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October 1, 2004

The Persistence of North Korea

What has been keeping Pyongyang afloat?


Can the Democratic People’s Republic of Korea (dprk, aka North Korea) survive — as a distinct regime, an autonomous state, a specific political-economic system, and a sovereign country?

Can it continue to function in the manner in which it has been performing since the end of 1991 — that is to say, since the final collapse of the Soviet empire? Or is it doomed to join the Warsaw Pact’s failed communist experiments in the dustbin of history? Or might it, instead, adapt and evolve — “surviving” in the sense of maintaining its political authority and power to rule but transforming its defining functional characteristics and systemic identity?
Back in 1994, I would not have expected to be writing an article on this particular theme a decade hence. My own work on the North Korean economy has generally been associated with what others have termed the “collapsist” school of thought, and not unfairly. As far back as June 1990, I published an op-ed essay titled “The Coming Collapse Of North Korea”; since then, my analyses have recurrently questioned the viability of the dprk economy and system.1
It is perhaps especially fitting, then, that having imagined the odds of the dprk’s post-Soviet survival to be very low, I should be charged with explaining just how the North Korean system has managed to survive these past 13 or 14 years — and to speculate about the possibility of sustainable pathways that might permit regime, state, and system to endure that far, or further, into the future.

The epistemology of state collapse

Although major efforts have been undertaken to systematize the study of state failure, the simple fact is that the modern world lacks anything like a corpus of science by which to offer robust predictions about impending episodes of social revolution, systemic breakdown, or state collapse. At the very best, the anticipation of such dramatic political events might aspire to art rather than science — just as the technique of successful stock-picking (or short-selling) has always been, and still remains, an art and not a science. A common set of factors almost necessarily consigns both of these endeavors to the realm of art: the extraordinary complexity of the phenomena under consideration, the independent and unpredictable nature of the human agency at their center, and the ultimately irresolvable problem of asymmetries of information.

All of this is to say there is no reason to expect that students and analysts should be able to predict in advance the breakdown for political systems with any degree of accuracy on the basis of any regular and methodical model. Indeed, predicting breakdown for communist systems is arguably even more difficult than for open societies, insofar as the problem of asymmetries of information is — by systemic regime design — that much more extreme.
If anticipating state collapse is — at best — a matter of art, it is an art whose most obvious failures might be classified into two categories of error. First, there are the failures to predict events that did actually take place: The 1989-91 collapse of all the Warsaw Pact states — an upheaval that caught almost all informed Western observers unawares — is certainly the most memorable recent example of this type of error. Second, there is the error of predicting upheaval and abrupt demise for states or systems that do not end up suffering from such paroxysms: This category of error would encompass, inter alia, the past century of Marxist-Leninist prognoses for Western Europe; the apocalyptic assessments from the 1970s and 1980s on the future of South Africa, the premature predictions of the fall of Soviet communism — and, of course, at least to date, the presentiments of the collapse of the dprk.
These particular types of mistakes can be likened to “Type i” and “Type ii” errors in statistical inference — but for our purposes here, we should emphasize that the family of analytical errors that can attend assessments of state failure or collapse is not dichotomous. Other types of errors can also occur. Among these, the one I wish to draw our attention to for the moment is failure to recognize imminent, but averted, collapse. 
This is not a fanciful hypothetical category. To the contrary, history is replete with examples of this phenomenon. One particular example worth recalling involves the imminent collapse of the Ottoman Empire and the battle of Gallipoli.
As early as 1853, the Ottoman Empire had been dubbed “the sick man of Europe” by those other Great Powers engaged in the struggle for mastery of the continent. With a sclerotic and corrupt Byzantine administrative system and an overtaxed, under-innovating economy, Constantinople was set on a course of steady relative decline.
In the event, the Ottoman invalid survived for almost 70 years after that diplomatic diagnosis of its poor political health: The Empire was finally laid to rest in 1922-23 with Mustapha Kemal/Ataturk’s revolution and the founding of the modern Turkish state. What is less well known, however, is that the Ottoman Empire very nearly came to an end in 1915 — in the World War I campaign that came to be known as Gallipoli.
The Gallipoli campaign of 1915-16 is remembered as a military debacle for the forces of France and, more particularly, the British Empire. In a bold and risky bid to capture Constantinople by naval attack and amphibious invasion, the allied troops were instead trapped on their own beachheads on the Gallipoli peninsula, unable to displace the Ottoman forces from their fortified positions on the high grounds above. For months the soldiers of the British Commonwealth — quite a few of them Australian and New Zealand regulars — were slaughtered in futile attempts to break the Ottoman line. (The plight of these unfortunates is vividly portrayed in Peter Weir’s 1982 movie, Gallipoli.) At the end of 1915, with more than 100,000 Commonwealth casualties having been sustained in the campaign, the British began a total evacuation of the survivors. In the course of the Gallipoli campaign, Ottoman General Mustapha Kemal secured his reputation as a brilliant and heroic military leader, while Winston Churchill, the then-young Lord Admiral of the British Navy, was obliged to resign his post in humiliation.
Gallipoli is considered a classic military blunder today — literally a textbook case. For decades the campaign has been studied in military academies around the world. What is not commonly appreciated, however, is that the Franco-British naval assault that was to become Gallipoli very nearly did succeed — and indeed came within an ace of toppling the Ottoman Empire.
In early March 1915, a Franco-British flotilla that included 16 capital ships (battleships, cruisers and destroyers) commenced Churchill’s plan to “force” the Dardanelles Strait. Artillery fire from the Turkish gun emplacements proved ineffectual against these mighty warships. On March 18, 1915, the flotilla prepared to advance through the Dardanelles Strait and into the Sea of Marmora — from whence they would steam on to Constantinople. Over the course of a day-long battle between big guns, the allied fleet slowly moved forward against the Ottoman emplacements. Then, in the late afternoon, three British ships — one of them a battleship — unexpectedly struck mines and suddenly sank. The British commander of the operation, Rear Admiral John de Roebeck, was severely shaken by this setback (apparently he felt certain he would be sacked for the loss of those ships). At the end of the day, the allied fleet regrouped — but did not pursue its assault the next day, or indeed in the weeks that immediately followed. As David Fromkin notes in A Peace to End All Peace: Creating the Modern Middle East 1914-1922 (Henry Holt and Company, 1989), “only a few hundred casualties had been suffered, but the Admiralty’s Dardanelles campaign was over.”
De Roebeck could not have known at the time about the circumstances on the other side of the barricades. With the benefit of Ottoman and German records and memoirs, however, historians have described these for us now: The Ottoman administration and its German military advisers were grimly convinced the allied assault would spell doom for Constantinople — for they had no hope of putting up a successful resistance.
As chronicler Alan Moorehead recounts in Gallipoli (London:.Hamish Hamilton, 1956), Ottoman Minister of the Interior Talaat himself was utterly despondent. As early as January, he had called a conference (with the top German military allies and advisers). All agreed that when the allied fleet attacked, it would get through.
In the days before the attempt to “force” the Dardanelles, indeed, Constantinople had begun to take on the smell of a defeated capital. Thus David Fromkin:
Morale in Constantinople disintegrated. Amidst rumors and panic, the evacuation of the city commenced. The state archives and the gold reserves of the banks were sent to safety. Special trains were prepared for the Sultan and for the foreign diplomatic colony. Talaat, the Minister of the Interior, requisitioned a powerful Mercedes for his personal use, and equipped it with extra petrol tanks for the long drive to a distant place of refuge. Placards denouncing the government began to appear in the streets of the city. . . . The [German ship] Goeben made ready to escape to the Black Sea. . . . [Ottoman War Minister] Enver bravely planned to remain and defend the city, but his military dispositions were so incompetent that — as [German military adviser General Otto] Liman von Sanders later recalled — any Turkish attempt at opposing an Allied landing at Constantinople would have been rendered impossible.
Among the disadvantages weighing on the beleaguered Turks was the fact — unappreciated by de Roebeck — that the defenders were virtually out of artillery shells. As Moorehead commented,
[nothing] could alter the fact that they had so much ammunition and no more. . . . [I]f the battle went on and no unforeseen reinforcements arrived it was obvious to the commanders that the moment would come when they would be bound to order their men to fire off the last round and then to retire. After that they could do no more.
As an historian who fought in Gallipoli would later note, the official records of Minister Enver’s German advisers jotted the following entry on the fateful day of March 18, 1915:
Most of the Turkish ammunition has been expended; the medium howitzers and mine fields have fired more than half their supply. Particularly serious is the fact that the long range high explosive shells, which alone are effective against British Ship’s armor are all used up. We stress the point that Fort Hamidieh has only seventeen shells and Kalid Bahr Fort only ten: there is also no reserve of mines; what will happen when the battle is resumed.
The Ottoman government and its German advisers could not believe their good fortune when the allied naval assault inexplicably (from their perspective) halted. Looking back later, Enver is reported to have commented:
If the English had only had the courage to rush more ships through the Dardanelles, they could have got to Constantinople; but their delay enabled us thoroughly to fortify the Peninsula, and in six weeks’ time we had taken down there over 200 Austrian Skoda guns.
General Liman von Sanders, for his part, later commented tersely that the evacuation procedures underway in Constantinople in March 1915 
were justified. . . . Had the [Allied landing] orders been carried out . . . the course of the world war would have been given such a turn in the spring of 1915 that Germany and Austria would have had to continue without Turkey.
Fromkin states the matter more plainly: “The Ottoman Empire, which had been sentenced to death, received an unexpected last-minute reprieve.”
The notion that a state might be on the verge of collapse without interested outsiders’ fully understanding that this was in fact the case is not merely an abstract theoretical possibility. The example of Gallipoli offers us an “existence proof” that such things do indeed happen in real life — sometimes with great historical consequence.2 
From this Turkish parable, let us return to North Korea. The dprk continues to function as a sovereign and independent state to this very writing. But is the North Korean state’s recent survival a modern-day variant of the Gallipoli phenomenon — a case, in other words, of imminent but averted collapse?

