The Koreas

Class Struggle, the Biggest Challenge to North Korea’s Economic Development

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The Koreas | Economy | East Asia

Class Struggle, the Biggest Challenge to North Korea’s Economic Development

Both domestically and internationally, class struggle prevents North Korea from integrating into the world economy. 

Class Struggle, the Biggest Challenge to North Korea’s Economic Development
Credit: Depositphotos

As a central tenet of North Korea’s ideological foundation since its birth, class struggle has defined the paradigm of the development of the economy in the DPRK during each generation of the Kim regime. Even now under Chairman Kim Jong Un, the possibilities of lifting economic sanctions or the normalization of diplomatic relations are ultimately untenable while this paradigm remains intact. The crux of the impossibility of both policy shifts is that they cannot provide Kim with the means to achieve the necessary economic development and denuclearization to guarantee the sovereignty of the DPRK beyond Kim Jong Un’s tenure. In order for the DPRK to survive, Kim must actively pursue a viable exit strategy centered on a paradigm change where class struggle no longer constitutes the ideological foundation of North Korea. 

Both domestically and internationally, class struggle prevents North Korea from integrating into the world economy. As domestic policy naturally extends into foreign policy, class struggle demands belligerent interference into the domestic affairs of other countries where states allow private ownership of the means of production.

In the paradigm of class struggle, peaceful cooperation and coexistence with other socioeconomic systems are impossible as neither non-intervention nor the recognition of state sovereignty is compatible in the framework of a fundamentally belligerent foreign policy. Moreover, hostile foreign policy demands military strength (which the DPRK has found in nuclear armaments) in order to substantiate a hostile foreign policy. Therefore, as long as class struggle remains, the nuclear disarmament and economic opening of North Korea are incompatible. Furthermore, even if the DPRK were to give up nuclear weapons, class struggle would still require compensation for this loss with a further increase in military spending beyond the already staggering 22 percent of the DPRK’s GDP.

As a country whose purpose is defined by the ideology of class struggle, North Korea remains trapped in an economic system of extensive growth (where growth derives solely from inputs). In order for Kim Jong Un to establish a system of intensive economic growth (where growth stems from innovation and competition), which will provide the necessary stability and rationale for the DPRK to dismantle its nuclear arsenal, class struggle must be abolished. The wider policy implication of this reality is that sustained rapid economic development is the only way for Kim to escape the quagmire of unsustainable hostile rhetoric and nuclear brinkmanship. 

Like other socialist states that have failed to achieve economic development, the DPRK’s economy is an extractive system that is defined by five features: the state actively pursuing proletarian dictatorship and class struggle; nationalization of the means of production; central planning; bureaucratic controlling mechanisms; and totalitarianism. As a closed economy, these elements explain why the DPRK’s economy is dysfunctional and incompatible with global markets. With China being its only substantial trading partner, North Korea is at the mercy of Chinese market fluctuations exacerbated by an unfavorable trade imbalance, especially as the DPRK only manages to produce low value-added goods, like coal, minerals, fish, and textiles. 

With an already distorted and dysfunctional economic system, the Arduous March of the 1990s forced the North Korean state to tolerate a certain degree of private enterprise via marketization from below in order to prevent more deaths by starvation. In the last decade, Kim Jong Un has continued this trend by allowing the rise of jangmadang (black markets) and unofficial private businesses via “benign neglect.”

While muddling through, the shadow economy has siphoned power and control away from the state. By allowing marketization from below, the state’s control over the production and distribution of goods has been significantly undermined, leaving the decaying economy in an even more perilous position. Yet as long as class struggle remains a core tenet of the Kim regime while the state simultaneously allows private businesses to operate outside the law, the state can’t regulate enterprise or levy taxes, which hinders capital formation from taking place. These ideologically enforced shackles between the public and private sectors inhibit any sustainable economic development. 

Even in the event that Kim attempts to pursue some kind of political or economic opening, any kind of attempt would be useless without radical market-oriented economic reform. Given that economic reform is a prerequisite for economic opening, Kim must implement market economic principles if he wishes to make any effective change in North Korea. At its core, the crux of market economic reform is privatization. Without private ownership, the state remains totalitarian in nature in that it remains in control of every aspect of the national economy, preventing businesses from competing, innovating, and effectively reallocating resources while attracting foreign investment. 

Market-oriented economic reform and integration with the world economy is critical to economic modernization, which is essential to North Korea’s survival and its transformation into a vibrant, prosperous country. The blueprint for economic modernization provides for private enterprise, a free labor market, and economic freedom along with the plans for infrastructure, institution building, and the development of human resources which will be fueled by direct foreign investment. For such an ambitious plan to be realized, the five stakeholder nations of Russia, China, South Korea, Japan, and the United States must forge a deal that includes the normalization of relations, the signing of peace and non-intervention treaties, and the creation of an economic development fund.

To ensure that North Korea successfully weathers the shocks of its transition to a market-oriented economy, it requires a tangible development fund so that Kim Jong Un can safeguard the integrity of the DPRK. Kim can entice stakeholder countries to secure the fund. The stakeholder nations must coordinate an economic development fund that is large enough, and will last sufficiently long enough, to pave the foundation for North Korea’s economic modernization – $300 billion over 10 years to stimulate an average per annum GDP growth rate of at least 10 percent. Then, North Korea must stand on its own without continued aid.

North Korea currently stands on the edge of a dangerously steep precipice. Unless Kim pursues an ideological and economic paradigm shift in a shared framework with the other stakeholder nations, the DPRK will inevitably collapse, resulting in tragedy as a humanitarian crisis of catastrophic proportions will unfold.