Crisis within the crisis: North Korea shut the door on economic reforms

Author : Carnegie Think tank

Source : Carnegie Moscow Center

The measures outlined at the VIII Congress of the WPK mean that the chances for an independent revival of the North Korean economy have become significantly less. If they are implemented, it will lead to stagnation of the economy, which in the long term will inevitably affect the stability of the regime. Which does not bode well for either the population of the country, or its leadership, or neighboring states
22:56, 18 January 2021


The VIII Congress of the Workers' Party of Korea (WPK) was held in Pyongyang from 6 to 12 January. During Kim Jong-un's reign, party conventions that had never been convened during his father's time became part of North Korean politics again, most likely influenced by China.

Worldwide, this congress received attention mainly because of several important statements on foreign and military policy, but it seems that its more important long-term outcome was different. There, in fact, it was announced that the authorities were ready to curtail those market reforms that Kim Jong-un and his entourage carried out the first six to seven years of his rule without much noise, but with considerable efficiency.

Economic thaw

These reforms began in the first months of Kim Jong-un's tenure in power. The North Korean leader was then full of enthusiasm, hoped to quickly change the life of the country for the better, and in his speeches, he directly promised his subjects that they would "never have to tighten their belts again." To make these promises a reality, Kim Jong-un began economic reforms that were clearly copied from the Chinese models of the 1980s.

Related: Kim Jong-un pledges to expand North Korea's nuclear arsenal

In 2012-2017, agriculture was partially transferred to brigade farming, and in some places even to family farming. The industry began to operate according to a system of double prices, which was also borrowed from China in the 1980s. She gave the directors of enterprises considerable freedom of maneuver.

There have been attempts to create special economic zones to attract foreign investment. Finally, the government stopped persecuting private business, which has not only existed in North Korea for almost three decades but has played a very important role in the economy.

All these changes have significantly improved the economic situation in the country. In 2012-2017, North Korea showed economic growth at the level of 5-7% per year. A five-year plan, adopted in 2016, called for growth rates to reach an impressive 8%. Of course, these hopes were not very realistic, but given the experience of the previous few years, they seemed only exaggerated, not fantastic.

However, in 2017 the situation got out of control - largely through the fault of the DPRK leadership itself. First, North Korea tested intercontinental missiles capable of hitting targets in the continental United States, as well as tests of a thermonuclear charge.

Most likely, the North Koreans were going to use their favorite tactic: first, create a crisis, and then get the necessary concessions in exchange for agreeing to return to the pre-crisis state of affairs. Pyongyang then hoped that they would be able to conclude a compromise agreement with the United States that would recognize North Korea as a de facto nuclear power - albeit at the cost of abandoning some components of its nuclear missile program.

At some point, North Korea was close enough to resolve this issue, but in the end, the compromise deal that seemed so close during the US-North Korean summit in Hanoi in February 2019 was never struck.

This risky aggravation game resulted in the sanctions imposed on the DPRK by the UN Security Council in 2016-2017. These sanctions made normal foreign economic activity impossible and put an end to many of Pyongyang's ambitious plans.

The second blow to the economy was the coronavirus epidemic or, more precisely, the absurdly tough quarantine measures that the North Korean government went to. In fact, the DPRK broke off almost all contacts with the outside world and suspended even those foreign trade operations that could be conducted under the sanctions regime.

As a result, the economic situation in North Korea deteriorated significantly. After several years of relative prosperity, this summer, goods began to disappear from the shelves of Pyongyang stores, and in the countryside, many North Koreans were again malnourished and even starving.

Related: Good life vs. hard times: How North Korea covers international news

From reform to enthusiasm

In this situation, the leaders of the DPRK (most likely personally Kim Jong-un), it seems, decided that the continuation of experiments with reforms did not meet the requirements of the moment, and made a bet on mobilizing and strengthening the role of the state in the economy.

