Kim Jong-Un [Hearts] Markets, Sort Of

♠ Posted by Emmanuel in at 9/25/2017 06:00:00 PM
We sorta knew they love rockets...but markets too?!
The perception we often get is that North Korea is the archetypal Communist state, with collectivist means of production concentrated in mostly rural communities churning out goods which the government tells to make in what quantities. Actually, the old-style command economy is on the outs. For several years now, the hermit kingdom has been experimenting with the use of markets. Mind you, it's not because of any sort of enlightened about the virtues of capitalism. Rather, it's being done out of survival. Indeed, North Korea may be more resilient than believed because of these partial market-oriented reforms:
Byung-Yeon Kim, a professor at Seoul National University, began interviewing North Korean defectors seven years ago to learn more about their country's economy. One wouldn't have thought there was much to discover: Often described as "Stalinist," the hermetic regime to the north seemed to preside over a crude, centrally planned system, with peasants toiling away for a pittance in collective farms and state-owned factories, dependent on food aid and growing poorer with each passing year.

In fact, as Kim lays out in his new book "Unveiling the North Korean Economy: Collapse and Transition," that popular image is almost entirely wrong. By necessity, virtually all North Koreans, from farmers to army commanders, now buy and sell goods and services in capitalist markets -- whether to survive or, in some cases, to get rich. The economy is growing and wages are rising; until recent rounds of United Nations sanctions, North Korea was about as dependent on foreign trade as the U.K. or Italy.

This will come as a disappointment to those who hoped that popular discontent would spell the end of the North Korean regime; despite decades of isolation, the country has stabilized economically even as it rapidly develops its nuclear and missile arsenals. Kim is more sanguine: He sees the spread of markets and money as a threat to dictator Kim Jong Un -- whom U.S. President Donald Trump now derides as "Rocket Man" -- and a point of pressure that the outside world can exploit. We spoke last week soon after North Korea tested its first thermonuclear device but before its latest missile test flew over Japan. A lightly edited transcript:
To be sure, North Korea is hardly booming. Still, it is actually quite externally involve as its trade levels are nearly similar to global averages [!] according to Prof. Kim. Note though that much of this market activity occurs in the informal sector. Prof. Kim adds:
Since Kim [Jong-un] took power in 2011, the economy has stabilized. While the rate of growth isn't that high, overall the economy has grown 1 to 2 percent for the last five years.

It's not really a Stalinist economy anymore. North Korea experienced a severe crisis in the late 1990s, when several hundred thousand people starved to death because of famine. Afterwards, the economy changed dramatically. Before, the regime repressed any kind of market activities. But nowadays, households participate more in the informal economy than the official economy. About 70 to 90 percent of household income comes from markets.

The reason is quite simple: The government cannot pay a salary sufficient to live on. I talked to one high-ranking diplomat who served in London and defected to South Korea last year. He said that he received a monthly salary of 2,000 North Korean won. At that time, the market rate was 3,000 North Korean won to the dollar. A typical North Korean household needs $50 per month for survival; the remaining part of this need is filled by markets. Some 70 percent of households participate in markets, while only 50 percent participate in the official economy. It's a hugely informalized or marketized economy.
Second, North Korea is not a closed economy anymore. I estimate the economy's trade dependency ratio is higher than 50 percent. The world average is 58 percent.
So, are there any truly Soviet-style economies left out there in the year 2017? Our usual suspect may not even be on the list. I guess that's progress of a sort.