The Economy of the DPRK: Myth and Reality

North Korea is often painted as an economic hellhole whose people are in a perpetual state of poverty due to the economic model.  The dominant narrative in the Western press is that the DPRK is on the verge of collapse [1]. What commentators lack in hard data to prove this, they often try to invent. There is no way, it is suggested, that the economy could ever recover on its own from the combined economic, financial and energy crisis that hit it in the 1990s [2]. And indeed, though it remains difficult to quantify the damage done by the collapse of the Soviet Union, we know that the DPRK was then suddenly confronted with the loss of important export markets and a crippling reduction of fuel and gas imports. These two factors triggered a cataclysmic chain reaction that severely impacted the Korean economy.

Perhaps the most dramatic aspect of the disaster was the collapse of food production. The sudden shortages of fuel, fertilizer and machinery, compounded by “a series of severe natural disasters” from 1995 to 1997 [3]. This made the DPRK tumble from a self-reported food surplus in the 1980s to a severe food crisis in the 1990s. Figures provided to the Food and Agricultural Organization’s (FAO’s) investigative team indicate production dipping from “a plateau of 6 million tons” of grain equivalent from 1985 to 1990 to about 3.5 million tons in 1995 and less than 3 million in 1996 and 1997 [4]. Food requirements for the roughly 23 million-strong population were almost 5 million tons [5]. The chain of events left the DPRK no choice but to make a formal appeal for aid to the international community in August 1995.

Sadly, this appeal went largely unanswered. The international community largely reacted to it in a hostile manner. A barrage of sanctions also seriously disrupted and continues to disrupt the DPRK’s ability to conduct international trade, making it even more difficult for the country to get back on its feet. Besides the unilateral sanctions regimes that the US and its allies have put in place since the early days of the Cold War [6], the country also has had to face a series of multilateral sanctions imposed by UN Security Council resolutions in 2006, 2009 and 2013 [7]. The bulk of these are financial and trade sanctions, as well as travel bans for targeted officials.

Financial sanctions curtail access to the global financial system by targeting entities or individuals engaging in certain prohibited transactions with or for the DPRK. The professed intention is to prevent specific transactions from taking place, particularly those related to the DPRK’s nuclear weapons program, or alleged money-laundering activities. In practice, however, the stakes of even a false alarm can be so high that banks might well shun even the most innocuous transactions with the DPRK. In the Banco Delta Asia (BDA) affair, for instance, public suspicion by the US Treasury that a Macanese bank might be money-laundering and distributing counterfeit dollars for the DPRK destroyed the bank’s reputation and triggered a massive bank run even before local authorities could launch a proper investigation [8]. An independent audit commissioned by the Macanese government from Ernst & Young found the bank to be clean of any major violations [9], but the US Treasury nonetheless blacklisted BDA in 2007, triggering suspicions that it was simply trying to make an example of the bank [10].

Whatever the case, the blacklisting effectively prevented BDA from conducting transactions in US dollars or maintaining ties with US entities, and caused two dozen banks (including institutions in China, Japan, Mongolia, Vietnam and Singapore) to sever ties with the DPRK for fear of suffering a similar fate [11]. Veiled threats by the US Treasury also seem to be behind the Bank of China’s closure in 2013 of the DPRK Foreign Trade Bank’s account [12] and possibly had an indirect influence on other major Chinese banks’ cessation of all cross-border cash transfers with the DPRK (regardless of the nature of the business) [13]. As we can see, financial sanctions effectively contribute to making the DPRK an “untouchable” in an economic sense, greatly affecting its ability to earn foreign currency by conducting legitimate international trade or attracting foreign direct investment. Obviously, shortages of such foreign currency have grave developmental consequences, because they limit vital and urgently needed imports of fuel, food, machinery, medicine, and so on, “stunting” both the economy and the general population [14].

