Speaker 1: Barely a week passes without a missile launch or a
Speaker 1: nuclear test in North Korea, But what about the economy?
Speaker 1: When attention does focus on the economy, the country is
Speaker 1: mostly characterized as an economic backwater compared with its southern neighbor.
Speaker 1: It has no global brands like Hunday or Samsung, and
Speaker 1: it's only a few years ago that famine was reported
Speaker 1: to be widespread in the countryside. The only thing the
Speaker 1: place had going for it were nukes and a financial
Speaker 1: lifeline from China, but that may all be changing. Welcomed
Speaker 1: benchmarkers show about the global economy. I'm Daniel Moss, economics
Speaker 1: columnist for Bloomberg View in New York, and I'm scot Landman,
Speaker 1: an economics editor with Bloomberg News in Washington. Lately, there
Speaker 1: are signs that the North economic picture is brightening, admittedly
Speaker 1: from a very low base. Its economy grew almost four
Speaker 1: percent last year, faster than the US. It has a
Speaker 1: lot of catching up to do. Gross domestic product is
Speaker 1: a little less than thirty billion. To put that in comparison,
Speaker 1: South Korea's economy is about one point four trillion. But
Speaker 1: the North economy may be changing quickly, thanks largely to
Speaker 1: markets both legal and illegal. What markets? What's going on here?
Speaker 1: Isn't this the ultimate stalinist state? And to what extent
Speaker 1: is it emboldening North Korea? And could it also be
Speaker 1: a sign of weakness? Now joining us to explain this
Speaker 1: boom that nobody noticed is b y Kim, a professor
Speaker 1: at Soul National University and the author of the well
Speaker 1: timed recent book Unveiling the North Korean Economy Collapse and Transition. Professor,
Speaker 1: thank you for joining us where it's your evening and
Speaker 1: our morning. That's right, Thank you so much for having
Speaker 1: me today, Professor. Let's start with the basics. How is
Speaker 1: North Korea's economy doing right now? But the economy has
Speaker 1: been stabilized. If you remember the famine in the ninety late,
Speaker 1: a lot of people have died because of bamin. At
Speaker 1: that time we estimated about six hundred thousand people have
Speaker 1: died of stabation. But now nobody talked about the stabation
Speaker 1: in North Korea anymore. That is, although there is malutriction
Speaker 1: on the nourishment, but sturbation is now remote. So economy
Speaker 1: has been okay and stabilized. And the ad mentioned economic
Speaker 1: cross rate last year recorded three point nine percent panem
Speaker 1: and so what is driving the economy, Professor? What are
Speaker 1: the main UH commodities? Trade? What's going on? How are
Speaker 1: people getting their money? How is North Korea getting its
Speaker 1: products and delivering them to the outside world. Yeah, I
Speaker 1: think there are three factors which drive the economic growth.
Speaker 1: The first one is markets. Nowadays, North Koreans lion markets
Speaker 1: for survival and for prosperity for some people. And about
Speaker 1: seventy nine of house income drives from markets, and fifty
Speaker 1: people participate in the official economy while seventy percent people
Speaker 1: work informally. Therefore, in North Korea, although it's socialist country,
Speaker 1: market dominates in reality. The second factor is trade. Norse
Speaker 1: create can be regarded as being open economy in terms
Speaker 1: of the share of a trade in g d P,
Speaker 1: which is about fifty percent. World average is a pip
Speaker 1: eight percent. Therefore, North Korea is open economy. That might
Speaker 1: surprise many listeners, Professor, given the images we have that
Speaker 1: it's kind of a gray hermatic nation sealed off from
Speaker 1: the rest of the world, with a population that's basically enslaved.
Speaker 1: How has what you've described gone so unnoticed that that's correct?
