Going against the Grain

In stark contrast with most North Korea watchers, Alexandre Mansourov believes that Pyongyang’s economic policies since the currency redenomination of November, 2009 have not been the arbitrary, ad hoc responses to negative outcomes from earlier policy decisions that they have looked very much like.

Mansourov, writing on the new SAIS blog 38 North, says he believes that North Korea is engaged in a "longer term development strategy".

Pyongyang's aims, he explains at length and with no obvious signs of pessimism, are to “displace imports, restore self-reliance, and consolidate state control over the economic system at the expense of the newly emerging proto-markets in retail trade and the small private merchant class.”

As a result, he believes North Korea is likely to hereafter pursue a policy of increasing protectionism and a return to state leadership of the economy in an effort to “further control demand, regulate the supply of imported goods through selective protectionist tariff measures, raise funds for new infrastructure and facility investment, and boost the supply of domestically manufactured goods.”

Mansourov, to be fair, is unsure of how the new policy will work out, whether what he calls the “new equilibrium” will actually “bring about economic growth and contribute to increasing production, trade, and consumption,” or end up in “economic failure causing social chaos and political instability,” but is sure the western media is wrong to presume failure so soon.

Do I lay much stock in this analysis? No, not by any means. The currency redenomination was confiscatory, and could not possibly have led to any other outcome besides hyperinflation in the short term. Its aim was primarily to bring the markets to heel, a desired side effect in Mansourov's analysis, rather than the main ambition. In any case, it was an aim in which Pyongyang was largely unsuccessful, not least since the state was in no fit state to step into the breech and provide for the people for more than a month or two.

In addition to which, how can North Korea hope to "raise funds for new infrastructure and facility investment, and boost the supply of domestically manufactured goods"? There is nothing to tax domestically, and import substitution development is extremely hard when you have just stolen the assets of the emerging middle class! Kim's effort to claw privately held foreign currency into the state's coffers was also obviously doomed from the start, since even North Korea couldn't bring to bear the degree of repression necessary to get people to volunteer their savings to the state.

I am not alone in my opinion. Other experts, first but not only Marcus Noland, agree that the aim of the North Korean policy may indeed be to build back up a statist model of economic development, but also believe that the policy is almost certain to fail, and is, damningly, "unlikely to even contribute significantly to the stated goal of rebuilding socialism.”

By drastically reducing the amount of money in circulation at the time of the redenomination, the Noland report pointed out in January that the redenomination has had the singularly unhelpful effect of increasing the risks associated with market activity, adding fuel to the trend towards holding cash in foreign currency rather than won.

This is destined to actually circumscribe the state’s capacity to do what it is aiming to do, namely create a strong and prosperous state. At the end of the day, the market is the only way besides trade in natural resources for anyone in North Korea to generate wealth. Without wealth, and the taxation of that wealth, how can one possibly hope to develop the state? It's a Catch-22.

In short, it seems wildly implausible that the state is engaged in a "long term development strategy," or at least not one with any hope of success.

And, as an aside, what can we say about the execution of the "author" of the strategy, Park Nam Ki? Does this suggest a long term development strategy? If Kim Jong Il is casting around for scapegoats and going cap in hand to China, that is not a good sign, I'd say.