Putting Statistics to the May 30th Measure
In the field of North Korea economics, where data is usually fragmented, single data points take on outsize importance. This is what happened with a November 2014 Aljazeera op-ed by Andrei Lankov. Speculating about the likely impact of the “May 30th Measure” (5.30조치), a North Korean government policy that follows the “June 28th Directive” (6.28방침) and is thought to be designed to cede greater autonomy over production and distribution decisions to managers in agriculture and industry, Lankov declared:
There are good reasons to believe that the new system will deliver impressive results. North Korean agriculture, partially freed of statist irrationality, is already doing better than ever. One should expect that industry will start to catch up once capitalist (or if you prefer, “market”) system is introduced formally into the state sector. At the end of the day, this is good news for everybody in and outside North Korea, though one should not expect an overnight transformation.
Clearly Lankov is bullish on the North Korean economy, and since he is an authoritative voice it ended up swaying the field as a whole. Naturally, this raises the question of whether the conclusions reached are reasonable. Are they borne out by the data?
Earlier this year, economist Lee Seok of the Korean Development Institute (KDI) looked at the statistical condition of the North Korean economy in 2014, compared it with the period 2010-2013, and gave an outlook for 2015. His analysis, published in an extended introduction [총론] to the January 2015 edition of the monthly KDI Bukhan Gyeongje Ribyu [KDI Review of the North Korean Economy], is based on four papers gathered in the same edition of the journal, each by a sector-specific expert: on the private or unofficial economy (by Kim Seok-jin of KINU), on the industrial economy (by Lee Seok-ki of KIET), on agriculture (by Kim Yeong-hun of KREI), and on external trade (by Lee Jong-gyu of KDI).
In essence, Lee and his colleagues found that the DPRK economy continues to, in the words of Charles Lindblom, “muddle through.” Lee evidences this conclusion with four main findings, which I have combined into three (the industrial economy and unofficial economy being two closely associated sides of the same coin).
First, rising harvests have been a trend since 2010. To this extent Lankov is correct: North Korean agriculture is doing relatively well, albeit from a low base. However, the outlook for 2015 is where Lee’s view diverges. He asserts that agricultural production may not rise much year-on-year going forward; quite the opposite of Lankov, who assumes robust growth. Lee notes that agricultural production in 2012 and 2013 and, by inference, 2014 were comparable at 5 million metric tons (5.03 million metric tons in 2012; 5.26 million metric tons in 2013). He sees an agricultural economy that shows signs of plateauing, and is thus less likely to have a substantive influence on the macroeconomic outlook hereafter.
Second, North Korea’s terms of trade give cause for concern, specifically the country’s reliance on natural resources as a source of hard currency. The condition of the global economy of which North Korea is a part is not addressed directly in the op-ed, which presumes a broadly constant external economic situation. (Although it does acknowledge the drag on growth of the “bad track record of North Korean companies in dealing with foreign investors, international sanctions, and the country’s dubious reputation.”)
This omission seems unwise. Chinese firms imported less from North Korea in 2014 than the year before (from $2.91 billion down to $2.84 billion) and North Korea imported less from its giant neighbor ($3.52 billion, down from $3.63 billion) in response. China’s economic growth rate is slowing, and the government in Beijing is trying to shift gears. The Politburo set a modest target of 7.5 percent growth for 2014, and has signaled a willingness to accept slower growth in exchange for ameliorating some of the issues that accompany the country’s compressed modernization, like staggering levels of urban pollution. For their part, a great many provincial government projects are highly indebted. (The government is, however, prepared to ensure financial support for the time being).
Additionally, world prices for iron ore and coal have been in decline for some time, which is problematic given that they are two big earners for the North Korean government. Iron ore, which began 2014 at $135/ton, broke the $50 barrier earlier in the year. Layoffs and wage payment failures at Musan Mine in North Hamgyong Province during early 2015 may be reflective of this.
Finally, as if to pile localized misery on what is basically a systemic matter in the global economy, the execution of Jang Song-taek and subsequent institutional purge appears to have not only put pressure on bilateral diplomatic channels, but also slowed some of North Korea’s key trade partnerships with its giant neighbor. The result is an omnidirectional squeeze on the country’s weak export sector that is now well into its second year.
Third, under Kim Jong-un’s rule the domestic unofficial market economy is active and extending its remit, while the industrial economy lingers un-revived. The state continues to eschew coercive market control mechanisms; indeed, there is evidence that some mid-2000s regulations are not being enforced or have been withdrawn altogether. All other coercive elements being equal, state agencies will strive to co-opt and combine with individual actors to turn economic growth to their own ends–as they always seek to do–working with rather than against agents of the market economy to acquire a bigger slice of a slowly growing pie.
Lee paints a different picture of the domestic industrial economy, which has been stagnant for years. In the current period, only military-led projects in fisheries and science & technology have been dispatched to the frontline of PR framing of the transitional Kim regime. However, in terms of marketization in North Korea “unofficial” and “official” represent a false dichotomy, and Lee notes the probable penetration of “private” economic actors into traditionally state-led industrial activities. If the invisible hand is not shackled by the coercive state, growth may eventually come. But that is a big if.
Bringing the evidence together, Lee ultimately avoids giving a definitive answer to the question of what it means, much less whether it supports the bullishness of Lankov’s position. Perhaps wisely, Lee opts for ambiguity, concluding that both positive and negative assessments of 2014 may be valid, as are divergent portends for 2015. Where you stand, he implies, depends on where you sit.
If you reflect upon North Korea through a lens of external trade relations, your outlook ought to be pessimistic for the time being. Conversely, if you adopt an agricultural lens then you are well placed to evidence either a positive or negative outlook quite compellingly, as Lankov does. If you place your hope in the entrepreneurial spirit of the masses then you probably have the most to be optimistic about, but only as long as current government policy holds.
Source: Lee Seok, Assessment of 2014 North Korean Economy and 2015 Outlook [총론: 2014년 북한경제 평가와 2015년 전망], KDI 북한경제리뷰, 2015년 1호, pp 3-15. Translation by Christopher Green.