North Korea's Unlikely Economic Boom

lifeline from China, but that may all be changing. Welcomed benchmarkers show about the global economy. I'm Daniel Moss, economics columnist for Bloomberg View in New York, and I'm scot Landman, an economics editor with Bloomberg News in Washington. Lately, there are signs that the North economic picture is brightening, admittedly from a very low base. Its economy grew almost four percent last year, faster than the US. It has a lot of catching up to do. Gross domestic product is

a little less than thirty billion. To put that in comparison, South Korea's economy is about one point four trillion. But the North economy may be changing quickly, thanks largely to markets both legal and illegal. What markets? What's going on here? Isn't this the ultimate stalinist state? And to what extent is it emboldening North Korea? And could it also be

a sign of weakness? Now joining us to explain this boom that nobody noticed is b y Kim, a professor at Soul National University and the author of the well timed recent book Unveiling the North Korean Economy Collapse and Transition. Professor, thank you for joining us where it's your evening and our morning. That's right, Thank you so much for having me today, Professor. Let's start with the basics. How is North Korea's economy doing right now? But the economy has

been stabilized. If you remember the famine in the ninety late, a lot of people have died because of bamin. At that time we estimated about six hundred thousand people have died of stabation. But now nobody talked about the stabation in North Korea anymore. That is, although there is malutriction on the nourishment, but sturbation is now remote. So economy has been okay and stabilized. And the ad mentioned economic cross rate last year recorded three point nine percent panem

and so what is driving the economy, Professor? What are the main UH commodities? Trade? What's going on? How are people getting their money? How is North Korea getting its products and delivering them to the outside world. Yeah, I think there are three factors which drive the economic growth. The first one is markets. Nowadays, North Koreans lion markets

for survival and for prosperity for some people. And about seventy nine of house income drives from markets, and fifty people participate in the official economy while seventy percent people work informally. Therefore, in North Korea, although it's socialist country, market dominates in reality. The second factor is trade. Norse create can be regarded as being open economy in terms of the share of a trade in g d P, which is about fifty percent. World average is a pip

eight percent. Therefore, North Korea is open economy. That might surprise many listeners, Professor, given the images we have that it's kind of a gray hermatic nation sealed off from the rest of the world, with a population that's basically enslaved. How has what you've described gone so unnoticed that that's correct? Because the image of North Korea was based on politics and security from the prospective of politics anstuity, not from

econic perspectives. And these changes have occurred in the middle and late nine nineties. They call it arvious much and I mean many people have died of starvation and therefore markets emerged unnoticed because people were transjecting are if possible in markets for survival. And afterwards that the government applied zig policy on arche activity. Sometimes they try to press. Sometimes they applied blind eyes to the activities. So it's

rather too zack. But the process of expansion of markets has been a coding for the last fifteen years and the current leader, Kim John has actually given somewhat of a blessing to these markets. If I'm not mistaken, Can you explain, you know what's going on here, and you know how they're helping the economy function. You know, how are people able to get the money to buy commodities or to even participate in these markets that you talk about? Right? Uh?

If you remember there was currency formed in post online. They somehow trying to repress markets by forcing a conversion of the older currency with the new currency, with some buildings that intended the shrinkageer markets because the the authorities and Kim jong Il so far, the Kim Joan regarded markets as a domain or budua, and so they applied at this uh policy against markets that reduced market activities.

But they've failed, and the prime minister apologized to people and they pointed out one person escape good and he was shot to death. And I imagine that Kim Donan might have realized without markets, the economy would not go well and people not survive, and therefore he accepted the markets because it's sel safety. But on the other hand, he thought by himself, okay, handle on the markets, okay right now, because it sustained the economy and well repaire people.

But on the other hand, markets could become a danger or enemy in the long run, that's what should I do? And perhaps he wants to concentrate on development of nucle weapons and missiles in that way can protect his power from extra or extra force. So we see economic upswing emboldening Kim or is Kim's behavior a product of markets weakening him? That's right, since short run markets helped him to maintain power. By long run it weakens the power.

But that is a dilemma he faces because of market tiation in Thus Korea and this market activities are intertwined with the trade for in trade because fort in t trade provides resources to markets, also provides a pertunent power for market demand. Therefore, these markets and trades are like

twins ultiple. Aside the coins UH, exposing Kim the power to afford in trade and markets could have been danger if something occurs regarding these perfective Now, if you look at North Korea's neighbor China, they opened up their economy forty years ago, UH, and they still are engaged in this perennial struggle over how much of the economy to open to markets and how much should still be controlled by the state, and how that threatens the power of

the Communist party. And I think a lot of people probably were making similar predictions years ago that you know, that once China really opened up their economy, that it would risk the power of the Communist party. But in fact, the parties today seems to be very strong, and you know, has has somehow balanced this opening up of the economy with um, you know, maintaining control and staying in power. Do you think that's possible it to happen in North

Korea as well well. For time being, I don't think that it is possibility in North Korea. If you look at the Chinese case that there were change in power. Part of power from Mata Tom, Tomsha Pin and Tom Pinch reformed the economy because in that way he was able to stabilize the power. But in the case of Kim Znan, his a power base is from his father and grandfather, and so it did held for him to deny the foundation of to chideology, which is inherited from

his father and grandfather. Different situations. In North Korea you have the Party of Kim. In China you have the Communist Party, so it's a little different, that's right. I think political change transformation proceeded economic transformation in China, but we don't see this political transformation in those Korea. That is the biggest obstacle. But if you look at this problem from different perspectives, there is a possibility for him to be fought to take that road Chinese road or reform.