Financing survival

The question i have just posed is at present unanswerable. We will have to await the eventual opening of the Pyongyang state archives to delve into the issue with any satisfaction — assuming that the dprk’s official files and data offer a sufficiently coherent and faithful record of events to aid such historical inquiries.

Available data do, however, cast light on one aspect of the dprk’s struggle to avoid collapse in the wake of the Soviet bloc’s demise. These are the international data on North Korean trade patterns as reported by the dprk’s trade partners —“mirror statistics,” as they are known by their users. Mirror statistics cannot tell us how close North Korea may have come to collapse in recent years, but they can help us explain how North Korea has managed to finance state survival.
Although the extraordinary paucity of reliable data hampers every analysis of the modern North Korean economy, it is not exactly a state secret that the dprk national economy was in the grip of stagnation — or incipient decline — in the 1980s and began to spiral downward once the aid and subsidized trade from the erstwhile Soviet bloc suddenly ceased at the start of the 1990s.
The steep and apparently unbroken decline in North Korean economic performance in the first half of the 1990s led to the outbreak of famine in the dprk by the mid-1990s — the first and only instance of such mass hunger in an industrialized and literate society during peacetime. North Korea’s patent economic dysfunction, and its leadership’s seeming unwillingness or incapacity to confront and correct it, seemed to me to raise the possibility of one very particular kind of systemic collapse: namely, economic collapse. I addressed this prospect in some detail in my 1999 book, The End of North Korea.3
In discussing “economic collapse,” of course, I was not venturing guesses about the possibility of some dramatic political event that might bring the North Korean regime to an end — a coup at the top, say, or a revolt from below. (Then, as now, the sorts of information that might permit such a judgment were unavailable to outside observers — especially those with no access to confidential sources of intelligence.)
“Economic collapse,” for its part, may have seemed an exceedingly elastic term, but I attempted to use it with some conceptual precision. I did not define it as an economic shock, for example, or an economic dislocation, or a severe depression, or even a famine. “Economic collapse” instead was offered as a term to describe the breakdown of the division of labor in the national economy — the process through which ordinary people in complex productive societies trade their labor for food.
North Korea in the mid- and late 1990s, I argued, was set on a trajectory for economic collapse — for its domestic economy was incapable of producing the requisite goods necessary for the maintenance of a division of labor, and the regime seemed utterly unable to finance their purchase from abroad. Although it was impossible to determine from outside the precise breaking point at which the division of labor would unravel, events were bringing the dprk system progressively closer to that point.
The situation in 2004 looks somewhat different. The ordinary North Korean today, of course, does not exactly live in the lap of luxury. On the other hand, by most accounts, he no longer suffers from the desperate privation that characterized the mid-to-late 1990s. As best can be told, the North Korean famine — which almost certainly claimed hundreds of thousands of victims and may well have killed a million people between 1995 and 19984 — ceased raging about five years ago.
Officially, the North Korean leadership evinced a new confidence in the dprk’s staying power back in September 1998 at the same Supreme People’s Assembly that formally elevated Kim Jong Il to “the highest position of state.” That convocation publicly declared “The Arduous March” of the previous several years over and announced that the dprk was now on the road to becoming a “powerful and prosperous state” (Kangsong Taeguk).5 
Whether or not the North Korean economy has enjoyed actual growth since 1998 — a question that remains a matter of some contention — it is clear that the economic situation has in some meaningful sense stabilized and improved since the grim days of the “Arduous March.” But how was this accomplished? Mirror statistics provide some clues.
We can begin by looking at reconstructions of North Korea’s overall trends for merchandise imports (see Figure 1). In 1990, the reported value of imports was nearly $3 billion (in current U.S. dollars). Eight years later, the reported level had dropped below $1.2 billion — a catastrophic fall of over 60 percent. After 1998, however, North Korea’s imports rebounded markedly. By 2001, the reported level exceeded $2 billion — and it appears to have risen through 2003. To go by these numbers, North Korea was obtaining just about twice as much in the way of goods from abroad in 2003 as in 1998. In the year 2003, in fact, the current dollar volume of North Korean merchandise imports was at the highest level registered since the collapse of the Soviet Union.


