The July 2002 Reforms in North Korea: Liberman- Style Reforms or Road to Transformation?

IntroductionOne of the features of North Korea's development, mostly unnoticed during the time of nuclear stando∂, is the economic reform program that poses a formerly unknown challenge to the rigid ideological system of North Korea. These reform attempts are not a recent phenomenon, since the constitutional change of 1998 was the first important cornerstone of the changes (Lee, 2002). Essentially, there are two explanations of these changes: For some observers, the changes are reminiscent of the reforms China introduced in i978 and the reforms of Vietnam (the doi moi policy) in the i980s and 1990s. This opinion is often heard from recent visitors to North Korea who are familiar with the China of the late i970s and early i980s and for whom the careful opening process and partial liberalization, for example, of petty trade, exhibit similarities to the Chinese reform experiences. China has always been the closest ally of North Korea, and the dependence on China grew in the 1990s when the Soviet Union stopped subsidized energy delivery to North Korea and began market-based relationships with the country. China was the most important donor of development aid and accepted a large and probably unrecoverable trade deficit with North Korea, amounting in the last ten years to more than $4 billion (U.S.) North Korean o[double dagger]cials, including Kim Jong-Il, frequently visited China and reportedly have been impressed with Chinese development and growth. Also, North Korea's introduction of special economic zones as islands of reform seems to follow the Chinese way (Jung et al., 2003; Seliger, 2003a; Seliger, 2005). A second explanation sees economic reforms related to a profound change from the traditional monoparty, dynastic communism idiosyncratic to North Korea to a form of "developmental dictatorship" as existed formerly in South Korea (Johnson, i982; Adamovich, 200i). Obviously, the party, which has not convened since i980, plays by now a relatively minor role in policy formulation compared to the state security council and the "party center," Kim Jong-Il. The role of the military seems to be growing, as the songun (military first) policy shows. It has been argued that this is less a sign of increasing militarization of the society but rather a sign of a change of the role of military, namely as a facilitator of economic reform as it was in South Korea. North Korean o[double dagger]cials have studied the South Korean development experience in several special missions, and they might have come to the obvious conclusion that the economic superiority of South Korea is related to its economic system and that a politically relatively safe way of economic reform, in terms of retaining the political monopoly of the ruling elite, is to introduce change by a military-style dictatorship. This, it is hoped, is definitely not costless in terms of human rights, yet it is a clear improvement from the sclerotic economic and political communist system existing up until now.Both explanations, however, also have serious shortcomings. In the beginning of reform, China and Vietnam, being overwhelmingly agricultural countries, were characterized by a completely di∂erent sectoral structure than North Korea. Relatively minor changes in agriculture, namely the re-introduction of family-based farming instead of collectivized farming, resulted in spectacular initial growth suc- cesses. This not only led to sustained political support of reform by the people who experienced constant increases in real income, but also was the basis for self-financing of small village and township enterprises as a basic step for later, faster industrialization under reformed institutions.In North Korea, the situation is completely di∂erent. While agriculture plays a relatively important part in the economy in terms of production and employment, this is mainly a statistical illusion due to shrinking economy. North Korea essentially remains an industrialized country, not only due to the geography of the country, which forbids large-scale agriculture, but also due to forced industrialization in the last 50 years. …