As North Korea's economy grows, Kim tries to wield a double-edged sword

Economic reforms could improve living standards and enhance Kim Jong-un's power. But they could also threaten the regime's ideological foundations.

When Rüdiger Frank visited a shopping center in the North Korean capital in February, he was amazed to find not one, but at least 10 different kinds of toothpaste for sale. Customers could buy whitening toothpaste, children’s toothpaste, and toothpaste made with “nanotechnology” that sold for 30,000 won, about $33.

“We need to understand that North Korea is in the middle of a consumerist transformation,” Professor Frank, the head of East Asian studies at the University of Vienna, wrote about his trip on 38 North, a website on North Korea news. For decades, North Korean leaders viewed too much variety in consumer products as wasteful and, even worse, capitalistic. “Today, 10 types of toothpaste? Fine, if customers buy and a profit can be made,” Frank wrote. “This is the new thinking in North Korea these days. Competition is everywhere.”

Like many things about North Korea, the exact causes of new economic trends are something of a mystery. Obtaining official data is virtually impossible. But analysts who closely follow the country’s economy say it has shown signs of growing prosperity – a major goal of its leader, Kim Jong-un, to secure his grip on power. But there's a catch: Every step toward economic reform risks looking like a step away from core principles of a centrally planned, socialist state.

Of course, North Korea’s economy is far from booming, and poverty among the country’s 25 million people remains widespread. Two in 5 North Koreans are undernourished, and more than 70 percent of the population relies on food aid, according to a United Nations report published in March. A sudden shortage of gasoline this month has sparked price hikes and raised fears of an economic slowdown. 

But the economic growth North Korea has achieved – however incremental – underscores that Mr. Kim’s ambitions extend beyond developing a nuclear warhead capable of reaching the US mainland.

The escalation of rhetoric over the North’s weapons program has rattled the world, which roundly condemned an April 29 test missile launch, though the test failed. The North has also said it will continue to test its nuclear weapons, which it has done five times before, including twice in 2016.

Still, establishing a nuclear deterrent is only half of Kim’s “byungjin” strategy, or “simultaneous progress.” Economic development is the other half – and the one that’s arguably more ambitious.

Andrei Lankov, a historian of North Korea at Kookmin University in Seoul, says Kim is eager to improve the economy by pushing it away from a state-dominated system. The young leader is gradually dismantling a Soviet-style command economy in favor of promoting private business and entrepreneurship, Professor Lankov says, much as China did starting in the late 1970s.

That already-risky move is further complicated by the history of North Korea's private markets. As widespread famine took hold in the 1990s – a disaster estimated to have killed between several hundred thousand and 1 million North Koreans – families turned to informal, illegal bartering as the state-controlled food rationing system thinned.

Today, Lankov estimates the private sector accounts for 30 to 50 percent of North Korea's gross domestic product. By allowing it to grow, Kim hopes to reduce the risk of a popular uprising sparked by economic stagnation – the risk of which could increase as North Koreans catch more glimpses of dramatically better-off lifestyles across the border. The challenge he now faces is figuring out how to pursue deeper market reforms while maintaining at least the appearance of state control.

“If he admits it, it will be bad for stability. That would mean admitting the system created by his grandfather is not perfect,” Lankov says, referring to Kim Il-sung, the founding leader of North Korea. But pursuing reforms “is exactly what he’s doing, and the policy is working.” 

The economic changes are evident on the streets of Pyongyang. Traffic on the capital’s wide avenues has gotten heavier in recent years as car ownership and taxi services have increased, according to recent news reports. Electric bicycles have become more ubiquitous, too, another sign of rising affluence among the emerging middle class.

Lankov says one of the biggest changes has occurred in agriculture, where family farms have taken the place of many state-owned farms and led to an increase in food production. Yet some analysts are skeptical of how successful and widespread such reforms have been. Others question whether many of Kim’s economic policies qualify as reforms at all. Marcus Noland, an expert on the North Korean economy at the Peterson Institute for International Economics in Washington, says the leader has relaxed restraints on domestic economic activity rather than remove them.

“I would say Kim has not actually done reforms,” Dr. Noland says. “What he’s done is stop enforcing the law and effectively decriminalize a lot of economic activity.”

For example, while it remains illegal to open a private business, the law is seldom enforced. Noland says well-connected entrepreneurs can buy the status of a state-owned company for the right price. Such practices started in the 1990s under the late Kim Jong-il, but Noland says they have picked up under his son.

“Unlike his father and grandfather, Kim Jong-un appears to be comfortable with bling,” Noland says. “He appears to be comfortable with a degree of social division based on access to money and wealth.”

It is uncertain if Kim’s acceptance of a widespread illicit economy could lead to formal policy changes. Although it remains difficult to predict, Benjamin Katzeff Silberstein, an associate scholar at the Foreign Policy Research Institute in Philadelphia and co-editor of the blog North Korean Economy Watch, says the leadership appears to be heading in that direction.

“The overarching trend, especially since Kim Jong-un came to power, is one towards the formalization of market mechanisms,” he says. “Overall the government is in much more control over something that used to be antithetical to the socialist system.”

In what is perhaps a sign of North Korea’s shifting economic principles, a recent article in a newspaper published by Kim Il-sung University, the country’s top school, stressed the importance of increasing corporate profits.

“Net profits gained by individual corporations are fundamental to the establishment of a powerful economy,” the article said, according to South Korea’s Yonhap news agency. But the article was careful not to suggest an end to the state-controlled economy, adding that “in our country's socialist system, corporations' independent management activities are to be carried out under the guidance of the party right down the line.”