While the mainstream news on North Korea
has been focusing on Kim Jong-un's marriage and
the early "retirement" of vice-marshal Ri Yong-ho,
the event with the most long-term significance for
North Korea seems to have received very little
coverage.
Despite rejecting the prospect
of political reform, Pyongyang has explicitly
announced that it will conduct agricultural reform
in an attempt to end the endemic food crisis. The
so-called June 28 Policy will reduce the size of
the average cooperative farm production unit,
guarantee market prices for farmers selling grains
to the state, and allow agricultural cooperatives
to sell or consume surplus yields that exceeded
the state-mandated target production.
The
state is hoping that small-scale privatization
will better incentivize surplus production and
close the food deficit that has
been plaguing the country
for nearly two decades. However, the reality of
the situation is that Pyongyang has already
systematically sabotaged the agricultural reform
by disproportionately concentrating resources
around the central government.
Recent
visitors to North Korea noted massive urban
development projects in Pyongyang that were not
evident a year ago. Modern apartment complexes and
amusement parks are being constructed. One veteran
observer commented on how stunned he was by the
sheer number of cranes towering over the skyline
of Pyongyang and the presence of traffic in the
streets of the capital. To top it off, the
futuristic 105-story Ryugyeong Hotel, which loomed
incomplete over the city for two decades, appears
to be nearing completion. With such rapid growth
and development, a denizen of Pyongyang may
actually believe that his or her country had
become powerful and prosperous.
Indeed,
even foreign observers remarked how the number of
construction workers at these urban renewal sites
seemed to suggest that the food crisis is over. In
addition, a recent Bank of Korea study indicated
that North Korea is showing signs of growth in its
gross domestic product. Bolstering these
incredible claims, news of increased cross-border
cooperation with China and Russia promises
continued development and economic growth in the
future.
However, all of the development is
entirely contained within Pyongyang and the food
crisis is certainly ongoing or on the brink in
other parts of the country. The same travelers who
were impressed by Pyongyang's new skyline also
exhibited surprise at how little development is
going on outside the capital.
According to
anecdotes from foreign observers, even the roads
in major urban centers outside the capital were
more often than not in terrible shape.
Meanwhile, food prices throughout the
country have been rocketing since the summer,
rising 65.6% in Pyongyang, 28.2% in Hyesan, and
26.5% in Sinuiju between June and July alone,
leaving people increasingly less able to afford
basic goods and much less able to engage in
activities that will ensure long-term food
security. [1]
Unlike the mid-1990s, the
rise in prices this time around may not
necessarily reflect the country's dire shortfall
in food acquisition (domestic production and
imports); rather, the determining factor in this
situation appears to be the consequence of
inter-provincial inequality and failed monetary
policy.
China clearly plays a key role in
North Korea's economic affairs. Beijing provides
enough food for Pyongyang to mobilize workers and
supplies crucial tools, such as fertilizer and
trucks, to assist in increasing agricultural
yields.
Although this subsidized
assistance is ultimately beneficial to North
Korea, diluting domestic prices by increasing
supply, Pyongyang's overconsumption of resources
combined with the city's privileged access to
income may be creating a disparity that is
affecting prices throughout the country.
Alongside massive construction projects,
every foreign car in North Korea appears to be
registered with Pyongyang license plates. These
are a few of many visible examples where the
city's engorged expenditure is clearly visible.
While Pyongyang's relative prosperity compared to
the provinces is not new, the recent disparity is
being fueled by the effects of the disastrous
currency reform in November 2009 and is also
indicative of how ineffective Pyongyang-directed
reforms have been.
North Korea's last
currency reform, by obliterating people's savings
and supplying the new currency under strict state
control, created a distortion that caused relative
prices to change arbitrarily. This also gave
people in Pyongyang, endowed with political power,
connections to the Korean Workers' Party, or, at
the least, access to income opportunities, a
disproportionate advantage in acquiring the new
currency.
Much like the localized effect
of inflation that economist Richard Cantillon
described in "Essay on the Nature of Trade in
General", this economic reform allowed Pyongyang
to in effect to enrich itself at the cost of the
rest of the country. [2]
With the
country's wealth largely concentrated in the
capital and most of the resources from abroad
going through Pyongyang, the already-unstable food
prices are invariably affected by this privileged
population's ability to afford higher food prices.
Pyongyang's market rice prices are by far
more expensive than the rest of the country, yet
it appears more than capable of feeding its
affluent population. Meanwhile, the rest of the
country is forced to compete for resources using
less capital. Thus, even if rice is not as
expensive in the provinces, the relative increase
in food price is harder to overcome.
In
this difficult situation, Pyongyang's attempt at
small-scale privatization through the June 28
Policy will face major challenges. While
privatization in theory should increase
productivity, the cooperatives will still be still
dependent on the central government to provide
them with the necessary tools and seeds -
considering the existing distortions in resource
distribution and money supply, the future of this
reform already looks grim.
The investments
necessary to develop the new agricultural
communities will face budgetary challenges from
Pyongyang's constantly burgeoning need to build
and maintain its new projects, which will add to
Pyongyang's consumption and further distort
prices. In addition, with North Korea's limited
transportation infrastructure, it's questionable
whether an equal distribution of resources is even
technically possible at this stage.
Ultimately, an effective economic reform
is not possible without political reform that
breaks the monopoly of resources by the Korean
Workers' Party to service its core cadres. At the
same time, to allow for greater devolution of
economic planning means allowing political
plurality, which poses a threat to the homogeneity
of the established political order.
Therefore a successful economic or
political reform is difficult to foresee - it is
not just a matter of implementing macroeconomic
logic, but the issue that goes to the core of the
state structure.
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