North Korea’s rolling economic reforms

Author: Ruediger Frank, University of Vienna

While missiles and nuclear weapons have dominated the headlines, North Korea’s economy under Kim Jong-un has been developing in promising ways on the domestic front.

The number of booths selling bread, soda, pingsu (ice water) and cigarettes has multiplied; they can be found at almost every intersection in Pyongyang, in provincial cities and in the countryside. In addition, many of the once-freestanding booths are now integrated into regular buildings. In provincial cities and the countryside, the booths still dominate; but there, too, the number of permanent and sophisticated commercial facilities is on the rise.

Those who find carrying thick bundles of money in their pockets uncomfortable can use one of the two cash cards, the red-blue Narae issued by the Foreign Trade Bank and the golden Koryŏ issued by Koryŏ Bank, in taxis and a growing number of shops.

The number of traffic lights replacing the iconic ‘flowers of Pyongyang’ (aka traffic ladies) has increased further, and small traffic jams are frequent. The highways are still empty but streets in the capital are now dominated by a great variety of modern passenger cars manufactured both at home and abroad. The number of yellow license plates, indicating ‘private’ ownership, is increasing. The old trolley buses, some of which have run millions of kilometres, are being replaced by new ones, manufactured in Pyongyang.

Moreover, a sense of competition has emerged. Companies owned by the state, military and co-operatives proudly display their brand names on new, gold-bronze painted signs. There are also more products on display and sale, and there are more customers with money. Pyongyang is taking the lead, but cities like Namp’o, Sariwŏn and Kaesŏng are following suit. Prices are often horrendous; three kilograms of apples cost as much as one (official) month’s wages. But the fact that even exotic goods such as bananas are being sold is remarkable.

The challenge for a growing number of people does not seem to be access to goods and services any more, as was the case in the past and in most classical socialist economies. What counts now is having the right amount of the right currency, much as it is in the West. This is hard enough for many, to be sure, but it reflects a further normalisation of economic affairs, at least on the individual level. The state and the people of North Korea are learning how to deal with the effects of marketisation and monetisation.

After decades of being divided into a population of a small and mostly invisible elite and everyone else, a middle class of about 2 million people is on the rise. These are the people who have mobile phones, use taxis and show a remarkable diversity in clothing and accessories. The local 7-inch tablet computer, ‘Samjiyŏn’, sells for US$180 and comes with the Android operating system and a number of apps such as a dictionary, changgi (Korean chess), and a collection of the works of the two deceased former leaders, Kim Il-sung and Kim Jong-il.

The quality of life in the capital differs significantly from the rest of the country. Some observers believe this will increase discontent; but it also smartly diverts attention away from the shiny examples of foreign metropolises spread on pirated DVDs and USB sticks, and offers the population a domestic Xanadu. The key question for social stability is thus not what peasants in the countryside dream about, but what middle-class Pyongyangites aspire to. Meanwhile, the number of solar panels and small windmills is rising, which is the countryside’s solution to having less privileged access to power.

Despite all the changes, many of the old problems remain unsolved. Prices rise, speculation is rampant and frustration grows in sync with corruption and an ever-more obvious gap between the poor and the new middle class. It would be unrealistic to imply that Kim Jong-un even theoretically had the chance to improve the lives of the majority of his people significantly within a year of taking over. But he has not been idle. Inequality in North Korea is a sign of deepening change. A growing income and welfare gap between individuals indicates that the economy is on the move away from socialist egalitarianism towards capitalist diversity.

The stage has been set; expectations have been created. Now comes the tough part: finding ways to foster economic development while maintaining the stability of the political system. Reform is the only option for Kim Jong-un, but implementation will not be easy, because he must accomplish many tasks simultaneously. The countryside and the poor must trust in future improvements; the middle class in the capital must be given assurances of continued upward mobility; and the top elite must feel safe about its privileges without becoming too confident. North Korea needs the world market to increase income from trade and to reduce dependence on China. But without consent from the United States, this is an elusive hope as long as Washington demands an end to the nuclear program, a precondition that it is impossible for Kim Jong-un to accept.

The recent use by North Korea of the Kaesŏng Industrial Zone to put pressure on South Korea might have worked, but it made it even harder to win the confidence of investors and trading partners, a key component of an export-oriented modernisation strategy. The recent row with the US and threats of a nuclear war have not helped either, although it is likely that Kim Jong-un merely wanted to reinforce his position domestically and internationally before embarking on risky reforms. But in truth, we understand too little about the internal dynamics and decision-making process of the North Korean leadership to be sure about this. Kim Jong-un cannot simply escape the legacy of the past. He must consider the interests of various groups in multiple power centres.

Like painting a masterpiece, reforming North Korea may seem easy in theory but it will be highly complex in reality. Thus, a smart policy by the international community is needed. The obvious strategy for Seoul would be to support positive trends by expanding trade and investment. The many negative and frustrating experiences of the past should be a lesson not to expect (or promise) too much too soon. Transforming a systemically failed socialist economy has never been easy, in particular if it is supposed to take place gradually. Reconciling two parts of a nation that once fought a bloody civil war and have lived separately for almost 70 years is a gigantic task. Accepting that successful reform means prolonging the current regime is a bitter pill for many, but what are the alternatives?

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

A longer version of this article first appeared here on Global Asia.