North Korea: Economy

Economy

The refusal of the Kim regime, under both father and son, to discard an unworkable ideology and adapt to a changed international environment has destroyed the North Korean economy and the lives of millions of people.

The heavy industry that had been built and reshaped by the Communists in the North after the fall of Japan was quite literally flattened in blanket bombing by the allies during the Korean War (1950-1953). Consequently the Democratic People's Republic of Korea (DPRK) had an opportunity to start all over and build a more workable economy; however, this time around, it was more adamant than ever to rebuild an economy of heavy industry, allowing little room for modern light industry. For consumer goods, the people were on their own, driven to use waste materials to construct their own industries (called local industries) in which to craft as best they could what they needed to consume. However, North Korea is a very mountainous country with less than 20% of arable land (37) and food production is low.

A grotesquely deformed economic structure was thus founded in the 1950's, one that developed heavy industry as quickly as possible to provide the basis for a self-sufficient economy. To establish the unique economy being built, a nativist idea of Juche or self-reliance was developed and fused with Socialism. The labor mobilization campaigns typical of Communist countries took on an especially intense and permanent form, under the indigenous title Chollima (flying horse) Movement. Agriculture was duly collectivized and the new farms were cruelly called cooperatives, not collectives. The 1950's even saw the invention of an indigenous synthetic fiber called vinalon to clothe people on a self-sufficient basis.

The relentless push for heavy industry build up was done solely for the purpose of taking over the South. In the address "Every Effort for the Country's Unification and Independence and for Socialist Construction in the Northern Half of the Republic" Kim Il Sung stated in 1955 that the Workers Party of Korea "set out to build up a powerful, revolutionary democratic base in the northern half of the Republic to serve as the basis for the country's reunification". This missionary line of building the northern half as the revolutionary base for the country's reunification has since been the sine qua non of Juche Socialism in North Korea to this day. It would rarely be said that socialism is built in the northern half for the welfare of the inhabitants there. If improving the well-being of North Koreans is spoken of, it has regularly been for demonstrating the superiority of socialism over capitalism-designed to win the minds of the South Koreans.

In the 1950's there was a burst in economic growth. The work incentives were based primarily on ideological inspiration. To add the euphoria of this novel economically self sufficient state, taxes had been abolished; giving rise to the insipid claim that North Korean's live in a tax-less paradise. However, North Koreans suffer from a "Hidden Tax", which is essentially a turn over or sales tax. It is the difference between the wholesale price and the final price charged on a non-state buyer-a household or a cooperative organization (a.k.a. the people). Thus, virtually the entire turnover taxation falls on the consumers through the goods and services they buy and through cooperative enterprises. Hence, the majority of the state revenue is collected from turnover taxes falling on consumption. The "hidden tax" accounted for 60 percent of the revenues in 1958 (31).

The use of the "Hidden Tax" is a highly misleading indicator of how well the economy is doing. A seemingly improving consumption can be exaggerated because non-essential goods are sold at prices which are arbitrarily stunningly high. Some consumer products were prices so high that they failed to sell. We get a sense of the magnitude of consumer exploitation when Kim Il Sung complained: "I am told that even foodstuffs for daily consumption including sugar and eggs, in addition to textiles do not sell well because they are too expensive". With that he ordered the price of sugar to be reduced from 3 won a kilogram to 2 won a kilogram, he also instructed economic officials to cut the prices of "all other foodstuff which contains suger-buscuits, syrup, tinned fruit, jam, condensed milk etc". The average monthly salary at the time was 45 won. The whole salary would have been needed to buy 22 kilos of sugar (about 48 Lbs.). He also instructed the price of eggs be cut from 22 pennies each to 12 pennies. Even at the lowered price, a family of four would have had to spend 14.4 won a month (32 percent of their salary) to feed one egg to each member a day (5).

Moving into the 1960's, Pyongyang decided to construct additional electric power plants based primarily on thermal energy because although low in operating costs, hydropower plants required the highest investment cost per unit of generating capacity created. Though the north had no petroleum or gas resources they had a surplus of coal. Construction for thermal plants began in the 1960's. However, as soon as the foundation of a thermal branch for an energy industry was established the north found itself unable to smoothly supply the new power plants with coal. Behind this coal shortage was everything that was wrong with Juche socialism-technical obsolescence (they were still using blasting technology for coal mining), shortages of equipment and supplies, shortages of manpower and just general corruption. To get a sense of how inefficient the North Koreans were, the blasting method used by the North Koreans allowed a daily worker production of less than five or six tons of coal in comparison, the coal mines in the United States used continuous coal-mining techniques in which a large machine operated by two workers cut the coal face loose, and scooped up as many as 11 tons of coal every minute...yes minute (6). The woefully low productivity in coal mining manifested itself in numerous other places. Most branches of heavy industry had industrial boilers burning coal, in addition to requiring electric power to operate. Coal heated the cities, it was used directly in the production of raw materials like vinalon, which was the principal raw material in North Korea, production of fertilizer and lastly, coal was crucial for the transportation systems. Thus, the limited coal production threatened the entire economy for the Juche country. By the early 70's the coal crisis proved to be a sign that the Juche socialist economy was near breaking point.

