Korea was a very traditional, agricultural country until Japan formally seized it (1909). The Japanese developed mineral resources and introduced heavy industry. Most of the industrial development occurred in the north where the mineral resources were located. North Korea thus was an important part of the Japanese World War II war industry. North Korean industry was largely beyond the range of the American strategic bombing campaign and thus unlike Japanese industry survived the War. Thus when the Communists took over, it was the wealthiest, most productive. Kim Il Song installed in power by Stalin pursued Soviet-style central planning and integrated the country into the Soviet economic system. The Korean War (1950-53) did considerable damage and was followed by a long period of economic decline when a series of large centrally planned projects proved economic failures. At the same time the South which pursued capatalist free enterprose economics brought about an economic miracle accomplished without important natural resources which made it one of the richest countries in Asia. Communist North Korea is the world's most centrally directed and least open economies. The result has been unmitigated disaster. Economic problems are endemic, but largely hidden while the Soviet Union subsisized the regime and forced its Eastern European satellites to do the same. The fall of Communism in Eastern Europe and the Soviet Union, ended North Korea's ability to arrange barter deals. State policies preventing foreign competition has neant that industry fell behind that of other countries. The country's industrial capital stock is thus old an inefficient, suffering from underinvestment and shortages of spare parts and unable to produce products saleable outside of the country.
As in other Connunist countries, agriculture is also a failure as a result of collectivization and mismanagent. Combined with droughts, crop failures have resulted in famine, only ameliorated by food shipments from countries the regime vilifies (America, Japn, and South Korea). All of this is further compounded by the maintenance of a huge military andc weapons programs which absorbs much of the country's economic output.
Korea was a very traditional, agricultural country until Japan formally seized it (1909). The Japanese developed mineral resources and introduced heavy industry. Most of the industrial development occurred in the north where the mineral resources were located, especially coal. This incereased living standards there in comparison to the more agricultural South. As a result, living conditions in the North began to rise about standards in the South. North Korea thus was an important part of the Japanese World War II war industry. North Korean industry was largely beyond the range of the American strategic bombing campaign and thus unlike Japanese industry survived the War. This is what Kim inhereted from the Jaopabnese rilers at the end of World War II (1945).
The Soviet Union declared war on Japan (August 1945). The Red Army offensive swept through Manchuria and into North Korea. American fotces landed in the south. Korea was divided at the 38th parallel. Thus when the Communists took over, North Korea was the wealthiest, most prodictive part of the country.
Kim Il Song installed in power by Stalin pursued Soviet-style central planning and integrated the country into the Soviet economic system. Kim began with the command system established by the Japanese occupiers planning to invade China. The Japanese had began the industrilizatiomn of Korea. And as a result, there was significant indudtry in the North. This meant that the industrukl North was more prosperous and had higher living standards than the agricultural South. This was a factior in Kim's decision to invade the South (1950). br>
The Korean War (1950-53) did considerable damage and was followed by a long period of economic decline when a series of large centrally planned industrial projects as well as collectivization proved economic failures. And with the ecinomic sucesses in the south, the economic lead of the North began to fade. After the War, North Korea adopted the Stalinist economic policy of achieving growth through forced saving, This failed miserably. First, there was no incentive in the system. Mmanagers and workers in collective farms and industrial concerns had no incentive to improve productivity or to work harder. Second, Kim's policy of autarky--self-imposed isolation and self reliance (Juche) helped him create a totalitarian state. But it meant ght North Korea was cut from the advanced technologies of the rest of the world. Third, developed world through trade and foreign investment. Third, Kim's decision to maintain a police state and huge army meant that vast resources were diverted from the economy to unproductive sectors. The resulting economic failure forced new approaches. North Korea began experimenting with incentives and independent accounting of state enterprises. Here they were limited. Incentives meant that the state was not absoluteky totalitarian. It potentiallu introduced individualism. Thus the incentives were minimal and had no significant economic impact. The North Koreans also began to solicit foreign investment, violating every priniple of Marxism and Juche (early-1970s) . This effort also failed, largely because rather than investing in ecomomic activity, the North Koreans used the hard currency to purchase advabnced mikitary equipoment and supplieds needed by their nuclear program. And they defaulted on the loans. When they tried to borrow more money, they found few interested bankers (1980s).
