The Koreas

Understanding Economic Change in North Korea

How will North Korea’s economic changes impact the country’s political and social future?

Understanding Economic Change in North Korea
Credit: North Korean countryside image via Attila JANDI /

In 2009, the North Korean government implemented an ill-conceived currency reform in an attempt to wrestle back control of a burgeoning “free” market and, perhaps, to reign in price inflation. While it may have temporarily stamped out the economic power of small, black market traders, in the long run it may have only succeeded in tarnishing the government’s already questionable reputation.

Here we are some six years later. Whether trust in the government has continued to plummet is hard to gauge, but one thing seems certain: (black)market activities are proliferating – in everything form transportation to financing. A recent article at The Wall Street Journal states, “The semimarket economy that emerged [following the breakdown in the public distribution service] has expanded rapidly in recent years, providing a living for up to three-fourths of the country, according to observers, defectors and those with contacts.”

The expected consequence of marketization in North Korea, even if not explicitly stated, is usually clear: the rapid bottom-up economic changes taking place in North Korea will precipitate significant, if not revolutionary, political change. As high-profile defector Jang Jin-sung wrote for the New York Times in 2013, “The Market Shall Set North Korea Free.”

Change is inevitable. All things change, all the time. How the economic changes taking place in North Korea today will impact the country’s political and social future is a million dollar question. To address this question, and so as to better understand the Korean scholarly perspective on the matter, in 2014, the research website Sino-NK reviewed several scholarly pieces published on marketization in North Korea. Here is a mercilessly brief summary of findings from three of the reviews. (The reviews go down best if read in their entirety.)

Joung Eun-lee’s “An Analysis of the Level of North Korean Market Institutionalization on the Basis of the Physical Development of Public Markets” takes a longer view of the marketization process than you’ll find elsewhere. Joung finds that the markets we see today did not spontaneously emerge following in the trying 1990s (the period during which the great famine occurred). Instead, “Markets in this period [the 1990s] grew out of the existing, but marginal marketplaces of the 1980s. They ‘developed’ especially on the sides of rivers and in other places where people could assemble, trade, and then disappear before security forces arrived.” In other words, the market infrastructure of today was initially built before the collapse of the public distribution service. While there may not have been the unregulated financiers we find today – the so-called “money-makers” – markets did exist and marketization, however nascent, had already begun.

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The second review focuses on how the state survived the breakdown of the public distribution service and the acceleration of marketization. A review of The Marketization of the North Korean Economy by Yang Mun-su finds that the state and market co-exist, somewhat uncomfortably: “Yang describes state-market relations as being partially antagonistic and partially complementary. The state provides resources like land, electricity, transport, and security for the market, and the market provides tax revenue, as well as goods and services to the people (and the state).”

The market has the potential to politically undermine the state, which might happen if, say, the state fully embraced the market through various legal and institutional reforms. Even still, “capitalists have… begun to infiltrate the state, leveraging their networks, expertise, and capital and entering into partnerships with state enterprises to supply goods and services while pocketing a share of the resulting profits.” The result is an interesting one, but not unusual in the history of capitalist development: those who control the means of production (state managers) and those with access to lines of capital (nascent financiers/”money-makers”) benefit and do well, while those without control and only limited access (through a financier) finding it difficult to make ends meet.

The third and final review is of Park Hyeong-jung’s “Towards a Political Analysis of Markets in North Korea.” It shows how North Korea’s exclusive political institutions disadvantage larges swaths of the population. Putting small scale markets aside, Park focuses on the extractive economic practices of the “state trading companies” doing business in “certain products, mostly marine, mined natural resources, etc.” Owned and run by the military, the party, and the Cabinet, these state-sanctioned and controlled business make a mighty dollar – for the regime. Thus, business that is officially recognized and “regulated” is not that which opens up much opportunity for anyone except those with significant amounts of political power. These are the kinds of economic and political institutions that Daron Acemoglu and James A. Robinson discussed in their powerfully simple book, Why Nations Fail.

Economic change is afoot in North Korea; that much is clear. Will it spell the end of the regime? Not likely by way of revolution, barring some exogenous shock. Instead, evidence suggests that there will be piecemeal change, benefiting a certain segment or class in society.