Figure 1
North Korean Merchandise Imports 1989-2003

Source: Eberstadt, Nicholas, "Economic Recovery in the DPRK: Status and Prospect," International Journal of Korean Studies, IV:1 (Fall/Winter 2000); jetro; kotra; ROK Ministry of Unification (MNU).



 

And how did North Korea pay for this upsurge in imports? To judge by the mirror statistics, it did so not through any corresponding jump in reported export revenues. Between 1990 and 1998, North Korea’s reported merchandise exports collapsed, plummeting from about $2 billion to under $600 million. By 2003, these had recovered somewhat, to a reported level of just under $1 billion. Nevertheless, by any absolute measure, the dprk’s reported export level remained remarkably low in 2003 — less than half as high as it had been in 1990 and even lower than it had been in the bitter “Arduous March” year of 1997 (see Figure 2).


Figure 2
North Korean Merchandise Exports 1989-2002

Source: Eberstadt, Nicholas, "Economic Recovery in the DPRK: Status and Prospect," International Journal of Korean Studies, IV:1 (Fall/Winter 2000); jetro; kotra; ROK Ministry of Unification (MNU).



 

In a purely arithmetic sense, North Korea succeeded in effecting a substantial increase in merchandise imports by managing to increase its reported balance of trade deficit appreciably (see Figure 3). In the “Arduous March” period — the famine years of 1995-98 — North Korea’s reported surfeit of imports over exports averaged under $600 million a year. By contrast, in the years 2000-03 — the Kangsong Taeguk era — the dprk’s reported trade deficit averaged about $1.2 billion annually.


Figure 3
North Korean Merchandise Trade Deficit 1989-2002

Source: Figures 1 and 2.



 

But how was this reported trade deficit financed? After all, North Korea is a state with a commercial creditworthiness rating of approximately zero, having maintained for a generation its posture of defiant de facto default on the Western loans it contracted in the 1970s.
Historically, the dprk relied upon aid from its communist allies — principally, the Soviet Union and China — to augment its imports. After the collapse of the ussr, China perforce emerged as North Korea’s principal foreign patron, and Beijing’s largesse extended beyond its officially announced subventions for Pyongyang. The dprk’s seemingly permanent merchandise trade deficit with China constitutes a broader and perhaps more accurate measure of Beijing’s true aid levels for Pyongyang (insofar as neither party seems to think the sums accumulated in that imbalance will ever be corrected or repaid).
Implicit Chinese aid, however, cannot account for North Korea’s import upsurge of 1998-2003. To the contrary: China’s implicit aid to North Korea — i.e., its reported balance of trade deficit — fell during these years, dropping from about $340 million to about $270 million. (The total was back up to $340 million in 2003 — meaning that China’s implicit aid to Pyongyang was no higher than it had been five years earlier.) North Korea’s non-Chinese balance of trade deficit, by contrast, apparently soared upward (see Figure 4). Whereas in 1997 the dprk reportedly only managed to obtain a net of $50 million more merchandise from abroad than its commercial exports would have paid for — after factoring out China — by 2002 the corresponding total was well over $900 million.


Figure 4
North Korean Merchandise Trade Deficit 1990-2003, Excluding Trade with China

Source: Figures 1 and 2; PRC General Administration of Customs, China's Customs Statistics, various volumes.



 

