North Korea: Freedom and Free Markets

Of the many opinions to be had on North Korea, communism, and the like, one thing is for certain: last week’s summit has implications that far surpass a simple presidential tweet.

April 27’s Korean summit saw the North Korean Kim Jong Un and South Korean Moon Jae-In meet in the demilitarized zone; the first Northern leader to do so for 65 years. But why now? Like many political happenings nowadays, the reasoning is entirely economic, as Kim Jong Un tries to promote the economic prosperity of his country. The rise of a new, market-modelled North Korea could make big changes to the East Asian economic climate.

History

Korea as a whole was a territory of Japan until the second world war, when it was confiscated by the Soviet Union and the US and split in two. Eventually, once Korea became independent, the two portions were unable to cooperate; each believing that their ideology was the proper one. The Korean War ended with Soviet-influenced communists in the North, while the South was influenced by more Western ideas.

Given its Soviet history, the North Korean government chose the direction of communism, which entailed a focus on infrastructure, industry and military strength. Similarly to Mao’s China, there was a complete lack of consumer goods. North Korea maintained ties with other communist nations, but as the Eastern Bloc and Soviet Union fell, its isolation increased: with 90% of its trade purely involving China.

Now

Within the last several decades, the self-contained economy began to hit its peak potential and was unable to support citizens, many of whom were severely impoverished. The rise of the black market in the 1990s enabled a better quality of life for many.

Once leadership was passed to Un in 2011, he prioritized economic prosperity given the grim status of their GDP per capita (seen below). With his endorsement of more private enterprise, this “black market” has continued to develop legally, allowing an annual growth rate of 1-5% over the last several years (New York Times). The 40% of citizens working in the private sector have attained a decent quality of life; while the remainder continue to live in severe poverty. With this increased acceptance of a somewhat-market-economy comes the desire to lift sanctions imposed by the EU, US, UN and other organizations in order to enable a better standard of living.

Implications

So, North Korea could continue to decentralize its economy. What does this mean for the world economy?

Competitive skilled labour: the emergence of another Asian market will provide a population of workers for companies to outsource to. As many Asian economies have done in the past, manufacturing looks to be a viable comparative advantage for North Korea to exploit.

Export of precious metals: North Korea is estimating to be sitting on approximately $6 trillion USD in mineral resources. With an investment in the proper equipment, the country could spur massive economic growth.

Lowered geopolitical risk: with the truces that Kim Jong Un is pursuing in order to lift sanctions, there will be less uncertainty about war and instability in East Asia. This will increase confidence and investment in the area.

Improved access to the peninsula: with North Korea becoming less isolated, land access to South Korea will now be possible, allowing them to further develop their booming export industry.

Infrastructure: once things are settled, it is likely that other surrounding countries will be expected to pour money into North Korea in order to bring its infrastructure and human health up to speed. If done in an economically sustainable manner, this could provide opportunities international businesses to invest.

How likely?

There are a number of contingencies in North Korea’s choice to be peaceful and participative. Its leaders have been known to go back on their promises in the past. It’s hard to believe that they would shut down their nuclear test site without alternatives. The hesitancy of other militaries such as the US to pull out of the Peninsula could create further uncertainty of this outcome.

To sum it up, it looks like another country has learned the hard way that international trade is the way to success. In an ideal world, treaties and sanction lifts will ensure that North Korea’s economy explodes; but for now, we’ll have to wait Un moment and see.

Caroline Witzel

Author Caroline Witzel

More posts by Caroline Witzel

Leave a Reply