The Postwar Economy
North Korea long had a socialist command economy with multiyear plans (as much as seven to 10 years) and a bias toward heavy industry. It allowed only a sharply limited role for market allocation, mainly in the rural sector, where peasants sold produce from small private plots. There was almost no small business. The North also sought a self-reliant, independent national economy; therefore, it would seem to be a typical socialist system on the Stalinist model, and certainly it was in the emphasis on heavy industry.
The Three-Year Postwar Reconstruction Plan (1954–56), which began after the Korean War, and the Five-Year Plan (1957–61), which succeeded it, both stressed the reconstruction and development of major industries, with consumer goods at the bottom of priorities . This bias toward major industries, however, pushed the economy forward at world-beating growth rates in the 1950s and 1960s. Official sources put the average annual growth rate in industry at 41.7 percent for the Three-Year Plan and 36.6 percent during the Five-Year Plan. The First Seven-Year Plan (1961–67) projected an average rate of 18 percent, but stoppages of aid from the Soviet Union in the early 1960s, owing to North Korean support for China in the Sino–Soviet dispute, caused the plan to be extended for three years.
By the early 1970s, North Korea clearly had exhausted extensive development of its industries based on its own, prewar Japanese or new Soviet technologies, and it therefore turned to the West and Japan to purchase advanced technology and turnkey plants. These included a French petrochemical complex in 1971, a cement plant in 1973, and, in 1977, a request that Japan sell an integrated steel mill (which was denied). Even a complete pantyhose factory was imported, suggesting more attention to consumer items. Ultimately, these purchases caused North Korea to run into problems servicing its external debt, which ran to US$2 billion and US$3 billion by the late 1970s.
Later seven- and 10-year plans failed to reach projected growth rates; still, a US Central Intelligence Agency (CIA) study published in 1978 estimated that North Korea’s per capita gross national product (GNP) was the same as South Korea’s as late as 1976. In 1979 Kim Il Sung claimed a per capita income in the North of US$1,900, and later North Korea put the figure at more than US$2,500, but it was not known if the figure was accurate, or how it was derived.
Since the early 1980s, North Korea has fallen badly behind South Korea as transportation bottlenecks and fuel resource problems have plagued the economy. Published CIA figures for the 1980s and 1990s place North Korea at around US$1,000 in per capita GNP. The North did not do badly in producing goods of the second industrial revolution: steel, chemicals, hydroelectric power, internal combustion engines, locomotives, motorcycles, and various sorts of machine-building items. But it lagged far behind in the “communications” technologies of the third industrial revolution: electronics, computers, and semiconductor chips, for example.
There were innovations, however, which suggested significant North Korean differences from the Stalinist model of industrialization. The delivery of goods and services was decentralized to the neighborhood or village level, and several provinces were claimed to be self-reliant in food and consumer goods. Foreign visitors saw few long lines at stores and restaurants, although resident diplomats found that little was available in the stores. Clearly the morale of the population was better than in the former Soviet Union until the mid1990s, as both the cities and the factories give an appearance of efficiency and hard work.
North Korea had reasonably successful socialist agricultural systems until the collapse of the economy in the mid-1990s. Agriculture was collectivized after the Korean War, in stages that went from mutual aid teams to second-stage cooperatives but stopped short of building huge state farms as in the Soviet Union or the communes of Maoist China. Relying mostly on cooperative farms corresponding to the old natural villages rather than state farms, and using material incentives with little apparent ideological bias against them, North Korea pushed agricultural production ahead rapidly.
World Health Organization officials who visited in 1980 reported that “miracle” strains of rice were in wide use, and the CIA reported in a published study in 1978 that grain production had grown more rapidly in the North than in the South, that living standards in rural areas “have probably improved faster than in the South,” and that North Korean agriculture was quite highly mechanized, fertilizer application was perhaps among the highest in the world, and irrigation projects were extensive.
Up until the late 1980s, North Korea claimed to have the highest per hectare rice output in the world; although that claim cannot be proved, experts did not question the North’s general agricultural success, and published CIA figures put North Korea’s per capita grain output among the highest in the world in around 1980. Subsequently, North Korea failed to reach projected targets, however, such as the grand goal of producing 10 million tons of grain annually by 1986. By the 1990s, South Korea’s rural population lived much better than its northern counterpart, and with accumulated disasters, by the late 1990s the North was producing barely more than 4 million tons of grain per year.