Trade sanctions also have a more disruptive effect than their wording suggests. Although the sanctions were ostensibly designed to prevent DPRK imports of nuclear, missile or weapons-related goods and technology, in practice they had the effect of blocking DPRK imports of a whole range of goods and technology that are classified as “dual-use,” which means that their civilian use could potentially be adapted for military purposes. The result is that the “dual-use” lists prohibit imports of equipment, machinery and materials that are in practice essential for the development of a modern economy, impeding the development of a broad range of industries such as aeronautics, telecommunications as well as the chemical and IT sectors [15]. In his book “A Capitalist in North Korea,” Swiss businessman Felix Abt explained, for instance, how a $20 million project to renew Pyongyang’s water supply and drainage system fell through, simply because the Kuwaiti investor was concerned that importing the software needed for the project could run afoul of US dual-use sanctions against the DPRK [16]. Abt further recalls the role UN sanctions played in preventing his pharmaceutical company from importing the chemicals it needed for a healthcare project in the DPRK countryside. [17].

Given the formidable obstacles, the international press has drawn the conclusion first that the DPRK is one of the poorest countries in the world [18]. But it has also concluded that its misery is almost entirely the result of systematic mismanagement [19], and that it will go from bad to worse as long as it refuses to implement liberal reforms [20].  These assertions, which have been repeated throughout the period of six decades of sanctions, are rarely supported by hard data. On the contrary, they run counter to the little reliable evidence available.

It is because of imperialist sanctions, not socialism, that north Korea’s economy is in its current state. To prove this, we need only to look at north Korea prior to the institution of the bulk of these sanctions. Barbara Demick, an anti-DPRK author admits that “the country once had an enviable healthcare system, “with a network of nearly 45,000 family practitioners. Some 800 hospitals and 1,000 clinics were almost free of charge for patients. They still are, but you don’t get much at the hospital these days. The school system that once allowed North Korea’s founder Kim Il-Sung (father of the current leader) to boast his country was the first in Asia to eliminate illiteracy has now collapsed. Students have no books, no paper, no pencils.” [21]. North Korea, like other socialist countries, had eliminated illiteracy! By way of comparison, the United States is the richest country in the history of the world. Despite this, it still has not used its vast wealth to ensure that all of its citizens can read. In Alabama alone, 1 in 4 citizens are functionally illiterate [22]. This shows the distinct priorities of the DPRK and the United States. The DPRK is a socialist country, and as such has a vested interest in providing for the needs of its people. The United States, however, is more concerned with advancing its own interests. It would rather starve Koreans to death via sanctions than provide all of its own citizens the necessities of life.

The United States is motivated not by a desire to help the Korean people, but to crush communism. After a visit to the DPRK in 1946, Harry Truman’s friend Edwin Pauley wrote that,

Communism in Korea could get off to a better start than practically anywhere else in the world. The Japanese owned…all of the major industries and natural resources.. The Communist Party…will have acquired them without any work in developing them” [23].

The United States government is here admitting that communism has the potential to be a massive success. They embarked on a concentrated campaign to strangle the Korean economy in order to destroy the foundations for communism that were present in the North. The sanctions are merely another aspect of this plan. The United States wants to present capitalism as the only system possible, and it will do anything-including genocide-to accomplish that goal.

North Korea and other socialisms, however, shatter the US narrative. The DPRK still guarantees universal healthcare to its people, which is something the United States also does not do. Despite the imperialist onslaught, the DPRK is doing its level best to provide for its people. The values of socialism-solidarity, cooperation, and collective unity-are on full display.

This can be seen in the DPRK’s attitude towards education. To quote one eyewitness visitor,

“Education is highly valued in north Korea. Education at all levels is free for all citizens. We toured the Grand People’s Study Hall, a huge seven-story library, open to all people. Not only do they let you borrow books and music and use the computer, you can hear lectures on all different topics. Then there was the Grand Children’s Palace where children come after school for activities like dancing, singing, artwork and sports. There are eight floors, more than 100 rooms and over 100 teaching staff. Places like this exist in each province, although this is the largest one in the country” [24].

In fact, the DPRK was at one time more economically developed than its southern neighbor.  According to Japan Focus, “by the early 1960’s, well before South Korea’s industrial takeoff, the North had impressively re-industrialized. This difference cannot be explained by foreign aid alone, which was far greater in absolute terms in the South than in the North. The Regime’s ability to  mobilize…the population…was indispensable” [25]. It was explicitly socialism, with its emphasis on cooperation, that allowed the north Korean economy to recover following the war.

