B00BY4HXME EBOK (13 page)

As a result of the “Miracle on the Han River” (as this remarkable economic transformation is popularly known) by 1980 South Korea became the most advanced nation of all continental Asia. The speed of this transformation was incredible. Nowadays, South Korea has the world’s second largest number of high-rise residential buildings. It is rather difficult to believe that in 1963, when the first Korean apartment block was
constructed, it was impossible to sell the flats since no one was willing to live above the second floor. South Korean television began to broadcast in color only in 1980, and the South Korean automobile industry, now the world’s fifth largest, virtually did not exist until 1974 (ditto the shipbuilding industry).

The tremendous economic success of the capitalist South coincided with the growing stagnation of the North. This was to have extremely important political consequences. In a sense this yawning gap in economic efficiency might be the single most important factor in determining the political situation in and around the Korean peninsula nowadays.

The reasons for the failure of the Leninist economic model have been studied thoroughly and in the case of North Korea they were essentially the same as elsewhere: distorted price information, lack of incentives for innovation and quality improvement, and an ingrained inability to handle data efficiently. Nonetheless, it is worth noting that many features of Leninist state Socialism were especially pronounced in North Korea, and hence one should not be surprised that the failure of this model was also especially spectacular there. North Korea first accepted an inherently inefficient system of economic management and then modified it in ways that further amplified its already remarkable inefficiencies.

To start, North Korea had an unusually high level of military spending. In the 1990s, this small country had a standing army of some 1.1 to 1.2 million people—the world’s highest ratio of military personnel to the general population (to put things in comparison, it was roughly the same ratio as in the United States of 1943). The military spending was also exceptionally high.
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Admittedly, there was some strategic logic behind this level of militarization. Until at least the early 1970s, if not longer, the North Korean government saw the forceful unification of Korea as a realistic political task, and even as its major long-term strategic aim. In order to outgun the army of South Korea, which had twice as many people, the state had to invest heavily in military hardware and also require an unusually long period of obligatory military service (North Korean males spend between seven and ten years of their lives under arms). Once South Korea began to pull ahead
between 1965 and 1970, North Korea still strove to maintain its equality with the South by further increasing the already high share of the military spending. Burdened by this additional spending, the North Korean economy slowed down even further, and this slowdown in turn prompted North Korea’s leaders to increase military budget allocations. This was a classic example of a vicious circle and the sorry results were only too predictable.

Another specific factor that exacerbated North Korea’s economic woes was the policy of economic autarky. The slogan of “Self-Reliance” was borrowed verbatim from Mao’s China around 1960, even though few North Koreans were aware of its foreign origin. Indeed, the slogan was repeated ad nauseam in Kim Il Sung’s times and—unlike many other slogans—seems to have been taken seriously. Kim Il Sung and his guerrilla comrades were devoted nationalists, but their understanding of economics was remarkably patchy. They believed that Korea should make the economy as self-sustaining as possible in order to minimize the political leverage that foreign states could use over it.

It was officially assumed that North Korea can and should produce everything of economic significance within its own borders. The leadership thought that only imports of raw materials were ideologically permissible, but even they should be kept at a bare minimum. It was also believed that provinces, cities, and even individual factories should take care of their own logistical requirements whenever possible, expecting little from the central government.

Sometimes this insistence on self-reliance might have appeared comical to an outside observer. For example, while reading through a North Korean newspaper, I once came across an admiring report about workers at a Pyongyang granary who found a patriotic and politically correct solution for one of their logistics problems. They needed a diesel locomotive to move railway carriages filled with grain. Instead of ordering it from the state, they used the granary’s small workshop to manufacture the locomotive. Their “revolutionary spirit of self-reliance” was lauded by the report, but it said nothing about the quality and reliability of this curious hand-made contraption. This story reminds one of the notorious wooden trucks
the Chinese villagers were ordered to make during the Great Leap Forward (and under virtually the same slogan of “self-reliance”). The North Korean media of Kim Il Sung’s era unceasingly published eulogies to such dubious triumphs.

