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North Korea Flirts with Capitalism

Prepared by: Esther Pan
June 8, 2006

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Pyongyang is looking a bit less red these days. Enterprising North Koreans are running businesses in China—including a hotel, a software company, and an Internet provider—and Korean restaurants across Asia, with all profits going to North Korean President Kim Jung-Il's government (Asia Times). Kim has been introducing some market reforms, including deregulating prices and exchange rates (Newsweek). Some of the changes, such as allowing people to grow food and raise farm animals for their own use, were evident in 2003, when the country's first market opened in Pyongyang (Guardian). The notoriously secretive state is even opening up to tourists, including journalists, who are led on carefully choreographed visits (Bloomberg). Andrei Lankov of Australian National University writes in Asia Policy that corruption and the disintegration of the bureaucracy have led to the "natural death" of North Korean Stalinism (PDF). The extent of North Korea's experiment with capitalism is explored in this new Backgrounder.

But North Korea has a long way to go to become a free-market economy. The state still owns all manufacturing facilities and property, sets production targets and wages, and controls all imports and exports. North Korea ranked dead last of 157 countries surveyed in The Heritage Foundation's 2006 Index of Economic Freedom, which measures factors including government intervention, property rights, and regulation.

To fill its need for hard currency, the North Korean government is increasingly turning to crime, U.S. officials say. John Tkacik, Jr. of The Heritage Foundation says China is likely helping—or at best, standing by—as North Korea blankets Asia with tens of millions of dollars of counterfeit U.S. banknotes. David Asher, a scholar at the American Enterprise Institute and former head of the Bush administration's North Korea working group, accuses Pyongyang of behaving more like an organized-crime family than a nation. "North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy," he writes. The next worry, he and other experts agree, is that North Korea will trade WMD for hard currency. But Todd Crowell, writing in the Asia Times, is skeptical of the timing of the U.S. charges, coming as they did just after a tentative agreement with North Korea was reached in the fall of 2005.

The independently run "North Korea zone" blog traces the fates of several North Korean "special economic zones," including the joint venture with South Korea at Kaesong, the Sinuiju special economic zone on the Chinese border, and the Kumgang mountain tourist project. Nicholas Eberstadt of the American Enterprise Institute asks in Policy Review Online how long North Korea can survive under the "specter of economic collapse."

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