North Korea’s Economic Policy in 2018 and Beyond: Reforms Inevitable, Delays Possible
Kim Jong Un has based his claim to legitimacy as North Korea’s leader on economic performance. This makes him more vulnerable to economic crises than his predecessors. If he wants to stay in power and achieve Korean unification under his leadership, he will have to succeed in making North Korea the next East Asian tiger. However, reaching such an ambitious goal will be impossible without decisive steps towards privatization. While these have not been taken yet, economic stability has so far been ensured by very specific domestic and external factors that have bought Kim Jong Un time. In the meantime, Kim has worked to build North Korean versions of chaebols—large and broadly diversified business conglomerates with close ties to the state, the Party, and the military. These will ultimately help Kim to stay in control even after bold systemic reforms to which, in the end, there is no alternative.
North Korea’s “New Strategic Line”
Kim Jong Un is now visibly focusing his political efforts on improving the economy of North Korea. In spring 2013, he took an intermediary step towards that end by announcing the byungjin policy of parallel development of the economy and nuclear weapons. This effectively halved the relevance of the military from its previous status of being the exclusive concern of the leader under the military first songun policy. In his New Year speech in January 2018 and more explicitly during the 3rd Plenary Meeting of the 7th WPK Central Committee in April 2018, Kim Jong Un went a step further and declared that the goals of byungjin were achieved, and the new strategic line of the Party would be to concentrate all efforts on socialist economic construction. The high level summitry of the first half of 2018—a total of six meetings between Kim Jong Un and the leaders of China, South Korea and the US—shows that Kim will try to soften international and bilateral sanctions, and acquire access to external markets and finance in the interest of economic development and growth.
Within just five years, North Korea went from “all for the military” to “all for the economy” approach. It fits into this broader picture that Kim’s widely publicized “on-the-spot guidances” in July 2018 were exclusively economy-related. North Korean state media reporting about these inspections generated enormous attention in the West because of Kim’s repeated and open criticisms of sloppiness and bad economic performances of the involved officials. Against the background of Donald Trump’s maximum pressure policy of 2017 and the recent dialogue between North Korea and the outside world, we need to ask: Is Kim Jong Un desperately trying to fix an economy that is worsening due to the sanctions? Has he changed his strategy for gaining and keeping legitimacy as the country’s leader? And does all of this make him more or less vulnerable to interference by the United States and its allies in the future?
The Economy Determines Political Stability
The state-socialist Eastern Bloc collapsed because of its inability to meet the economic expectations of its citizens. This was the reality despite the narrative commonly told in hindsight by both the victors and the converted, which often focuses exclusively on ideals that are presumably more lofty and honorable, such as political freedom.
These fatal economic expectations among the citizens of socialist countries were created by two main factors: external pressure through an aggressive and hugely successful information campaign by the West and promises made by domestic politicians. Some of these socialist leaders had a genuine paternalistic belief that it was their mission to create better living conditions for “their” people, exemplified by terms like “workers’ paradise.” But even the rulers who did not share this goal could not escape the fierce economic competition that was forced upon them by their Western adversaries. The citizens of the Eastern Bloc learned about the “consumer’s paradise” on the other side of the Iron Curtain through radio, television, movies, visits, journals, letters or phone calls. Needs, desires and wants were created and demanded satisfaction. So, the socialists started playing the game of the capitalists, and they ultimately lost.
For a very long time, North Korea has been able to avoid all this. The legitimacy of Kim Il Sung’s and Kim Jong Il’s claims to leadership of the country was mainly based on ideological arguments and much less focused on material well-being. The key topics in this narrative were liberation and defense of the country against hostile outside forces. Simple living conditions and occasionally even economic hardship were presented as a necessary evil and as the price that had to be paid. Because the country was heavily insulated from external information, consumerism did not emerge on a broad scale, as visitors to the country during the late 1980s and early 1990s can confirm.
Consumerism in North Korea: Can the System Survive the Challenge?
As of 2018, all of the above seems to be a matter of the past. For two decades now, consumerism has taken a firm hold in the country. Cars, smartphones, electric bicycles, flat screen TVs, fashion and fancy food and cafes are all available. The over 400 markets and even state-run shops and stores of North Korea are full with a great variety of top-quality products. A society that for a long time was economically largely homogeneous and where differences between individuals existed because of political merits such as Party membership, or political shortcomings such as family ties to South Korea, is getting more diversified. The divide is running along new, monetary lines: some can afford the new luxuries, others cannot. The new middle class is concentrated in Pyongyang but also spreads to the provincial capitals. DVDs, USB sticks and thousands of annual Chinese and other foreign visitors, family members and business partners have broken up the state’s once watertight information monopoly. North Koreans are now as materialistic, greedy and unsatisfied as their comrades in the Soviet Union and East Germany once were, and as are most of us in the West. North Korea has begun playing the capitalists’ game, and it has gone much further than most European socialist countries ever went. Shortages are not the dominant issue anymore, and access to almost anything is guaranteed – as long as one has enough money.
The One-Million-Dollar question is: Will Kim Jong Un end up losing that game, like Mikhail Gorbachev and Erich Honecker did, or even worse, like Nicolae Ceausescu? This is always a possibility. As long as the system is not changed in a way that delegates responsibility for satisfying desires to the individuals, and as long as the state does not give up its claim to being responsible for everything that happens in the country, people will hold that very state accountable for all their unfulfilled wishes. It is naive to expect that these will ever cease. On the contrary, experience tells us that over the mountains are more mountains; as soon as one desire is fulfilled, two new ones will emerge, again and again and again. In the end, if the system is not reformed there will be either a violent collapse or a peaceful revolution.