Taking into consideration the small size of the North Korean economy, such deliberate rejection of economic specialization was a dangerous misjudgment. Among other things, this policy was aimed at reducing North Korea’s dependence on foreign powers and—above all—on its major sponsors, the USSR and China. However, it probably yielded the opposite result: by making the cumbersome North Korean economy even less efficient, this policy actually might have
increased
North Korea’s dependency on Soviet and Chinese assistance.

Indeed, Soviet and, to a lesser extent, Chinese aid was vital for the survival of the North Korean system. The scale of this support can never be estimated with real precision, since much of this aid was provided indirectly, through subsidized trade. For example, Soviet foreign trade organizations were frequently ordered by the Kremlin to accept substandard North Korean goods in lieu of payment for Soviet merchandise, which would have been much more expensive had the market mechanism been in operation. Most of the trade between North Korea and its sponsors was nonreciprocal—essentially it was aid, thinly disguised as trade. The Soviet Union was sending to North Korea spare parts for MiG jet fighters, crude oil, and Lada cars whilst being paid with canned pickles and bad tobacco that nobody wanted to smoke. The relations with other countries of the Communist bloc were not much different. It would be just a minor exaggeration to say that if we define “trade” as reciprocal exchange in goods, Kim Il Sung’s North Korea
never
conducted much trade as commonly understood, but rather swapped geopolitical concessions for economic subsidies.

As long as the Soviet Union and China, driven by their own geopolitical considerations, were willing to pump this aid in, the North Korean economy remained afloat, even though its growth rate was decelerating. Nonetheless, since the early 1960s the very existence of Soviet and Chinese aid was seldom if ever admitted openly. Perhaps not only the average
North Korean but even the decision makers in Pyongyang did not fully appreciate how great their dependency on Soviet giveaways had become. The sudden termination of this aid in the early 1990s therefore delivered a mortal and sudden blow to Kim Il Sung’s North Korea. A new society grew out of the ruins of Kim Il Sung’s “national Stalinism” and—in spite of some superficial continuity from the previous era—this new North Korea was in fact very different.

The system built by Kim Il Sung in North Korea was fatally flawed—it was unsustainable economically. It could function only as long as Moscow and Beijing were willing to provide Pyongyang with systematic aid. Kim Il Sung’s “Stalinism with national characteristics” consequently did not outlive the abrupt end of the Cold War, which plunged North Korea into an acute crisis. Many observers initially expected that North Korea would share the fate of other Communist regimes and either collapse (like the Communist countries of Eastern Europe) or initiate market-oriented reforms (like Vietnam and China). These expectations did not materialize: North Korea neither collapsed nor reformed itself. But a lack of government-initiated reform did not mean that North Korea remained unchanged. Post-1994 North Korea is very different from the country established and run by Kim Il Sung. It might be run by the same people (or their children and nephews) and the state might sound the same, but its society is very, very different.

In 1985 Mikhail Gorbachev became the general secretary of the Communist Party of the Soviet Union. He immediately embarked on a program of radical social, economic, and political reforms that triggered the collapse of the Soviet Union in 1991. Around that time, China’s leaders learned how Communist sloganeering can be seamlessly combined with a rather Dickensian—but very efficient—version of capitalism. In turn, by the late
1980s, relations between the USSR and the PRC, which had been characterized by rivalry and discord since the 1950s, became cooperative. The rivalry between the USSR and the United States also lost its sharpness. In the early 1990s both the Soviet elite and the Soviet public saw the United States not as an enemy to contain and undermine, but rather as a shining example to be admired and emulated (such a rosy view did not survive for long in Moscow, but this is irrelevant to our story).

