[Viewpoint] North’s economic anomaly

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[Viewpoint] North’s economic anomaly

Get this: North Korea’s economy is growing and collapsing at the same time. This might seem nonsensical, but it seems the only way to diagnose North Korea’s uniquely problematic economy today.

Economic growth means an increase in production. That North Korea’s economy is growing means that the communist country is adding value and its rate of growth is actually quite healthy.

Of course, there are no official statistics on the matter. In fact, North Korea has not released any economic indicators since the middle of the 1960s. The only information that North Korea divulges are aspects of its budget for the Supreme People’s Assembly, and its national income, which is infrequently submitted to international organizations.

Even so, the country only releases year-on-year growth rates so it is impossible to grasp the scale of the budget. And statistics that the country submits to international organizations vary a great deal, making them unreliable.

So how can North Korea’s economy be growing when it is still suffering from a lack of food and nearly all the aid from outside the country has stopped flowing in?

The core of its growth lies with North Korean residents’ market activities. As the national economy has worsened and the system to distribute food has nearly fallen apart, North Korean people have stayed alive by selling items inside and around marketplaces.

According to recent research, 90 percent of North Korean workers are connected either directly or indirectly to marketplaces. For example, a South Korean had a birthday cake while staying in the countryside in North Korea. He happened to say it was his birthday during his trip there, and his guide asked around and managed to get hold of a cake. Of course, there was no bakery. Someone bakes a cake at home whenever an order comes in.

This kind of business naturally increases production. For instance, in the past the state produced wheat flour worth 10 cents and distributed it. That was all. But now people use that 10 cents worth to make buns or noodles that sell for 12 cents. As a result, 2 cents of added value is created, raising the country’s national income and economic growth rate.

So why did I say that the North’s economy is collapsing while I maintain it is also growing?

The reason is that this kind of marketplace and freelance business activity is tearing down the controlled economic system. Under a centrally planned economy, a state controls all economic activities, from production to consumption. But individual businesses remain firmly encamped outside the government’s sphere of influence.

In the end, the amount the country can plan in advance decreases and the private sector evolves.

Not all these affairs are illegal, of course. In 2003, North Korea permitted opening marketplaces as part of the July 1 measure and therefore affairs inside marketplaces have become legal. But it should be noted that even legal businesses inside a legal marketplace still fall outside the frame of controlled economy.

An indirect consequence of the July 1 measure has been the rise of illegal marketplaces, which have not been authorized. These places tend to be bigger than their legal equivalents since space is needed to exchange illegal goods, and those who fail to acquire booths inside legal marketplaces need a place to do their business. In these cases, illegal marketplaces spring up in areas far from the authorized marketplaces.

The fact is, though, that these marketplaces, legal or illegal, have grown exponentially over the past several years, and North Koreans now cannot live without them. People who are losing their jobs and not getting paid often have no choice but to sell items to get food. Inevitably, crimes rates rise as some are tempted to steal materials from factories and sell them for food. Then, factories became more interested in producing items to sell in marketplaces rather than meeting production targets that the authorities hand out. This is an inevitable consequence; when the state cannot take responsibility for people’s livelihoods, people have to take care of themselves.

It is tragic, ironic even, that growth leads to collapse and collapse fosters growth. North Korea’s authorities cannot accept this type of growth and they cannot overlook this type of collapse. They tried to close the marketplaces but they couldn’t; if they closed them before they could resume the distribution of food, it would only add to economic confusion and hardship.

After all, money talks. Only money can revive a controlled economy. If securing the regime through nuclear development programs is a prerequisite in foreign affairs for Kim Jong-il to hand power to his son, securing the controlled economy is essential in domestic affairs to earn people’s support.

While threatening that it might close the Kaesong Industrial Complex, North Korea keeps providing more and more of its workers. Such confusing behavior shows that the North not only wants to keep business in the industrial park but also it wishes for even more cooperation and aid.

A recent request for a whopping $500 million is a symbol of the cooperation and aid that North Korea wishes to get its hands on.

by Jo Dong-ho


*The writer is a professor of North Korean studies at Ewha Womans University.
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