N. Korea's secret weapon? A growing economy

With the United Nations imposing yet another round of sanctions on North Korea for its nuclear provocations, it's worth asking why such penalties have been failing for more than a decade. One reason is that the North Korean economy is improving more than is commonly understood - and that will make altering its behaviour through trade barriers significantly harder.

The current approach to sanctions is partly based on the assumption that North Korea's economy is a socialist nightmare, but that's no longer really true. Although the country is still poor, its gross domestic product grew by an estimated 3.9 per cent last year, to US$28.5 billion (S$38.2 billion), the fastest pace in 17 years. Wages have risen quickly, and per-capita GDP is now on par with Rwanda, an African economic exemplar.

This progress is partly due to continued trade with China, which remains reluctant to crack down on its neighbour. Although China agreed in February to ban North Korean coal imports, iron imports have surged and total trade rose by 10.5 per cent in the first half of the year, to US$2.55 billion.  And economic reforms made in 2011 have taken hold, letting factory managers set salaries, find their own suppliers, and hire and fire workers. Farming collectives have been replaced by a family-based management system, which has led to greater harvests. Pyongyang has even come to tolerate private enterprise on a limited basis.

The results are striking. Street vendors, once rare, are now a common sight in Pyongyang. Some neighbourhoods have new luxury high-rises, modern supermarkets, fashionable shops as well as streets busy with Mercedes-Benzes and BMWs. Although the government denies having abandoned the old socialist system, the evidence is undeniable: By some estimates, the private sector now accounts for up to half of GDP.

Meanwhile, given the country's still-widespread impoverishment, simple improvements in farming and natural-disaster management are enough to yield significant new growth. Last year's strong GDP gains were due largely to recovery from a bad drought in 2015.

For North Koreans, rising living standards are obviously a good thing. The problem is that the economy still has plenty of room to grow before further progress will require the removal of trade curbs. That means it could be years before new sanctions would hurt enough to cause a significant change in behaviour. Until then, the nation's ideology of self-reliance, known as juche, seems almost plausible.


A textile mill in North Korea. Economic reforms made in 2011 have taken hold in the country, allowing factory managers to set salaries, find their own suppliers, and hire and fire workers. PHOTO: REUTERS

North Korea's leader Kim Jong Un looks to be fashioning himself after South Korea's Park Chung Hee or China's Deng Xiaoping - that is, as an iron-fisted economic reformist. Despite rampant human rights violations, Park still stands tall in the memory of many South Koreans for bringing the country into economic maturity. Deng is largely responsible for turning China into the economic powerhouse that it is today. It's easy to imagine that if Mr Kim's nuclear arsenal keeps the US military at bay long enough, he's got a shot at a similar legacy. 

Of course, he still faces some enormous challenges, not least being cut off from the global system of trade. Hidebound apparatchiks may object to further reforms, a wealthier public may question the legitimacy of Communist rule in an increasingly capitalist state, and market bubbles could prove destabilising. But faced with excruciating pressure and scant resources, North Korea has nevertheless been steadily achieving its goals for years. Further economic growth is likely to only help.

BLOOMBERG VIEW

• David Volodzko is the national editor for Korea JoongAng Daily.

A version of this article appeared in the print edition of The Straits Times on September 21, 2017, with the headline 'N. Korea's secret weapon? A growing economy'. Print Edition | Subscribe