North Korea

ECONOMIC OUTLOOK

The West Sea Barrage, an eight-kilometer-long sea wall, helps to irrigate the west coast.

Painting at the West Sea Barrage depicting Kim Il Sung and Kim Jong Il at the construction site
Courtesy Tracy Woodward

It appeared for a time that North Korea could not remain immune indefinitely to the fallout from the political and economic collapse of communist regimes as well as to the rise of South Korea as an economic powerhouse. Eventually, the severe economic difficulties and adverse changes in the international environment will become serious enough to compel the North Korean leadership to introduce some changes in the economic institutions. At the outset of 1993, however, it does not seem that North Korea will fundamentally overhaul its economic system. Only selective reforms--such as the gradual expansion of peasant and handicraft markets, extension of free-market-based retail outlets dealing with local consumer goods, and a much wider application of the independent accounting system in industrial enterprises with more discretion for the disposition of the "profits"--are expected to be implemented.

North Korea's leadership probably drew a lesson from China's experience: in spite of popular demands that political liberalization follow economic liberalization, communist rule can still be prolonged if leaders have sufficient will and power. The decision to adopt both Chinese-style joint ventures and special economic zones shows that North Korean leaders are willing to make that gamble. But they are more likely to open the economy to foreign trade and direct investment than to approve fundamental economic reforms.

Expanding economic ties with South Korea and diplomatic normalization with Japan offers the greatest future economic opportunities. One important component of the off-again-on-again negotiations for normalization that began in 1990 is North Korea's demand that Japan provide reparations as compensation for its colonial rule over Korea. Both reparations and improved political relations with Japan will ease North Korea's economic hardships. Reparations can be used immediately to repay part of North Korea's debt to Japan, alleviating a longstanding source of friction between the two countries and paving the way toward importing much-needed advanced capital goods and technology from Japan.

The possibility of joint ventures with South Korean firms and, to a lesser extent, with mainstream Japanese firms is particularly promising. North Korea's cheap labor force will be a strong magnet for South Korean and Japanese firms, at least initially. In time, North Korean workers will need more technical training, and the communist managers will have to be taught Western management practices, both of which will add to labor costs.

The economic role of formerly communist allies, particularly that of the former Soviet Union, is expected to decline drastically. By the end of the decade, Japan will likely become North Korea's second largest trading partner after Russia and then possibly its largest trading partner--or at least its largest source of imports. Inter-Korean trade, however, has the potential to increase to the point that South Korea may eventually overtake Japan in a decade or so to become North Korea's largest trading partner. If this occurs, China and Russia will probably become North Korea's third and fourth largest trading partners, respectively.

North Korea's admission to the UN in 1991 makes it eligible for various types of economic, scientific, and technical assistance from the UN and its various specialized agencies. UN membership also increases the possibility that North Korea can participate in international organizations such as the World Bank (see Glossary) and the IMF.

Reparations payments and economic aid from Japan, trade credits from South Korea, and participation in various international organizations will substantially help North Korea's modernization. A modernized and expanded infrastructure--with particular attention to transportation and communications--will have to precede the commitment of scarce resources to modernizing a specific industrial sector or plant.

In order to alleviate chronic energy shortages and meet growing industrial needs, rebuilding and restructuring the energy industry will have to take precedence over other industrial projects. Restructuring could eventually alter the practice of relying equally on coal-powered and hydroelectric plants, gradually replacing coal with alternative sources such as nuclear energy. Doing so would make electric-power generation less vulnerable to the faltering coal industry and to the vagaries of rainfall. The extractive industries will also have to receive substantial investment before North Korea can take advantage of its mineral resources. Easily accessed coal may have been depleted; as with iron ores, zinc, and other minerals, deeper seams will have to be mined. It also will be necessary to introduce modern mining equipment and techniques.

Although poor harvests frequently are attributed to bad weather, farming is relatively well developed. Nonetheless, productivity can be greatly increased by introducing modern farm machinery, high-quality seeds, and more and better distribution of fertilizer. The prospects for improving farm output through decollectivization, however, appear to be dim in the near future.

With the Cold War over and the signing of the Agreement on Reconciliation, Nonaggression, Exchanges, and Cooperation between the two Koreas in December 1991, reduced defense expenditures are a real possibility in the near future. Arms control already is on the agenda in the inter-Korean talks. Diverting some or most of North Korea's defense spending to economic development projects would make a substantial contribution toward economic progress.

As of mid-1993, however, it did not appear that the nonaggression pact would soon pave the way to economic integration and reunification of the two Koreas. Significant differences in the unification formulas remains. There is little likelihood of a German-style absorption of North Korea by South Korea, and North Korea has voiced its concern and opposition to the possibility of absorption to the South Korean authorities. If South Korea had ever entertained the idea of a German-style unification, the hindsight of the German experience has forced it to take a more sober and realistic appraisal of the possibility. The huge cost of absorption would economically overwhelm South Korea and have the potential of destabilizing the entire Korean Peninsula. However, inter-Korean economic cooperation through trade and joint ventures has the potential of significantly jump starting and modernizing the North Korean economy by introducing South Korean capital and technological and managerial know-how. Improvements in the North Korean economy will, in turn, facilitate and increase the probability of economic integration and eventual reunification.

* * *

Because of the secretive nature of the North Korean regime, the scarcity of consistent and reliable economic data, particularly since the 1960s, makes studying its economy a challenge. Among the North Korean sources that consistently contain economic topics are Chosn chungyang yngam (Korean Central Yearbook), an annual with sections on the economy and other related topics; K lloja (The Worker), a monthly journal of the KWP Central Committee; Nodong simmun (Workers' Daily), the KWP's daily newspaper; and Foreign Trade of the Democratic People's Republic of Korea and Korea Today, monthly English-language periodicals. K lloja and other Korean-languages periodicals, as well as those in other languages such as Japanese, are available in English as the Korean Affairs Report series issued by the United States Joint Publications Research Service.

The most useful Japanese source is Kita Ch sen no keizai to b eki no tenb (North Korean Economic and Trade Prospects), an annual published by the Japan External Trade Organization (JETRO) that contains up-to-date surveys of the economy and statistical data on trade. Another informative Japanese source is the monthly periodical Kita Ch sen kenky (Studies on North Korea). Two additional useful South Korean sources are issued monthly: Vantage Point, an English-language periodical of the Naewoe Press in Seoul devoted to events in North Korea, and Pukhan (North Korea). Other South Korean English-language periodicals frequently contain articles on the North Korean economy: Asian Perspective, a biannual published by the Institute for Far Eastern Studies of Kyungnam University; Korea Observer, a quarterly of the Institute of Korean Studies; and Korea and World Affairs, a quarterly by the Research Center for Peace and Unification of Korea.

Other valuable English-languages sources are the weekly Far Eastern Economic Review and its annual publication, Asia Yearbook; Country Report: China, North Korea, a quarterly report put out by the Economist Intelligence Unit, and its annual survey, Country Profile: China, North Korea; January issues of Asian Survey, which carry the annual survey on North Korea; Yearbook of International Trade Statistics by the United Nations; the Direction of Trade Statistics of the International Monetary Fund; and the United States Foreign Broadcast Information Service Daily Report: East Asia. (For further information and complete citations, see Bibliography.)

Data as of June 1993

North Korea - TABLE OF CONTENTS