Within the Nineteen Nineties, North Korea entered the worldwide highlight when the collapse of the Soviet Union coupled with pure disasters brought on extreme financial hardship and famine, resulting in the deaths of millions. This era, referred to as the “Arduous March,” is commonly cited as one of the vital devastating occasions within the nation’s historical past.
In an interview I performed with North Korean defectors in July 2024, they in contrast the current financial scenario with the Arduous March noting, “The North Korean individuals are suffocating proper now.”
It is a results of the 2017 United Nations Safety Council sanctions and the self-imposed isolation that started in 2020 because of the COVID-19 pandemic. The nation closed its borders for practically three years, causing exports to plummet by over 97 p.c, from $2.8 billion in 2016 to only $89 million in 2020 and $81 million in 2021. The decline in exports resulted in a major discount in authorities income, and international foreign money reserves have decreased considerably over time.
On the identical time, imports dropped from $3.7 billion in 2016 to $773 million in 2020 and $673 million in 2021. The contraction of imports of each uncooked materials and remaining items suppressed manufacturing and financial actions inside the nation.
In 2020, international foreign money reserves had been estimated to be as little as $1.7 billion, and given the post-2020 commerce deficit, it has probably been additional depleted. This has compelled the regime to resort to different means to boost income.
Moreover, North Korea has been going through persistent meals shortages because of its lack of ability to import fertilizers or tools. The Korea Institute for National Unification estimated that the nation wants 5.5 million tons of grain yearly, but on common from 2016-2022 North Korea has produced 4.6 million tons of grain – a persistent scarcity of about 1 million tons yearly.
Moreover, foreign money change charges have fallen sharply in North Korea up to now 12 months with now 30,000 North Korean won to 1 U.S. dollar, whereas in April 2024 it was solely 8,000 received, marking a pointy decline within the worth of its foreign money. Concurrently, rice costs surged to new highs in September 2024 with 1 kilo of rice now costing 6,300 received in Pyongyang, with comparable developments noticed throughout areas.
But, North Korea didn’t face a second Arduous March and Kim managed to keep away from the seemingly impending collapse of his authorities. How?
What is commonly not understood about North Korea’s economic system is its extractive financial system. This manifests in three alternative ways:
First, the regime requires people to pay into the Juseok Fund and Revolution Fund, which immediately fund state actions.
Second, North Korea requires residents to work without cost or at a extremely discounted wage, making it extraordinarily troublesome for employees to maintain a livelihood. Labor extraction has intensified after the 2017 sanctions, particularly post-pandemic, because the regime’s financial scenario has worsened. This has been confirmed in my interviews with defectors and in separate information studies – like a May 2024 article detailing college students, from these in elementary faculty to these in college, being pressured to transplant rice seedlings for no pay as a part of the state-mandated farm help interval.
One other instance is North Korean diplomat Ri Il Gyu, who not too long ago defected and claimed to earn solely $0.30 month-to-month when working in North Korea. Forcing authorities staff to primarily work without cost represents large financial savings for the regime. This type of labor extraction primarily acts as a hidden tax and one other income for the Kim regime.
Third, labor extraction additionally happens with North Koreans working overseas, whose earnings amounted to $6.29 billion from 2017 to 2023, in accordance with an Institute for National Security Strategy report. In 2023, roughly 100,000 North Korean employees had been employed overseas, producing round $500 million for the North Korean regime, according to a U.N. report. These employees retain solely a fraction of their earnings whereas the bulk is seized by North Korean authorities businesses. North Korea continues to bypass U.N. sanctions by maintaining overseas labor contracts in over 40 countries.
General, as North Korea’s financial scenario worsens, it turns into more and more depending on labor exploitation to boost funds whereas avoiding extreme foreign money printing that might set off inflation. Extraction, by way of pressured financial contributions and international and home labor extraction, is a sustaining drive for the North Korean economic system.
Kim Jong Un additionally used the identical strategies as Kim Jong Il did to outlive the Arduous March: By way of “benign neglect” he allowed marketization from beneath, leading to a proliferating casual sector, which now accounts for 70 percent of all economic activity.
As well as, the regime has closely relied upon unlawful earnings to usher in income and foreign exchange. Cryptocurrency theft and different cyber crimes, together with the smuggling of medicine, money, and different illicit items and the arms commerce have helped the regime bypass financial restrictions. This gives North Korea with a vital stream of revenue primarily used to fund its nuclear weapons and ballistic missile programs.
Cryptocurrency gives a considerable supply of funds. In line with the 2024 Crypto Crime Report, from 2016 to 2023, North Korean hackers earned $4.25 billion, whereas the Institute for Nationwide Safety Technique reported greater estimates of as much as $13.5 billion in complete crypto theft. With strict crackdowns on the motion of each individuals and items, cryptocurrency crime has been a method of continuous unlawful earnings even in a restricted atmosphere.
Media studies over the previous years have proven the regime’s increased violence and repression towards the inhabitants to take care of its rule regardless of financial turbulence. This manifested in its more and more belligerent international coverage, inducing an environment of fixed army alert, uniting the individuals behind the regime towards a typical enemy, actual or imagined. Additional, the Kim regime has prioritized the army and developed his nuclear weapons program – a fantastic achievement for him. Lastly, he consolidates his rule by way of the small coalition system, the place elites are offered income streams and different perks in change for his or her loyalty to the regime.
The North Korean regime managed to remain afloat after sanctions and self-imposed isolation, however its survival strategies, closely relying on labor extraction and repression, additional distorted the economic system. The North Korean financial system, like every extractive system, is an obstacle to the nation’s financial improvement as a result of the economic system’s advantages accrue to just a few chosen members of the ruling class and will not be shared amongst individuals. That is what Daron Acemoglu and James Robinson, this 12 months’s winners of the Nobel Prize in economics, defined of their well-known work “Why Nations Fail.”
The individuals of a nation are to not blame for the financial failure of a system that, all through historical past, has persistently failed, with out exception. North Korea should exchange its extractive system with an inclusive one whether it is to realize actual financial improvement. In any other case, although North Korea seems as a rising risk on the worldwide stage, its regime remains to be on the snapping point and Kim Jong Un resides on borrowed time.