Socialism in the DPRK has lead to numerous other incredible feats which bettered the lives of the working masses. In her book Everyday Life in the North Korean Revolution, provides statistics which show that “Already in 1949, per capita national income had more than doubled since 1945” [26]. She goes on to say that “Electricity was extended to 29,850 households from 16,513 households” [27]. The revolution in Korea materially benefited the people, lifting them from extreme poverty and improving their quality of life.

This improvement continues today. Education is free and compulsory for 11 years, with plenty of opportunity for further education for those who wish to pursue it. The means of production are overwhelmingly in public ownership (the exceptions relating to foreign and south Korean investment), and so the vast majority of factories, farms, and so on exist solely and exclusively to serve the people’s needs [28].

Democratic Korea enjoyed a comparable standard of living to their neighbors in the south well into the 1980s. [29]. Living spartan lifestyles, the Korean people were nearly self-sufficient in terms of light industry and consumer goods by 1967, with goods like textiles, underwear, socks, shoes, and alcoholic beverages becoming increasingly available for every citizen [30].

Industry in the north grew at 25 percent per annum in the 10 years following the Korean War and at 14 percent from 1965 to 1978. US officials were greatly concerned about south Korea’s economy, which lagged far behind, raising doubts about the merits of Washington’s right-wing, pro-capitalist, neo-colonial project in Korea. By 1980, the north Korean capital, Pyongyang, was one of the best run, most efficient cities in Asia. Seoul, on the other hand, was a vast warren “of sweatshops to make Dante or Engels faint,” complete with a teeming population of homeless [31].

Eager to present the south’s economic system as superior to the north’s, Washington allowed the ROK to pursue a vigorous program of industrial planning behind a wall of tariffs and subsidies, while, at the same time, offering south Korean industry access to the world market. To help matters along, huge dollops of aid were poured into the country. Japan delivered $800 million in grants and loans as compensation for 35 years of colonial domination, at a time south Korea’s exports were only $200 million. And in return for dispatching 50,000 soldiers to fight on the US-side in Vietnam, Washington handed over $1 billion in mercenary payments from 1965 to 1970, equal to eight percent of the south’s GDP. South Korean engineering firms were given contracts with the US military, and Vietnam soaked up almost all of the south’s steel exports (produced by an integrated steel mill built with the $800 million aid injection from Japan.) [32].

At the same time, the north was hobbled by miscalculations. Pyongyang angered the Soviets in the early 60s by siding with China in the Sino-Soviet split. Moscow cut off aid in retaliation. While Soviet aid had never been as generous as the aid the US and Japan had showered upon the south, it had made a difference, and its interruption (it was later restored) slowed the north’s economic growth. Then, in the 70s, Pyongyang ran into debt trouble when it began buying turnkey factories from the West [33].

As a result of the south’s industrial planning, its import-substitution model, its high-tariff barriers, and injections of aid from the US and Japan, the ROK economy was steaming ahead of the north’s by the mid-80s. Still, while growth had slowed in the north, the difference in standard of living between the average south Korean and the average north Korean was never as great as south Korea’s backers would have you believe. And the north had its attractions. While consumer goods were scarce, daily necessities were available in abundance at subsidized prices. Cumings points to a CIA report that acknowledges (almost grudgingly, he says) the north’s various achievements: “compassionate care for children in general and war orphans in particular; ‘radical change’ in the position of women; genuinely free housing, free health care, and preventive medicine; and infant mortality and life expectancy rates comparable to the most advanced countries until the recent famine” [34].

Lakov, a self-described right-wing economist, also notes the achievements of the DPRK in the face of this economic chaos. He writes,

“Life expectancy in north Korea peaked at 72, only marginally lower than the life expectancy in the much more prosperous south. According to the 2008 census results, life expectancy at birth seems to be about 69 years nowadays. This is some ten years lower than in the south, but still impressive for such a poor country.

In 2008 child mortality in North Korea was estimated by the World Health Organization at 45 per 1,000 live births. This is a bit higher than China….

Chad and North Korea have roughly the same levels of per capita GDP” [35].

