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The Story Of Economic Survival Of The Isolated Nation of North Korea

The country with constraints! A country that might have been a topic of discussion for many of your conversations! Well, it sure has been of mine!


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Spreeha Dutta

3 years ago | 7 min read

You might be familiar that North Korea also known as the DPRK (Democratic People’s Republic of Korea) under the supreme leadership of Kim Jong-un, has a communist government at the center.

And just like a regular feature of any communist government, this country too has a command economy in place which is closely supervised and controlled by the central government. In other words, it is the government and not individual enterprises that decide the production, allocation, and even the price of goods in the market.

In fact, the UN has imposed several restrictions and sanctions on North Korea. A very valid question that may come to your mind as a follow up of this fact is that “How does the hermit nation survive despite being isolated from the rest of the world?”

But before I answer this question, it is of some significance that we briefly understand the background of North Korea to shed light on the fact, “Why is it isolated in the first place?” But if you are only interested in knowing how the economy survives, you can just skip to the second half of the article. 😅

Why Is North Korea A Hermit Nation?🤔 A Brief Background Into Its History

After World War II ended, USSR (Soviet Russia) took control of North Korea and the USA took control of South Korea. Now it is no mystery that USSR and the USA share conflicting ideologies.

Though the initial plan was to reunify the northern and southern regions of the Korean peninsula once again, that was never carried out in action. Once the USA and USSR troops withdrew, both North Korea and South Korea appointed their favorable leaders.

North Korea appointed Kim II-Sung as their leader whose aim was to capture South Korea and rule over the entire Korean peninsula. This led to the Korean war from 1950 to 1953. North Korea was unsuccessful in the war with most countries of the world apart from Russia supporting the south. With that Kim II-Sung’s dream of reigning over South Korea came to an end.

💡 As a repercussion of the war, North Korea went on to adopt policies dictated by Songun (the “military first” ideology of North Korea that every societal problem can be solved by giving priority to the military).
💡This stagnated the economy of North Korea since there was no focus given on innovation and industrial output.
💡Shunned by most of the world, its economy has worsened ever since. On the other hand, South Korea has created one of the most advanced economies of the world for itself.

Economy Of North Korea (Source: Wikipedia)
Economy Of North Korea (Source: Wikipedia)

The Timeline of Downturn of North Korea’s Economy :

1.Loss of resources from the Korean War (1950–1953): The country had suffered the loss of huge amounts of resources from the Korean War after which it adopted a policy of self-reliance.

2. Foreign loans: It focused on the development of heavy industries and made investments in iron, steel, cement, and other machinery. Thus it had to take foreign loans from multiple nations to import materials and set up facilities.

3. Several sanctions since 1958: Innumerous restrictions were placed throughout the years by the UN on various countries that prevented them from carrying out trade with the hermit nation.

Sanctions on North Korea (Source: The Economist)
Sanctions on North Korea (Source: The Economist)

4. The Oil Shock of the 1970s: The oil shock dealt a huge blow to the country since petroleum is one of its major imports. The rapidly increasing price of petroleum adversely affected the economy.

5. A huge trade deficit that began to grow wider from the 1970s: The cost and demand for North Korea’s main exports went down while it had to pay more for imports. This slowed down the economy even further. The country had a negative trade balance of $2.03 billion as of 2018.

Between 1990 to 1998, the average annual growth rate of North Korea went as low -4.1%.

6. Natural disasters in the 1990s: A series of natural disasters rocked North Korea in the 1990s that led the country into a food crisis. The government did not have enough resources to feed its people and tend to their basic needs.

7. Huge spending on nuclearization and military: In 2016, North Korea spent $4 billion or as much as 23% of its GDP on defense. These investments further hampered the economic development of the country.

8. The COVID-19 outbreak in 2020: In the early days of the pandemic, trading significantly reduced between North Korea and its chief trading partner China. This proved to be detrimental to the economy of North Korea that is barely able to feed its people. This caused a sharp spike in the prices of essentials with the rural areas most affected.

A fact to note: It was during the food crisis of the 1990s that several countries had stepped in to provide aid to the people of North Korea. Its people till today remain at the mercy of aid from other countries with its external debt a harrowing amount.

