North Korean economic reforms a
non-starter By Bruce Klingner
Debate over the extent or even the existence of
North Korean economic reform has raged among analysts
and policymakers, with conclusions often being drawn
along ideological lines. Those that advocate increased
engagement with Pyongyang point to signs of meaningful
changes in North Korean rhetoric and actions that
reflect the initial steps in a strategic shift from a
socialist economy toward implementing a "Chinese-style"
market system. Conversely, those who espouse isolation
of the North Korean regime dismiss any indications of
change in the reclusive country.
The reality is
that waiting for meaningful economic reform that
improves life in North Korea is like "waiting for
Godot".
Changes, but for what
purpose? North Korean leader Kim Jong-il has, in
fact, implemented economic-liberalization measures that,
in the case of the 2002 reforms, were surprising in
their scope. However, as was the case with Soviet
president Mikhail Gorbachev's far more extensive and
widely hailed perestroika (restructuring)
program, the changes were designed to maintain Kim
Jong-il's absolute control over the citizenry and do not
reflect a change to the character or policies of North
Korean regime.
Political origins of North
Korean economic reform In the mid-1990s, Kim
realized he could not address the economic devastation
of his country, including the deaths of a significant
portion of the population from starvation and
starvation-related diseases, with his own resources.
Faced with a new paradigm after the collapse of the
Soviet Union and the increasing parsimony of his ally
China, Kim assessed that the only potential sources of
aid in sufficient amount to stem the tide were South
Korea, Japan and the United States. Pyongyang first
appealed for economic aid, publicly overplaying the
extent of the impact of natural disasters on the
country's harvests, and the outside world responded, to
such a degree that North Korea became the largest
recipient of US aid in Asia.
Despite the
misinterpretation by many analysts, Kim Il-sung's policy
of juche (self-reliance) had never meant total
isolation from the world and North Korea had, of course,
received massive aid from China and the Soviet Union for
decades.
By the late 1990s, Kim Jong-il had
decided that economic aid was insufficient and it was
necessary to acquire the means for economic development
to reverse North Korea's rapidly worsening economy.
Foreign nations, however, balked at providing
large-scale development largess because of suspicions
born of North Korea's longtime hostility toward its
neighbors. Kim, therefore, in 1999 began a charm
offensive of engaging the outside world to alter other
nations' perceptions of North Korea. Kim's policy
worked, as a lengthening list of nations began to
improve and then formalize diplomatic relations. While
those nations provided some benefits, the big three
(South Korea, Japan and the United States) remained the
only means for large-scale advancement.
As a
follow-on step, Kim initiated his "coming-out party" of
summit meetings with the presidents of China, Russia
and, most dramatically, South Korea. The euphoria
accompanying the inter-Korean summit led to comparisons
to the fall of the Berlin Wall, and some believed
unification was imminent. The emotional reunions of
families separated since the Korean War, Hyundai's
tourist venture to Mount Kumgang in the North, and the
dramatic march into the 2000 Sydney Olympics by a
unified Korea team under a symbolic single flag, all
appeared to provide tangible signs of improving
inter-Korean relations.
Yet beneath the surface
there were grounds for continued pessimism. Revelations
that South Korea "bought" the summit with a payment of
US$500 million tarnished then-president Kim Dae-jung's
greatest achievement, along with his Nobel Peace Prize.
Kim Jong-il to this day has yet to undertake the
reciprocal visit to the South promised in the summit
declaration. Even the much-vaunted Olympic event
required a secret payment from the South, along with
Seoul agreeing to purchase the North's uniforms and
limiting the number of South Korean marchers to the size
of the smaller North Korean contingent, leaving several
hundred angry members of the South Korean team fuming
outside the stadium.
North Korea's continued
belligerence International hopes for change in
the Hermit Kingdom dimmed as Pyongyang maintained its
traditional intransigence in negotiations, bellicose
military threats, and resistance to economic reform. Kim
Jong-il's trips to China, including a highly publicized
one to Shanghai where he toured Western-style factories,
were interpreted by many as clues of his growing
fascination and acceptance of economic reform. Yet
despite repeated entreaties from the Chinese leadership,
few significant economic changes were implemented in
North Korea.
Kim's complimentary comments on
China's reforms, a significant change from previous
regime condemnations, were interpreted as a harbinger of
change in North Korea. Yet the full context of the North
Korean leader's statements reflected a perception that
such reforms, while effective in China, would still not
work within North Korea because of the country's unique
characteristics.
