North Korea

Economy

North Korea has a command (centralized) economy. The state controls all means of production, and the government sets priorities and emphases in economic development. Since 1954, economic policy has been promulgated through a series of national economic plans. The early plans gave high priority to postwar reconstruction and the development of heavy industries, especially chemicals and metals. Subsequent plans focused on resource exploitation and improving technology, mechanization, and infrastructure. Little attention was given to agriculture until the 1970s, and it was not until the late 1980s that much effort was made to improve the quality and quantity of consumer goods.

Reliable information on the performance of the North Korean economy usually has been lacking. Outside observers have concluded that the country has consistently failed to meet its stated goals and that production statistics released by the government often have been inflated. Thus, although North Korea has made strong efforts to transform an essentially agrarian economy into one centred on modern industry in the post-Korean War years, it is generally believed that the country has been only partially successful.

North Korea’s economic goals have always been linked to the general government policy of self-reliance (juche, or chuch’e). The country shunned foreign investment, although it accepted considerable economic aid from the Soviet Union and its satellite eastern European countries as well as from China. Despite its stated policy of self-reliance, North Korea routinely found it necessary to import such essential commodities as fuels and machinery as well as grain.

By the early 1990s, North Korea had begun to experience severe economic hardships. The Soviet Union had collapsed, and the communist regimes of its eastern European allies had fallen, depriving North Korea of most of its trading partners and much of its former aid. China reduced but did not completely cut off its provision of materials to North Korea, but in 1992 it began to demand cash payments in place of grants-in-aid or credit accounts. In addition, in the mid-1990s the country suffered a series of natural disasters, including floods and drought. Serious grain and food shortages resulted, and starvation and malnutrition were widespread throughout the country.

The situation improved somewhat by the end of the decade because of a massive infusion of international food assistance. In July 2002 the government proclaimed a new policy intended to deal with the huge gap that had developed between the official economy and the so-called “real people’s economy” (i.e., a black market), which was in the throes of runaway inflation. But the measures served only as a temporary stopgap; well into the first decade of the 21st century, the highest priority of the government remained the solution of what it called “the food problem.”

In addition to North Korea’s acceptance of foreign aid during the 1990s, its poor economic performance during the decade forced the government to begin opening up the economy to limited foreign investment and increased trade. By the end of that decade, North Korea was actively inviting foreign investment from European Union (EU) countries, South Korea, and others. It was more receptive to discussions with EU and Commonwealth countries than it was to the United States, Japan, and South Korea—the latter three countries having been much more at odds diplomatically and strategically with North Korea since the Korean War (in the case of Japan, since the colonial period) than the others. However, since those three countries have been the main sources of foreign aid in the early 21st century, North Korea has maintained at least minimal contact with each of them.

Efforts have been made throughout North Korea’s history to increase low labour productivity. In the late 1950s the state adopted a mass-mobilization measure called the Ch’ŏllima (“Flying Horse”) movement that was patterned on China’s Great Leap Forward of 1958–60. Subsequently, in the early 1960s, programs were instituted in agricultural and industrial management, called respectively the Ch’ongsan-ni Method and Taean Work System. In the late 1990s the country adopted the official goal of building a strong military and a prosperous economy, adopting the motto “Kangsŏng taeguk” (“Strong and prosperous nation”). Under this slogan Kim Jong Il paid meticulous attention to the military, his primary base of power, while opening parts of the economy to accommodate foreign investment and trade. North Korea even allowed parts of its territory to be used by foreign (South Korean) businesses, including the sightseeing areas around Mount Kŭmgang, in the southeast, and the Kaesŏng Industrial Complex, in the southwest. However, the operation of these enclosed and restricted areas, known as special economic districts (gyŏngje t’ŭkgu), was conducted strictly under North Korean supervision and was only for the purpose of collecting foreign currencies (mainly U.S. dollars), not as part of the country’s overall economic activity.