North Korea still is described routinely as the “world’s last Stalinist country” whose population is allegedly always on the brink of starvation. These descriptions are, however, outdated. Kim Jong-un’s North Korea, while still a grossly repressive and very poor place, can be described as neither “Stalinist” nor “destitute.” It is actually a post-socialist country where the radical, if semi-hidden, market-oriented reforms have brought about considerable economic growth.
While North Korean economic statistics remain classified, foreign observers agree that the Kim Jong-un years have been an era of the remarkable economic growth. South Korea’s central bank estimated that in 2016 North Korean GDP grew by 3.9%. However, this estimate is the most conservative of all available: many diplomats and ex-pats in Pyongyang believe that the actual growth rate is higher, perhaps close to 6-7%.
The results are easy to see. There are many more cars on the streets of Pyongyang and, to a much lesser extent, other major cities are going through a construction boom; electric bicycles are increasingly common; people are better dressed and better fed; and well-stocked supermarkets sell all kinds of goods, many of which are produced locally. The positive changes are not limited to Pyongyang even though the gap between Pyongyang and the countryside is significant.
These changes are not a sign that a Leninist centrally planned economy somehow began to produce what customers need. The North Korean economy is not a state socialist one any more. Actually, the Leninist model collapsed back in the 1990s, giving way to a rather hectic but essentially market-dominated economic system. Under Kim Jong-un, those spontaneously emerging markets belatedly received official recognition. As soon as Kim Jong-un took power in late 2011, he began to introduce reforms that were remarkably like what Deng Xiaoping did in China in the 1980s.
Under Kim Jong-un’s watch, agriculture switched to a household responsibility system, thinly disguised as a “work team responsibility system” (though each family registers itself as a work team). Famers are supposed to give to the state about one third of what they harvest and are free to keep the rest. Predictably, the food production has increased compared to before, and the country is close to food self-sufficiency now.
In industry, central planning was quietly downsized, so, in most cases, enterprises now sell what they produce and buy what they need at market prices. The North Korean economic journals extol the advantages of the new approach where prices are determined by supply and demand—even though official publications studiously avoid calling this system a “market” (an ideologically dirty word), but talk instead about “prices determined by supply and demand.” Interestingly, though, the ongoing reforms, while freely discussed in specialized publications, are seldom mentioned in major media.
Nowadays, North Korea has a large number of rich people, most of whom made money on the black (or, rather, “grey”) market in the 1990s and early 2000s. Since the 1990s, rich individuals began to establish their own factories, which were formally registered under the auspices of some government agency. Now, under Kim Jong-un, such schemes have official recognition: the laws were re-written to create loopholes allowing private investors to establish their own enterprises. The new rich are doing quite well, as the booming North Korean real estate market indicates: good apartments sell for a $100,000 or even more.
However, this does not mean that Kim Jong-un wants to emulate China and its “openness and reform” policy. North Korean leaders want reforms, but they do not want openness. If anything, Kim Jong-un used newly available money to increase control over the population and the borders. North Korea’s border with China, once remarkably porous and almost unguarded, is heavily patrolled now. Soldiers are rotated frequently, so they will not form close connections with locals. These changes are reflected by both a decline in number of North Korean refugees arriving to South Korea (from 2,500 around 2010 to less than 1,000 today) and an increase in bribes one has to pay to leave (from few hundreds to few thousands U.S. dollars).
It is increasingly dangerous to watch smuggled South Korean videos, and “fashion police” patrols are always ready to apprehend people with a politically wrong haircut. The internet is banned for all but the privileged few, and most computers used by North Koreans are now equipped with a locally developed variety of the Linux operational system. This variety has one remarkable feature: it does not let computer users open any media file that does not contain a built-in digital approval from the authorities—so one cannot use it to watch smuggled foreign movies or books.
The reason is simple. Unlike China, North Korea is a divided country. It has a far more successful twin: the per capita income gap between South and North Korea is estimated to be at least 15-fold. This affluence, combined with individual freedoms, potentially makes the South Korean way of life largely attractive to the North Korean populace. North Korean leaders have good reasons to fear easing their grip on population. If regular North Koreans learn too much about prosperity and freedoms of their South Korean brethren, and become less afraid of the government, they are much more likely to behave not like the Chinese under Deng, but rather like the East Germans in 1989.
The threat of the German scenario always has loomed large in the minds of North Korean decision makers. Under Kim Jong-il, Kim Jong-un’s father, this fear was the reason why the North Korean government stubbornly refused to reform itself. However, Kim Jong-un understood that he could not stay in power for long if he did not deliver economic growth. So, he started bold experiment: unlike China or Vietnam, North Korea would do reforms, but not openness. Kim Jong-un wants a market economy, but he also wants to keep a near-Stalinist level of state control and restrictiveness.
Will this strategy work? Will “reforms without openness” deliver the desired result: sustainable economic growth under the long-term control of the Kim family? No doubt, this model will be less efficient than the Chinese one. But could it be efficient enough?
Only time will tell, but Kim Jong-un hardly has other options. Openness and liberalization, even on a modest, Chinese level are likely to result in the regime collapse. A stubborn attempt to ignore and even discourage the spontaneous growth of market economy, by contrast, would merely increase the yawning gap between North Korea and its neighbor (also making the system unstable in the longer run). So, Supreme leader Kim Jong-un has little choice but to put his faith in “reforms without openness.”