In response, thermal power stations were set to be built on a small scale and hydroelectric power stations on a large scale. The area chosen by Kim Il Sung to mine for coal was in the Anju region. But these mines were notorious for flooding because they were located in low-lying areas and tunnels had to be cut to drain them. However, Kim Il Sung wanted to cut one tunnel for every two pits to save capital. As a result coal mining was ill-designed, under funded, impractical and unusable. The hydropower decision called for the building of dams at every river where power stations had been built. Kim Il Sung wanted it so that every "river is dammed at every neck of the valley along its course" (7). This decision made no sense because the same shortages of capital that hindered coal production would also hinder dam construction and ultimately hurt them in the long run.

Simultaneously, in 1976, North Korea launched a major nature-remaking effort. The nature remaking plan was laid down with five points: 1. the completion of dry-field irrigation, 2. construction of terraced fields, 3. land realignment and improvement, 4. river and forest improvement, 5. tideland reclamation. The Nature-Remaking Effort failed miserably and sucked the economy near dry (fortunately the people were already self-sufficient and inure to years of starvation). The terraced fields symbolized not land realignment or improvement but land destruction. In a country that had already undergone heavy deforestation, at an alarming pace, North Korea saw the disappearance of all trees. In fact the only factory that manufactured matches in the country was having difficulty operating due to shortages of wood (8). When it rained, fields were flooded, soil was washed away and riverbeds kept rising. The 400,000-hectare irrigation project was finished by 1980. It entailed digging some 124,000 wells (9); this means an underground water pumping facility for each 3.2 hectares of dry field! The landscape of the DPRK was brought under the danger of massive destruction as many reservoirs were constructed in haste. When the flood hit in 1995 and 1996, the North and South Hwanghae provinces suffered the most because they were the most irrigated land areas in the country.

Even before crisis for food hit the country in the 1990's (due to great droughts and flood), biweekly food rations were distributed to each family. Each household has a ration card indicating the amount and mixture of grain to which it is entitled. In principle, the food rations were based upon one's age and occupation; in practice, political position and connections play an important role. Preschool children were supposed to receive 200-300 grams a day, primary and secondary students were allowed 400 grams, workers 700 grams, military men 800 and workers in heavy industries were allowed 900 grams a day. 600 grams is equivalent to about three medium bowls of cooked rice or mixed grains. Sometimes the grain would be supplemented with a few vegetables; in addition about 10-20 percent of each daily ration is withheld by the government as a form of reserve for emergency situations. Meat and fish have always been a luxury. During better times the average North Korean might eat meat two or three times a year (when it was distributed to celebrate the birthday of one of the two Kim's). The ration still exists today. Any surplus food goes to building up the military. The maintenance of keeping a million strong army has been slowly but surely sucking the economy dry. It is estimated that about 25 percent of the GNP goes directly to the army. Thus the irony: the very military capability that is supposed to preserve North Korea's national security is exactly the threat to the county's long term security (13).

Signs of malnutrition have existed in the country even as early as the 1960's. Stunted growth in children has been a constant problem, diseases like tuberculosis are widespread. Digestive problems have resulted due to consuming indigestible foods. Tragically the death rate from hunger or disease has risen drastically since the flood in 1995, with estimates ranging from several hundred thousand to 3 million malnutrition related deaths (10). Even more striking is the figures for essentials such as socks and underwear in the DPRK. The total supply of these two items in 1960 was 27.4 million pairs of socks and 16.4 million units of underwear (11). With a population of about 10 million at the time, the average citizen would have 1.6 units of new underwear and 2.7 pairs of new socks per year. Such figures did not make for a booming economy, merely a deprived and distorted one.

Pyongyang, the capital city of North Korea, has buildings but no people, roads but no cars, airports but no airplanes. Pyongyang is so desolate that one might say it is analogous to the American ghost towns which followed the gold rush rather than the most economically prolific place in the entire country. As the clock keeps ticking, North Korea is pushed closer and closer to total economic collapse. Recently, North Korea has been forced to borrow from benevolent nations and as a result relies heavily on foreign aid and is in extreme debt. They are in such debt that it is estimated that its net foreign debt constitutes 96 percent of its GNP in 1998 (12). The self-sufficient ideology of Juche has proved to be self-destructive and the Hermit Kingdom is no longer a glorified, united, independent nation, but a scrambling hermit crab hopelessly swimming against the tides of change.

This web site was created by Anya Bogusky. Last updated April 25, 2005. Email the webmaster at: avbogusk@mtholyoke.edu.