An average person primarily knows North Korea’s Supreme Leader Kim Jong-un for two things: the nuclear bombs and his ruthless rule. As he finishes his first decade in power in April this year, let’s have a look at a much lesser scrutinised aspect of Kim’s rule, the economic policies.
A Rough Start
Little was known about Kim Jong-un when he was announced as his father’s “Great Successor” in December 2011. He remained under the wraps for most of his life before attaining the top position in Pyongyang and is not known to have any preliminary experience either in the Military or the Communist party like his father and grandfather.
However, sustaining the power did not come as easily for the ‘Brilliant Comrade’ (영명한 동지), as Kim came to be known, as the succession did. Before him, stood several grave challenges. The Stalinist socialist economic model was severely weakened not only by ideology based overproduction campaigns which resulted in abundant, unmarketable low quality products and irrational decisions divorced from market dynamics but was also crushed by the heavy sanctions imposed on the economy due to the regime’s nuclear development programme.
Moreover, Pyongyang dealt with a major food crisis since the Arduous March of the 1990s when failure of the state’s agrarian policies, aggravated by sanctions and recurrent natural calamities, resulted in crop failures en masse leading to widespread hunger and starvation. Through the ‘Arduous March’, Kim Jong-un’s father, Kim Jong-il asked the populace to ‘bear the hardships and work harder as to pull the nation out of the grave crisis’.
Kim Jong-un’s Economic Policies
Let’s have a look at Kim’s economic policies that he has implemented in order to address these challenges.
The Byungjin policy was announced at the Plenary Meeting of the Central Committee of the Workers’ Party of Korea on March 31, 2013. The policy advocates the dual plan of simultaneously developing nuclear and economic capabilities. Unlike his grandfather and father, the younger Kim considers military costs as burdensome, even hindering economic growth. He claimed that military and civilian economies walk different paths from the very start and hence, military development is unfit to lead the civilian economy.
Kim Jong-un found an alternative in nuclear development which he considers less expensive and more impactful. By prioritising the civilian economy over the military, Kim Jong-un has not only presented his image as a leader who keeps the interests of the people over state institutions like military but has also circumvented the influence of his father’s peers who dominated the military under Kim Jong-il’s Songun (Military First) policy. The junior Kim believes that the state could only focus on people’s livelihoods after security threats stemming from the United States and its allies are averted through high tech nuclear weapons.
‘Our Style of Economic Management Methods’ (우리식경제관리방법)
‘Our Style of Economic Management Methods’ calls for diversification of foreign trade as well as establishment of economic and special economic zones, calling for limited opening up of the economy. The policy supports individual investments by giving autonomy to companies without hampering the larger socialist economic model of state ownership. The Kim Jong-un regime has also promoted incentivising workers in material and monetary ways rather than solely calling for contribution based on ideological motives.
Industrial Policy: People’s Livelihood and Light Industries
Kim Jong-un has continued his father’s industrial policy of normalising the four key areas of priority including coal, metal, electricity and railways as well as developing light industries which are known to provide abundant employment opportunities. Under Kim Jong-un, agrarian inputs such as high quality seeds and fertilisers have formed a major import item which led to gradual increase in agrarian productivity. The regime has also heavily invested in large scale projects begun under Kim Jong-il such as hydropower projects to counter the massive energy crisis.
Jagangryeok ( 자강력제일주의) and Localisation of Production
North Korea under Kim Jong-un has also adopted the policy of Jagangryeok or self-reliance by ‘localising raw materials, commodities and facilities for production based on their own power, technology and resource’. This way Pyongyang seems to not only tackle international sanctions but also lessen its dependence on China. Self reliance and an inward looking economy, however, do not provide a reliable solution to the economic crisis that North Korea faces.
Science and Technology
Kim Jong-un has also invested high hopes in Science and technology which not only includes distribution of Computerised Numerically Controlled (CNC) machine tools and boosting the morale of the scientists but also promoting high tech industries.
State’s Retreat, Market’s Advance
The Kim Jong-un regime has also adopted policies which restrict the role of the State in the economy and allow space for markets to function. At the 7th Congress of the Central Committee of the Workers’ Party of Korea in May 2016, the regime announced the ‘ Five Year National Development Strategy’. The change in parlance from ‘Plan’ of the previous policies to the use of ‘Strategy’ must be noted. Following the name, the State simply draws ‘broad outlines’ for the economy and does not specify production targets as it did previously.
