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Working Paper 09-8

Reform from Below: Behavioral and Institutional Change in North Korea

by Stephan Haggard, University of California, San Diego
and Marcus Noland, Peterson Institute for International Economics

September 2009

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The state is often conceptualized as playing an enabling role in a country's economic development—providing public goods such as the legal protection of property rights—while the political economy of reform is conceived in terms of bargaining over policy among elites or special interest groups. Haggard and Noland document a case that turns this perspective on its head: efficiency-enhancing institutional and behavioral changes arising not out of a conscious, top-down program of reform, but rather as unintended (and in some respects, unwanted) by-products of state failure. Responses of 300 North Korean refugees to a 2008 survey demonstrate that the North Korean economy marketized in response to state failure following the famine in the 1990s. The state's inability to provide food through the socialist public distribution system prompted small-scale social units—households, work units, local party organs, government offices, and even military units—to engage in private activities, much of it technically illegal, to secure food.

Subsequent reforms and retrenchments by the North Korean regime to regain economic control have had remarkably little impact on reversing this process of marketization, which has continued apace since the famine period. Changes in government policy, however, have increased corruption and inequality and changed attitudes about the most effective ways to attain higher social status and income. While the majority of the respondents consider engaging in market activities the easiest way to make money, an increasing number considers corruption and criminality the most lucrative career path. While the survey sample marginally overweights demographic groups with less favorable assessments of the regime, even counterfactually recalibrating the sample to match the North Korean population suggests widespread dissatisfaction with the North Korean regime, its capabilities, and accomplishments.


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Book: Avoiding the Apocalypse: The Future of the Two Koreas June 2000

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Working Paper 08-4: Migration Experiences of North Korean Refugees: Survey Evidence from China March 2008