Even the U.S. government cannot deny the accomplishments of Korean socialism. Written behind closed doors in 1990, a declassified CIA report admits that the DPRK administers outstanding social services for children, guarantees totally free housing to citizens, provides a highly successful country-wide public preventative medical program, oversees a police force with an extremely low level of corruption and has achieved high life expectancy and low infant mortality rates [36].

The same CIA report points out that there are more college-educated women than men in the DPRK, and admits that the Workers Party of Korea legitimately committed to ‘radical change’ in Korean gender relations. The facts support their conclusion: women are permitted to serve in the military, state child-care programs allow women to have independent careers outside of the house and a significant number of high level political positions are occupied by women, including representation in the Supreme People’s Assembly [37].

The DPRK’s remarkable public health care system – which provides unconditional universal coverage for citizens – continues to perform tremendously well, even in the midst of crippling U.S. sanctions. Just last year in a report to the United Nations on the North Korean health care system, Dr. Margaret Chan, the Director-General of the World Health Organization (WHO), called it “something which most other developing countries would envy.” She pointed out that the “DPRK has no lack of doctors and nurses,” and praised the system for its “very elaborate health infrastructure, starting from the central to the provincial to the district level” [38].

Today, under Kim Jong-un, North Korea’s capital city is in fact thriving. Even South Korean tabloids admit that this is the case. One writes,

“Three years after Kim Jong-un came to power in North Korea, the streets of Pyongyang look much different. The streets of the city are lined with new 40-floor skyscrapers, and taxis drive down them. Before, they had been dark at night, but now they are illuminated by bright lights, while smartphone-toting women are dressed more smartly than before. The unanimous testimony of recent visitors to Pyongyang is that the North Korean city has doffed its drab garb in favor of a coat of many colors.“It was my first visit to North Korea in five years, and I was shocked by how much the atmosphere had changed,” Jang Yong-cheol, permanent director for the Isang Yun Peace Foundation, told the Hankyoreh on Dec. 16. Jang was in Pyongyang for five days in October” [39].

It should also be mentioned that, despite facing isolation and genocidal sanctions, the DPRK has come to the aid of African national liberation movements. The DPRK participated in combat operations alongside the People’s Armed Forces for the liberation of Angola. It aided the African Congress in the struggle against Apartheid and provided assistance to countries such as Ethiopia [40]. Like Cuba, the DPRK’s socialist internationalism has improved the lives of many around the world.

All of this shows that socialism can in fact be a success, and that imperialism is responsible for the deficiencies of the north Korean economy. The north Korean people are not suffering under socialism. In fact, they have made remarkable achievements under the circumstances. This is a testament to the tremendous power of socialist economics.

