Economics is a discipline that relies on field experiments, experiments not conducted in a controlled laboratory environment, because it’s not possible for an economist to manipulate an entire economy just so he can assess the exact relationship between perhaps, inflation and interest rates, or an economy’s openness to trade and its GDP growth rate. And that’s the biggest reason why in economics there are never any answers in black and white; there are often cause and effect relationships and correlations, but an economist can never entirely remove the effect of confounding variables, which is why for an economist, war isn’t all that bad because it makes for a great field experiment. The conditions of a state change suddenly, so the economist can measure the estimated effect of the changed variables, and isolate the impact of confounding variables.
Likewise, the study of North and South Korea provides a great case study into economic systems: two countries that started out as one, until their paths diverged after the end of World War II, and one eventually took the road to capitalism under the United States, while the other succumbed to extreme political and dynastic control after a period Soviet influence. The two countries today are poles apart. Everyone knows how the South is a huge success story and is now the world’s 15th largest economy and a member of the OECD, and has gone from being a net receiver of aid to a net donor, so the question is, how did North Korea, once so ahead of the South in most if not all metrics, suddenly fall apart, succumbing to a collapsed economy, a starving population, a dying environment and a massive amount of debt?
In this article I’ll talk about how North and South Korea emerged out of World War II with a North that was actually more developed than the South, and then will talk about North Korea’s dynastic rule under the Kim family and the juche ideology it espouses, and how this ideology has shaped its present disastrous state. So this article is in fact a case study into how the openness of a political system impacts the economy of the state, and how a trade-off exists between the amount of power a state can monopolize and the nation’s economic success.
Historically, as a result of the geography of Korea, where because most of the North is mountainous and cold, and therefore can’t support much agriculture, the country was divided in its specialization: while the South was responsible for most of the agriculture, the North was the place where most of the industrial development took place, so in 1948 when Korea was officially split into two halves, you had a North that had been heavily industrialized under the Japanese, and a South where the economy relied largely on agriculture. In the early years of division, the North was ahead of the South until the Korean War from 1950 to 1953 when most of these advantages were leveled by American bombs. But even that didn’t spell the end for the North, which with aid from its Chinese and Soviet allies was soon reconstructed. The tide began to turn for the North in the 1990s, a change that was brought about by many factors including the collapse of the Soviet Union and natural disasters, but if I were to pick one factor that contributed most to the demise of the Democratic People’s Republic of Korea, it would have to be the state’s relentless power and its juche ideology.
Juche essentially means self-determination, but for the Korean’s it meant more than just that; it was also an ideology of self-reliance. It was socialist, or Marxist, only in so far as it believed in the idea of a proletarian revolution, that the masses would one day rise up against the capitalist elite, or the bourgeoisie, and dominate, but unlike Marxism, which goes beyond state borders, juche was all about “the Korean State, Korean sovereignty, and Korean identity and independence.” It believed that the Koreans were a ‘pure’ race, and it firmly believed in protecting this race from external infiltration, so it can also be seen as xenophobic. Juche evolved over time, into what something Victor Cha, former director for Asian Affairs at the National Security Council, in his book The Impossible State: North Korea past and future, puts as “a cult of personality in which Kim Il-sung [the founder of North Korea’s ruling dynasty] came to have godlike qualities as the embodiment and savior of the Korean race.” For the Kim’s juche was an instrument of control, something that enabled them to maintain an iron grip on the North Korean people, and called for absolute and complete subservience to the leader, or else…
How juche led to the North’s dire economic straits, can be explained by its excessive focus on self-reliance and self-sufficiency in everything. North Korea is not an agricultural state, it doesn’t have much arable land, nor does it have suitable weather conditions, which makes for a short growing season. In such a situation, any ‘state’, with borders open to trade, would import food products; the case with North Korea however, was, and still is, different. The regime insisted on local cultivation and food production, and to make up for the lack of its natural endowments, relied heavily on the overuse of fertilizer, chemicals, and continuous cropping, and even deforested land to make more room for agriculture. This resulted in soil erosion and exacerbated North Korea’s environmental problems and in due course of time also led to environmental disasters such as flooding, which absolutely devastated the economy. Another problem arose after the collapse of the Soviet Union, for when the Soviets pulled out of the North in the 80’s, their aid in the form of fertilizers and chemicals went with them. As a result of all this, North Korea fell victim to a famine in the 1990s, which is said to have killed as many as one million people.
Where the way forward for North Korea is letting free markets operate within the country, and opening up its borders to trade, something that the regime is aware of, it also knows that loosening of tight controls on an extremely suppressed population will reduce the Kim dynasty’s grip on power and put Korea next in line behind the Arab Spring countries. So in short, a trade-off exists between political control and a functional economy. However, given how North Korea is not as closed off from the rest of the world as it once used to be, and that its people are getting exposure to life outside of the borders of North Korea, no matter how limited that exposure might be, North Korea looks at best like a ticking time bomb. There’s no telling when it might explode.