[Vol.28 No.3] A Study on North Korea’s Economic System: Actual Conditions & Evaluation

North Korean Economy Team(82-2-759-5468)

Author: Moon-Soo Yang(University of North Korea), Song Lim(Bank of Korea)

 The main purpose of this study is to understand and evaluate actual conditions in the North Korean economic system. In particular, the analysis focuses on trends and current levels after a period of economic hardship, but it approaches it from a perspective where it compares it with common experiences seen in socialist countries regarding economic reform.

 In order to overcome the chaos caused by the economic difficulties known as the “Arduous March” or the “March of Suffering” that occurred in the middle of the 1990s, North Korea implemented the “7.1 New Economic Management Policy” under Kim Jong-il and the “Our Style Economic Management Methods” under Kim Jong-un. In addition, the North Korean government has gradually modified its economic theories to justify and rationalize these reform policies, especially the introduction of market economic factors.

 In this regard, an evaluation by experts has concluded that North Korea’s level of economic reform has continued to rise every 10 years. As of the 2010s, it was found that the official system was in a transition phase between the improved plan and market socialism, and though it was actually in this transition phase, it was much closer to market socialism than to the improved plan.

 In addition, in the current economic system in North Korea both similarities and differences can be observed at the same time concerning phenomena that are normally displayed at various stages of economic reform in socialist nations. In the former case, it was emphasized that the contents of North Korean reforms are similar to those seen in other socialist states, especially in terms of the resource allocation mechanism that was shifting from a plan-oriented mechanism to a parallel “plan and market” mechanism. In the latter case, North Korea's peculiarity stands out because of its political aspects, as it has a third-generation hereditary succession process. The evaluation by experts highlighted the inequality of reform by sector, such as prices and ownership, and the nature of ex post facto approval for changes that had already occurred.

 In addition, the background to economic and financial difficulties is important for the formation of these plans and for market coexistence systems. However, the policy of "self-reliance" peculiar to North Korea is also a core factor that cannot be ignored. In particular, it is important that institutions, provinces, companies, individuals, and the government, which together form the five core economic actors of the “self-reliance” policy, share an interest in the progress of marketization. The current economic system, which was formed through 30 years of trial and error, and which has evolved since the economic crisis, has become a structural characteristic rather than a temporary one, and an irreversible characteristic, too.

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