[EAI Panel Report on North Korea's Co-evolution Strategy 4] A Study on North Korea's Co-evolution Strategy: Economy

Professor Cho Dong-ho, currently a professor in the Department of North Korean Studies at Ewha Womans University's College of Social Sciences, earned his Ph.D. in Economics from the University of Pennsylvania. He previously served as a Senior Research Fellow, Head of the North Korean Economy Research Team, and Director of the Planning and Coordination Office at the Korea Development Institute (KDI). He currently serves as an advisor to the Presidential Office's Senior Secretary for Foreign Affairs and National Security, an advisor to the National Assembly Budget Office, an advisor to the National Unification Advisory Council, and a policy advisor to the Ministry of Unification. He also serves as the Director of the North Korea Research Center at the East Asia Institute and is a columnist for the JoongAng Ilbo's 'JoongAng Sipyung.' His primary research areas are the North Korean economy and inter-Korean economic cooperation. His major publications include "A Desirable Approach to the Discussion on Unification Costs" (Jeju Peace Institute, 2010), "A Critical Examination of the Theory of North Korea's Economic Dependence on China" (Journal of International Regional Studies, 2008), "North Korea's Accession to International Financial Institutions: Accession Conditions, Benefits, and North Korea's Choices" (Journal of Unification Studies, 2008), and "A Decade of Despair, A Decade of Skill: An Evaluation of 20 Years of Inter-Korean Economic Cooperation" (Discourse 201, 2008).

Abstract

This article examines the content of North Korea's economic strategy during the "military-first" era, demonstrates that the current strategy inevitably leads to gradual decline, and then discusses a co-evolution strategy for North Korea, South Korea, and the international community. The shift in North Korea's economic strategy towards prioritizing the defense industry following the rise of the "military-first" era after 2001 was an unavoidable internal choice. However, a "military-first" economic strategy, primarily aimed at political survival rather than economic growth, is inherently limited. Crucially, it is not a strategy for the external sector, which is essential for economic revitalization, but is applied only to the domestic economy. Therefore, to prevent economic decline and subsequent regime collapse and to achieve growth, abandoning the "military-first" policy, reforming the system, and opening the economy are essential. In this process, South Korea and the international community must actively cooperate by creating a favorable environment for North Korea's economic advancement strategy and providing material and human support in terms of capital and technology. Furthermore, it is important to play a role in preventing the accumulation of reform fatigue during the transition phase and the resulting expansion of negative perceptions of the transformation. South Korea, in particular, as a party to the Korean Peninsula, must maximize support for North Korea's transformation and seize this opportunity for the common prosperity of both Koreas.

1. Introduction

North Korea defines the Kim Jong-il era as the "military-first" era. The term "military-first" is used to define the policy direction in all sectors during the Kim Jong-il era. "Military-first" can be interpreted as a survival strategy adopted by North Korea, which faced extreme internal and external difficulties following the end of the Cold War and the "arduous march." In other words, it is an unavoidable choice for North Korea, which cannot abandon socialism or pursue openness and reform, no matter how difficult the circumstances. Naturally, the "military-first" strategy has also led to changes in economic strategy. The economic strategy of the "military-first" era, symbolized by the principle of prioritizing the development of the defense industry while simultaneously developing light industry and agriculture, signifies a shift from the previous Kim Il-sung era's strategy of prioritizing heavy industry. This also implies a shift towards a structure where all sectors of the economy serve and sacrifice for the development of the defense sector. What, then, is the background behind the emergence of the "military-first" economic strategy, and what is the logical structure North Korea presents? Can the "military-first" economic strategy truly succeed? If the "military-first" economic strategy is bound to fail, how should North Korea's economic strategy change thereafter? And what are the tasks for South Korea and the international community to co-evolve with North Korea's changes for its advancement?

This chapter is prepared to answer these questions. It concludes that the "military-first" economic strategy, while positive for short-term survival, is detrimental to long-term growth and will ultimately lead to the collapse of the North Korean regime. Therefore, it argues that for North Korea to continue to exist as an independent state in the future, it must abandon the "military-first" economic strategy and seek a new one. To this end, it first examines the content of the "military-first" economic strategy, demonstrates that gradual decline is inevitable with the current strategy, and then discusses a co-evolution strategy for North Korea, South Korea, and the international community.

2. Content and Evaluation of the "Military-First" Economic Strategy

(1) Discussions Prior to the "Military-First" Economic Strategy

The "military-first" economic strategy can be summarized as prioritizing the development of the defense industry while simultaneously developing light industry and agriculture. Examining articles in "Economic Research," a representative economic journal in North Korea, the term "military-first" first appeared in issue No. 2 of 2000, and the first article title to include "military-first" was Kim Dong-nam's "The Great Leader Kim Jong-il's Military-First Politics: A Decisive Guarantee for Building a Socialist Economic Powerhouse," published in issue No. 2 of 2001. Based on the content of articles published in "Economic Research," discussions on the "military-first" economic strategy began in earnest after 2001.

Prior to this period, from 1995 to 2000, economic strategy discussions largely focused on the heavy industry-first principle, self-reliant national economy, "revolutionary economic strategy," unified state leadership, and self-reliance, which were characteristic of the Kim Il-sung era. These contents largely followed the policy direction of the pre-1995 period.