Indeed, if we remove China from the picture, the line describing North Korea’s net imports of supplies from abroad rises steadily upward between 1997 and 2003. It is this graphic that captures the economic essence of North Korea’s shift from its “Arduous March” period to its Kangsong Taeguk epoch.
And how was this jump in non-Chinese net imports financed? Unfortunately, we cannot be precise about this, since many of the sources of funds involve illicit transactions. North Korea’s international counterfeiting, drug trafficking, weapons, and weapon technology sales all figure here, although the sums raised from those activities are a matter of some dispute.
Nor do we yet know exactly how much of the South Korean taxpayers’ money was furtively channeled from Seoul to Pyongyang during this period. One set of prosecutorial investigations has convicted former President Kim Dae Jung’s national security adviser and several other aides of illegally transferring up to $500 million to Kim Jong Il’s “Bureau 39” (a unit of the ruling party specially charged with funding Kim’s royal court) on the eve of the historic June 2000 Pyongyang summit. The possibility of other unreported official Seoul-to-Pyongyang payoffs during the 1998-2003 period cannot be ruled out — nor, of course, can the potential volume of any such attendant funds be determined.
Broadly speaking, however, we can explain the timing and the magnitude of the 1998-2003 upswing in North Korea’s non-Chinese net imports by looking at policies that were embraced during those years by the United States and her Northeast Asian allies. The year 1998 heralded the inauguration of rok President Kim Dae Jung and the advent of South Korea’s “Sunshine Policy” for détente and reconciliation with the North. In 1999, the U.S. followed suit, unveiling the “Perry Process” (former U.S. Defense Secretary William J. Perry’s “grand bargain” approach to settling outstanding disputes with the dprk). Japan and the eu both joined in the pursuit of “engagement” with North Korea during these years as well, although in differing degrees.
In their strict performance specifications — their defining actions, as opposed to their official rationales or stated intentions — “Sunshine Policy” and “engagement policy” effectively meant organized activity by Western governments to mobilize transfers of public resources to the North Korean state. If this formulation sounds provocative, reflection on the particulars of those multilateral polices — e.g., the Hyundai/rok National Tourism Office payments for vacations to Mt. Kumgang; the U.S. “inspection fee”6 of 500,000 tons of food aid granted in 1999 in exchange for permission to visit a suspect underground North Korean facility at Kumchang-ri; the continuing food and fertilizer shipment from Seoul and the occasional food transfers from Japan; the secret payment for the historic June 2000 Pyongyang summit between Kim Jong Il and Kim Dae Jung; and the new, albeit modest, flows of aid from eu countries in the wake of the flurry of diplomatic normalizations between Pyongyang and eu states in 2000-01 — will indicate it is also functionally accurate. Thus, it is perhaps not surprising that North Korea’s financial fortunes should have improved so markedly in 1998 and the years immediately following.
It may be perplexing and counterintuitive to see the United States — the dprk’s longtime principal opponent and antagonist in the international arena — described as a major backer of the North Korean state. Yet this is now in fact the case. Figures compiled by Mark Manyin of the Congressional Research Service provide the details (see Table 1). In the 1996-2002 period, Washington awarded Pyongyang just over $1 billion in food aid, concessional fuel oil, and medical supplies. (Interestingly enough, nearly $350 million of these resources was transferred in the years 2001 and 2002 — under the purportedly hostile aegis of the George W. Bush administration.)

Source: Figures for food aid and medical supplies from usaid and us Department of Agriculture; kedo (Korean Peninsula Energy Development Organization) figures from kedo, courtesy of Mark Manyin, Congressional Research Service.

 

By the second half of the 1990s, it may be noted, North Korea’s reliance on U.S. aid for financing its international purchases and supplies of goods was, in some quantifiable respect, more pronounced than for almost any other state for which Washington funded military, economic, and/or humanitarian assistance programs. This may be seen from Table 2, which compares the volume of American aid bestowed on various recipient governments with those countries’ own self-generated export revenues. Total American aid allocations to the key recipients Israel and Egypt for the five years 1996-2000, for example, amounted to 34 percent and 67 percent of those states’ respective export earnings for the year 2000. U.S. 1996-2000 assistance to North Korea, by contrast, actually exceeded the dprk’s reported year 2000 commercial export revenues. Ironic though it may seem, by this metric, Washington’s foreign aid lifeline to the dprk in recent years looks more significant than any Washington has arranged in recent years for allies or friends.

Source: Figures for food aid and medical supplies from usaid and us Department of Agriculture, per Table 1; kedo (Korean Peninsula Energy Development Organization) figures from kedo, courtesy of Mark Manyin, per Table 1;  kotra/Korean Ministry of Unification (dprk Exports, 2002); usaid (Total Military and Economic Aid); and imf International Financial Statistics (rok and Taiwan Exports, 1962).

 

This is not the first time, of course, that American aid has helped a state on the Korean Peninsula to survive. After the 1953 Korean armistice Washington devoted tremendous resources to propping up and strengthening the Syngman Rhee government in Seoul — a regime fascinated with “aid-maximizing stratagems” and manifestly uninterested in improving its then-miserable export performance. To be sure: Judged by the ratio of U.S. aid to recipient-country exports, the American Cold War project for preserving the rok was vastly more intensive than Washington’s post-Cold War programs sustaining the North Korean state (See Table 2). In the late 1950s, on the other hand, U.S. bilateral aid was just about the only game in town for states seeking Western largesse — in marked contrast to today’s international foreign aid supermarket. And if we were able to consider all the aid packages — overt, covert, or semi-formal — that were extended to the dprk by Western governments in the Kangsong Taeguk period, we might well discover that the ratio of such outside assistance to local commercial earnings began to approach the scale of disproportion earlier witnessed in, say, the late-1950s U.S. project to preserve the Republic of China (Taiwan).
At the end of the day, we can never know what would have happened if the United States and her allies in Asia and Europe had refrained from underwriting the survival of the North Korean state in the late 1990s and the early years of the present decade. We do not know, furthermore, just how close North Korea came to the critical breaking point of an “economic collapse” during the “Arduous March” period between Kim Il Sung’s death and Kim Jong Il’s formal anointment. What we know — or think we know — is that the dprk was failing economically in the mid-1990s. But in the late 1990s and early years of the current decade the prospect of “economic collapse” was diminished materially by an upsurge in provisions of goods from abroad — goods that were financed in considerable measure by new flows of Western foreign aid.
What thus seems beyond dispute is that the upsurge of Western aid for the dprk under “Sunshine” and “engagement” policy played a role — possibly an instrumental role — in reducing the risk of economic collapse and increasing the odds of survival for the North Korean state.

“Infiltration,” “military-first”

Although north korea’s flirtation with economic collapse did not commence until after the disintegration of the Soviet bloc, the dprk’s relative (and perhaps also its absolute) economic decline has been a long-term process, and by some indicators was already well under way in the Cold War era. The country’s trade performance vividly describes this record of long-term economic decline (and since international trade bears more than incidentally upon the state’s risk of economic collapse, on systemic survival prospects as well). From our twenty-first  century vantage point, we may not recall how steep and steady this long decline has been.