Why because well, he may have to confront the expansion markets at some point he had to choose should I compromise or should I depressed market activities. But the latter maybe too riska for him. Then he may take the first option to compromise on markets. Then they could the possibility that Chinese tire reform can take place in Those Korea.

But critical to China's economic growth as it opened up its economy and as market reform strengthened was the role of foreign direct investment the manufacture of goods for use in Europe and North America in China. It's tough to see that happening in North Korea as long as there is a nuclear program exactly. That's why I think it's the the growth sustain away and fust growth in uh in long period were they possible um as long as they had to euklepans and long ridge missile development. Let's

talk more about China, Professor. China does play a role in helping North Korea's economy. They really are the gateway to a lot of this trade. And it's hard to see North Korea's economy doing what it is without having some degree of support from China, which which can really affect whether North whether the North Korean economy lives or or collapses. Is that right, Yeah, that's right. Yes, But if you look at the Chinese role in North Korea.

I would say that the political leverage is limited given nowadays circumstances relations between aus Korea and China. But China has you know, almost leverage economically. So China can choose say between zero zero means no pressure on North Korea, one means destabilizing in North Korea economy and society, and they can choose. I think any point between zero and

at what point are we now, well, that's a good question. Well, I think it's the if North Korea feels real pain, I would saying that should be say seventy or eighty. I think now it's the the extandard pain would be about the fifty or sixty. It's a bit lower then say optimal level of pressure. And what amount of pressure due to the international sanctions have on North Korea such as the most recent round approved by the United Nations, right, I think all together, including the most recent one uh

UNS sc UNS count resolution. I think if the level is about the sixty sixty as we are a bit lower than optimal level or pressure. So when we talk about a greater role for markets in the economy, ultimately, professor, is North Korea going to be China or is it going to be the Soviet Union. One ended well, the other market experiment did not well. I think these two possibilities are quite open. I don't know which way they able to go. I can't allowed the scenario which is

our preferred one. But if I evaluate the possible nity right now, I will say the second scenario is more possible because, Uh, it's difficult for him to accept make reform given his circumstances and the power base, and try to find against markets. Then some violent eruption or power struggle may violent say struggle, power struggle may erupt in North Korea that could end the system. Then they may lead the way of that's a transition towards Russia. Professor,

let me ask the question that's on everybody's minds. You're an expert on the economic situation in North Korea, and the topic that we hear most about, of course, is what's happening with with with Kim's nuclear tests. Uh, you know, all the developments there at the different source that they have been testing. Uh. What is your personal opinion or how much concern do you have that this will end

badly for everybody? That there will be some sort of attack from North Korea on perhaps Soul or somewhere else, and you know that it would be a nuclear attack. How much is that concern in your mind or fear in your mind? Well, I'm concerned as from being because is if that is kind of military conflict in peninsula, it could have devast an effects on people here. Therefore, I'm worried. However, the possibility of having one in the count Peninsula is limited for the same reason I explained,

because the damage is too large. Prepare uh from the roast quin perspective him that perspective, I don't think he well initiate anyone against the United States or against South Korea Japan, because I I believe he's a rational person. Although he's a cruel He wants to be seen as a mandy man. But I think he's a rational guy and he knows that if the texts militarily the United States, South Korea, Japan, that means the end of his regime

and himself. So he's a person who loses everything. He's the only person I think who is that the person, uh, you know who whose damaged his largest by this kind of a military conflict. But therefore, he would are there to start anywhere against other countries. Professor thank you for joining us. Thank you so much. Well, Scott, the real surprise here from talking to Professor Kim is just how vibrant he makes the North Korean economy sound, and that

really isn't the way it's been portrayed. Well, it might be vibrant compared with how it was ten or twenty years ago, but you know, compared with its southern neighbor

or China or Japan, it's far. I think it's still far far from being anywhere close to those And I guess the interesting point of tension is as North Korea tries to adopt market reforms, does it become like China, where markets have grown the economy and cemented the group of the party, or does it go down the root of the Soviet Union, where market reforms ultimately exposed the

weakness of the party's control and foreshadowed it's collapse. Well, it's interesting you say that, because the Chinese have really they they've made it their business to take the lessons from the collapse of the Soviet Union and to not make those kinds of mistakes that led to the Communist Party's collapse in in the U. S. SR. And instead, you know, take them, take those away and do their best to balance the markets and stay control of the

economy that's kept them in power in China. And like the professor said, Uh, you know, you have a big difference here. Where As in North Korea it's the Kim family that's trying to stay in power, whereas Uh in the Communist Party in China has found a way to transition power from one generation to the next roughly every ten years. Um, so it's a party verse as a

family exactly. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, l Bloomberg app, as well as on Apple Podcasts, pocket casts and stitch it. While you're there, take a minute, rate and review the show so more listeners can find us and let us know what you thought. You can follow me on Twitter at Moss Underscore Echo Scott I'm at at Scott Landman. Benchmark is produced by Sarah Patterson. Thanks for listening, See you next time.