However, new reformist arguments also emerged during this period. Particularly noteworthy in relation to economic strategy is the fact that while generally advocating for the heavy industry-first policy, emphasis on the importance of light industry and agriculture revealed conflicts over policy priorities between heavy industry and light industry/agriculture. In other words, as the Kim Jong-il era began after the end of the Kim Il-sung era, debates were unfolding regarding the priorities of future economic strategy.

First, proponents of existing policies, emphasizing the importance of heavy industry or leading sectors, stressed that the development of light industry and agriculture is possible only through the development of heavy industry and leading sectors, and therefore, investment in heavy industry and leading sectors must be prioritized. This faithfully follows the existing policy direction. For example, it is stated that "the thorough implementation of the policy of prioritizing agriculture, light industry, and trade presupposes the smooth provision of basic construction investment as foreseen in the plan for the leading sectors of the people's economy," and this "means adjusting investment in other sectors to allocate a relatively large scale of investment to the leading sectors." Most articles express this view, emphasizing that "the priority development of heavy industry must be guaranteed."

On the other hand, arguments that place greater emphasis on light industry and agriculture stress that this will improve the living standards of the people. Of course, these arguments also do not explicitly call for the abandonment of the heavy industry-first policy. That is, while acknowledging the importance of the priority development of heavy industry according to the existing line, they cautiously emphasize the relative importance of light industry and agriculture. This appears to be a method to avoid the burden that would arise from explicitly negating the existing policy direction. However, the following expressions clearly reveal a stance that the heavy industry-first policy needs to be revised.

For instance, it is argued that "heavy industry should be built not for heavy industry itself, but to effectively serve light industry and agriculture." The current reality in North Korea requires that "the pace of economic growth be adjusted, and basic construction investment be boldly reduced, with the released funds, materials, and equipment directed towards developing rural economies and increasing the production of consumer goods and export goods." In other words, "the investment structure of the people's economy needs to be rationally reformed to match the changed environment by relatively increasing the proportion of investment in the consumer goods production sector compared to the investment in the means of production sector." This logic suggests that "harmonious balance among the sectors of the people's economy" can be ensured and "rapid development of production" can be achieved. The argument that "economic support from urban areas to rural areas must be strengthened in every way" can also be interpreted as a departure from the heavy industry-first policy perspective. The view that "young and middle-aged people should be permanently settled in rural areas" or that "young and middle-aged people should be systematically sent to rural areas to increase their proportion among the rural labor force" is also read as supporting an agriculture-first policy. An argument explicitly stating, "First and foremost, investment in agriculture must be increased," has also emerged.

Regarding external economic strategy, although intermittently, there are also articles that actively emphasize FDI and trade. For example, international economic cooperation is defined as "the international economic relations in which various countries (or regions), international economic organizations, enterprises, or individuals jointly conduct economic activities to create material wealth more effectively and rationally." Furthermore, it is argued that joint ventures are equipped with "a series of conditions favorable for technological exchange," contribute to "resolving the country's urgent foreign exchange problems and improving people's lives," and that "advanced foreign technologies introduced through joint ventures can be disseminated to other enterprises," thus advocating for the necessity of linking the external and domestic sectors. In other words, "the upheaval in the economy, where 70-80% of foreign trade relations were with the socialist market, demands a new transformation in the forms, methods, and targets of external economic exchange."

Furthermore, it is argued that since the international economic environment has changed, "transaction targets must be proactively changed," and it presents a very active opinion that "although the capitalist market has many contradictions, there are numerous targets within it that offer favorable trading conditions for us." It even emphasizes that "economic relations should be established with capitalist countries with which diplomatic relations have not yet been established" and "in a situation where all countries are currently conducting trade using capitalist methods, we must also change our trade methods accordingly."

This contradicts the view that "investment by capitalist country enterprises is to gain control over the local market and realize economic dominance based on it," and also conflicts with the logic that "development should proceed solely through our own efforts, independent of economies that rely on external support and foreign markets." It is also argued that "currently, foreign direct investment by large corporations further strengthens domination and plunder over other countries," and that "their aggressive and predatory nature is further exposed" in the process. Moreover, FDI is defined as an intention to "seize the market of the host country and realize economic dominance based on it."

The need to revise existing policies, such as strengthening incentive systems, emphasizing productivity indicators rather than material indicators, and improving management methods to enhance the autonomy of production units, is also raised. For example, it is argued that "just as humans have physical lives along with political lives, they also have material needs," and therefore, "additional remuneration systems such as bonuses, incentives, and allowances are important stimulants that reflect the material interests of workers." It is also argued that "economic losses can be prevented and the potential of the economic base can be fully mobilized and utilized only by calculating costs and consumption standards per unit," and that "evaluating plan fulfillment in monetary terms also has positive significance." It is further argued that "distribution based on the amount worked and earned" does not contradict the "principle of collectivism but rather provides conditions for its more thorough realization." The need to enhance the autonomy of local production units is also raised. The logic is that "the comprehensive development of the regional economy increases the production of light industry products, enabling the state to invest more in the development of the defense industry and heavy industry"... (Continued)

[Foreword] The Path to North Korean Advancement in 2032: Building a Complex Network State

[Issue 1] A Study on North Korea's Co-evolution Strategy: Politics

[Issue 2] A Study on North Korea's Co-evolution Strategy: Diplomacy

[Issue 3] A Study on North Korea's Co-evolution Strategy: Military

[Issue 4] A Study on North Korea's Co-evolution Strategy: Economy

[Issue 5] A Study on North Korea's Co-evolution Strategy: Human Rights