There was a time — within living memory — when the dprk was not known for being an international trade basket case. In 1970, the level of per capita exports in North and South Korea was roughly comparable ($21 vs. $27 — in then-much more valuable dollars). As late as 1980, in fact, North Korea’s export profile, though hardly robust, was not manifestly disfigured. That year, for example, the dprk’s level of reported per capita exports was just slightly higher than Turkey’s and over five times higher than India’s. At the same time, North Korea’s reported imports exceeded reported export revenues, but by a margin that was in keeping with the performance of other developing economies, including quite successful ones. The dprk’s 1980 ratio of exports to imports, for example, was just slightly higher than Chile’s — but it was a bit lower than either Thailand’s or South Korea’s.
By 1990 the picture had worsened considerably. Despite a politically-determined surge in exports to the ussr under the terms of the 1985-90 Soviet-dprk Economic Cooperation accord, per capita exports now ranked in the lowest quartile of the world’s economies — in a league with Equatorial Guinea and Kenya — and the ratio of exports to imports had risen, so that North Korea was among the quartile of states where this imbalance was greatest. (By 1990, the disproportion between North Korea’s import and export revenues already placed in the ranking next to such heavily aid-dependent economies as Jordan and Ghana.)
By 2000 the dprk was an outlier within the world system. That year, the dprk’s reported per capita export level would have ranked 158 among the 168 countries so tracked by the World Bank’s World Development Indicators: below Chad and at less than half of India’s level. (Reported per capita exports for Turkey were now nearly 25 times as high as the dprk’s.) Although the nominal level of per capita exports for the world was nearly 2.5 times higher in 2000 than in 1980, North Korea’s nominal reported per capita export level fell by almost two-thirds over those years. At the same time, North Korea’s imbalance between reported imports and export earnings (with the former 2.8 times as great as the latter) looked to be among the 10 most extreme recorded that year. While a glaring discrepancy between imports and exports did not automatically betoken aid-dependence — in the case of several outliers, Lesotho and West Bank/Gaza among them, it speaks to the importance of remittances in the local balance of payments — North Korea’s ratio of reported commercial export revenues to reported imports was even lower in 2000 than in such all-but-permanent wards of the oda community as Haiti and Burkina Faso.
When it comes to trade performance and patterns of international finance, North Korea’s downward trajectory and its current straits—its structural descent from Turkey to Haiti in just one generation — represents in part the misfortune of circumstance. Clearly, the sudden and unexpected downfall of the Soviet bloc was a disaster for the North Korean economic system: a disaster, indeed, from which the dprk economy has not yet recovered.
But it would be a mistake for us to ignore the degree to which North Korea’s aberrant and seemingly dysfunctional trade regimen today is actually a result of conscious purpose, deliberate design, and considered official effort. There is a deeply embedded regime logic, in other words, in the dprk’s tangential and precarious relationship with the world economy — and far from being irrational, it is based on careful and cool-headed calculations about regime survival.
Consider the dprk’s trade performance over the past generation with the 29 countries the imf terms the “advanced economies” (or what North Korean terminology would designate as the “capitalist” or “imperialist” countries). The dprk, we recall, is precluded from exporting any appreciable volume of goods to the United States — the world’s single largest import market — by Washington’s thicket of sanctions and restrictions. But if we exclude the United States from the picture, the remaining “advanced economy” market for foreign imports is nevertheless vast and (at least in nominal terms) rapidly expanding — growing from about $1.5 billion in 1980 to $4.6 billion in 2000. dprk exports to this group, however, remained negligible and stagnant over these decades — even after the loss of Soviet bloc markets would seem to have added some urgency to cultivating new sources of commercial export revenue. In 1980 and 1990, North Korea’s reported sales to this grouping totaled roughly $430 million and roughly $470 million, respectively. In 2000, the reported aggregate was about $560 million — but that total may have been inflated somewhat by an unusual and perhaps questionable $60 million in North Korean imports recorded that year by Spain. Yet even accepting that year’s exceptional Spanish data, the real level of North Korean exports to these “capitalist” countries would have been substantially lower in 2000 than it had been two decades earlier.7
Pyongyang’s remarkably poor long-term performance in the advanced economies’ huge markets is no accident. Rather, it is a direct consequence of official dprk policy and doctrine. Official North Korean pronouncements relentlessly decry the dangers of “ideological and cultural infiltration,” a technique by which outsiders insidiously undermine the foundations of established communist states. A recent declamation will give the flavor of the general argument:
It is the imperialist’s old trick to carry out ideological and cultural infiltration prior to their launching of an aggression openly. Their bourgeois ideology and culture are reactionary toxins to paralyze people’s ideological consciousness. Through such infiltration, they try to paralyze the independent consciousness of other nations and make them spineless. At the same time, they work to create illusions about capitalism and promote lifestyles among them based on the law of the jungle, in an attempt to induce the collapse of socialist and progressive nations. The ideological and cultural infiltration is their silent, crafty and villainous method of aggression, intervention and domination. . . .
Through “economic exchange” and personnel interchange programs too, the imperialists are pushing their infiltration. . . . Exchange and cooperation activities in the economic and cultural fields have been on the rise since the beginning of the new century. The imperialists are making use of these activities as an important lever to push the infiltration of bourgeois ideology and culture. . . .
The imperialists’ ideological and cultural infiltration, if tolerated, will lead to the collapse and degeneration of society, to disorder and chaos, and even to the loss of the gains of the revolution. The collapse of socialism in the 20th Century — and the revival of capitalism in its place — in some countries gave us the serious lesson that social deterioration begins with ideological degeneration and confusion on the ideological front throws every other front of society into chaos and, consequently, all the gains of the revolution go down the drain eventually.
dprk party lecture notes published in South Korea late in 2002 put the point more succinctly:
The capitalist’s ideological and cultural infiltration will never cease, and the struggle against it will continue, as long as the imperialists continue to exist in the world. . . .
The great leader, Kim Jong Il, pointed out the following: “Today, the imperialists and reactionaries are tenaciously scheming to blow the wind of bourgeois liberalism into us” . . . .
Under these circumstances, if we turn away from reality and we regard it as someone else’s problem, what will happen?