Considerations that conditioned Soviet (and Chinese) policy toward North Korea for decades suddenly disappeared. Moscow and Beijing policy makers saw no more need to maintain North Korea as a buffer zone against the United States or to buy its neutrality in the Sino-Soviet schism. Concurrently, the economic transformation of the USSR meant that newly independent Russian enterprises, formerly state operations, were no longer willing to ship their wares to North Korea for nothing. Russian businesses would be (and still are) quite happy to sell spare parts for MiG fighters or crude oil, but they expected to be paid for their shipments in hard currency. North Korea has no hard currency. Sponsoring Pyongyang therefore became both politically unnecessary and economically unsustainable.

Within the first perestroika years bilateral trade between North Korea and the Soviet Union decreased roughly tenfold: from $2.56 billion in 1990 to a mere $0.14 billion in 1994. Incidentally, it has remained at roughly this level ever since ($0.11 billion in 2011)—further proof that without state subsidies and political pressure, Russian companies are not terribly interested in doing business with North Korea.
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Since North Korea’s trade with Communist countries was essentially aid in disguise, the dramatic drop in trade meant a comparable decline in the availability of free or subsidized products.

The start of the new era in the North is usually linked to Kim Il Sung’s death in July 1994. However, the social transformation of the 1990s had almost nothing to do with this political change at the top. Some of the measures undertaken by Kim Il Sung in the last years of his long rule were strikingly similar to what would become the norm under his son. Nonetheless, for the sake of convenience we will describe this new era in North Korean history as the “era of Kim Jong Il.”

The sudden disruption of foreign aid led to the collapse of the state economy. Being deprived of free spare parts and subsidized oil, many industries stopped functioning. Since all vital economic statistics in North Korea are a state secret, the exact scale of this economic collapse is disputable. Nonetheless, it seems that by the year 2000, industrial output in the state economy was approximately half of what it was in 1990. Officially, most factories were not closed and employees were still required to attend their place of work daily. Most workers remained idle at work, however, with nothing to do.

From the early 1990s, when official corruption started to grow exponentially, the most savvy and entrepreneurial among the managers of state enterprises began to make money by selling their nonoperating equipment to China as scrap metal. In more extreme cases, old factories, often built in the colonial times, became empty shells, devoid of any equipment.

In many regards, North Korean infrastructure has not changed much from late colonial times. With the exception of a few highways (off-limits to local traffic), paved roads are very rare outside major cities and the railways continue to make occasional use of steam locomotives of 1930s vintage. However, in the mid-1990s infrastructure suffered much more than it had up until that point. Frequent electricity outages meant trains that mainly relied on electric locomotives could be late by days—a remarkable circumstance for a country as large as Pennsylvania.

But the worst blow was felt by the agricultural sector. Like nearly all Soviet-style agricultural systems, that of North Korea was inherently and hopelessly inefficient. Modern farmers usually work well if they toil upon their own land and have some control over the harvest. This was not the case in North Korea, where the state owned the land and directly managed it in ways that even Joseph Stalin himself would see as excessive.

Structural inefficiencies were exacerbated by a multitude of technical and political errors. To start with, North Korean agriculture had become heavily reliant on the use of chemical fertilizer. Initially this policy decision made some sense because North Korea inherited highly developed fertilizer production facilities from the colonial period. But while this was the case, production itself was dependent on the supply of Soviet aid and was highly energy-intensive.

Another mistake was the heavy reliance on artificial irrigation that was made possible by the existence of large pumping stations. In some cases water had to be first pumped up a few hundred meters above the level of its natural source and only then directed toward the rice paddy fields. This worked well as long as electricity was in plentiful, cheap supply. The decline of electricity production, however, made this system unsustainable.

Last but not least, the ill-conceived idea of terraced fields contributed to the natural disasters of the years 1995 through 1996. This idea was once loudly lauded as a great invention of Kim Il Sung’s personal genius. Terraced fields might be perfectly suitable for the farming conditions of southern China, but not in North Korea—as North Korean agricultural managers learned in due time and to their peril. Terracing increased soil erosion and made areas under cultivation more vulnerable to torrential rains. Such rains hit North Korea in the summer of 1995, and then again in 1996.