But this did not happen. Unlike China and Vietnam, North Korea stopped halfway and now engages in desperate yet futile efforts to undo the undoable, and tries to put the economic reform genie back in the bottle. Unless it gets a second chance and uses it, North Korea’s destiny will look much like one of its socialist brothers in Central and Eastern Europe.

Why was the first reform chance wasted? The reformers were faced with an unfavourable external environment. Two progressive governments in Seoul helped, but the Bush administration did not, and Japan counter-intuitively changed its mind after the return of five abductees. Also, being a member of the ‘axis of evil’ became a tangible security threat after the War against Saddam Hussein’s Iraq started in spring 2003.

Further, the most crucial person for the monolithic system’s stability, the leader himself, had health problems. This was evident even to the North Korean people through Kim Jong-il’s absence from the public life in 2008, and his return as a visibly aged man.

Meanwhile, the country had reacted quickly to the new economic environment as economic reform, limited as it may have been, created a few institutions needed to utilise the powerful incentives deriving from private profit and competition. Taken aghast and deeply worried by the quick spread of new and more individualist ways of thinking, independent behaviour, and problems of rising inequality, the leadership decided to stop the reforms and return to the status quo ante. It reduced the role of markets, curtailed foreigner’s access, limited the scale and scope of trading, and tried to force people back into the state economy. As the response was lukewarm at best, the regime finally resorted to rougher measures and initiated a currency reform that expropriated the newly emerging middle class. Not only was the old currency made worthless, transforming huge savings into nothing but a political liability within hours; but corruption was made more difficult, and the state’s power was to be re-established through a return to the distribution system for key goods.

Most North Koreans, having grown up in a totalitarian society and being faced with the state’s powerful repression apparatus, did not revolt although they cursed under their breath. However, the essence of state distribution is that there must be enough to distribute. In North Korea, this is not even the case for food – which was the reason for discarding the distribution system in the first place. The reintroduction of public distribution led to hoarding on the side of producers and traders, and disrupted the inflow of goods through non-state channels from China. As a result, North Korea faced a sudden supply crunch. As any first-year student of economics will know, falling supply combined with stable demand inevitably leads to inflation. The new currency soon became worthless. To prevent an exodus into alternatives, the use of foreign currencies inside of North Korea was banned by January 2010. As a result, people had nothing to eat, no means to buy anything, and no means of doing anything to change this.

It was to be expected that the currency reform would fail; yet, the speed of this failure was breathtaking. If anecdotal reports are true, it cost at least one high-ranking official (Pak Nam-gi, age 77, head of the Party’s finance planning division) his life, and the state a lot of face. With the risk of wide-spread starvation and public unrest growing day by day, the state had to quickly relax its control over the markets and tacitly permit private economic activities again. Unofficial trade with China resumed, traders reopened their inventories, and people could buy food. What remained was a deeply shamed state that decided to look the other way again and shifted its focus on political power and its perpetuation.

The sinking of the South Korean Cheonan warship in late March 2010 is said to be the result of a North Korean attack. If so, it was either an act of sheer desperation by the top leadership, or the smaller, visible part of an iceberg of rebellion among the elite. None of those options is promising from the perspective of regime stability. In what seems to be a purge, in addition to the above-mentioned Pak Nam-gi, this year alone at least three more high-ranking officials lost their positions, or more. Vice Marshal Kim Il Chol (80), member of the National Defence Committee and former Minister of People’s Armed Forces (1998-2009), stepped down due to health issues in May; Ri Je-gang (80), Senior Deputy Director of the Party’s Organisation and Guidance Department, died in a car accident in early June; and Kim Yong Il (66), Prime Minister, was replaced in an extraordinary second session of the parliament a few days later.

In late June, the Politburo of the Korean Worker’s Party – an institution we haven’t heard of much in over a decade – emerged from the dead and announced, for the first time since 1966, a conference of Party delegates (tang taep’yojahoe) scheduled for September 2010. The official purpose given for this is to ‘elect the highest leading organ’ (ch’oego chidokigwan) of the Korean Worker’s Party, the ruling Communist Party of North Korea. Note that the announcement was not talking of the highest leading organ of the country, and that it did not mention a single person. As historical experience tells us, the name of an institution can be a euphemism for a single man, as was the case up to 1980 when Kim Jong-il was called the ‘Party Center’ (tang chung’ang). However, for the moment it makes much more sense to take the announcement at face value: The Party, which has not convened a Party Congress since 1980, is now finally going to improve its functionality as the major power group in North Korean society. Whether or not Kim Jong-il’s youngest son will become part of a resuscitated or newly formed leadership group, and in which function, remains to be seen. Our best guess is that he will be introduced to the public, be accorded a position that allows him to earn some credentials, and then, possibly, lead the country as a first among equals in the name of the Eternal President Kim Il-sung and his only prophet Kim Jong-il.

Taken altogether, North Korea has had a rough year in 2010 – and it is only half over. Instead of facing the inevitable and pushing on with economic reforms, the regime decided to backtrack and swiftly paid the consequences. Pyongyang, or part of it, might hope to go back to business as usual as in the pre-famine period. However, in the long run, the more realistic scenarios seem to be either European-style collapse, or Chinese-style authoritarianism. The meeting of Party delegates in September might tell us more about which option North Korea chooses.

Ruediger Frank is professor of East Asian Economy and Society at the University of Vienna.