At the same time the South which pursued capatalist free enterprose economics brought about an economic miracle accomplished without important natural resources which made it one of the richest countries in Asia.
Communist North Korea is the world's most centrally directed and least open economies. The result has been unmitigated disaster. Economic problems are endemic, but largely hidden while the Soviet Union subsisized the regime and forced its Eastern European satellites to do the same. The fall of Communism in Eastern Rurope and the Soviet Union, ended North Korea's ability to arrange barter deals. State policies preventing foreign competition has neant that industry fell behind that of other countries. The country's industrial capital stock is thus old an inefficient, suffering from underinvestment and shortages of spare parts and unable to produce products saleable outside of the country. As in other Communist countries, agriculture is also a failure as a result of limited arable land, collectivization, and mismanagent along with shortages of tractors and other farm equipment, fuel, and fertilizer. These self-created problens combined with adverse weather (droughts or floods) have severe shortages since 1995, at times approaching famine. Severe flooding in the summer of 2007 aggrivated the food shortages caused by on-going systemic problems. As the regime controls the destribution of the food that is produced, it is directed at groups neeced to support the regime, such as the military. Less favored groups such as orphans or slave laborers are basically left to slowly starve.
The new Communist North Korean regime enacted a Land Reform Law (1946). This process began earlier with the arrival of the Soviet Red Army. Communist authorities were soon simply shooting land owners as had been the case in China. The Communists did not only go after large landholdings, farmers who hired a few workers were targetted. This meant people who owned more than 5 chngbo/chungbo (충보) is a traditional Korean measurement (about 2.45 acres). This area was so small that it essentially created small farms tht only provided subsistence to a family. The Land Reform Law leglized the seizure of the holdings of large landowners, including very small holdings. . In fact that had already begun. The land was distributed to poor farmers and tenants. Private ownership could not exceed 5 chngbo in lowland areas, or 20 chngbo in mountainous areas. This had both social as economic consequences. Land owning farmers that could escape fled to the American held southern half of the peninsula. The Communists did not only go after large landholsings, farmers who hired a few workers were targetted. Between the landowners shot and thiose who escaped meant that Noirth Korea lost many of its best farmers. The individuals given land in 1946 did not hold it long. Collctivization was conducted in three steps (1945-58). This affected a substantisl portion of the population. Despite industrualization, many North Koreans lived in small hamlets scattered throughout the countryside.
--had little time to enjoy their status as independent proprietors because the state quickly initiated a process of collectivization. In the initial stage, "permanent mutual aid teams" were formed in which landholders managed their own land as private property but pooled labor, draft animals, and agricultural tools. This stage was followed by the stage of "semisocialist cooperatives," in which land, still privately held, was pooled. The cooperative purchased animals and tools out of a common fund, and the distribution of the harvest depended on the amount of land and labor contributed. The third and final stage involved the establishment of "complete socialist cooperatives" in which all land was turned over to collective ownership and management. Cooperative members were paid solely on the basis of labor contributed.
The 1959 edition of the North Korea Central Yearbook reported that approximately 80 percent of all farmers had joined socialist cooperatives by December 1956 and that by August 1958 all had joined. A land law passed in 1977 stipulated that all land held by cooperatives would be transferred gradually to state ownership or "ownership by the entire people."
The state encouraged the merging of cooperatives so that they would coincide with the ri, or ni (village). The number of cooperatives with between 101 and 200 households increased from 222 cooperatives in 1954 to 1,074 cooperatives in 1958. The number of cooperatives with between 201 and 300 households increased from twenty cooperatives in 1955 to 984 cooperatives in 1958.
