Recognizing change in the North

“Economics: An Introductory Analysis” by American economist Paul Samuelson was the most-read economics textbook for two decades from 1960. The book, which sold over four million copies around the world, expounded on the principles of Keynesian economics and advocated state interference when necessary. The revised edition in the mid-1980s, however, reflected other schools of thought, especially monetarism, which emphasizes the role of governments in controlling the amount of money in circulation. People asked Samuelson why his lessons had changed. He said policy should change when conditions change.

North Korea has changed. In reality, the country is no longer a rigidly state-controlled command economy. After the socialist policy of equal distribution crumbled amid a famine in the mid-1990s, North Koreans created their own marketplaces to bring home food and make a living. Enterprises were allowed to trade on their own to earn hard currency for their country. The scene is hardly a traditional socialist community that restricts commerce to state institutions and bans for-profit individual and corporate activities.

Under young ruler Kim Jong-un, the regime veered away from past crackdowns on market activities to instead condone, if not encourage, them. An economy where there was little to buy has morphed into one where money can buy almost anything. North Koreans are the biggest customers in Chinese home appliance shops and South Korean marts in Dandong, a border city in China. They take home the latest iPad and South Korean cookers.

While about 50 percent of North Korean adults work in state entities, over 70 percent are engaged in some kind of outside economic activity like trading. The salary they earn from their workplaces hardly cover 1 percent of their monthly living expenses. The livelihoods of the majority of North Koreans revolve around marketplaces.

Private capitalists that earned wealth through cross-border and domestic trade pay kickbacks to officials in influential positions to win deals. Some apartments in Pyongyang fetch for as high as $200,000.

Market activities are stimulating bottom-to-top changes in North Korea. North Koreans now have a realm free from state control. People who have been educated all of their lives to unite to fight for the ruler are learning to put their own interests first by the market. People who are used to following orders must make their own decisions.

They become more self-conscious and individualistic. They realize that their life, not the ruler’s, is important. The spirit of capitalism is born and bred in marketplaces in North Korea. Now that the seeds of market capitalism have been planted, they will proliferate fast to dominate the environment.

Trade even contributed to stopping the Pyongyang regime from conducting a fourth nuclear test. During the military parade celebrating the 70th anniversary of the founding of the Workers’ Party, North Korean leader Kim Jong-un on Oct. 10 mentioned the word “people” 97 times. He repeatedly cried out, “Our great and dear people.” He constrains the elite through a rule of terror while reaching out to the common people. The market has become crucial to the lives of the masses.

If Pyongyang proceeded with a fourth nuclear test, it would have faced stronger sanctions. Bilateral economic ties with China would be strained. Seoul would also call off its plans to renew economic cooperation. The lives of the masses would worsen as supplies shrink. Disgruntlement toward the ruler who promised improved lives could turn into deep resentment. Instead of detonating the nuclear device for an international audience, Kim turned to his people at home.

A nuclear test could truly shake the regime. The North Korean elite wouldn’t like any disturbance to their earnings from abroad. The rest of the population wants to go about its market businesses. The market has weakened the all-powerful voice and its military-first policy. If the Pyongyang regime attempts another nuclear test, it will risk angering the public. The free market has raised the opportunity cost of a nuclear test.

North Korea’s burgeoning market and trade provides the direction for better North Korean policy. The current government appears to pay little heed to a possible tipping point. North Korea is changing fast. Our response is not.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Nov. 19, page 35

The author is an economics professor at Seoul National University.

by Kim Byung-yeon