Speaker 1: Because the image of North Korea was based on politics
Speaker 1: and security from the prospective of politics anstuity, not from
Speaker 1: econic perspectives. And these changes have occurred in the middle
Speaker 1: and late nine nineties. They call it arvious much and
Speaker 1: I mean many people have died of starvation and therefore
Speaker 1: markets emerged unnoticed because people were transjecting are if possible
Speaker 1: in markets for survival. And afterwards that the government applied
Speaker 1: zig policy on arche activity. Sometimes they try to press.
Speaker 1: Sometimes they applied blind eyes to the activities. So it's
Speaker 1: rather too zack. But the process of expansion of markets
Speaker 1: has been a coding for the last fifteen years and
Speaker 1: the current leader, Kim John has actually given somewhat of
Speaker 1: a blessing to these markets. If I'm not mistaken, Can
Speaker 1: you explain, you know what's going on here, and you
Speaker 1: know how they're helping the economy function. You know, how
Speaker 1: are people able to get the money to buy commodities
Speaker 1: or to even participate in these markets that you talk about? Right? Uh?
Speaker 1: If you remember there was currency formed in post online.
Speaker 1: They somehow trying to repress markets by forcing a conversion
Speaker 1: of the older currency with the new currency, with some
Speaker 1: buildings that intended the shrinkageer markets because the the authorities
Speaker 1: and Kim jong Il so far, the Kim Joan regarded
Speaker 1: markets as a domain or budua, and so they applied
Speaker 1: at this uh policy against markets that reduced market activities.
Speaker 1: But they've failed, and the prime minister apologized to people
Speaker 1: and they pointed out one person escape good and he
Speaker 1: was shot to death. And I imagine that Kim Donan
Speaker 1: might have realized without markets, the economy would not go
Speaker 1: well and people not survive, and therefore he accepted the
Speaker 1: markets because it's sel safety. But on the other hand,
Speaker 1: he thought by himself, okay, handle on the markets, okay
Speaker 1: right now, because it sustained the economy and well repaire people.
Speaker 1: But on the other hand, markets could become a danger
Speaker 1: or enemy in the long run, that's what should I do?
Speaker 1: And perhaps he wants to concentrate on development of nucle
Speaker 1: weapons and missiles in that way can protect his power
Speaker 1: from extra or extra force. So we see economic upswing
Speaker 1: emboldening Kim or is Kim's behavior a product of markets
Speaker 1: weakening him? That's right, since short run markets helped him
Speaker 1: to maintain power. By long run it weakens the power.
Speaker 1: But that is a dilemma he faces because of market
Speaker 1: tiation in Thus Korea and this market activities are intertwined
Speaker 1: with the trade for in trade because fort in t
Speaker 1: trade provides resources to markets, also provides a pertunent power
Speaker 1: for market demand. Therefore, these markets and trades are like
Speaker 1: twins ultiple. Aside the coins UH, exposing Kim the power
Speaker 1: to afford in trade and markets could have been danger
Speaker 1: if something occurs regarding these perfective Now, if you look
Speaker 1: at North Korea's neighbor China, they opened up their economy
Speaker 1: forty years ago, UH, and they still are engaged in
Speaker 1: this perennial struggle over how much of the economy to
Speaker 1: open to markets and how much should still be controlled
Speaker 1: by the state, and how that threatens the power of
Speaker 1: the Communist party. And I think a lot of people
Speaker 1: probably were making similar predictions years ago that you know,
Speaker 1: that once China really opened up their economy, that it
Speaker 1: would risk the power of the Communist party. But in fact,
Speaker 1: the parties today seems to be very strong, and you know,
Speaker 1: has has somehow balanced this opening up of the economy
Speaker 1: with um, you know, maintaining control and staying in power.
Speaker 1: Do you think that's possible it to happen in North
Speaker 1: Korea as well well. For time being, I don't think
Speaker 1: that it is possibility in North Korea. If you look
Speaker 1: at the Chinese case that there were change in power.