People will ideologically degenerate and weaken; cracks will develop in our socialist ideological position; and, in the end, our socialism will helplessly collapse. A case in point is the bitter lesson drawn from the miserable situations of the former Soviet Union and Eastern European countries.
“Economic exchange” with the “capitalist” world, in other words, is explicitly and officially regarded by Pyongyang as a process that unleashes powerful, unpredictable and subversive forces — forces that ultimately erode the authority of socialist states. Viewed from this perspective, North Korea’s trade performance vis-à-vis the advanced market economies though a record of failure — i.e., failure to integrate into the world economy — is at the same time a mark of success — i.e., effective containment of a potentially lethal security threat.
Moreover, it is worth recalling that the dprk’s public misgivings about “ideological and cultural infiltration” are longstanding. Although Pyongyang’s pronouncements about “infiltration” have attracted some attention abroad since the downfall of Soviet bloc socialism, the slogan itself was not a response to that defining historical event. To the contrary, North Korean leadership had been highlighting the dangers of that tendency for at least a decade before the final collapse of the Soviet Union. At the Sixth Congress of the Korean Workers’ Party in 1980, for example, Kim Il Sung inveighed against the dangers of “cultural infiltration.” And by 1981, he was urging North Korea’s “workers and trade union members” to “combat the ideological and cultural infiltration of the imperialists and their subversive moves and sabotage.”
It is true that official directives from Pyongyang have from time to time discussed the desirability of significantly increasing the dprk’s volume of international trade. Against such comments, North Korea’s extraordinary and continuing weakness in export performance may seem especially curious (insofar as it would be, at least in theory, so very easy to redress). But Pyongyang’s conspicuous neglect of the revenue potential from trade with advanced market economies speaks to fundamental and abiding calculations in the dprk’s strategy for state survival, not some prolonged fit of absent-mindedness.
If staying out of the poisonous embrace of the world economy is viewed as an imperative for survival by dprk leadership, a corollary question inevitably arises: how to generate sufficient international resources to forestall economic collapse? To date, Pyongyang’s answer has been: through nonmarket transactions. The dprk has always pursued an “aid-seeking” international economic strategy — but in the post-Soviet bloc era, the particulars of that approach have perforce mutated. In the Kangsong Taeguk era, North Korea’s main tactics for generating international resources are viewed through the prism of the current state campaign for “Military-First Politics” (Songun Chongchi).
Like the concept of “ideological and cultural infiltration,” the theory of “Military-First Politics” has received a tremendous amount of air-time in the North Korean media over the past five years.
As a long official analysis in March 2003 instructed, it was a renewed emphasis on military development that enabled North Korea to conclude its “Arduous March” and to step onto the pathway to power and prosperity:
Today, the peoples’ struggle for their nations’ independent development and prosperity is waged in an environment different from that of the last century. . . .
In building a state in our era, it is essential to beef up the main force of the nation and fortify the revolutionary base, and, in this regard, it is most important to build up powerful military might. In today’s world, without powerful military might, no country can . . . achieve development and prosperity. . . .
During . . . “the Arduous March” in our history, great Comrade Kim Jong Il firmly believed that the destiny of the people and the future of the revolution hinged on the barrel of a gun, and that we could break through the difficulties and lead the revolution to victory only by depending on the Army. . . . Through the arduous practice in which the Army was put to the fore and the unheard-of trials were overcome, the revolutionary philosophy that the barrel of a gun was precisely the revolution and the barrel of a gun was precisely the victory of socialism was originated. . . .
Our theory on the construction of a powerful state . . . is the embodiment of the profound truth that the base of national strength is military might, and the dignity and might of a country hinges on the barrel of a gun. . . . In a powerful state, the defense industry takes a leading and key position in the economy. . . .
Today, by firmly adhering to the principle of putting prime effort into the defense industry and, based on this, by developing the overall economy ceaselessly, our party is brilliantly resolving the issue of consolidating the national strength of a powerful state.
And how exactly does military power conduce to prosperity? The answer was strongly hinted at in a statement the following month:
A country’s development and the placement of importance on the military are linked as one. . . .
Once we lay the foundations for a powerful self-sustaining national defense industry, we will be able to rejuvenate all economic fields, to include light industry and agriculture and enhance the quality of the people’s lives [emphasis added].
This is a fascinating and revealing formulation. In most of the world today, a country’s defense outlays are regarded as a weight that must be shouldered by the value-adding sectors of the national economy (hence the phrase “military burden”). North Korea’s leadership, however, evidently entertains the concept of a “self-sustaining” defense sector — implying that Pyongyang views its military activities as generating resources rather than absorbing them. In the enunciated view of Pyongyang’s leadership, the dprk’s military sector is the key to financing the recovery of the national economy.
It does not require a great deal of imagination to spell out the operational details of this approach. While forswearing any appreciable export revenues from legitimate commerce with advanced market economies, North Korean policy today seems to be banking on the possibility of financing state survival by exporting strategic insecurity to the rest of the world. In part, such dividends are derived from exports of merchandise (e.g., missile sales, international transfer of wmd technology). But these revenues also depend heavily on what might be described as an export of services: in this case, military extortion services (or, perhaps better yet, “revenue-sensitive threat reduction services”) based upon Pyongyang’s nuclear development and ballistic missile programs.
The export of strategic insecurity arguably accounts for much of the upsurge in North Korea’s unexplained surfeit of imports over commercial export revenues since 1998 — especially to the extent that Western aid policies in recent years can be described as appeasement-motivated.8 In an important tactical sense, that approach has enjoyed success — it has facilitated state survival under imposing constraints. But the territory demarcated by “ideological and cultural infiltration” on one side and “military-first politics” on the other is also, quite clearly, a sort of no-man’s-land: an inherently unstable niche in which survival is utterly contingent and sustained development utterly unlikely. North Korea’s current strategic policy, in short, may be deferring the question of economic collapse — but it has not yet answered it.

