Kim Kwang Jin on North Korea’s Economy
By Matthew McGrath
On March 26, Kim Kwang Jin, research fellow at the Institute for National Security Strategy, shared his intimate knowledge of the North Korean economy at the third event in NKSC’s “Strategies for Change” lecture series. Before defecting to South Korea, Mr. Kim worked in the insurance division of North Korea Overseas Insurance Bureau (NKOIB)’s North Korea branch generating foreign currency for Kim Jong Il’s “Royal Court Economy.”
Mr. Kim first explained how Kim Il Sung constructed North Korea’s economic system. Kim Il Sung ensured the Korean economy was a “monolithic ideological system” in which the Korean Worker’s Party was the “guiding force for the country, economy, and the people.” It was an environment in which “political incentive was much more important than material incentive.” Modeled after other socialist states, North Korea’s economy was centrally planned, devoid of private ownership, instituted a state-led planning system, and used a mono-banking system. This period of North Korea’s economic development was marked by things like “Pyongyang speed” and the phrase “nothing to envy in the world,” referring to the rapid period of industrialization that North Korea completed in 1974, after just fourteen years. Despite referring to North Korea’s development under Kim Il Sung as a “period of success,” Mr. Kim refrained from saying whether the rapid industrialization of North Korea was a good thing. Beginning in the 1970s, the North Korean economy began to slow down. Mr. Kim noted several contributing factors including flaws in the socialist planning system, the limit of a mobilization economy, intervention from the party leader, and a low incentive environment for workers.
By the time Kim Jong Il became North Korea’s leader, the country’s economy was in crisis. Economic stagnation induced by the socialist economic model implemented by Kim Il Sung was exacerbated by natural disasters in the early 1990s. This period of North Korea’s history was defined by the Arduous March and the collapse of the national economy. Mr. Kim cited research reports that estimated the North Korean economy was reduced to operating at 10 to 20 percent of its full capacity during these years. He explained that Kim Jong Il was forced to develop coping mechanisms to prevent the country from capitulating all together. The need for the regime to survive spawned the adoption of North Korea’s infamous military first policy and the creation of Kim Jong Il’s “Royal Court Economy.” Mr. Kim’s career at North Korea’s branch of ING was just one piece of Kim Jong Il’s revenue generating machine created to ensure the survival of his regime. Mr. Kim noted that ING’s foreign insurance office “never failed to reach the glorious target” of gifting 20 million dollars to Kim Jong Il every year during the Arduous March as a birthday present. He said this money was used to fund Kim Jong Il’s personal enterprises including the pursuit of nuclear weapons technology, a personal slush fund, and gifts to buy loyalty.
Perhaps more importantly, while Kim Jong Il was busy ensuring the survival of his personal interests, the common people of North Korea were developing coping mechanisms of their own. Mr. Kim explained how during this period socialism and capitalism began to exist side-by-side in North Korea and a natural primary market was born. North Korean’s started to say things like “in the daytime we are doing socialism and at night capitalism,” which meant that “everyone had a part-time job,” said Mr. Kim. He also added that people “needed to sell their own possessions and steal things from factories” in order to survive. The North Korean regime also began to experiment with capitalism by introducing the Rajin-Songbong and Shinuiju special economic zones, the Kaesong Industrial Complex, and tourism at the Mt. Kumgang resort. Mr. Kim said that once the regime created general markets and allowed state enterprises to borrow and sell their own products and imported goods, “they [the North Korean regime] couldn’t step back from” or “restore the socialist system, so they started to embrace the market elements in their own control.”
Speaking on the future of North Korea’s economy under Kim Jong Un, Mr. Kim outlined a few of his expectations. Kim Jong Un’s economic policy has been defined by a dual economic and nuclear development approach, as Dr. Pinkston had mentioned during last week’s lecture. Mr. Kim expects there to be “more sale of natural resources, … more labor export, …a stronger self-accounting system, [and]…more free economic zones.” He also expects the regime to ensure its “survival by fostering more internal self-reliance,” describing the situation as one in which on “one hand they [North Korea] want to close their own country on the other hand they need to foster their own survival.” Despite the recent course of action taken by Kim Jong Un and the introduction of some internal reforms, Mr. Kim does not believe the regime can continue to sustain itself for much longer.