Marketization key to North Korea’s future prosperity

North Korean leader Kim Jong Un visits a construction site in Samjiyon County, Ryanggang Province. Image: Korean Central News Agency (KCNA).

The North Korean economy has a number of unusual characteristics. Estimates on the average income level of an ordinary North Korean are a paltry US $500 per year. Viewed from the perspective of per capita GDP, North Korea is a low income, developing nation. But the picture becomes more complex when other metrics are taken into account.  

North Korea’s Central Bureau of Statistics agreed to provide population data in return for financial and technological aid from the United Nations Population Fund (UNFPA) in 2008. According to research conducted thereafter, 60.7% of North Korea’s population lives in cities, a higher proportion than in other developing nations. Therefore, North Korea is a relatively urbanized country.

In this manner, North Korea defies many of the usual patterns that analysts are familiar with. This feature of North Korean society makes it difficult for outsiders to understand the country’s social and economic aspects.

In early July, something strange happened in the Hyesan region of Ryanggang Province, when sources in reported that “a white plane landed and simultaneously cellphones and wired communications devices stopped working.” The specific reason was never announced, but evidence suggests that a plane carrying Kim Jong Un was forced to make an emergency landing in Hyesan while on its way to Samjiyon Airport.   

It’s possible that Kim Jong Un was unable to meet with Secretary of State Mike Pompeo or attend a North-South exhibition basketball match due to this incident. If that is the case, such an outcome is the height of dysfunction. Perhaps frustrated by the developments, Kim Jong Un gave an impetuous order to change the country’s economy, which is languishing in a state similar to the one it was in 20 years ago.  

Kim Jong Un was also quoted by state media berating local officials for failing to complete construction of the Orangchon Power Plant in North Hamgyong Province. Recently, in statements by North Korea’s policy makers, the phrase “change and development” has become more frequent.  

It is already well known that some policy makers are deeply concerned about making the transition towards a market economy, since North Korea entered a depression in the 1990s. But in order to develop, what does North Korea need to do? The answer is that the country needs to commit to introducing a market economy.

Research suggests that limited marketization has already helped North Korea’s residents improve their livelihoods.

North Korea’s public distribution system largely collapsed in the early 1990s, with only the military, Ministry of People’s Security, Ministry of State Security, and some central Party officials and administrative personnel continuing to benefit from it. Since then, most ordinary residents have relied almost entirely on the markets to survive.  

If the bare minimum food requirement per person is 500 grams per day, the yearly minimum food cost is approximately $182.50 per year. When this expense is combined with housing, education, hygiene, communications, and other costs, the total is about $500 a year – barely enough to survive.

This level of income is lower than in many other developing nations. Although North Korea’s economy is in the process of transitioning towards a market system, distribution methods are still centralized rather than marketized.  

In addition, North Korea’s cities have grown quickly, meaning that the urban population growth rate is high, but is limited to big cities like Pyongyang, South Pyongan Province’s Pyongsong, Nampo, North Pyongan Province’s Sinuiju, North Hamgyong Province’s Chongjin, and South Hamgyong Province’s Hamhung.   

North Korea has also exhibited a negative growth pattern for many years in a row. Profits generated in the country are extremely low compared to the amounts invested. The share of GDP growth occupied by the manufacturing sector is relatively small, and the country has yet to make any major headway into international markets.

In particular, economic growth is obstructed by systemic problems caused by government oppression, nationally-owned entities, corruption, and unbalanced markets and systems. The Workers’ Party derives its political power from its control over the economy and isolation from the outside world. A free press, capable of highlighting these irrational policies, cannot exist in North Korea’s authoritarian system.

If North Korea takes steps towards reform by addressing the many negative features that drag its international reputation down – nuclear weapons, ballistic missiles, human rights violations, and an anti-democratic system – it can earn sanctions alleviation, invite investment, incite economic growth, and head down the pathway of peace.

The opportunity for change has been created by the summits between North and South Korea, and North Korea and the U.S. The entire world cheered this process on. Nuclear weapons are counterproductive for North Korea’s interests. By giving them up, North Korea can finally pursue a brighter future.  

*The author of this piece is originally from North Korea.