Friday, March 28, 2014

North Korea - the Failed Stalinist Utopia

 In the late 1990s, North Korea suffered a major famine that, according to the most recent research, led to between 500,000 and 600,000 deaths. However, starvation has long since ceased to be a fact of life in North Korea.

This year, North Korea enjoyed an exceptionally good harvest, which for the first time in more than two decades will be sufficient to feed the country's entire population. Indeed, according to the recent documents of the FAO (Food and Agriculture Organisation of the United Nations), North Korea's harvest totaled 5.03 million tonnes of grain this year, if converted to the cereal equivalent. To put things in perspective, in the famine years of the late 1990s, the average annual harvest was estimated  to be below the 3 million tonne level.

The CIA fact book estimates North Korea's GDP per capita to be $1,800. Even this estimate is probably excessively optimistic. There is a good reason to believe that the actual per capita GDP of North Korea is in the region of $800-900.

 Yet in recent years, one can see a proliferation of expensive boutiques in the North Korean capital. The North Korean new rich - both corrupt officials and successful black market entrepreneurs - can easily buy world-renowned luxury brands for their friends and family. While theoretically, trade in real estate is illegal, there is a growing property market in Pyongyang and other major cities.A good apartment in Pyongyang, which would cost less $10,000 just 10 years ago would now set you back between $70,000 and $100,000. There is the growing private restaurant trade. These businesses are nominally owned and operated by the state. In practice, however, wealthy private individuals set up restaurants and register them with state agencies in order to disguise the business from the potentially dangerous local and central government. A good meal at such places can cost as much as $15-20 (sometimes more) - enough for an entire family in a countryside village to live for a week or two. Nonetheless, many such restaurants are doing a roaring trade.

Why is North Korea's economy growing? It seems that the single most important factor is the gradual and seemingly unstoppable expansion of the semi-legal private economy. According to the most recent estimates, about 75 percent of North Korean household income now comes not from the state but from assorted private economic activities - activities that are now tacitly tolerated by the government. North Koreans today tend to their very own private plots, run their own food stalls, make clothes, footwear (and even counterfeited Chinese cigarettes) in unofficial workshops, and of course, they trade. This private economy is massive. Strictly speaking, most of these activities remain illegal under North Korean law, but the North Korean government is unable (and perhaps unwilling) to enforce many of the outdated rules and regulations. Indeed, it may have no other choice since if these laws were enforced another round of starvation (and even a massive rebellion) might ensue.

North Korean government's army of bureaucrats are not immune to the allure of the private sector either. Some are passive: They merely take bribes, leaching off the hard work of North Korea's entrepreneurs and private workers. Many, though, utilise their government positions more creatively (and less parasitically) by becoming de-facto entrepreneurs, by using the capital, land, equipment and/or people under its control to make goods and services for profit. Many government-appointed managers at North Korean state factories have basically become private entrepreneurs, and have made themselves rich (by this country's very modest standards).

When it comes to the economy, the market works in North Korea as well as it does in many other parts of the world. It brings growth, but it also brings a large amount of income inequality and social tensions with it too. In spite of North Korea's Stalinist rhetoric, North Korea is now a country in which there are rich and poor - and the gap between these two groups, already large, is widening quickly. A significant part of the population is still malnourished, and the average North Korean family considers itself reasonably affluent if they can afford a new bicycle. So, North Korea is very, very poor indeed. Nonetheless, it is clearly not a starving country anymore.

From here by Andrei Lankov, professor of Korean Studies at Kookmin University, Seoul,  author of "The Real North Korea: Life and Politics in the Failed Stalinist Utopia".

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