Kim Jong-un has also shown a greater tolerance for markets, both official general markets and the unofficial “grasshopper” ones. While private property is still banned, houses and enterprises can be traded on payment of a fee. A small rich class called donju which has appeared on North Korean soil often operates de facto private firms by either investing in state firms or by leasing them. This pace of privatisation has become faster under Kim Jong-un. The State has thus tried to reap the benefits of the baby steps that the market has come to take by absorbing profits.
Currency and Financial Reforms
In December 2009, the North Korean regime under Kim Jong-il adopted Currency reforms which included the redenomination of North Korean Won where the new Won would be equal to 100 old Won and required the people to exchange the old Won for the new Won with a limit of 1000 new Won per household. Instead of regulating the market as intended, the policy resulted in massive inflation and circulation of foreign currency owing to rushed attempts to sell it. Instead of banning the foreign currency, the Kim regime sought to absorb it by promoting savings in foreign currency and through foreign currency based cards and stores.
The Heavy Weight of Sanctions
North Korea’s nuclear proliferation programme has invited several excruciating international sanctions. Direct sanctions on its international trade were imposed after its fourth nuclear test in 2016, the most powerful ones are listed below.
The United Nations Security Council Resolution 2270 prohibits the export of items such as steel, coal and iron ore with exceptions for civilian use to avoid unintended damage which has been actively used by the Kim regime to circumvent it to some extent, considering the fuzzy demarcation between state and limited private owned trading enterprises on one hand and between civilian and military enterprises on the other.
The UNSC Resolution 2321, which was imposed after its 5th nuclear test, limits the amount of coal exports which directly hit bilateral export trade with China in the first half of 2017. As North Korea continued its nuclear and missile development programme, more sanctions were slapped on it.
UNSC Resolution 2371 completely prohibits the export of North Korea’s major trading commodities such as steel, fisheries, coal and iron ore. UNSC Resolution 2375, on the other hand, bans exports of textile, combined together, these two resolutions ban five major export items in toto. Moreover, UNSC Resolution 2397 added more items to the banned list which include agrarian produce, machine, electronic goods, timber, metals, transportation methods, ships as well as limits the upper limit of crude oil supply at 4 million barrel and refined oil to 0.5 million barrel, causing a severe dent to the North Korean economy. Moreover, under UNSC Resolution 2397, North Korean workers working abroad (which number approximately 50,000 to 100,000) must return back within 24 months.
Even with several odds, Kim Jong-un managed to attain gradual economic growth in the first five years of his rule, with 2015 being an exception when the economy fell sharpest in 8 years as the Gross Development Product (GDP) fell a real 1.1%, marking not just the first fall since 2010 but also the sharpest decline since 2007, reports South Korea’s central bank, th Bank of Korea (BOK), which publishes the most reliable statistics on North Korean economy since state published data from Pyongyang has been off the shelves.
The year 2016 recorded the highest growth rate as GDP climbed to 3.9%. It is estimated that North Korea has been attaining an annual growth rate of 1.2% in the five years between 2012 to 2016, which is by no measure a disappointing performance for an economy laden with sanctions.
However, bad days were just around the corner. In 2017, the BOK reported that North Korea’s economy declined its sharpest in two decades owing to the sanctions. In 2018, the economy reached its lowest in 21 years owing to the impact of the sanctions and severe droughts. A glimmer of hope appeared when in 2019, the economy displayed a positive growth for the first time in three years due to better weather conditions.
Kim has also succeeded in stabilising prices and expanding foreign trade. Prices of more or less all commodities have seen a sharp rise throughout the 2000s for two reasons associated with gross demand (expanded liquidity due to increased issue of currency and rising expectations of inflation owing to the uncertainties of the market trade) and gross supply (soaring currency owing to worsening supply and demand of foreign currency, shortage of food supply and rise in international crop prices). The situation was further worsened by the failure of the currency reforms of 2009. However, things have taken a positive course since Kim came to power. The price of rice, an essential food crop and trading item in North Korea has declined or remained still and so have the prices of most grocery items. The North Korean Won also stabilised after 2013.