Speaker 1: Part of power from Mata Tom, Tomsha Pin and Tom
Speaker 1: Pinch reformed the economy because in that way he was
Speaker 1: able to stabilize the power. But in the case of
Speaker 1: Kim Znan, his a power base is from his father
Speaker 1: and grandfather, and so it did held for him to
Speaker 1: deny the foundation of to chideology, which is inherited from
Speaker 1: his father and grandfather. Different situations. In North Korea you
Speaker 1: have the Party of Kim. In China you have the
Speaker 1: Communist Party, so it's a little different, that's right. I
Speaker 1: think political change transformation proceeded economic transformation in China, but
Speaker 1: we don't see this political transformation in those Korea. That
Speaker 1: is the biggest obstacle. But if you look at this
Speaker 1: problem from different perspectives, there is a possibility for him
Speaker 1: to be fought to take that road Chinese road or reform.
Speaker 1: Why because well, he may have to confront the expansion
Speaker 1: markets at some point he had to choose should I
Speaker 1: compromise or should I depressed market activities. But the latter
Speaker 1: maybe too riska for him. Then he may take the
Speaker 1: first option to compromise on markets. Then they could the
Speaker 1: possibility that Chinese tire reform can take place in Those Korea.
Speaker 1: But critical to China's economic growth as it opened up
Speaker 1: its economy and as market reform strengthened was the role
Speaker 1: of foreign direct investment the manufacture of goods for use
Speaker 1: in Europe and North America in China. It's tough to
Speaker 1: see that happening in North Korea as long as there
Speaker 1: is a nuclear program exactly. That's why I think it's
Speaker 1: the the growth sustain away and fust growth in uh
Speaker 1: in long period were they possible um as long as
Speaker 1: they had to euklepans and long ridge missile development. Let's
Speaker 1: talk more about China, Professor. China does play a role
Speaker 1: in helping North Korea's economy. They really are the gateway
Speaker 1: to a lot of this trade. And it's hard to
Speaker 1: see North Korea's economy doing what it is without having
Speaker 1: some degree of support from China, which which can really
Speaker 1: affect whether North whether the North Korean economy lives or
Speaker 1: or collapses. Is that right, Yeah, that's right. Yes, But
Speaker 1: if you look at the Chinese role in North Korea.
Speaker 1: I would say that the political leverage is limited given
Speaker 1: nowadays circumstances relations between aus Korea and China. But China
Speaker 1: has you know, almost leverage economically. So China can choose
Speaker 1: say between zero zero means no pressure on North Korea,
Speaker 1: one means destabilizing in North Korea economy and society, and
Speaker 1: they can choose. I think any point between zero and
Speaker 1: at what point are we now, well, that's a good question. Well,
Speaker 1: I think it's the if North Korea feels real pain,
Speaker 1: I would saying that should be say seventy or eighty.
Speaker 1: I think now it's the the extandard pain would be
Speaker 1: about the fifty or sixty. It's a bit lower then
Speaker 1: say optimal level of pressure. And what amount of pressure
Speaker 1: due to the international sanctions have on North Korea such
Speaker 1: as the most recent round approved by the United Nations, right,
Speaker 1: I think all together, including the most recent one uh
Speaker 1: UNS sc UNS count resolution. I think if the level
Speaker 1: is about the sixty sixty as we are a bit
Speaker 1: lower than optimal level or pressure. So when we talk
Speaker 1: about a greater role for markets in the economy, ultimately, professor,
Speaker 1: is North Korea going to be China or is it
Speaker 1: going to be the Soviet Union. One ended well, the
Speaker 1: other market experiment did not well. I think these two
Speaker 1: possibilities are quite open. I don't know which way they
Speaker 1: able to go. I can't allowed the scenario which is
Speaker 1: our preferred one. But if I evaluate the possible nity
Speaker 1: right now, I will say the second scenario is more
Speaker 1: possible because, Uh, it's difficult for him to accept make
Speaker 1: reform given his circumstances and the power base, and try
Speaker 1: to find against markets. Then some violent eruption or power
Speaker 1: struggle may violent say struggle, power struggle may erupt in
Speaker 1: North Korea that could end the system. Then they may
Speaker 1: lead the way of that's a transition towards Russia. Professor,
Speaker 1: let me ask the question that's on everybody's minds. You're
Speaker 1: an expert on the economic situation in North Korea, and
Speaker 1: the topic that we hear most about, of course, is
Speaker 1: what's happening with with with Kim's nuclear tests. Uh, you know,
Speaker 1: all the developments there at the different source that they
Speaker 1: have been testing. Uh. What is your personal opinion or
Speaker 1: how much concern do you have that this will end
Speaker 1: badly for everybody? That there will be some sort of
Speaker 1: attack from North Korea on perhaps Soul or somewhere else,
Speaker 1: and you know that it would be a nuclear attack.
