by Marcus Noland, Peterson Institute for International Economics
Op-ed published in Handelsblatt as "Gescheiterte Reform destabilisiert Nordkorea"
March 30, 2010
English language version © Peterson Institute for International Economics
Last month, Park Nam-ki, the North Korean Workers Party Economic Policy Director, was reportedly executed for his role in the country's disastrous currency reform. Whether or not the reports of Park's untimely demise prove accurate, we may be witnessing the beginning of a transformation if not the end of the country's political regime.
On November 30, 2009, the government sprang on the public a confiscatory currency reform that wiped out much of the savings of North Korean households and set off economic chaos that continues to reverberate through the society. The move not only disabled the market economy, which had become the principal source of livelihood for most North Koreans, but also precipitated an unprecedented outpouring of civil disobedience. The scale of the latter should not be exaggerated: It appears that the sporadic protests were relatively small and uncoordinated, but the reported prominence of octogenarian war veterans among the protestors deeply embarrassed the government. Its haphazard backtracking culminated last month in a historically unparalleled apology to the public delivered by Park, the reform's reputed architect, and Prime Minister Kim Yong-il through the party and government apparatus.
While this last signal of greater accountability is to be welcomed, the whole episode is damning because the damage has been so obviously self-inflicted and inconsistent with the regime's narrative that ascribes all ills to foreign "hostile forces." Nor is there any obvious way that the government can restore the status quo ante, reviving markets and reassuring entrepreneurs that their activities are safe, even as inadequate as those earlier conditions might have been.
The North Korean economy marketized under duress during the 1990s when a famine killed perhaps 600,000 to 1 million people or about 3 to 5 percent of the population. The regime has never been comfortable with the loss of control implied by the development of new pathways to wealth, status, and potentially political influence, and has periodically tried to stamp out the market and reconstitute orthodox socialism. The bungled currency reform is the latest and most misguided step.
But large-scale surveys of North Korean refugees conducted in China and South Korea suggest that the regime's discomfort may be well-founded. The market is viewed as the best way of making money and appears to be a semi-autonomous zone of social communication (and potentially political organizing) beyond the reach of the state. One response of the state has been to criminalize economic activity not directly sanctioned by the central government. Significant numbers of North Koreans are becoming ensnared in low-level penal facilities, where rates of abuse approximate those of the infamous political gulag. The penal system is increasingly used as an instrument not only for intimidating traders and entrepreneurs but also for extortion as officials extract bribes from market participants understandably eager to avoid incarceration. Personal employment in the establishment institutions of the party and officialdom is increasingly sought not out of patriotism but rather because such positions provide a platform for economic predation on the general populace.
This low-level corruption provides a safety-valve for the regime: allowing a certain degree of predation obviates the need to fully compensate underpaid officials. But it also contributes to a fraying of the instruments of political control themselves as the parochial interests of individual officials may increasingly diverge from the policy objectives of the central authorities.
The refugees indicate that increasingly few accept the government narrative that North Korea's problems are due to hostile foreigners—the vast majority holds their own government responsible. And despite the ratcheting up of repression, inhibitions on the consumption of nonsanctioned news sources (such as listening to foreign radio broadcasts) are falling. The surveys reveal that involvement in the market and exposure to the political police are associated with nascent dissent—ironically the repressive response may actually be contributing to a politicization of the population. And while that population appears to be atomized and evidence of actual political opposition scant, German history demonstrates that such apparent quiescence can change with remarkable speed.
None of this is to say that North Korea is on the point of collapse. However, the regime will face a delicate transition when aging and ailing leader Kim Jong-il eventually dies, the navigation of which will be made more complex by currents below the surface. Recent developments such as the signaled willingness to rejoin the Six Party Talks on nuclear disarmament could be interpreted less as a move to achieve military goals but more as a way to secure external support in the context of an increasingly unsound internal situation.
Marcus Noland is Deputy Director and Senior Fellow Peterson Institute for International Economics and Senior Fellow East-West Center. His book with Stephan Haggard, Witness to Transformation: Refugee Insights into North Korea will be published later this year.
Book: Witness to Transformation: Refugee Insights into North Korea January 2011
Peterson Perspective: North Korea's Immunity to Outside Pressure: Part I December 12, 2012
Policy Brief 10-1: The Winter of Their Discontent: Pyongyang Attacks the Market January 2010
Working Paper 10-2: Economic Crime and Punishment in North Korea March 2010
Paper: FTAs and the Future of US-Korean Trade Relations November 2009
Paper: Implementing the KORUS FTA: Key Challenges and Policy Proposals February 2008
Policy Brief 08-6: North Korea on the Precipice of Famine May 2008
Policy Brief 07-7: The Korea-US Free Trade Agreement: A Summary Assessment August 2007
Policy Brief 06-4: Negotiating the Korea–United States Free Trade Agreement June 2006
Working Paper 07-7: North Korea’s External Economic Relations August 2007
Book: Avoiding the Apocalypse: The Future of the Two Koreas June 2000
Book: Free Trade Between Korea and the United States? April 2001
Working Paper 08-4: Migration Experiences of North Korean Refugees: Survey Evidence from China March 2008