Uptil 2010, the foreign trade accounted for just US $3-4 billion which was later expanded to US $6.36 billion, up by 52.3%. Such a favourable outcome could be attained thanks to coal exports, which increased the exports share by upto 85% year on year while imports volume increased by around 35%. The volume of foreign trade reached its highest in 2014 pegged at US $7.61 billion. Foreign trade however,has been heavily lopsided with a high trade deficit with China, North Korea’s largest trade and aid partner.
Sunny days proved to be short-lived as the pandemic stormed in.
Whatever little success was achieved and whatever spark his policies retained was put off as the coronavirus pandemic pushed economies across the world into recession. Though North Korea has claimed not to record a single case of the virus, the strict lockdown and the complete border closure badly hit the economy and reversed the 0.4% growth rate which was attained a year back in 2019. The BOK claimed that Pyongyang’s GDP contracted 4.5% in 2020 while industrial output sharply fell from 28% to 5.9%. Output of agriculture, fisheries and forestry declined by 7.6%.
Strict border closure meant that foreign trade became negligent. The imports from China reportedly fell from US $28.75 million to US $2.71 million. As a result, the North Korean Won surged around 15-20% against the US Dollar and the Chinese Renminbi in a week. While government rations of corn and rice moderated prices of food grains in several major cities like Pyongyang, prices of fuel, food and consumer goods skyrocketed. As per NK News, the price of a bottle of shampoo reached US $200 while a kilogramme of banana was being sold for US $45.
At the Eighth Congress of the Workers’ Party of Korea in 2021, Kim accepted that his economic policies had failed “in almost all aspects to a great extent” and vowed not to let “painful lessons of the past” repeat.
The pandemic has further pushed the nation, where 40% of the population was already stricken by hunger and malnourishment, into the worst food crisis in its history as 60% of the population have been rendered jobless and live in abject poverty. As per the Food and Agriculture Organisation, 68% of an average North Korean diet is made up of cereals, tubers and roots, none of which were imported from China in 2020. In April 2021, Kim Jong-un anticipated a forthcoming severe food crisis by asking the masses to ‘prepare for another Arduous March’.
Food shortage was estimated to reach 860,000 tonnes of grain in 2021.
An assessment of Kim Jong-un’s economic policies challenges his image as an ignorant tyrant as it exists in the West. Though he has proved himself as a shrewd politician who not only understands the importance of reforms but also has used it to curtail the influence of the old elite so as to expand his own influence, all his policies for change revolve in the same Stalinist Socialist economic framework that his grandfather built eight decades ago. Though the dynamics and priorities have changed, the larger bounds remain the same and show no signs of being reformed anytime soon.
While the dark clouds of economic crisis loom large, North Korea continues its weapons of mass destruction programme unabated and has even pointed to the possibility of resuming its nuclear development programme which has been under a self imposed moratorium since 2017. It has not only tested what it claims to be its most powerful Intercontinental Ballistic Missile (ICBM) till date,but even released a fancy video featuring Kim celebrating its sophisticated weapons development capabilities which is bound to invite more pressing sanctions. Until sanctions are lifted and integration of the North Korean economy with the international economy takes place, hopes for any betterment in the lives of common people remain low.
Denuclearisation is essentially tied to the issue of lifting of sanctions but past behaviour shows that Pyongyang would never agree for one sided denuclearisation. Rowing in a direction contrary to the entire world both politically and economically, the North Korean regime has several concerns with the topmost being regime survival which denuclearising first would majorly challenge, if not directly threaten. All countries, including the United States, must commit to denuclearisation in a phased manner for Pyongyang to agree for it. The idea is not to show any clemency to the Kim regime but not addressing their concerns would only result in stalemate, which with growing lethal weapons proliferation becomes unaffordable.
Was Kim Jong-un inches away from reforming the economy? If not for Covid, could North Korea have seen its own ‘Reform and Opening up’ moment to the likes of China under Deng Xiaoping? Perhaps or Perhaps not. With the restricted information that reaches from Pyongyang to our end, we may never predict his moves accurately but it is certain that Kim Jong-un understands that change in the economic system would be an inevitable choice. Moreover, liberalisation in the economy has not only been known to bring some form of political liberalisation but also predictability to the regime’s actions once it has greater and shared concerns with other nations.
How far is Kim prepared to walk the path of change? While the present seems disappointing, it is certain that he will fight till the end to ensure his Workers’ Party of Korea-led regime does not collapse and he might embrace marketisation albeit gradually to ensure that.