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INTERNATIONAL > East Asia & Pacific

North Korea at crossroads of economic reform: Will it revert back to its old ways?

  • February 1, 2021
  • , Asahi , p. 7
  • JMH Summary

By Tsuyoshi Kamiya, Seoul Bureau chief


  • The most important take-away from the recent Workers’ Party Congress in North Korea is that Kim Jong Un’s economic reform program has been halted.
  • Kim has chosen to adjust his plan in the face of the economic sanctions and a domestic economy that is flagging under the weight of the pandemic.
  • The next several years will reveal whether North Korea will prioritize preserving the regime while the people languish in poverty, or whether it will resume its reform initiative once the global situation allows.


During the 8th Congress of the Workers’ Party of Korea held from Jan. 5 through 12, newly elected General Secretary Kim Jong Un made a detailed announcement about the country’s new plans for nuclear and missile development. Although many in Japan, the U.S., and South Korea viewed this as a “warning to the U.S.,” it was more likely an appeal to the domestic audience. “Kim’s announcement is more aimed at easing people’s concerns about the nation’s security in the midst of the severe economic downturn and at strengthening the standing of Kim’s regime so that he can concentrate on economic recovery,” says Kim Dong-yub, a professor who specializes in North Korean issues at Kyungnam University in South Korea.


North Korea has been beset by challenges, such as the international sanctions, last year’s natural disasters, and China’s closure of its border in an effort to protect against the inflow of the novel coronavirus.


According to an intelligence source in South Korea, the prices of cooking oil, sugar, and flour, which mainly come from China, have skyrocketed from two- to ten-fold on the North Korean market. In a central region of the country, the number of cows declined in December by 10% from the previous year and pigs by 50%, due to the shortage of animal feed. Thefts by the general population are on the rise, as are crimes committed by gang members.


In an unprecedented move, Kim acknowledged the nation’s economic hardship at the party congress. Admitting to the failure of his five-year economic plan (2016-2020), he said the nation “failed to achieve its goals in almost all areas by a large margin.”


When North Korea was led by his father, Kim Jong Il (1994-2011), no party congress was convened due to ongoing economic hardship. With Kim Jong Un’s tacit approval, trade with China increased, and the domestic market also expanded. A party congress was convened in 2016 for the first time in 36 years. It was at that time that Kim announced his five-year economic plan. Although not officially disclosed, the target annual growth rate was set at 8%, according to a South Korean government source. That was an ambitious goal.


At that time, Kim stressed the importance of establishing a “responsible management system for socialist corporations,” under which factories and businesses would deliver 30% of their products to the national government and then be able to do as they wished with the remaining 70%. This initiative allowed companies to make a profit in markets and bolstered the nation’s economic productivity. Presented with the vision of becoming a nation with a strong economy, “people grew hopeful that things would change,” says a defector from North who now resides in South Korea.


North Korea is a socialist country. Farms and factories are state-owned, and production and distribution are controlled. Without competition, inefficiency persists under a socialist system, as witnessed in former Soviet Union and the Communist Bloc, which eventually collapsed.


Around the same time, a population increase in the DPRK made it difficult for the government to distribute enough goods to the people. In addition to losing the economic support of the USSR in the 1990s, North Korea was hit by natural disasters, and many starved to death.


China and Vietnam, both socialist countries, followed another path. Their economies developed through trial and error after the two nations both normalized their relations with the U.S. and opened their economies and modernized.


“Kim Jong Un wanted his nation to follow the path of China and Vietnam,” says Dong Yong-sueng, formerly of Samsung Economic Research Institute. According to an internal document, North Korea had attempted to improve the domestic environment for foreign investment by redeveloping economic development zones and taking other steps. Dong says that “[Kim’s] ambitious target for the growth rate was based on potential foreign investment after the sanctions were eased.”


North Korea had hoped the U.S. would lift the sanctions, but the bilateral dialogue with the Trump administration failed.


The recent party congress shows Kim has made a compromise with the harsh reality his nation faces. The content of the five-year economic plan has not been disclosed, but it can be surmised from Kim’s comments that the country is likely turning to “self-help” and “self-sufficiency.” Kim didn’t mention the prospects for economic reform based on market principles. “The people are clearly disappointed,” said the defector from the North, who has maintained contact with those in the DPRK. 


North Korea is going back to its ways of the past in other areas, as well. In recent years, the U.S. dollar and the Chinese renminbi were used in North Korean markets more than the less-reliable domestic won was. Last fall, the North Korean authorities banned the use of foreign currencies. The government’s move seems aimed at bringing the market under its control to get through the difficult times.


Political control is tightening as well. At the congress, Kim strengthened the mandate of the party’s Control Commission to match that of the powerful Organization and Guidance Department, which is in charge of surveillance. A source at South Korea’s Unification Ministry says, “In addition to enhancing overall surveillance and censorship, two equally powerful organizations will now oversee each other. This harkens back to the method of control often used in North Korea in the past.”


At the congress, Kim took the title of “general secretary” despite the fact his father was designated as the “eternal general secretary.” This also seems to signify a return to the past. By assuming the position, Kim hopes to demonstrate that he is now equal to his grandfather, Kim Il Sung, and father, Kim Jong Il.


After experiencing a major setback in negotiations with the U.S., the 37-year-old Kim may have become more conservative and have lower aspiration for reform. Even without the reform, the current system of government under Kim’s family and his lieutenants will survive. The North Korean people are the ones who will suffer.


Is North Korea going to achieve economic development in the future? Or is it only the rule of Kim that will last? Today, the country is at a crossroads.


The Biden administration’s North Korea policy will likely be premised on steps toward the complete denuclearization of the country. In striving to achieve that goal, it is possible the U.S. will formulate a framework that would allow North Korea to benefit, little by little, from its progress on denuclearization. “Kim has tightened his political and economic control. Those were the choices he made to meet the exigencies of the day,” said the source at the South Korean Unification Ministry, adding, “It’s not that Kim Jong Un has totally rejected the idea of a market economy and reform.” Convincing Kim to resume reform initiatives through a U.S.-North Korean dialogue will be an important step toward easing the suffering of the North Korean people.

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