Juche did not prove to be an appropriate basis for an effective economy. The industrial inheritance from the Japanese and the input-intensive agriculture was maintained for some decades with the support of the largesse from the Soviet Union and China. In the mid-1970s, per capita GNP in South and North Korea was about the same. Once assistance from outside dried up the DPRK did not have the skills or the political will to address its deeply rooted economic problems. For a brief period in the 1970s, the DPRK attempted to borrow funds from the international community. However, the state had no plans on how to re-pay these debts or how to invest these resources into the development of the country. The DPRK went into default on billions of dollars and was unable to borrow further. The choices that the leadership made over the years led to serious food shortages long before the famine of the 1990s. Recurring patterns of shortages are reported as early as 1945-46, 1954-55 and 1970-73. Survival of the political system and its leadership rather than systemic economic development or concern about feeding its population appears to have been the priority of the DPRK leadership.
North Korea became a significant participant in international arms trafficking, selling missiles, machine guns, artillery, light tanks, and other items to friendly countries such as Pakistan, Syria, and Iran. North Korea traded weaponry for oil with Iran, accounting for as much as 40 percent of Iranian arms imports during the long Iran–Iraq War (1980–88).
Foreign observers discount North Korea’s claims of nearly complete self-reliance. Until the Soviet collapse in 1991, the Soviet Union and China had provided petroleum, coking coal, and many other critical resources and competed for influence with aid and technicians. (Now Russia and China compete to have economic relations with South Korea.) North Korea has done well in using indigenous coal and hydroelectric resources to minimize oil use; only 10 percent of its energy regime was dependent on imported petroleum. The pursuit of self-reliance was, of course, primarily a matter of anti-Western politics and foreign relations; it sacrifices efficiencies of scale and comparative advantage.
Until the 1970s, North Korea’s foreign trade was almost wholly with the socialist bloc, but then it diversified imports and exports toward Japan, Western Europe, and various developing nations. By the mid-1970s, some 40 percent of its trade was with noncommunist countries, and within the bloc only half was with the Soviet Union; but, by the late 1980s, foreign exchange and other difficulties left North Korea once again dependent on trade with the Soviet Union, and the Russian demand for payment in hard currency for oil and other items drastically hurt North Korea’s economy in the early 1990s.
Exporting had been a priority, although the North in no sense has an export-led economy like the South. The focus on exports was to garner foreign exchange to import advanced technologies needed for further industrial growth and to pay for imported oil; the exporting policy has not been particularly successful. (North Korea’s total trade with Russia and China was far less than South Korea’s in the early 2000s.)
In spite of these difficulties, American visitors to North Korea in the 1980s tended to come away impressed by what they saw. Crossing into North Korea from China made people think they had left a poor country for a moderately well-off one. The fields were deep green, and every meter of land was carefully tended; construction projects had round-the-clock shifts; people bustled through the streets to work at all hours; the cities suggested a clean, sparsely populated, diligent, and efficient system.
The country still has an isolated, antiquarian, even bucolic atmosphere, as if one were thrown back to the 1950s; at the same time, it has a few world-class facilities, such as the P’yongyang Maternity Hospital, which was replete with German and Hungarian technology, or the fleet of Mercedes put at the disposal of officialdom. Until the famine period of the mid- to late 1990s, the mass of the people were well fed and plainly dressed, with little access to consumer goods beyond basic clothing and household items.
Quite apart from the shocks it has received from abroad since 1989, North Korea faced its own set of structural problems in the economy. Its ponderous bureaucracy was impenetrable and exasperating to foreign business executives — and to its own officials, who find it hard to communicate with other bureaucracies. Its dogged desire for self-reliance has alienated foreigners and placed many obstacles in the way of trade with the West, not least the relative lack of foreign exchange.
Technological obsolescence means the North must import newer technologies if it ever hopes to compete with the South, and since 2000 it has begun to adopt the new policies necessary to gain access to such technology, for example, revaluing its currency, enacting new tax and profit laws for foreigners, and permitting limited space for market mechanisms. As long as North Korea maintains its hostility toward the United States and its military force commitments aligned against the South, it will not get the trade and technology that it claims to want and certainly needs.
Both Koreas are industrial and urbanized nations, but on entirely different models of political economy. A unified Korea would thus be a formidable industrial state. What would permit this unlikely marriage of divergent systems? Perhaps the stress on education in both Koreas, strong backing from big-power allies, effective use of state intervention in promoting economic development, and, above all, the simple fact that neither are “new” states but rather grow out of an ancient and proud nation that began its modernization a century ago, not just in the postwar period.
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