Economies in Transition: North Korea

The collapse of the Berlin Wall close to twenty years ago promised a new epoch of democratic freedom and free-market prosperity. Former command economies in Europe and Central Asia, long slumped in economic malfeasance, have since embarked on a transitional road of economic reforms with varying degrees of success.

Even North Korea, one of the few surviving nations of the 1989 revolutions, has warily recognized the need to adopt some measure of market-based reforms to revive its moribund economy. As early as the late 1980s, in the third Seven-Year Plan (1987-1993), Kim II Sung established the Rajin-Sonborg Free Economic and Trade Zone (FETZ) in the hope of attracting foreign investments and test out free-market economics in a controlled setting. However, the industrial park failed to attract investors’ interest. This failure, and his successor, Kim Jung IL’s alignment with conservative factions in North Korea, effectively put a halt to any potentially destabilizing economic reforms in the 1990s.

But North Korea’s flirtation with the free-market does not end there. North Korean leaders are sophisticated enough to recognize the fallacies of the command economy, but they are not enlightened enough to accept the social-political implications of market reforms. Market reforms present a real threat to the unraveling of the existing system of political patronage, where the entrenched elite appropriate a disproportionate amount of economic goods. The regime faces a potential loss of control and power if a new group of elites, not beholden to the old system, derives economic gains from the market rather than curry favors through the party hierarchy and apparatus.

Among the rank and file of the party hierarchy, North Korea wants to progress economically but is unsure about the economic steps to take. This pressing issue of economic reforms can improve the economic wellbeing and lives of twenty-four million North Koreans. The silver lining in the cloud for North Korea is that there are ample case studies of their former socialist counterparts facing economic transition over the last two decades. Best practices can be drawn from these case studies and adopted in North Korea. The successful economic transition of North Korea holds the promise of a revitalized nation ready to ameliorate the economic conditions of its citizens, and as a responsible member of the world community contributing to global peace and prosperity.