North Korea: The Iron Fist and the Invisible Hand

Seoul/Brussels  |   25 Apr 2005

North Korea is undergoing the most profound economic changes in its history, but the world should not attempt any major new economic engagement until the nuclear issue is resolved.

North Korea: Can the Iron Fist Accept the Invisible Hand?,* the International Crisis Group's latest report, examines the country's expanding economic reform in the context of the deepening nuclear confrontation. The international community has an opportunity to help North Korea make a successful transition from a Stalinist command economy to one that is more market-driven and integrated into the global economy. The report describes the preliminary assistance and preparatory steps that should now be made.

"Facilitating North Korea's economic reforms can help considerably to push the country toward more acceptable international conduct", says Peter Beck, Crisis Group's North East Asia Project Director. "But North Korea will not and should not receive significant international development aid until the regime gives up its nuclear weapons".

Although it is unclear the regime is capable of fully embracing the market, economic reform in North Korea is a reality. Since July 2002, gradual marketisation and incipient entrepreneurship have been creating semi-private markets, shops, and small businesses across the country. Most enterprises have already been removed from the state planning system, and land has been de-collectivised.

Economic ties with China and South Korea are deepening in unprecedented ways, giving a growing number of North Koreans their first unfiltered taste of the outside world. Markets stocked with consumer goods and burgeoning foreign investment are changing how the country looks and the way its people think.

There are some important preliminary steps not involving the transfer of meaningful resources that the outside world ought to undertake immediately both in order to prepare for what should be done if a nuclear deal is struck and to show Pyongyang why it needs to make that deal in its own interest. These include training North Koreans in financial, technical and market economic skills, both inside and outside the country; addressing infrastructural constraints, particularly in the power and transportation sectors; and undertaking comprehensive needs assessments to prepare for the next stage of reform.

Increasing knowledge about the economy and a better understanding of what the country will require in the way of help would improve the prospect that any deal reached on the nuclear issue would lead to transformation of the economy and improved living standards rather than simply channel resources to the elite.

"The economic changes underway are unlikely to lead to the toppling of the regime any time soon, but as they take hold, the pressure for political change will increase", says Robert Templer, Director of Crisis Group's Asia Program.