Page last updated at 17:18 GMT, Tuesday, 26 August 2008 18:18 UK

N Korea struggles to control changing economy

By Becky Branford
BBC News

Street vendors in North Korea
Street vendors - normal elsewhere, but a new sight in North Korea

In international media coverage of North Korea, its nuclear programme and the country's extreme form of leader worship often dominate.

Less remarked on are the economic changes being seen in the country - and the political effects they are having.

Despite years of economic crisis, the country's leadership has so far managed to weather the storms.

Nevertheless, key changes in North Koreans' daily lives are leading analysts to wonder how long the leaders in Pyongyang will be able to keep power in one of the world's remaining nominally socialist economies.

'Economic miracle'

At one time, North Korea's centrally planned economy seemed to work well - indeed, in the initial years after the creation of North Korea following World War II, with spectacular results.

It's the level of specificity in the ideology that's the problem for reform... in North Korea they have official guidelines on how to do proper ostrich farming!
Curtis Melvin
Editor, North Korean Economy Watch

The mass mobilisation of the population, along with Soviet and Chinese technical assistance and financial aid, resulted in annual economic growth rates estimated to have reached 20%, even 30%, in the years following the devastating 1950-53 Korean war.

As late as the 1970s, South Korea languished in the shadow of the "economic miracle" north of the border.

In the West, governments fretted that Communist-backed North Korea was putting the Western-backed, capitalist South to shame.

But, as the decades passed, the limitations of Pyongyang's economic strategy - which spurned specialisation and trade in favour of developing "all-round" industrial production and economic "self-reliance" - grew clear.

Soviet aid dwindled and finally dried up totally with the collapse of the USSR in 1991.

'Basket case'

In the 1990s, floods and economic crisis brought a famine feared to have claimed at least one million lives.

North Korea's economy, once hailed as a miracle, was written off as a basket case.

With economic collapse, the power of the North Korean state to dominate every aspect of its citizens' lives was diluted. For example, its "public distribution system"- a food ration system used by the state to punish and reward the populace - broke down.

Meanwhile, hunger drove industrial workers out of the disciplined confines of factory life into the hills and fields, in search for food and fuel.

North Koreans who once relied on the state for basic necessities were now forced to make do on their own.

In the space left by the state, aspects of a market economy emerged.


"I've visited North Korea in 1999, 2004, 2005 and then the last time in October 2007 - so I can see the dynamic of this change," Leonid Petrov, a North Korea historian at the Australian National University, told the BBC.

North Korean girl wearing cap with Nike "swoosh" (pic courtesy North Korean Economy Watch)
Emblems of market capitalism, such as this Nike "swoosh", are increasingly common

"In 1999, even in Pyongyang, people were exhausted, malnourished, feeble... In 2004, the situation was very different - the whole city looked like one big market."

"There was activity everywhere, on streets, under the bridges, from the windows of apartments," he said.

Analysts agree that the North Korean state responded to this change in various ways.

Some attempts were made to capitalise from it, such as an amendment to the constitution in 1998, pledging to guarantee the proceeds from some types of private economic activity.

In July 2002, the government also unveiled a series of measures bringing prices and wages closer to black-market levels, and introducing additional material incentives and autonomy for industrial workers and managers.

In areas designated "special economic zones", North Korea now invites foreign investors - mainly South Korean - to take advantage of cheap North Korean labour.

Meanwhile, at the northern frontier with China, trade is thriving, and bribes can often buy passage across the border for North Koreans wishing to buy goods, visit family or flee the country.

Chinese and Russian traders now move more or less freely around the country, though North Koreans remain subject to stringent travel restrictions.

Leadership backtracks

But although the 2002 measures were heralded by some watchers as the beginning of the end of centrally planned economy, most agree that reforms have not been introduced systematically - and many question the North Korean leadership's true commitment to such reforms.

North Korean man paints a propaganda poster celebrating 60 years since the founding of the Workers' Party (pic courtesy North Korean Economy Watch)
North Korea has long relied on propaganda to mobilise the population

"There have been a lot of changes, but they are very patchy - it's still not a transitional economy" such as the East European economies in the 1990s, said Mr Petrov.

Rather, he said, "certain segments or layers are allowed to adopt some market-driven mechanisms - but the majority of the economy is being artificially preserved" as a planned economy.

Indeed, some measures can even be seen as trying to "put the genie back in the bottle" and "undo" some of the changes, he said.

Trade has been swept off the streets into often huge farmers' markets (known as "jangmadang" in Korean) which are easier to regulate.

In these markets, new rules forbid all men, and women under either 46 or 49 (depending on which report you read), from trading - in an attempt, analysts say, to try to force younger women and men back into official, state-controlled activity, such as working in state-owned factories.

And the government has attempted to rein in this grassroots activity in other ways - by prohibiting trade in certain key foodstuffs, for example, and tightening up travel controls.

Pyongyang's challenge

The crux of the problem is the need to "manage the transition without losing power", said Curtis Melvin, who runs the blog North Korean Economy Watch and has visited the country twice.

An economic liberalisation would imply, at least to some extent, a loosening of political control. But leaders are worried that new ideas, and new ways of doing things, could strike at the heart of North Korea's ideology.

"It's the level of specificity in the ideology that's the problem for reform," said Mr Melvin.

"If your guiding principles were vague and adaptable, it would be easier - but in North Korea they have official guidelines on how to do proper ostrich farming! How can you now say, in fact that's not the right way to do ostrich farming?

Loyalty 'eroded'

Despite the regime's attempts to apply brakes to the process of change in North Korea, most analysts agree that the dynamic of change is now impossible to reverse.

Gala in Kim Il Sung square, Pyongyang (pic courtesy North Korean Economy Watch)
It is impossible to resist publicly the regime. The control and suppression are beyond our imagination.
Park In-ho

And the changes are having social impacts. Protests have been reported in areas where authorities have tried to enforce controls on the market activity.

North Koreans now have access to imported products, such as South Korean soap operas, which offer an alternative view of history and challenge their domestic orthodoxies.

Most important, many analysts agree, is the effect the changes are having on people's loyalty to the regime.

For example, now that people no longer rely on the state for their basic necessities, accounts suggest they are less likely to attend indoctrination sessions on Saturdays, reports Mr Petrov, sending an apology in the form of money or food and attending the local market instead.

There has been, says Mr Melvin, "a complete breakdown in the social contract.

"North Koreans were taught their whole lives that the state would provide... now they have to take care of themselves."

'Control and suppression'

Analysts say that the regime retains enough social controls to make real political liberalisation unlikely in the near future.

Park In-ho works for Daily NK, a news website that sources stories from North Korean refugees and is staunchly opposed to the North Korean leadership.

"A mistake of just one word can lead a North Korean to be publicly executed in this society," he told the BBC.

"It is impossible to resist publicly the regime. The control and suppression are beyond our imagination. Slaughter... is still being carried out in North Korea."

All pictures courtesy of Curtis Melvin, North Korean Economy Watch

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