Economic reform?

If the dprk is sustaining its system through aid-seeking stratagems grounded in military menace, it would seem to have settled upon a particularly meager and highly uncertain mode of state finance. Even today, when this approach is “working,” it is not clear that it generates sufficient funding to maintain (much less improve) the nation’s aging and badly decayed industrial and transport infrastructure. Moreover, it may fail at any time for any number of reasons (donor “aid fatigue,” dprk miscalculation, or an external push for “regime change” in Pyongyang being but three of these).

Under these circumstances, a pragmatic reorientation of Pyongyang policy toward promoting sustained growth might serve as a more secure path to avoiding economic collapse and preserving the sovereignty of the North Korean state. It has certainly been argued that China and Vietnam have already demonstrated that it is feasible for a Marxist-Leninist government in an Asian setting simultaneously to execute a shift to an outward-oriented economic regimen, to achieve rapid economic growth, and to maintain leadership authority and political stability.
Whether “reform” and “outward orientation” could be consonant with the preservation of unquestioned power for North Korea’s leadership is a question that will not detain us here, nor will we be diverted by a discussion of the potential problems and preconditions of any “reform” worthy of the name under contemporary North Korean conditions. Instead, we will briefly address two practical and subsidiary questions. First, how far have North Korea’s much discussed “reforms” progressed to date? Second, if the dprk were truly moving in the direction of “reform” and self-sustaining growth, how would we tell and what would we see?
North Korea’s economic reforms to date. Scholars and analysts have been detecting quiet signs of reform and opening in the North Korean system since at least the 1980s. The intensity of these premonitions typically waxed and waned according to the current temperatures in Pyongyang’s relations with Washington and/or Seoul. In July 2002, however, Pyongyang enacted a package of macroeconomic policy changes that marked a notable departure from dprk practices over the previous generation. Moreover, North Korean leadership now sometimes openly describes these measures as “economic reform”9 — a term the dprk had vigorously rejected heretofore on the grounds that no reforms were needed for the real existing dprk system.
In addition, various specific reported sightings within the dprk are being taken by some observers as evidence that far-reaching or even systemic economic reforms are today underway in North Korea. The sorts of items adduced to support this interpretation include the emergence (or reemergence) of small markets for food and consumer goods in many urban and rural localities; construction of a number of commercial billboards in Pyongyang and environs; an announcement that North Korea will soon open a large-scale supermarket late in 2004; and an indication in North Korean media in June of this year that the Dear Leader made a positive reference to “the principle of profitability.”
Just what to make of this trickle of anecdotes, however, is a matter very much dependent upon the intuition and predisposition of the beholder. In July, for example, news reports from South Korea claimed that the dprk had been caught selling a bogus knock-off of Viagra overseas. Should this, too, be taken as proof of a new spirit of entrepreneurship, market awareness, and profit orientation? We could descend into the swamp of semiotics for an anecdote-by-anecdote parsing of the evidence, but it would be more fruitful to attempt a structural assessment of North Korea’s recent program of deliberately induced economic change.
It may be cheering, of course, to see anything self-described as “reform” emanating from the organs of power in the dprk. And by comparison to North Korea’s economic policy adjustments since, say, the late 1960s, these measures may indeed be described as bold and experimental steps. Yet, in a sense, this only attests to how impoverished our expectations for dprk policy have become over the decades. Viewed for what it is, the July 2002 package can best be described as rather modest: both by comparison to “economic reforms” undertaken in other troubled economies and by comparison to the job that needs doing in the dprk.
In practical terms, the reform package — consumer price increases, wage hikes, currency devaluation, and ration system devolution — accomplished one important function: It remonetized a limited portion of the dprk domestic economy. By the late 1980s, the dprk was already a shockingly demonetized operation: Back-of-the-envelope calculations for the year 1987 suggest that the wage bill in that year would have amounted to less than a third of North Korea’s official net material product. Over the following decade and a half, the role of the national currency in domestic economic activity was progressively diminished. By the turn of the century, North Korea was perhaps the modern world’s most completely demonetized economy — excepting only Khmer Rouge Cambodia, where for a time money was abolished altogether.
The reemergence of money in North Korean economic life — and with it, the reemergence of a limited measure of open market activity — mark a critical improvement for the dprk’s tiny consumer sector. But it is important also to recognize just what this July 2002 package does not signify. It does not, to begin, represent an unambiguous move toward market principles. Remonetization of the domestic economy would likewise be a sine qua non for the resurrection of the dprk’s badly broken central planning mechanism (“a planned economy without planning,” in Mitsuhiko Kimura’s apt phrase) — which has not managed to launch another multiyear national plan since the last one was concluded in 1993.
Limited remonetization of the domestic economy, furthermore, does not signify transformation of the dprk’s badly distorted production structure. The manifestly limited supply-response of the dprk economy to the July 2002 measures is indicated by the subsequent steep drop in the black market exchange rate for the dprk won10 and by Pyongyang’s hurried introduction, barely 10 months after the July 2002 package, of new “people’s life bonds” — worthless, utterly illiquid, and involuntarily assigned — in lieu of wages for workers or payments for enterprises.
To be sure, the limited reintroduction of money in the dprk domestic economy may elicit some supply response: what economists would call a Leibenstein-style increase in “x-efficiency,” for example. But without the possibility of a reallocation of state resources in accordance with new demand conditions — and that possibility presently does not exist in the dprk — the supply response must perforce be tepid and superficial. Thus, it should come as no surprise that the World Food Programme (wfp) continues to warn prospective donors that North Korea faces an imminent return to mass hunger barring an influx of new food aid into the relief pipeline — heartening signs of newly sprouted “people’s markets” notwithstanding. The contrast is not a contradiction, but rather a faithful reflection of the scope and limits of the July 2002 reforms.
The reforms, in brief, do not in themselves stave off the specter of dprk economic collapse. Nor do they have any obvious or direct bearing on the prospects for a shift to China-style or Vietnam-style export-led growth. One need only contrast North Korea’s patterns of trade performance over the past generation with those of China and Vietnam to appreciate this (see Figures 5 and 6). Vietnam began its push for export-orientation when its Soviet subsidies abruptly ended — whereas North Korea’s export performance markedly worsened, and its official aid dependence increased, after 1991. Though still predominantly agrarian societies, Vietnam and China both manage to export far more merchandise on a per capita basis today than does the ostensibly industrialized dprk (precisely because of the linkages and supply-response mechanisms that the dprk has assiduously prevented from taking root). At the risk of belaboring the obvious, the dprk has not even begun to tinker with the macro-policies, or to promote the micro-institutions, that would permit a China- or Vietnam-style export response. Thus, for the time being, economic survival through export-orientation is simply not in the cards for North Korea.


Figure 5
Per Capita Exports 1977-2003


Figure 6
Imports as a Percentage of Exports 1977-2003

Source: Eberstadt, Nicholas, “Economic recovery in the DPRK: Status and Prospect,” International Journal of Korean Studies (Fall/Winter 2000); KOTRA; ROK Ministry of Unification; U.S. Library of Congress; International Monetary Fund, International Financial Statistics; International Bank for Reconstruction and Development; U.S. Bureau of the Census.