Speaker 1: How much is that concern in your mind or fear
Speaker 1: in your mind? Well, I'm concerned as from being because
Speaker 1: is if that is kind of military conflict in peninsula,
Speaker 1: it could have devast an effects on people here. Therefore,
Speaker 1: I'm worried. However, the possibility of having one in the
Speaker 1: count Peninsula is limited for the same reason I explained,
Speaker 1: because the damage is too large. Prepare uh from the
Speaker 1: roast quin perspective him that perspective, I don't think he
Speaker 1: well initiate anyone against the United States or against South
Speaker 1: Korea Japan, because I I believe he's a rational person.
Speaker 1: Although he's a cruel He wants to be seen as
Speaker 1: a mandy man. But I think he's a rational guy
Speaker 1: and he knows that if the texts militarily the United States,
Speaker 1: South Korea, Japan, that means the end of his regime
Speaker 1: and himself. So he's a person who loses everything. He's
Speaker 1: the only person I think who is that the person, uh,
Speaker 1: you know who whose damaged his largest by this kind
Speaker 1: of a military conflict. But therefore, he would are there
Speaker 1: to start anywhere against other countries. Professor thank you for
Speaker 1: joining us. Thank you so much. Well, Scott, the real
Speaker 1: surprise here from talking to Professor Kim is just how
Speaker 1: vibrant he makes the North Korean economy sound, and that
Speaker 1: really isn't the way it's been portrayed. Well, it might
Speaker 1: be vibrant compared with how it was ten or twenty
Speaker 1: years ago, but you know, compared with its southern neighbor
Speaker 1: or China or Japan, it's far. I think it's still
Speaker 1: far far from being anywhere close to those And I
Speaker 1: guess the interesting point of tension is as North Korea
Speaker 1: tries to adopt market reforms, does it become like China,
Speaker 1: where markets have grown the economy and cemented the group
Speaker 1: of the party, or does it go down the root
Speaker 1: of the Soviet Union, where market reforms ultimately exposed the
Speaker 1: weakness of the party's control and foreshadowed it's collapse. Well,
Speaker 1: it's interesting you say that, because the Chinese have really
Speaker 1: they they've made it their business to take the lessons
Speaker 1: from the collapse of the Soviet Union and to not
Speaker 1: make those kinds of mistakes that led to the Communist
Speaker 1: Party's collapse in in the U. S. SR. And instead,
Speaker 1: you know, take them, take those away and do their
Speaker 1: best to balance the markets and stay control of the
Speaker 1: economy that's kept them in power in China. And like
Speaker 1: the professor said, Uh, you know, you have a big
Speaker 1: difference here. Where As in North Korea it's the Kim
Speaker 1: family that's trying to stay in power, whereas Uh in
Speaker 1: the Communist Party in China has found a way to
Speaker 1: transition power from one generation to the next roughly every
Speaker 1: ten years. Um, so it's a party verse as a
Speaker 1: family exactly. Benchmark will be back next week and until then,
Speaker 1: you can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: l Bloomberg app, as well as on Apple Podcasts, pocket
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Speaker 1: us and let us know what you thought. You can
Speaker 1: follow me on Twitter at Moss Underscore Echo Scott I'm
Speaker 1: at at Scott Landman. Benchmark is produced by Sarah Patterson.
Speaker 1: Thanks for listening, See you next time.