If North Korea’s economy is in such dire straits, how is it faring amid COVID-19?

North Korea was one of the first countries to seal its border with China. This is the reason why to date there is only one suspected case of coronavirus in the country. The COVID-19 outbreak reduced trading significantly between North Korea and its chief trading partner China.

This proved to be detrimental to the economy of North Korea that is barely able to feed its people. This has caused a sharp spike in the prices of essentials with the rural areas most affected.

On the 25th of March, the central government asked all establishments like schools, factories, and local security departments to arrange food for an entire month at their own expense as the government wouldn’t be able to provide food rations because of the deteriorating economic situation. However, this did not apply to officials at the top and security agencies of the state.

But surprisingly despite it all, its GDP has been steadily growing since 2015……How does North Korea get away with it?

1.Playing the victim card before the Security Council: North Korea highlights the “livelihood clause” for its people to seek concessions and aid before the Security Council. China, a very strong ally of North Korea always uses its position as a permanent member of the UNSC to veto sanctions meant for North Korea. This helps buy time for Pyongyang, the capital of North Korea.

2. Booming Cyber Crimes: North Korea is responsible for SWIFT frauds that siphon off as much as $860 million each year by indulging in hacking, electronic heists, online gambling, and blackmail. (SWIFT is an alphanumeric code that is used to transfer money between two banks.)

North Korean hacking group Lazarus was responsible for pumping out $81 million from the Bangladesh central bank. It has also been responsible for many high profile heists on banks in Ecuador, Philippines, and Vietnam.

SWIFT bank attacks connected to the North Korean hacking group (Source: Google)
SWIFT bank attacks connected to the North Korean hacking group (Source: Google)

3. North Korea is the only country in the world where slavery is still legal: North Korea provides a steady supply of slaves as forced laborers to China and a handful of European countries like Germany, Italy, Austria, Poland to name a few.

These laborers are overworked and in return, they receive a feeble amount of pay since 90% of their income is sent back to the North Korean government. The amount of revenue the communist government generates from this market each year is around $2 billion.

4. Countries not adhering to UN sanctions: A host of countries like Brazil, China, Egypt, Germany, India, Iran, Russia, Singapore, Sri Lanka, the United Arab Emirates have been carrying out trade with North Korea.

This is in ignorance with the restrictions placed by the UN on North Korea for the non-proliferation of nuclear weapons. North Korea reportedly possesses nuclear weapons that are capable of hitting the USA.

5. North Korea is a trafficker of illegal drugs, cigarettes, ivory, and pharmaceuticals.

6. A 2014 report also states that printing counterfeit cash has always been central to North Korea’s economy.

7. Another illicit source of income for North Korea comes from selling weapons, arms, and ammunition in the black market.

What’s the latest from the country with surprises?

Surprisingly, the food prices in North Korea have been stable since the last few weeks as per an August 11, 2020 report by 38north. The reason for this can be attributed to commercial exports and aid received from China, although there are no exact figures about how much of the exports are due to trade and how much from aid.

Favorable weather and conducive conditions for agriculture may be another reason for the current price stability.

North  Korea’s staple food imports from China, January 2017 to June 2020, in  USD terms. Data compiled by Stephan Haggard and Liuya Zhang. Source:  China Custom Statistics & EPS Database
North Korea’s staple food imports from China, January 2017 to June 2020, in USD terms. Data compiled by Stephan Haggard and Liuya Zhang. Source: China Custom Statistics & EPS Database

Despite being bound by numerous sanctions, the country is much more internationally connected than most of us think it to be. But if the US allies continue to flout the UNSC norms and carry out trade with North Korea, they stand a chance of alienating their ties with the US.

Also, North Korea enjoys the support of China and Russia (both permanent members of the UNSC) which is why it is able to moderate the blows dealt by the sanctions.

However, this does stress the need that alternatives methods need to be worked out for denuclearization of the region of North Korea as sanctions and isolation alone don’t seem to produce the desired results.

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Spreeha Dutta

Navigating my way through life's beautiful stories!


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