 

What would a genuine reform and opening look like for North Korea?11 Let us here address three essential and inextricably linked features: the outward opening itself, military demobilization, and normalization of relations with the rok.
1) economic opening. If Pyongyang were to embark upon a genuine move toward an economic opening, what initial signs would outsiders be able to see? Some of these might include 1) a meaningful departure from old “economic” themes and a new dialogue about economic issues in dprk propaganda and guidance organs; 2) doctrinal reorientation regarding profit-generating transactions in official dprk pronouncements — especially those transactions involving foreign concerns; 3) an attempt on the part of the dprk to settle its longstanding international “debt default” problems; 4) a move toward greater economic transparency, i.e., the publication of economic and social statistics describing the North Korean domestic situation; and 5) serious attempts to promulgate a legal framework for potential investors that might attract profit-seeking overseas entrepreneurs to North Korean soil. Although some observers may see glimmers of conditions 1) and 2), none of these “blinker lights” is flashing brightly and consistently in North Korea today.
2) military demobilization. Military demobilization would represent a critical aspect of North Korean “reform” and “opening” insofar as a) a dismantling of Pyongyang’s wmd programs would indicate that North Korean leadership was committed to earning its living from activities other than international military extortion and b) a reallocation of resources from the hypertrophied military to the civilian sectors would permit much more potentially productive economic activity in the dprk.
To date there is little evidence that North Korea has ever, at any point in its more than five decades of existence, voluntarily abjured any new instrument of military force that might possibly lie within its grasp. Today, indeed, such a renunciation would seem fundamentally inconsistent with the state’s established policies of Kangsong Taeguk and “military-first politics.” Moreover, North Korea’s commitment to developing weapons of mass destruction was implicitly reaffirmed in the exhortation that “We should hold fast to the military-first politics and build up our military strength in every possible way [emphasis added].”
If North Korea were to head in a different direction with respect to proliferation, the first clear sign would be a new stance toward outside verification of its wmd activities. For the time being, however, Pyongyang maintains that U.S. calls for verification conceal “a dark ulterior motive to thoroughly investigate our national defense and military bases . . . [a plot to] completely dig out our interior organs [sic]” and that “the issue [of verification] can never be on the agenda for dprk-U.S. talks.”
3) normalization of dprk-rok relations. The dprk cannot execute a successful economic opening unless it demobilizes, and it cannot demobilize unless it comes to terms with the right of the Republic of Korea to co-exist with it on the Korean peninsula. Consequently, one indispensable marker of movement would be a change in North Korea’s official posture on the legitimacy of the rok.
If North Korea were to undertake this change, the indications would be direct and unmistakable: Its highest officials and its state-run media would disclose that they were prepared to accept the existence of the South Korean state, that they recognized the rok’s right to conduct its own foreign policy, and that they respected (while respectfully disagreeing with) Seoul’s decision to maintain a military alliance with the United States. Suffice it to say that no such disclosures have been offered to date.
In sum: There is little evidence that North Korea has yet embarked upon a path to “reform” and “opening” with all the transformations in polity this path would foreshadow. That oft-discussed strategy for economic survival appears, as yet, to be an option unchosen by the dprk’s own leadership.
How long the dprk can survive on its current trajectory is anyone’s guess — and my personal guesses on this score have admittedly been somewhat off the mark, for reasons indicated above. Nevertheless, the specter of economic collapse haunts the dprk to this very day — and will not be exorcized until North Korea’s leadership agrees to undertake what, in a very different context, they have called “a bold switch-over.” Whether Pyongyang accepts such a challenge remains to be seen.


Notes

1 Perhaps most memorably, including this quote from my 1995 study Korea Approaches Reunification: “There is no reason at present to expect a reign by Kim Jong Il to be either stable or long.”

2 Here again, we note the role of asymmetries of information in the outsider’s analytical failure — circumstances that tend to be most acute in times of hostility, with little regular communication between the actors in question and with strategic deception being actively practiced in the quest for state survival.

3 Nicholas Eberstadt, The End of North Korea (AEI Press, 1999).

4 See Daniel Goodkind and Loraine West, “The North Korean Famine and Its Demographic Impact,” Population and Development Review 27:2 (June 2001). Goodkind and West’s modeling conjectures center on a range of 600,000 to 1,000,000 deaths for the late 1990s.

5 Not too long thereafter, the ROK Bank of Korea (BOK) declared that North Korea’s economy had resumed economic growth; BOK reports, in fact, have suggested positive growth in the DPRK for 1999 and every subsequent year. Whether the BOK analysis can withstand scrutiny is another question. For a skeptical look, see Nicholas Eberstadt, “Prospects for Economic Recovery: Perceptions and Evidence,” in the 2001 edition of the Korea Economic Institute’s Joint US-Korean Academic Studies.

6 Pyongyang’s description of the transaction.

7 Between 1980 and 2000, the U.S. producer price index — the more appropriate deflator for international tradables — rose by 51 percent. Using that deflator, North Korea’s inflation-adjusted export volume to this grouping of countries would have declined by about 16 percent between 1980 and 2000. Note that the grouping includes South Korea and figures in inter-Korean trade.

8 Even ostensibly humanitarian food aid transfers to North Korea are informed by the reality of military extortion: Think in particular of the nuclear facility at Kumchang-ri and, more generally, about whether the opaque rules under which food relief is administered in the DPRK would be tolerated by the international donor community in any other setting.

9 Thus Supreme People’s Assembly President Kim Yong Nam in August 2002 in a conversation with un officials: “We are reactivating the whole field of the national economy. . . . [W]e are reforming the economic system on the principle of profitability.” Cited in United Nations, Consolidated Inter-Agency Appeal 2003: Democratic People’s Republic of Korea (November 2002), 127. Note however that the term “reform” has not yet been embraced by the DPRK media, which still treats the concept as anathema. This March 2003 formulation from Minju Choson remains representative: “Even though the imperialists are trying to stifle our economy by inducing it to ‘reform’ and ‘opening’, our economic management is being improved without deviating even an inch from socialist principles.” Minju Choson (March 6, 2003), translated as “DPRK Cabinet Organ Discusses Improving Economic Management,” FBIS, AFS Document Number KPP 20030313000122.

10 The initial July 2002 exchange rate was set at 153 won to the U.S. dollar. By October 2003, DPRK government foreign exchange booths in Pyongyang were paying 900 won per dollar. By July 2004 — two years into the July 2002 measures — the unofficial rate for the DPRK won was reportedly about 1,600 to the U.S. dollar. By those numbers, the pace of depreciation against the dollar (a serviceable proxy for the implied pace of domestic price inflation) averaged 10 percent per month since the advent of the new economic measures. And the decline continues: Earlier this year, the director of the World Food Programme office in Pyongyang stated that prices in local North Korean markets had risen 10-15 percent during the past two months — testimony that too much currency is still chasing too few goods in the dprk domestic market.

11 The following paragraphs draw on Nicholas Eberstadt, “If North Korea Were Really Reforming, How Could We Tell—And What Would We be Able To See?” Korea and World Affairs 24.