North Korea: confused and confusing

Is North Korea heading towards a food crisis in the winter of 2012? Yes! Will it be a “great famine” like in the 90ies? No! Why so?

Rumor has been that the North Korean government decided to “reform” its markets. Of course, when the North Korean regime speaks about markets or reform, they use these terms in a very peculiar way.

First, there seems to be an intention of making a list of goods and commodities that can be traded in markets. Second, the government wants to fix the prices of these products, most notably rice. Third, the fixed price would be below the market-price. And fourth, there is another intention of a 10-fold wage increase.

Oh-oh: Prices fixed under the market-value and a huge wage increase has always led and will always lead to super-inflation. And not only this: The market will collapse because traders will not be willing to sell their products for under the market-value. They simply will not sell anything at all!

Certainly, in North Korea, traders and producers can be forced into their workings, but their productivity will be even lower than it is today. Either way: The result will be less foodstuff and of worse quality.

As for the wage increase, it comes out of the political desire to show some generosity to the people. It’s the same people that have been suffering from a 1,000 percent price increase for rice in 2012.And yes, printing more money to grant everyone a wage increase will lead to even higher inflation. It would be the third time in 10 years that North Korea willingly unleashes inflation.

Now that the economic doom has been established, why won’t it end in a “great famine”? There are some encouraging facts. First, ordinary citizens are much more agile than they were in the 90ies. Back then, everyone counted on the central government to remedy the shortage of food. A giant error! People learned from the past and adapted into every-day problem solving. Then, local-level officials who fear the people as much as they fear the central-government became more dynamic, too.

Lastly, North Korea is more open today, this means that some people have access to cellular phones and many people have US Dollars, Chinese Renminbi and other currencies at their disposal. These are the best pre-conditions for the establishment of a “black market”.

If there is food shortage this winter, black markets will prevent it from becoming a “great famine”.

There have also been rumors of pending reforms in the agricultural sector. This led some western commentators to draw a parallel to China and envisage a great future for North Korea. Here is why it does not look so well: First, as China reformed its agriculture, some 70 percent of its population was rural workers; in today’s North Korea, only some 35 percent are. Second, Chinese reforms enabled people to work in industries and it had an industrial base ready for expansion; North Korea lacks the freedom of choosing one’s own job and lacks the industrial seed. Third, China opened up for international trade; North Korea shuts door after door.

To reform or not to reform? Let’s face it: We don’t know anything about Kim Jong-un’s political ideas. And this is likely to remain so. What we know, however, is that if there was any sincere intention of reform, China would be more than pleased to help. The Middle Kingdom has an eminent interest in a stable North Korea. If it is not only peaceful but also prospers, Beijing would be smiling at its fate. But North Korea doesn’t seem sincere.

Once again, confusing accounts on what is happening in the North make us apprehensive of the regime’s next move. One keeps wondering why all news ― better: rumors ― about that country have to be so confusing. Well, perhaps North Korea’s regime is confused itself.

The writer is the chief economist of the Swiss Federation of Small and Medium Enterprises. His main interests are the Korean and Chinese economies and politics. His email address is hschneider@gmx.ch. <The Korea Times/Henrique Schneider>

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