North Korea reforming economy while denying change

My rule of thumb is to never trust a datum about the North Korean economy that comes with a decimal point attached Marcus Noland

Pyongyang officially is guided by the self-reliance philosophy of founder Kim Il-sung, whose 105th birthday is being marked this weekend, but analysts say economic change is happening

On the side streets of Pyongyang, small traders sell vegetables from impromptu stalls. At markets, dealers offer imported household goods – even Coca-Cola – and in state-owned department stores hard currency is openly exchanged at black-market rates.

Officially, North Korea denies it is reforming and declares it remains guided by the Juche, or self-reliance, philosophy of founder Kim Il-sung whose 105th birthday is being marked this weekend.

But under his grandson Kim Jong-un – the third generation of the dynasty – economic change is quietly happening in the impoverished, nuclear-armed country, analysts say.

The North was once better off than the South, but decades of mismanagement saw it descend into stagnation and food shortages, while its neighbour propelled itself into the OECD group of leading economies.

Pyongyang remains almost entirely devoid of commercial advertising, its wide avenues instead lined with propaganda posters of heroic soldiers and striving workers, or slogans such as “Let us follow the decisions of the 7th Congress of the Workers’ Party of Korea.”

“We are a socialist country so we stick to our socialist principle economically,” said Ri Sun-chol, chief of the economic research institute of the North’s Academy of Social Sciences. “We do not push for national reforms adopting a market economy.”

But a series of rulings under Kim Jong-un is taking the North in exactly that direction, say diplomats and researchers.

Many agricultural collectives have been effectively dismantled and farmland management distributed between individual households referred to as “family-based work units,” sending food production climbing.

Beyond what they must produce for the state, under what Pyongyang calls the Socialist Corporate Responsible Management System, factory managers have been given freedoms to find suppliers and customers of their own.

Kwon Yong-chol, chief engineer of the Song Do Won General Foodstuffs Factory in Wonsan, explained that as well as manufacturing goods according to government instructions, “there is also a commercial network of vendors we use to sign our own contracts.”

‘Filthy wind’

Officials have been told not to interfere with private businesses, even while many remain technically illegal.

Enterprises are often still set up under state entities to ensure political protection, but analysts estimate that the private sector, broadly defined, could be responsible for anything from a quarter to half of the North’s gross domestic product.

All such figures are riven with uncertainty, as Pyongyang does not publish meaningful economic statistics. Last year, major South Korean think tanks were unable even to agree whether its economy grew or shrank in 2015.

“My rule of thumb is to never trust a datum about the North Korean economy that comes with a decimal point attached,” said Marcus Noland, director of studies at the Peterson Institute for International Economics in Washington.

The changes are similar to the first stages of China’s “reform and opening” under Deng Xiaoping in the early 1980s, which laid the ground for the decades-long boom that turned the Asian giant into the world’s second-largest economy.

Beijing, Pyongyang’s sole ally and main provider of trade and aid, has long urged its wayward neighbor – which is subject to multiple UN sanctions over its nuclear and ballistic missile programs – to follow its example.

But in a speech to the party congress last year, Kim Jong-un dismissed such concepts as “the filthy wind of bourgeois liberty,” and professor Ri was adamant there was no connection.

“The reform was fit for China’s situation and was something desired by the Chinese people, and if that helped with China’s economic development, we are very happy,” he said. “Our country will follow the socialist path.”

‘Unparallelled geniuses’

Andrei Lankov, director of specialist service NK News and professor at Kookmin University in Seoul, retorted: “Of course, they are copying China because China was so damn successful.

“They never admit that they are learning from anybody,” he said, but Kim Jong-un “understands very well” that market economy systems have produced stunning growth in multiple East Asian countries over the past half-century.

“The current North Korean leader is absolutely free of ideological sympathy towards the state socialist model,” he told AFP.

Pyongyang’s reluctance to talk openly about economic changes gives it room to manoeuver, while preserving its political foundations, according to analysts.

“As long as much of this activity remains technically illegal, and in many cases subject to the death penalty, the state can always reverse course if it sees fit,” said Noland.

Formal reforms could “put the state on a slippery slope where its fundamental difference with capitalist South Korea is eroded, and the regime’s whole raison d’etre is called into question,” he added.

Avoiding undermining the authorities’ claim to legitimacy was crucial, agreed Lankov.

“The idea is that they are run by a family of unparallelled geniuses and of course the current leader and his father and his grandfather and his family are always right.”

Alluding to Deng’s supposed assessment of Communist China’s founding father Mao Zedong as “70% right, 30% wrong,” he said: “Kim Jong-un cannot say that his father, his grandfather was even 1% wrong.

“He has no choice but to maintain the illusion of ideological continuity, even when he is making a U-turn. Which is very smart.”

Agence France-Presse

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