We study economic reforms of Eastern European countries in the 1960s and 1970s in order to understand the fundamental nature of new economic measures North Korea has introduced since July 2002 and to draw implications for future direction of North Kor...
We study economic reforms of Eastern European countries in the 1960s and 1970s in order to understand the fundamental nature of new economic measures North Korea has introduced since July 2002 and to draw implications for future direction of North Korean economic policies.
Although they show differences in backgrounds, specific policies, and processes of reform, we can also find several similarities. First, economic difficulties played a major role for enforcing economic reform. Second, all the Eastern European countries tries to enhance efficiencies in price, wage and incentive, and economic management systems. Third, the purpose of reform was to improve efficiencies within the planned economic system, but not to reform the economic system itself.
The implications of economic reforms of Eastern European countries for North Korea can be summarized as follows. First, economic growth does not necessarily accelerate economic reform. Second, it is almost impossible to retreat market mechanism totally once it is introduced. Third, economic reform tends to have ups and downs, thus it is not easy to promote reform measures continuously. Fourth, expansion of market mechanism does not necessarily lead to smooth transformation towards market economic system, and there exists an extreme case such as collapse.
Like Eastern European counties in the 1960s and 1970s, North Korea is analyzed to try to overcome economic difficulties and normalize official sector by decentralization in decision making and improving economic management system. Compared with Eastern European counties, however, North Korea has an additional task, which is attraction of foreign capital.
At the present stage, how much foreign capital North Korea is able to induce depends on the settlement of its nuclear development program. However, North Korean economic policy is expected to develop a tendency to intensification of decentralized planned economic system. If North Korean nuclear development issue lasts long, North Korea has to focus on mobilizing domestic capital and it will encourage decentralization process. On the other hand, activation of massive economic assistance program of international society as a result of resolution of North Korean nuclear development issue is going to expedite decentralization of the North Korean economy.
Therefore, we propose that inter-Korean economic cooperation should perform the following roles. First, inter-Korean economic cooperation should be able to help North Korea attract foreign capital by contributing to settlement of nuclear development issue. Second, it should be able to contribute to increase in ability of the North Korean authority economic management. Third, it should be able to contribute to stabilize and expand market mechanism in North Korea.
This implies that we need to make a strategic use of inter-Korean economic cooperation in order to accelerate economic changes of North Korea.