North Korea is heading for a major retreat, back to "military communism". Only
those elements of a market economy which are necessary to keep the country
afloat are being preserved. The economic policy of partial liberalization,
which started in July 2002, waned in mid-2005 and is now history.
The old patterns of central economic planning, the Public Distribution System
and strictly controlled market activity are back in place. This might be
surprising to those who expected North Korea to open up and become a
transitional economy, but its current economic policy attests to the contrary.
In late 2007, active anti-market actions were launched in the North
when its top leader's ill health became apparent. Kim Jong-il's brother-in-law,
Chang Sun-taek, was promoted to the newly created post of first vice director
of the ruling Korean Workers' Party and was given responsibility for the
police, judiciary and other areas of internal security. He visited the border
near China to "clean up" smuggling and speculation, and issued special
instructions tightening the regulations relevant to free markets elsewhere in
the country. These and other measures were consistent with the opinion that a
conservative group in the North Korean leadership was dominant.
Busy markets are a nightmare for Pyongyang retrogrades. The Pyongyang
government is now confiscating Japanese-made cars and mini-buses from small
businesses, prohibits the sale of many consumer goods (including mobile phones,
radios and DVDs) and has reintroduced the Public Distribution System, which
dominated the country's economic life for four decades.
Conservatives in the North have already faced some signs of public unrest and
discontent but they managed to keep control and prevent it from spreading. The
recent Cabinet Decision No 61 stipulated that starting from January 1, 2009,
all markets across the country would work only three days per month, similar to
how they worked in medieval Korea. Outside observers do not know whether this
retreat had been planned from the start, but in 2004 the North Korean
authorities were talking about such a possibility.
The domestic policy of North Korea is as self-destructive as its attitude to
inter-Korean economic cooperation. In July, a South Korean tourist was shot
dead by a North Korean soldier guarding the jointly operated Mount Kumgang
resort. This accident fit well into the general trend of North Korea cutting
contacts with the South. Daily bus trips from Seoul to Kaesong and the regular
inter-Korean cargo train service were discontinued last month. The remaining
zone of inter-Korean cooperation - Kaesong Industrial Park - is now suffering
from the new North-imposed demilitarized zone crossing regulation.
This special economic zone opened in 2005 as a symbol of inter-Korean
reconciliation and earned the impoverished North up to US$100 million a year.
More than 32,000 North Koreans worked there, for 83 South Korean-owned
factories. Nevertheless, on December 1, Pyongyang cut the number of South
Korean staff in the estate by 80% and reduced the daily number of border
crossings from 19 to three times per day. The Kaesong Industrial Park will
probably survive, but become effectively isolated from the direct influence of
the South.
A decade of booming inter-Korean cooperation now comes to a close. According to
a statement by South Korea's Unification Ministry, trade between South and
North Korea decreased 23.2% last month year-on-year due to worsening ties
between the two sides. In October, inter-Korean trade volume totaled $160
million, down 23.2% from $210 million a year ago. It was the first time that
trade across the heavily armed border recorded a double-digit reduction on a
yearly basis. After the recent Kaesong and Mount Keumgang disasters, foreign
investors will be more cautious in their business decisions.
In many ways, the North simply mirrors the South, where a new conservative
government changed the rules of inter-Korean cooperation earlier this year. The
South's President Lee Myung-bak suspended further cooperation with the North
until its nuclear and human rights issues are resolved.
North Korea never had illusions regarding the Sunshine policy of Lee's
predecessors, understanding that its ultimate goal was to lure Pyongyang out of
its ideological shell. Neither were South Koreans patient enough to wait until
this policy of unconditional help could bear enough fruit to make it truly
attractive to the North. Now the dominant mood in Pyongyang and Seoul has
changed to the point that it becomes disruptive for peace and economic
stability on the Korean Peninsula. Both governments are driving the divided
nation back to where it was before December 1991, when non-aggression and
denuclearization pacts were signed.
North Korea's erratic behavior in rejecting the nuclear sampling and stalling
the verification process requested at the six-party talks also represents the
conservative mood that is currently prevailing in today's Pyongyang. Most of
the agreements Kim Jong-il concluded with the US were hardly popular among the
North Korean military. Every time Washington reneged on its promises, it
undermined the power of the liberal group inside the Pyongyang leadership. The
story reached its culminating point in August when Kim Jong-il had a stroke
after learning that US Congress refused to remove the North from its list of
terrorism-sponsoring states. (This has since happened,)
Since then, a group of North Korean top brass, who are ready to do everything
to turn the clock back, rules the country collectively. Their primary concern
is to stay in control of the increasingly volatile domestic situation, where
nuclear weapons are hardly a help, and they might be cooperative if the price
is right. In other words, whether North Korea will honor the previous
agreements and progress along the denuclearization plan will depend on the
attitude and negotiating skills of the other five nations meeting this week in
Beijing - the US, South Korea, Russia, China and Japan.
Leonid A Petrov, PhD, research associate, Division of Pacific and Asian
History Research School of the Pacific and Asian Studies, Australian National
University.
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