In the economic part of Kim Jong-un's report at the VIII Congress, there is nothing about the introduction of a self-supporting system (this name concealed the introduction of a system of double prices and partial rejection of centralized planning in the public sector). On the contrary, he spoke of the need to strengthen the role of the party, as well as the importance of control over the economy by the cabinet.

Unfortunately, much more certainty reigned in the discussion of agricultural policy issues at the Congress. It was emphasized that the task of the five-year plan is to fulfill the plan of compulsory public procurement. Moreover, it is directly stated that the grain obtained in this way will be distributed according to the rationing system. In this case, there is no question of any experiments.

Related: North Korea suspects coronavirus for first time: Kim Jong-un declares emergency in Kaesong

In his speech, Kim Jong-un also noted that they say, the time has come "to return the leadership to the state in trade and services." Both trade and services in North Korea have been effectively privatized two decades ago. The vast majority of restaurants and shops are now private businesses, whose owners have formally registered their establishments as state property.

Apparently, the North Korean state is going to start making soups and selling potatoes, that is, things in which it has not succeeded and in much more prosperous times.

Kim Jong-un himself admitted that the five-year plan for 2016-2020 has failed in almost all respects, but said that the next five-year plan will still lead to a breakthrough improvement in the situation in the country. The documents of the congress leave no doubt how the DPRK leadership intends to achieve these successes: by raising the consciousness of the masses, mobilizing their enthusiasm, strengthening the party leadership, and, of course, introducing the achievements of the scientific and technological revolution.

There are other signs of change - a reshuffle in the higher party apparatus. Pak Pong Ju, a man who for over 20 years was the main supporter of economic reforms and, apparently, developed plans for radical economic reforms under both Kim Jong Il and Kim Jong Un, was removed from the top party bodies.

Pak Pong Ju did not fall into disgrace in the literal sense of the word - he was retired with the highest honor, and Kim Jong-un himself shook his hand in public. The main North Korean reformer is in his 80s and has health problems. Nevertheless, with Park Bong Ju's departure, the advocates of transformation are losing their main inspirer and patron.

Related: North Korea unveils new ballistic missile during military parade

Like daddy’s rule

Unfortunately, the line of congress is in good agreement with the information that has been coming from North Korea through various channels over the past six months. While some of the new (i.e., market) economic mechanisms continue to operate, the authorities are clearly trying to return to the state of affairs that existed in previous decades.

In other words, North Korea has begun to move away from reform, although it is unclear how radical the changes will be. On the one hand, it still cannot be ruled out that over time the country will nevertheless follow the path of China and Vietnam (of course, without the political liberalization that was part of the Chinese and Vietnamese reforms). In the end, the decisions of the 8th Congress are a reaction to an emergency that will end sooner or later.

Korean Central News Agency

In addition, we have already seen similar attempts to reverse the change. Kim Jong-un's father also at one time hesitated: either he attacked the private sector with all the might of the state apparatus, or, on the contrary, tried to encourage this sector. As a result, campaigns to root out the private sector ended in failure, and Kim Jong Il, the father of the current leader, recognized the private sector's right to exist. Most likely, the private sector will survive even now - there is still no replacement for it.

However, the 2021 Kim Jong-un (unlike the 2012 Kim Jong-un) is not a supporter of the Chinese-style market transformation. Rather, he is inclined to freeze the situation and tighten control over what is happening in the country.

Related: Russian and North Korean hackers attack Covid-19 vaccine makers, - Microsoft

The political line outlined at the VIII Congress of the WPK means that the chances for an independent revival of the North Korean economy have become significantly less - at least in the short term. If the measures announced at the congress are implemented, the North Korean economy will stagnate, and this will inevitably affect the stability of the regime in the long term.

This is not good for the people of North Korea, not for its neighbors, or for the North Korean elite. Nevertheless, the decision seems to have been made: the period of economic thaw gave way to a period of economic frost.

Andrey Lankov

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