The Koreas

At Trump-Kim 2.0, Don’t Forget North Korea’s Markets

Continued economic opening would be a boon for the North Korean people. The US should push Kim in that direction.

At Trump-Kim 2.0, Don’t Forget North Korea’s Markets

A textile factory in Pyongyang, North Korea.

Credit: Flickr/ Tobias Nordhausen

Reports suggest that U.S. President Donald Trump and North Korean leader Kim Jong Un will be meeting for a second summit near the end of February, possibly in Vietnam. They’re set to talk over Pyongyang’s nuclear arsenal, but Trump should keep an eye on — and push for — Kim’s slow-moving economic reforms. If the United States is concerned over the humanitarian crisis that’s continuing under Kim’s ruthless regime, then Trump must push for expanded free market opportunities in North Korea, which could help ease North Korean suffering.

As I wrote in 2017, North Korea has been undergoing a dramatic economic transformation over the last two decades. The country’s emerging middle class has opened up a surprising world of possibilities in a nation that so severely oppresses its people. Today, there are stores with competing products and officially sanctioned free market activity. Moreover, the Carnegie Endowment found that private enterprise accounted for 30-50 percent of North Korea’s GDP in 2016.

But continued economic reforms in authoritarian states aren’t a given. For instance, the Soviet Union’s Mikhail Gorbachev wavered back and forth on implementing reform and faced an attempted coup in 1991. China engaged in many reforms under Deng Xiaoping starting in the 1970s, but current President Xi Jinping is reasserting state control of the economy. Although many observers have hoped Kim would be a Deng or Gorbachev, he certainly hasn’t gone full-speed ahead with capitalist reforms. Kim still leads a repressive regime and routinely carries out economic crackdowns.

So far, Pyongyang has continued to allow official and unofficial market activity, including the buying and selling of goods and services. Much activity is through officially registered marketplaces where the government can keep watch. But a lot of trade falls in a grey zone of quasi-illegal or unofficial trade or bank accounts, toward which officials turn a blind eye in exchange for a bribe. Furthermore, a lot of market activity — such as importing certain goods or having stock investments — remains illegal and suppressed.

But North Koreans are getting more acquainted with economic habits that most of the world takes for granted. And Kim wants to reap the benefits of a free market, but he doesn’t intend yet — if ever — to emulate the economic system of China, let alone South Korea. Economic forces are powerful and if Pyongyang loosens up too much, Kim knows he could follow the Soviet Union’s footsteps into collapse.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

During the 1990s, North Korea suffered a horrific famine, during which centralized food distribution collapsed, 2 to 3 million people died, and the economy shrank by a third. Kim wants to avoid repeating that. He knows he needs markets to do so, but he doesn’t want to lose power or to allow in ideas that would cause North Koreans to be further dissatisfied with their lives. That’s why Kim is attempting a delicate balance in reforms, what scholars have termed “decentralized socialism” or “marketization without liberalization.”

Reforms have continued at a cautious pace. Starting in 2002-2003 the government began to officially recognize, regulate, and tax markets. More recently, a 2017-2018 CSIS Beyond Parallel study found 436 existing state-sanctioned markets that are regulated and taxed. This is a far cry from economic collapse, but only some credit should go to the government. After all, the North Korean people brought about these changes. The famine forced North Koreans to turn to bartering and trading to survive — Pyongyang only needed to get out of their way.

Starting in 2013, Kim announced simultaneous economic and military development, directing the government to pursue consumer goods alongside nuclear weapons. He now consistently prioritizes the economy, stating that North Korea would have a freer hand to seek prosperity now that it has a credible nuclear deterrence against the United States. During his 2018 New Year’s speech, Kim proclaimed North Korea’s military progress “a great historic achievement that has opened up bright prospects for the building of a prosperous country.”

Markets for almost everything have sprung up, including buying scarce electricity for one’s home or business. North Koreans can also illegally buy transportation to travel or trade away from home, since they’re not normally allowed to leave their village or city without a permit.

While markets have saved many people from the threat of immediate starvation, they aren’t freed from poverty. For the politically connected in Pyongyang and the provincial capitals, economic reforms are a chance to use their connections to form quasi-state businesses and enrich themselves. For everyone else, daily living is harsh and severe micro-famines still occur.

North Korea still does not domestically produce enough food to feed itself. However, fewer laborers are forced onto collectivized farms. According to North Korea Economy Watch, which is associated with the Stimson Center’s 38 North, Pyongyang has given farmers a set amount of land, and allows them to keep anything they produce that’s above their government-set quota. Though laborers don’t own this land, Kim’s new policy means they no longer hand over all of their harvests and hope they will get a reasonable ration back. This incentive has led to greater production as farmers keep up to 70 percent of their harvest.

Unfortunately, much of the economy is still centralized and enforcement is often arbitrary. Since private stock investments are illegal and banking is a legal maze, North Koreans usually park their weak currency in real estate. And, to pay for major projects or upcoming state celebrations, the regime is still prone to suddenly taking half to two-thirds of average workers’ income. Quotas, too, are still mandated for most sectors and North Koreans can be fired, demoted, or worse if they fail to meet them.

Ultimately, North Korea’s sluggish reforms have improved the lives of their people and the regime’s stability. But, despite South Korea’s hopes of unifying into a democratic state and an upcoming second summit between Trump and Kim, Pyongyang is still an authoritarian regime. These reforms are good but there’s no guarantee that they’ll continue. Kim doesn’t want capitalism or democracy, but Trump must push him to, at least, keep what he has going.

John Dale Grover is a Free Society Fellow with Young Voices. He is also an Assistant Managing Editor at The National Interest and a fellow with Defense Priorities. Follow him on Twitter @JohnDaleGrover.