[Viewpoint] Reasons for the North’s ‘reforms’

By the time Kim Jong-il consolidated power and assumed the official title of general secretary of the Workers’ Party in 1997, three years after his father died, the North Korean economy was a complete wreck.

During the late 1990s, described in the North’s propaganda as the “age of painful crusade,” factory lines stopped and so did food distribution. Hungry civilians left their homes and workplaces in search of food, scraping off whatever bark was left on trees.

Tens of thousands died of famine. The land once hailed as a heaven on earth turned into one mass graveyard.

The country’s defining doctrine, juche, or self-reliance, was reduced to “leaving one to one’s fate.”

At the end of the day, you could only believe in yourself. Official stores were empty, inevitably creating a black market. Prices skyrocketed, sending civilians to trade and barter to sustain their lives.

The centrally planned economy was sinking. But the state could not afford to deny its philosophy and allow real free market economic reforms.

At any rate, the socialist planned economy could not be sacrificed because that would mean the collapse of the Kim regime.

Kim’s advisers were divided on methods to reinforce the planned economy. The conservatives called for a currency revaluation to rein in prices and wipe out illicit markets. This way, civilians would abandon market trade and return to factory lines.

Reformists, on the hand, said that higher wages would help citizens buy commodities at market rates and allow factories to give out incentives to encourage work.

Kim Jong-il liked the latter idea.

Around 2000, Kim began to champion the need for change.

“A new century has begun and we should see all things in new perspectives,” he said.

In 2002, he announced economic reform measures emulating to some extent those of China’s Deng Xiaoping. The central bank rolled out coins, prices stabilized and demand for smaller currency units increased.

But the real economy was not simple to control.

Markets flourished and factories became more interested in selling products at market than they were in meeting state demands for official distribution. Bold traders on the border with China raked in $100 bills - called “dollar fathers” in the North - and some began to accumulate significant wealth.

Despite the regime’s best efforts, the seeds of capitalism took root and sprouted across the country, shaking the basis of the North Korean socialist regime.

Without its socialist backbone, the three-generation hereditary power succession could not be justified. So Kim called in the old guard on currency “reform.”

That probably was three or four years ago, considering the Bank of Korea needed two years to print out the needed bills.

But currency revaluation alone cannot defend the centrally planned economy.

Stores need to be stocked to offer products to consumers. Raw materials imports are needed to run factories.

So Kim has been waiting for the right time since 2008 to implement the currency revaluation.

The economy at home had to be stabilized to some extent and circumstances on the diplomatic front ripe to require foreign aid without losing face.

The outward military shows of force and skirmishes subtly mixed with conciliatory gestures toward China, South Korea and the United States all served as instruments to maintain the status quo at home.

The recent monetary changes that wiped two zeroes off the North’s currency value may be temporarily effective in reining in burgeoning free market activities.

But if state supplies again prove inadequate, the market could always resurface. If lives are at stake, civilians will return to the market to take things into their own hands.

In that case, Kim will have no choice but to use force to take control of the situation. If military power is used to stop trade and confiscate individual wealth, residents may lose patience and resist.

Currency reform, in fact, could prove ultimately more explosive and perilous than the North Korean nuclear threat.

*The writer is a professor on North Korean affairs at Ewha Women’s University.
Translation by the JoongAng Daily staff.

by Cho Dong-ho