Growing criticism in South
Korea over Kim Dae-jung's "asymmetric reciprocity"
eventually constrained his ability to continue
engagement with the North. Declining levels of public
support for the South Korean president and his policies
continued until overtaken by the anti-Americanism that
arose during the 2002 South Korean presidential
election. Growing South Korean disenchantment with the
polices of US President George W Bush's administration
toward Pyongyang, combined with multi-faceted factors
resulting from historical trends and a changing society,
led the South's populace toward a more benevolent
re-evaluation of North Korea.
The impact of
reforms Kaesong Special Economic Zone is another
foray by North Korea into "enclave capitalism" in which
it creates an encapsulated environment for foreign firms
to generate profits for the regime to use to subsidize
its failing socialist economy. By literally fencing the
areas off from the rest of the country, Pyongyang seeks
to avoid the "contamination" of capitalism and its
attendant risk of destabilization.
Seoul remains
enthusiastic for the project, but the lengthy and
complex nature of North Korean regulations that will
govern foreign firms indicates that Pyongyang still has
not grasped the lessons from its previous unsuccessful
ventures in Najin-Songbong, Kumgangsan and Sinuiju,
other economic zones that were undermined by excessive
government restrictions. South Korea's Ministry of
Commerce, Industry and Energy has concluded that the
Kaesong industrial zone will likely not be as profitable
as previously assessed, which will further discourage
South Korean manufacturing firms from participating in
the project.
The 2002 economic measures were
sweeping and included a partial liberalization of wages
and prices, endorsement of private markets, allowing
farmers to cultivate abandoned plots, and devaluing the
official exchange rate. The result, however, has been
devastating on the populace, exacerbating social
stratification and creating what United Nations
officials deemed a "new class of urban poor".
The World Food (WFP) program reported this month
that the 2002 reforms have led to sharply rising food
prices, which many could not afford. Richard Ragan, WFP
director in Pyongyang, commented, "As the economy shifts
from a planned economy to a more market-based economy,
there are winners and losers," and he said the country's
public distribution system was unable to respond to the
ongoing food-shortage crisis. The South Korean Yonhap
news agency quoted Chinese diplomatic sources as
assessing that the 2002 reforms had led to inflation,
skyrocketing commodity prices, a plunging exchange rate,
and escalating public anxiety over the prospects of
economic reform.
Standard and Poor's warned last
November that North Korea's economy was likely to fail,
with an accompanying staggering cost to the South -
perhaps as high as two to three times its gross domestic
product. S&P's reversal from its previous assessment
that North Korean economic collapse was "unlikely" was
based on its conclusion that "the North Korean
leadership lacks the flexibility and the vision to
undertake a change" to a market-based system.
Effect on the region The discovery of
a covert North Korean nuclear-weapons program, along
with Pyongyang's lack of meaningful economic reforms,
seemingly endless appeals for aid, and restrictions on
international aid monitors have caused "donor fatigue"
among Pyongyang's foreign benefactors. Potential
sponsors see few prospects of an end to North Korea's
economic problems and, as a result, are more likely to
direct constrained resources toward other regions that
appear more amenable to change. The bellicosity of North
Korea that constrains international largess, however, at
the same time forces governments to remain at the
negotiating table in hopes of preventing escalating
tensions on the Korean Peninsula.
China
continues to provide North Korea grain and oil
inducements in an attempt to further the six-party talks
on defusing Pyongyang's nuclear program, talks that
Beijing sees as reflecting its political influence in
the region. Japan has pledged an estimated $10 billion
in wartime and colonial reparations, eventually, but it
first demands satisfaction on the abductee issue and the
establishment of diplomatic relations. South Korea,
worried about the catastrophe of a collapsing North
Korean system, desperately seeks to maintain the
momentum of inter-Korean economic projects and
negotiations in an attempt to alter North Korean
behavior, along with pledges of even greater
"comprehensive" benefits if Pyongyang satisfactorily
addresses international concerns over its weapons
programs. For its part, North Korea's economic
initiatives with the South reflect Pyongyang's
long-standing policy objective to wean Seoul from its
relationship with Washington by emphasizing common
interests between the two Koreas.
Bruce
Klingner is director of analysis for Intellibridge
Corp in Washington, DC. Intellibridge provides
customized open-source intelligence analysis for
government, corporate and sovereign clients. His areas
of expertise are strategic national security, political
and military affairs in China, Northeast Asia, Korea and
Japan.
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