However, there are examples where state socialist systems avoided such a scenario and learned how to play the capitalist game; China and Vietnam come to mind. And if we stop buying the shaky argument that North Korea is socialist, and begin seeing it as a country with an ultranationalist ideology and a repressive authoritarian state, then even cases like South Korea under Park Chung-hee or Singapore under Lee Kuan Yew look somewhat familiar.
Focus on the Economy Since 2011
Kim Jong Un decided to make his legitimacy dependent on economic performance only a few days after he was declared the new leader following the death of Kim Jong Il in December 2011. Obvious indicators of that approach were stories published in the state media about how Kim, despite just having lost his father, personally made sure to provide fresh fish to the citizens of Pyongyang and hot tea to the mourners who lined up for hours in the frigid cold in front of the many monuments to pay their respects to the deceased. Banners reading “Light Industry First” and “Improvement of People’s Living” were conspicuously placed in the front row of the very first rally he attended as the new leader. An additional year of free education was granted in 2012, and various other forms of a “bread and circus” policy—keeping the people happy by providing material goods and entertainment—could be observed. In his New Year Speech in January 2017, Kim Jong Un went as far as humbling himself by saying “I spent the past year feeling anxious and remorseful for the lack of my ability. I am hardening my resolve to seek more tasks for the sake of the people this year and make redoubled, devoted efforts to this end.”
Even the technique of publicly holding incompetent officials accountable for all the shortcomings of the economy is not an invention of July 2018. In May 2012, state media reported Kim Jong Un’s “irritated look” followed by harsh words of criticism after finding out about the bad shape of the Mangyŏngdae Funfair. The message to his audience, then and now, was: I know that not everything is yet perfect in our country; this is not my fault, but rather the fault of underlings who just do not do what I told them; but there is no need to worry, as soon as I find out, I will fix it.
A variant of this strategy of delegating responsibility has been to point fingers at the West and its sanctions. In Pyongyang these days, visitors often hear the hope that things will get better once the sanctions have been dropped.
Push and Pull Factors Towards Systemic Reform
Against this background, there are two potentially dangerous factors for Kim Jong Un. First, he could be caught in the same trap as those Eastern Bloc leaders who made promises they could not keep. Heavy sanctions and the lack of domestic reform could lead to this outcome. Secondly, what if US-led sanctions were abolished but the economy does not show the expected positive reaction because of a lack of structural reform? The latter has indeed not taken place so far, despite many smaller steps towards a decentralization of economic management in agriculture, industry and services. In fact, none of the authoritarian “economic miracles”—South Korea, Taiwan, Singapore, Vietnam, China—happened without de facto privatization of means of production. So, unless Kim Jong Un is willing to take that step, the desired take-off of North Korea as the next “Asian Tiger” will not happen.
There are several reasons why such failure and a resulting collapse are not more likely than a successful transformation. China has already indicated that it wants to reward what it interprets as positive steps taken by Pyongyang. China’s weakening readiness to strictly enforce harsh sanctions on North Korea, combined with the North’s natural resource endowment, strong state and accumulated knowledge and capital after 20 years of market socialism, will make sure the economy keeps growing, desires will be fulfilled, and expectations will be met.
Growth will continue to be slow and in the lower single-digit range. But for the time being, this will be enough to keep the population happy and optimistic. And should the US indeed drop its sanctions, North Korea’s economy will be able to benefit from new export markets and access to finance and technology even within the limits set by the current half-hearted and lukewarm attitude of the North Korean state towards private economic activity. In addition to China, South Korea and likely Japan will invest and open their markets. North Korea will try to play these partners against each other and muddle through on a comfortable level for a couple of years.
In the end, however, there will be no way around true reforms of North Korea’s economic system. Kim Jong Un is buying himself valuable time through the current process. He will eventually have to go from micro-management to decentralization and privatization, but if he succeeds with securing support for the status quo, he can take it slow and proceed one step at a time. He will most likely use North Korean chaebol—huge and broadly diversified family businesses with close ties to the state—as his own “private agents of public purpose,” to paraphrase Meredith Woo-Cumings’ account of South Korea’s economic miracle. Air Koryo could be one of these big players, with its taxis, gas stations, and soft drinks, or the omnipresent Korea Kumgang Group KKG that is also active in the taxi business, runs a bank, and as a sign of its wealth is currently building a new office and residential tower in Pyongyang.
Successful examples of authoritarian economic miracles like Singapore, China or South Korea under Park Chung-hee show that if he plays his hand well, Kim Jong Un can have his cake and eat it, too—reform the economy while keeping his monopolistic grip on power. In the very distant future, this could help him to fulfill the vision that his grandfather Kim Il Sung harbored when he was Kim Jong Un’s age: national unification under North Korean leadership, driven by a superior military force and unhindered by an inferior economy. It would be a mistake to forget that this is the ultimate goal behind every North Korean policy.
“조선로동당 위원장 김정은동지께서는 당중앙위원회 2013년 3월전원회의가 제시하였던 경제건설과 핵무력건설을 병진시킬데 대한 우리 당의 전략적로선이 밝힌 력사적과업들이 빛나게 관철되였다는것을 긍지높이 선언하시였다… 우리 공화국이 세계적인 정치사상강국, 군사강국의 지위에 확고히 올라선 현 단계에서 전당, 전국이 사회주의경제건설에 총력을 집중하는것, 이것이 우리 당의 전략적로선이라고 천명하시였다.“ (Kim Jong-un’s report at the 3rd Plenary Meeting of the Party, “조선로동당 중앙위원회 제 7기 제 3차전원회의 진행 조선로동당 위원장 김정은동지께서 병진로선의 위대한 승리를 긍지높이 선언하시고 당의 새로운 전략적로선을 제시하시였다,” Rodong Sinmun, April 21, 2018, http://www.rodong.rep.kp.