North Korea is one of the world’s most isolated countries. It has been dominated by the Kim dynasty since the 1950’s and has developed a ‘command’ economy that is heavily controlled by the central government. With the ravages of the coronavirus pandemic having been devastating even in the developed superpower countries of the world, the negative effect of the pandemic in North Korea must have been unfathomable. Testament to this guesswork was provided by North Korea’s own Kim Jong Un, who admitted his 5 year economic plan for North Korea failed to meet the goal in “almost every sector.”
The origin of North Korea’s isolationist economy can be traced back, in modern times, to the Korean war that took place in the early 1950’s. The repercussion of the war against South Korea and its strongest ally, the USA, was horrifying. There was just one building left standing in the capital Pyonyang, as an aftermath of American bombing raids. Charles K. Armstrong writes “North Korea is a society with a permanent siege mentality. It has lived under a constant threat of war since the 1950s.” North Korea’s continuing reluctance to engage with the rest of world comes from a theory of self-reliance developed by Kim Il Sung. This theory of self-reliance called ‘Juche’ has led to the development of North Korea’s isolationist economic policies.
North Korea is ironically, notorious for its secretive tendencies. It has not provided any statistics regarding its macroeconomic condition since 1965. However, there are roughly 24 million people who live in North Korea, more than 40% of whom are undernourished. According to the World Bank, more than 50% of the population lacked access to electricity in 2017. North Korea’s gross domestic product was estimated to be $40 billion in 2015 and per capita income was estimated at $1,700. In the 1990’s, average economic growth per year was at the rate of -4%. This contraction in economic growth can possibly be explained by the country’s hesitation to maximise the opportunities offered by globalisation and it’s limited national target market. Until the recent decline in trade with China, which plummeted trade by about 80%, China was North Korea’s main trading partner. In 2017, 86% of its exports was to China and more than 90% of its imports was from China. Heavy reliance on just one trade partner is another indicator of isolationism. North Korea’s economic isolation embodies a misplaced sense of pride, which is more a cause for concern now.
Another cause for deep concern, that is also intertwined with its sense of national pride is North Korea’s obsession with military investment. North Korea spent an estimated $4 billion, which is 24% of its GDP on defence in 2016. While defence is an essential area of investment for all countries, over-spending on the military can come at a cost to other key economic and social spheres of civilian consumption such as infrastructure, food production and living standards. This overzealous military spending is manifested in the creation of nuclear programs with the aim of developing ballistic missiles, which has further alienated North Korea from the rest of the world, especially the USA. This political isolation, along with a limited FDI of $28.5 million and restrictions on private entrepreneurship have brought North Korea’s economic freedom score to a total of 5.2. North Korea’s chronic structural problems have stunted its growth and prevented reconciliation with the global economy. Andrei Lankov, a North Korea expert, even goes to the extent of saying it is most likely that the regime will eventually collapse and the North will be absorbed into the South.
The rule of the leadership in North Korea is contingent on controlling the flow of information in and out of the country. An Amnesty International report called ‘Connection Denied’ has documented the array of restrictions on phone usage and access to information, such as the imposition of an intranet system to prevent exposure to the outside world. It is likely that it is because of these restrictions that the communication- starved people of North Korea have started to engage in the illicit trade of imported mobile phones and sims. These illegal economic activities produce about $50 million per year. Surprisingly, North Korea also has in operation two economies at the same time: one with lower wages for domestic workers and the other with much higher wages for Chinese-affiliated workers. It is inequalities such as these that prompt unlawful attempts at mass-emigration by the over-worked and underpaid citizens of North Korea.
There appears to be some light at the end of the tunnel because since the early 2000’s, North Korea has implemented some tactics to recover its economy. It has allowed semi-private markets to function, tried to decentralise national planning, increased prices and wages and considered social security reform. These reforms resulted in an increase of economic growth to 2.2% from 2000 to 2005. However, the good news is not what has already improved but rather what could come. North Korea has a store of natural resources, gauged to be valued in the trillions which already has caught the attention of Russia and China, with hopefully more countries to follow.
North Korea has the potential to grow if it can, in true hermit fashion, isolate isolationism from its economic policies and abandon nuclear politics.
This article was written by: Shravani Gowda, currently a student at the London School of Economics, pursuing LLB Bachelor of Laws
BIBLIOGRAPHY
Bajpai, Prableen. “How the North Korean Economy Works.” Investopedia, March 22, 2021. https://www.investopedia.com/articles/investing/013015/how-north-korea-economy-works.asp
Bajpai, Prableen. “North Korean vs. South Korean Economies: What’s the Difference?” Investopedia, March 22, 2021. https://www.investopedia.com/articles/forex/040515/north-korean-vs-south-korean-economies.asp
“Kim Jong Un says North Korea’s economic plan falied.” BBC News, March 22, 2021. https://www.bbc.com/news/world-asia-55563598
“2021 Index of Economic Freedom.” The Heritage Foundation, March 22, 2021. https://www.heritage.org/index/country/northkorea
“North Korea- Economic Indicators.” Moody’s Analytics, March 22, 2021. https://www.economy.com/north-korea/indicators
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