than many seem to think, maybe there’s a possibility for something that we would call economic development, if not, we’ve got our answer.
Rhee Yoojin: The symbiosis between the North’s “informal economy” and the formal economy will continue for awhile. Pyongyang will most likely allow the informal economy to grow within certain boundaries. However, in the long term, Pyongyang might have to prepare for a scenario where the informal economy encroaches the formal one, or vice versa, the formal one assimilates the informal.
Currently, the North Korean government is trying to absorb as much of the informal economy – the wealth that its people have accumulated over the years – by launching credit card systems and various deposit and installment products. The North is predicted to continue to follow the same path, but they will not be able to completely ignore resistance from Donju, who are the principal agents in leading the informal economy of the North.
Benjamin Silberstein: I think the main challenge is economic diversification and dependency on a small number of commodities in trade. This is not just about the sanctions that target North Korea’s minerals trade, but about trade overall.
For now, North Korea’s export income is extremely vulnerable to global market fluctuations for goods such as coal and other minerals. This is a big challenge for economic policy makers, and dependency on a small number of export goods has concerned the North Korean leadership for decades.
Firm management liberalization is probably one way in which the regime hopes to tackle the challenge, but given global competition, it is hard to see how North Korea could break into new export markets without radical reforms of its whole economic system.
Additional reporting: Chad O’Carroll, Oliver Hotham, Hamish Macdonald, JH Ahn, Dagyum Ji
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Featured Image: North Korea by Roman Harak on 2010-09-05 10:39:51