The self-sufficiency trap

Kim Byung-yeon
The author is a professor of economics at Seoul National University.

In mid-2010, I met a North Korean foreign ministry official who studied economics at the elite Kim Il Sung University. The 30-something envoy was well versed in English and intelligent. I took a seat next to him during a downtown bus tour after a meeting and struck up a conversation. I asked him if he had learned about supply and demand in economics class. He shook his head. So I asked him what he had learned at school.

He said his class had been devoted to how special the North Korean economy was, being based on self-sufficiency, or juche ideology, and how much it had achieved. He more or less admitted that he learned little about the very foundations of economics.

The biggest gap in academia between the two Koreas would be economics. In socialism, economics serves as a propaganda tool for an ideology rather than a scientific study of a society. Majoring in it would not make one knowledgeable about an economy. After German unification, economists from West Germany were in much higher demand than those from East Germany. The same happened with Russia when it adopted market economics. Moscow State University lost its reputation by sticking to Marxism courses after the country went capitalistic. Newer establishments like the Higher School of Economics and New Economic School that recruited young scholars and foreign lecturers rapidly gained competitiveness instead.

Ignorance of economic fundamentals is pushing North Korea into greater danger. Before international sanctions, North Korea was a socialist economy only in name because much of the economy depended on external trade and market activities. Raw materials, machinery and parts were imported to run factories. Foreign currencies were earned through trade. Consumer products advanced the market. The economy ran on trade and market cycles. All this was possible because the state withheld interference and control.

But when the economy hardened from lengthy international sanctions, leader Kim Jong-un tightened state control over trade and markets for the goal of advancing science and technology to bolster self-sufficiency. But science and tech cannot be achieved in a short period. Supply chains critically destabilized by loss of imports cannot be fixed. North Koreans’ agony has worsened because of Kim’s backtracking policy.

Kim is hoping to restore the state-planned economy to bolster output. He chaired conventions three times in the first half. But a planned economy is like a loose net that cannot confine human desires. In a February assembly, Kim scolded policymakers for setting their targets for power and construction outputs pitifully low and their goal for farming yields too high. But such policymaking is actually normal. Targets for power generation and apartment construction must be set conservatively as their output is too obvious to hide. Agricultural produce, however, can be easy to fabricate. (The Soviet Union also feigned strong growth on paper.) Last week’s announcement about total output of factory goods surging 125 percent on year in the first half at the third assembly also could have been inflated by companies and bureaucrats to avoid reprimands.

Kim has chosen self-sufficiency to ascend to the nuclear state rank and fight sanctions. Since he confirmed the U.S. wanted complete denuclearization at the last Hanoi summit, he must normalize the economy no matter what in order to force the U.S. to accept the country as a nuclear state. Kim is going all-out on self-sufficiency.

But economic history doesn’t bode well. Studies offer conclusions on what can work and what cannot through analysis of past cases. The world of knowledge tells Kim to abandon the delusion of self-driven growth. There may be a socialist paradise somewhere in the future, but there is no magic economy.

North Korea can choose self-propelled growth for strategic purpose. It knows it cannot last long, but hopes to deceive the U.S. that it can. Experts in South Korea and the U.S. know North Korea is bluffing. It no longer can fool outsiders. Whether it be ignorance or tactics, the move will push North Korea to the edge of a cliff. When it reaches that end, the Kim regime’s fate cannot be guaranteed. A better way is to follow the guidance of traditional studies and come to the negotiating table.

The alarm bells have rung. Rice and corn prices in some regions doubled last week. There is a report that prices of imported consumer products have shot up 10 times. But the North Korean won strengthened against the U.S. dollar or the Chinese yuan. The market is showing signs of a collapse.

Self-sufficiency would wreck what’s left of trade and industry. It destroys the markets that common people rely on for everyday necessities. Enormous power is needed to eliminate the market and return to the state-controlled economy even under a dictatorship. Would Kim have that much power? What end will his ignorance bring?