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The North Korean economy is actually growing despite sanctions

Its quiet embrace of free markets has helped the country survive sanctions.

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Resolute in its commitment to communism and plagued by sanctions, North Korea has one of the most isolated economies in the world. And yet its economy is showing signs of expanding — potentially at a pretty decent pace.

This weekend the New York Times’s Choe Sang-Hun wrote a fascinating article showing how the country has been experiencing economic success in recent years by taking steps toward allowing private enterprise to spread throughout the country.

According to the Times, some experts estimate that the North Korean economy could be growing between 1 and 5 percent per year. If North Korea’s economy is actually growing at the higher end of that estimate — say, around 4 percent — the country would be showing surprising resilience in the face of international sanctions.

None of this is to say that the quality of life in North Korea for many is anything other than nightmarish. Food shortages are rampant, and the economy is far from self-sufficient: About 70 percent of the population relies on food aid, and 40 percent of the country is malnourished, according to the United Nations.

Still, those dire economic conditions could be slowly changing. That’s an astonishing possibility, deeply at odds with popular conceptions of the Hermit Kingdom as a totally stagnant economic backwater. It’s also an indicator that international sanctions would likely have be far harsher to have the desired effect of convincing North Korean leader Kim Jong Un that it’s not worth it for him to continue to pursue a nuclear weapons program.

North Korea has seen the rise of a merchant class and a vibrant black market

North Koreans have sought ways to make money and find goods outside the regime’s system for dispensing jobs and rations for decades. In the 1990s, when North Korea endured a famine that killed more than 2 million people, black markets sprang up across the country.

Kim Jong Il, the current leader’s father and predecessor, was known for having mixed feelings about the existence of free markets. He sometimes considered them a way to blunt the edge of suffocating sanctions from the outside world, but other times cracked down on them harshly.

Under the younger Kim, who has been in power since 2011, the country has seen an uptick in the spread of markets where people are free to sell and consume goods, both in the informal economy (think roadside stands) and in more official, government-approved marketplaces. The Times article has a number of revealing statistics capturing just how big the shift has been:

  • Since 2010, government-approved markets like shopping centers have doubled. There are now 440, and they’re growing, according to satellite images.
  • More than a million people have found employment as retailers or managers in these markets.
  • At least 40 percent of the population is now involved in “some form of private enterprise” — comparable to the levels seen in Poland and Hungary after the fall of the Soviet bloc.
  • You can find Coca-Cola, once lambasted as a “cesspool water of capitalism” by state propaganda, in some grocery stores.
  • Smugglers routinely cross into North Korea to sell pirated copies of Hollywood movies and South Korean television dramas.
  • More than 3 million people use cellphones.
  • There’s been a boom in construction and cars in the capital of Pyongyang.

The data paints a picture of a North Korea that is far more connected with the rest of the world — and the free market economies that exists in many countries — than we normally think.

North Korea’s market reforms are a double-edged sword

So why does all of this matter?

First, it reveals a different side of Kim, the country’s young leader. He has spent enormous sums of money developing ballistic missiles and nuclear warheads despite the financial impact on his own people. At the same time, he has deliberately sought to stimulate economic growth and clearly sees some kind of role for private enterprise in helping bring that about. That would be a useful thing for President Trump to keep in mind if he ever holds direct talks with Kim, as he now says he would be willing to do.

The Times story is also a reminder of just how much power China has to wreak havoc on the North Korean economy. About 80 percent of the consumer goods in North Korean markets come from China. Persuading Beijing to close that pipeline would be a powerful way of ramping up the international pressure on North Korea over its nuclear program. (China, which views North Korea as a strategic asset, is very reluctant to do that, at least for now.)

In theory, North Korea wants to shut out the entire world. In practice, it wants to shut out basically every country except China.

But North Korea’s slow embrace of free markets also presents another possible solution for policy-makers looking to rein in its nuclear program. Instead of trying to suppress the country’s economy, the world could try to encourage its free market behavior.

The idea is that North Korean consumers would begin to develop higher expectations for goods and services and be exposed to more information about the outside world. Rising expectations about what the world could offer could in turn force Pyongyang to consider further economic reform, and even political reform. And ultimately all of that would cause the regime to seriously re-evaluate how it chooses to deal with the outside world.

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