  1. Rüdiger Frank, “A Question of Interpretation: Statistics From and About North Korea,”38 North, Washington, D.C.: U.S.-Korea Institute at SAIS, Johns Hopkins University, July 16, 2012.
  2.  Evan Ramstad, “North Korea Strains Under New Pressures”,The Wall Street Journal, March 30, 2010. Retrieved on April 10, 2014; Geoffrey Cain, “North Korea’s Impending Collapse: 3 Grim Scenarios”,Global Post, September 28, 2013. Doug Bandow, “The Complex Calculus of a North Korean Collapse”,The National Interest, January 9, 2014.
  3. Soo-bin Park, “The North Korea Economy: Current Issues and Prospects,” Department of Economics, Carleton University (2004).
  4. World Food Programme. Office of Evaluation, Full Report of the Evaluation of DPRK EMOPs 5959.00 and 5959.01 “Emergency Assistance to Vulnerable Groups,” March 20 to April 10, 2000, p.1.
  5. Food and Agricultural Organization/World Food Programme,Crop and Food Security Assessment Mission to the Democratic People’s Republic of Korea, November 12, 2012, p.10.
  6. Food and Agricultural Organization/World Food Programme,Crop and Food Supply Assessment Mission to the Democratic People’s Republic of Korea, June 25, 1998.
  7. U.S. Department of Treasury, Office of Foreign Assets Control, An Overview of Sanctions with Respect to North Korea, May 6, 2011.
  8. “Breaking the Bank,” The Economist, September 22, 2005.
  9. “Ernst & Young says Macao-based BDA clean, cites minor faults,” RIA Novosti, April 18, 2007.
  10. Ronda Hauben, “Behind the Blacklisting of Banco Delta Asia,” Ohmynews, May 25, 2007. John McGlynn, John McGlynn, “North Korean Criminality Examined: the US Case. Part I,” Japan Focus, May 18, 2007. Id., “Financial Sanctions and North Korea: In Search of the Evidence of Currency Counterfeiting and Money Laundering Part II,” July 7, 2007; Id., “Banco Delta Asia, North Korea’s Frozen Funds and US Undermining of the Six-Party Talks: Obstacles to a Solution. Part III,” Japan Focus, June 9, 2007.
  11. Daniel L. Glaser, testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, September 12, 2006.
  12. Simon Rabinovitch and Simon Mundy, “China reduces banking lifeline to North Korea,” Financial Times, May 7, 2013.
  13. Simon Rabinovitch, “China banks rein in support for North Korea,” Financial Times, May 13, 2013.
  14. Rüdiger Frank, “The Political Economy of Sanctions against North Korea,”Asian Perspective, Vol. 30, No. 3, 2006, at 5-36. Retrieved on April 10, 2014.
  15. Ibid.
  16.  Chad O’Caroll, “How Sanctions Stop Legitimate North Korean Trade,” NK News, February 18, 2013. http://www.nknews.org/2013/02/how-sanctions-stop-legitimate-north-korean-trade
  17. Ibid.
  18. Michelle A Vu, “Living conditions in North Korea ‘very bad’,”Christian Today, March 31, 2009; Harry de Quetteville, “Enjoy your stay… at North Korean Embassy,”Telegraph, April 5, 2008.
  19. “Where the sun sinks in the east,”The Economist, August 11, 2012 (print edition). Retrieved on April 10, 2014; Nicholas Eberstadt, “The economics of state failure in North Korea,” American Enterprise Institute, May 23, 2012.
  20. Ibid.
  21. https://www.theguardian.com/world/2010/jul/17/north-korea-famine-fears
  22. http://literacywa.org/literacy-facts-2/
  23. https://thelmaandlouisegointernational.wordpress.com/2014/03/10/communism-in-korea-could-get-off-to-a-better-start-than-practically-anywhere-else-in-the-world-edwin-w-pauley-trumans-ambassador-investigating-reparations-traveling-in-the-russian-zone-o/
  24. http://www.fightbacknews.org/2004/03summer/korea.htm
  25. http://apjjf.org/-Charles-K.-Armstrong/3460/article.html
  26. https://books.google.com/books?id=kes9AAAAQBAJ&pg=PT215&lpg=PT215&dq=Already+in+1949,+per+capita+national+income+had+more+than+doubled+since+1945&source=bl&ots=vJFNIvIP_-&sig=s5lu5JkibUsIZ9ALY9NSKr9T1LE&hl=en&sa=X&ved=0ahUKEwjj5-DhyKTTAhVC9IMKHdHEAacQ6AEIJTAA#v=onepage&q=Already%20in%201949%2C%20per%20capita%20national%20income%20had%20more%20than%20doubled%20sinc
  27. Ibid.
  28. “North Korean Economy Records Positive Growth for Two Consecutive Years”. The Institute for Far Eastern Studies. 17 July 2013.
  29. Ellen Brun, Jacques Hersh, Socialist Korea: A Case Study in the Strategy of Economic Development, 1976, Monthly Review Press, New York and London
  30. Ibid.
  31. Cumings, Op. Cit.
  32. Ibid.
  33. Ibid.
  34. Ibid.
  35. https://books.google.com/books?id=LNpRyIPgi3wC&pg=PA64&lpg=PA64&dq
  36. http://memory.loc.gov/master/frd/frdcstdy/no/northkoreacountr00word/northkoreacountr00word.pdf
  37. Ibid.
  38. “Country Comparison: Life Expectancy at Birth”. CIA World Factbook.
  39. http://english.hani.co.kr/arti/english_edition/e_northkorea/671159.html
  40. http://www.voltairenet.org/article190705.html