A shattered mirror

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A shattered mirror

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

North Korea recently submitted to the United Nations a voluntary national review of the sustainable development goals it agreed to achieve. The report offered a glimpse of the economic conditions in the reclusive state, which rarely releases economic statistics. The report included data on gross national income (GNI) from 2015 to 2019 and crop yields from 2014 to 2020. According to the report, annual gross national product (GNP) and per capita income grew 5.1 percent and 4.6 percent on average, respectively, from 2015 to 2019. Those rates are twice the average growth of South Korea during the same period. Under UN-led sanctions, the North Korean economy grew 3.7 percent to 4.7 percent from 2017 to 2019. It might have either inflated the figure for propaganda or reported its official data.

Given the circumstances, it may not have intentionally tweaked the GNI figures for the report to the UN. In a closed-door seminar, Ri Ki-song, a North Korean economist, presented nearly the same GNI figure for 2014 as the 2015 data in its report to the UN. The GNI growth rate for 2017 he mentioned to a Japanese reporter in an interview in 2018 also corresponds with the figure in the UN report. Therefore, North Korea appears to have reported its official data to the UN. Based on the data, North Korean leader Kim Jong-un would have believed the economy was running well even under international sanctions. During the latest Workers’ Party convention, Kim admitted that the economy fared worse than expected, yet did not find it in trouble.

But the data can hardly be accurate. It not only contradicts other figures but also cannot be possible under such harsh external conditions. In the report to the UN, North Korea’s crop yield fell 8 percent on year in 2018, whereas per capita income increased 4.3 percent. That means other industries like mining, manufacturing and services grew more. But that’s not possible. From reports from North Korea’s trading partners, its exports were projected to have plunged 86 percent on year in 2018. Due to a ban on shipments on minerals, the mining sector was hit hard. Manufacturing output also shriveled due to reduced imports of raw materials and capital goods. The services sector could not have expanded due to depressed individual market activities. Then, how could the economy have grown by 4.3 percent?
North Korean leader Kim Jong-un makes a speech at an expanded meeting of Politburo members of the Workers’ Party on June 29. [RODONG SINMUN/NEWS1]

North Korean leader Kim Jong-un makes a speech at an expanded meeting of Politburo members of the Workers’ Party on June 29. [RODONG SINMUN/NEWS1]

According to the UN report, North Korea’ per capita income stood at $1,262 in 2018, which is similar to Myanmar’s $1,279. But Myanmar at least drew foreign investment while North Korea is an isolated socialist economy. It cannot be on par with Myanmar. How it came to the figure — $1,262 — is also interesting. According to a Bank of Korea estimate of North Korea’s per capita income for 2018 in terms of South Korean currency value against the U.S. dollar was rounded up as $1,280. Strangely, North Korea’s per capita income figure in U.S. dollar terms matches South Korean estimation. If Pyongyang really copied the Bank of Korea’s estimation, it has erred as a country’s foreign exchange rate reflects its economic scale. When South Korea’s currency value against the greenback is applied to North Korea’s, its income would be overvalued.

The data is a shattered mirror of North Korea: it does not reflect reality. Data from socialist states cannot be trusted. According to official data from the Soviet Union, its economy grew 9 percent on average per year for about 70 years from 1928. If it had grown at that pace, it could not have fallen apart. In a state-planned economy, companies are penalized or rewarded according to their meeting of preset output goals. Companies inevitably inflate their performance. When the U.S. Central Intelligence Agency removed some of the distortion, the Soviets’ growth rate halved. Distortions would be even greater in North Korea, given its poor statistical standards and prevalent corruption. North Korea claims its per capita income grew 13 percent from 2017 to 2019. But South Korea’s central bank projected a 7 percent contraction for North Korea.

The reflection is distorted in a broken mirror. Inaccurate data ruins policy making. Since Kim Jong-un believes the economy has been growing under sanctions, he would persist with nuclear development. Even when borders are sealed to protect the country from Covid-19 and markets are controlled, he would still believe the economy is running well. But its economy is hanging on a cliff.

North Korea must first establish an accurate statistics system. The first aid South Korea should offer if the inter-Korean relationship is mended should be expertise in tracking and recording data. That is more urgent than resuming tourism or connecting railways. Former North Korean leader Kim Jong-il said, “Have feet on the ground and eyes on the world.” Is Kim Jong-un following his father’s advice? Is he sacrificing the economy to hold onto nuclear advancement? If he takes his clues from such wrong data, he could be running the country with a blindfold on.
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