[VIEWPOINT]North's experiment a half stepWhen the founder of the Sui Dynasty (A.D. 581-617) in China fought to overthrow the dynasty built by another ethnic group, his wife advised him that he should not give up because the situation was as if he were riding the back of a running tiger. He succeeded in his efforts and formed a nation of the Han tribe by becoming the first emperor of the Sui Dynasty. His stunt on a running tiger's back was a success.
North Korea's economic reform can be compared with the situation of "riding on the back of a running tiger." It is now going through a transition from the principles of socialism in which people work according to their capability and receive according to their need, to the principles of the market where people are rewarded according to their work and buy things according to the price.
In the course of the reform, the North expanded the maximum area of arable land for individual farmers to cultivate to 1,320 square meters and granted independence, though limited, to public enterprises. The reform includes abolishing the distribution system and opening a market system in which people can buy commodities directly. The hike in the price of everyday necessities is quite startling as well. The average price has been hiked 30-fold. Rice costs 550 times more now; the exchange rate for the dollar has been multiplied by 100; and wages have been increased 25 times.
All these changes are revolutionary, even considering the remarks from the government that the economic reform is a creative move that "reflects the opinions and needs of the people" in order to "build a wealthy socialist country." One big axis of the North's socialism is now threatened by the introduction of the function of market and price. The North, which has so far walked sideways economically, is attempting a risky adventure of "riding on the back of a running tiger."
Yet, the North's economic reform cannot be taken as a full adoption of a free-market economy. It still regulates the change of the price of products instead of letting the market decide the price. The price raise is just another standard of distribution. The economic reform is in one perspective a simple modification of policies rather than systemic change. However, the result of this economic reform by the North will not be minor. The new system has already shaken the minds of most people who have been working for the party according to their capabilities.
North Korea has invited the spell of money, the very foundation of the market economy. Merchants and farmers all will soon be the slaves of this irresistible devil. And, once people fall under the spell of money, it is fixed.
The North is "riding on the back of a running tiger," the uncontrollable free-market economy; it has no choice but go with it until the end.
For a short period of time, the black market will be suppressed, and production and supply will increase. It is rumored that people in the North are changing already, that they are eager to work. Hard work for more reward will eventually lead to an increase of productivity. But the situation in North Korea is a little bit different from that of China, which opened the market following Western advice that only the market can solve a severe famine.
The North has a weak foundation for agriculture, and the limited market opening cannot immediately provide sufficient food for its people. The same goes for the manufacturing industry. Price rationalization itself will not lead to an independent economy.
Then, what should the North do to get what it needs? Soon, the North will face "the insufficient economy" in which a shortage of supplies and inflation take place. If supplies do not meet demand after 10-fold price hikes, the black market and corruption will become worse. Living conditions in the North will slide even further. To achieve successful economic reform, the North should provide sufficient supplies and stabilize prices. It should receive more aid from the outside or implement more revolutionary economic reform. If the North is successful, its socialist system will be transformed into something closer to a market economy. The spell of the market changes its surroundings.
The writer is a professor of economics at Yonsei University.
by Jeong Kap-young