Saturday, April 27, 2013

Markets Fill Vacuum Left by Hollow Power in North Korea

Like in China after Mao, economic and political reforms will come to North Korea not because of external pressure or political insights among the elites, but because once the political legitimacy of the regime has evaporated, there are only two alternatives to reintegrate the society: War or markets. The former solutions is still possible, but looks rather suicidal. The other solution offers a way forward, but the risk to the elite is immense.

Deng Xiaoping realized that only by decentralizing economic power could the party preserve enough centralized political power to control the country's political future. Young Kim Jong-un probably knows that, but he lacks real stature in the political elite, which is why he is fighting so desperately and erratically to raise his military profile. If he fails, I would expect a military intervention led by a general that can muster enough charisma to control the situation while beginning to adapt the political and economic system to the reality on the ground, which seems to be a more or less market driven society.

Jang Jin-sung, a former North Korean state official and poet laureate, gives a very interesting analysis of the current state of the North Korean society in today's New York Times.

The Market Shall Set North Korea Free

"All North Koreans depended for their very survival on a state rationing system until it collapsed in the mid-1990s. Its demise was due in part to the regime’s concentrated investment of funds in a “party economy” that maintained the cult of the Kims and lavished luxuries on an elite instead of developing a normal economy based on domestic production and trade. Desperate people began to barter household goods for rice on the streets — and the underground economy was born. With thousands of people starving to death, the authorities had no option but to turn a blind eye to all the illegal markets that began to pop up.
Around this time, the nation’s workplaces were made responsible for feeding their employees. The only way they could do so was by setting up “trading companies,” which sold raw materials to China in exchange for rice. These businesses became part of the foundation of the underground economy, acting as import-export hubs that in time began to import from China consumer goods like refrigerators and radios."