Famine and malnutrition have been ameliorated by food shipments from countries the regime vilifies (America, Japan, and South Korea). Industrial and power output have declined in parallel from pre-1990 levels before the collapse of the Soviet Union. Onky these large-scale international food aid shipments saved the people of North Korea from widespread starvation. While famine and starvation have been ocerted, the people unless among those favired by the regime suffer from prolonged malnutrition and apauling living conditions. The government when nin began to curtail the farm market reforms, also ended most of the international humanitarian assistance operations (December 1995). Instead they insisted on "developmental" assistance. They restricted activities of the remaining international and non-governmental aid organizations such as the World Food Program. Foreign food aid as a result now now comes primarily from China and South Korea in the form of grants and long-term concessional loans, loans that are unlikely to ever be repaid. The United Sates as part of an effort to stop North Korea from developing nuclear weapons,
agreed to provide 0.5 milliom metric tons of food to North Korea through the World Food Program and U.S.nongovernmental organizations (May 2008). North Korea receiving these shipments in mid-2008. During the October 2007 summit, South Korea also agreed to develop some of North Korea's infrastructure, natural resources, and light industry. Inter-Korean economic cooperation, however was interupted as the North Korean government moved to restrict tourism and manufacturing joint ventures in the North (2008). South Korea as a result suspended food aid.
The industrial and agricultural failures are further compounded by the maintenance of a huge military andc weapons programs which absorbs much of the country's economic output. The massive military spending absorbs the resources needed for investment and means that little remains for civilian consumption (2008).
as a result of the severe food shortages, the goverment permited private "farmers' markets" to begin selling for the first time (2002). It also began an experiment with some limited private farming as an attempt to increase agricultural production. The experiments worked in increasing production, but this meant that substantial economic activity was outside of givernment cintrol for the first time. The government thus
attempted to reverse some of the reform policies by forbidding private sales of grains and reinstituting a centralized food rationing system (October 2005). The North Korean regimes determination to maintain absolute political control means that they are fearful of reforms which loosen economic regulations what ever the benefits in terns of production. The government also began pressuring the local markets, limiting the range of good which could be sold or closing them altogether. The government had also crimimalized market behavior and opened a new gulag for those classified as economic criminals. [East-West Center] The Security Forces have bkanket authority to detain anyone buying or selling in the markets that had developed. The only way of avoiding arrest was to pay bribes. [Harden]
The North Korean Government revalued the won (December 1). The reevaluation was dome at a rate of 100 to 1. Thus a 1,000 won note becomes a 10 new won. This was, however, no mere accounting measure to reduce the denominations to more manageable numbers. Although the government offered no explanations, the motivation is obvious. The move was aimed at whiping out the meagre savings of Koreans who had taken advantaged of the limited free-marketed reforms and farmed private plots or trade in farmer's markets. This was dome by severely limited the amount of currency or bank deposits which could be refeemed. This is the culminating step in cracking down on the people who had participated in the reforms. The Government was very nervous about allowing people outside the regime;s power structure to prosper. The government seems unconcerned about the impact in the food supply. Unless individuals had converted their savings to dollars or other hard cirrencies, their savings ahve been wiped out. People were only able to convert 100,00 won ($40 at black market rates). The Goverment because of rare protes raised the conversin limits cto 150,00 win in bills and 300,000 won in deposits. The Goverment also close state shops so that people could not buy goods with their old won. The impact of this and other actions against private production and free markets is unclear. U.N. sources estimate that about half of the calories consumed come thtough private production and free markets. South Korean sources believe that another food crisis could develp in by March 2010. [Harden]
East-West Center. Report on North Korea (2009). The East-West Center is a resrarch hroup established by Congress to foster a better understanding of Asia.
Harden, Blaine. "North Korea revalues currency, destroying personal savings, " WashingtonnPost (December 2, 2009), p. A8.
Navigate the Children in Hoistory Website:
[Return to the Main Korean economy page]
[Return to the Main economics country page]
[Return to the Main Economics page]
[Introduction] [Biographies] [Chronology] [Climatology] [Clothing] [Disease and Health] [Economics] [Freedom] [Geography] [History] [Human Nature] [Ideology] [Law]
[Nationalism] [Presidents] [Religion] [Royalty] [Science] [Social Class]
[Bibliographies] [Contributions] [FAQs] [Glossaries] [Images] [Links] [Registration] [Tools]
[Children in History Home]