[The 5th EAI Academy] ③ North Korean Economy and the Future of the Korean Peninsula

YouTube 링크 : https://www.youtube.com/watch?v=U8oDnw0gplM

■ Kim Byung-yeonProfessor of Economics at Seoul National University and Director of the Institute for National Future Strategy. He currently serves as the head of the Economic Division of the Committee for Future Unification Planning under the Ministry of Unification and is a regular columnist for JoongAng Ilbo's "JoongAng Sipyung." He holds a Bachelor's and Master's degree in Economics from Seoul National University and a Ph.D. in Economics from the University of Oxford. He previously taught at the University of Essex and Sogang University and has served as a policy advisor to the Ministry of Unification, a member of the National Economic Advisory Council, the secretary and professional member of the Economic Division of the Committee for Preparatory Measures for Unification, and a consultant to the Preparatory Committee for Inter-Korean Summit Meetings.

Video Script

Yes, I look exactly the same as I did in college. We were hooked on the games of our seniors. When we went to social sciences, Seoul National University was part of the social sciences division. So we studied in the first year and chose our major in the second year. Before that, seniors would come and tell us, 'This major is good,' and try to persuade us, or 'lure' us, so to speak. Then a senior from the Department of Agricultural Economics came and said, 'Hey, if you don't understand economics, how can you understand society?' We came to the social sciences division to understand society, but how futile is it to understand society without understanding economics?' So, he persuaded me, and I ended up studying economics.

But after trying it, I realized I understood society even less. The image of society, hidden between mathematics and statistics, was so obscure. But later, I realized that if you don't understand economics, you don't understand society. I majored in socialist economic systems, and it's a fact that dictators in socialist countries—Mao Zedong, Stalin, and currently Kim Jong-un of North Korea—cannot ignore economics. Some say power comes from the barrel of a gun, but power also comes from the land.

Because, perhaps more than anything else, humans are close to animals in that they must eat to live. In other words, even dictators, if they cannot provide food, their power becomes precarious in the long run due to economic difficulties. This seems to be a fact. Recently, at Seoul National University, we have created and released a YouTube channel called 'Sharpening the Saw,' which aims to communicate with society. Some of our YouTube videos have been viewed over a million times after release. About a month ago, the communication team came and asked if I would film a YouTube video about North Korean issues.

I agreed, thinking that it would be necessary for understanding North Korea for our school. How many have you seen so far? Has anyone seen them? No? It seems indeed that not many have seen them, right? Still, it must have been viewed over 500,000 times. The first thing I said then was something like this: The main focus of those who study North Korea has been North Korean politics, international relations, and security. But can we understand North Korea with just that? I don't think so. Because the core of the North Korean issue might be a power problem, and especially the dictator's objectives, actions, and decision-making structure are what we need to look at. And to see that, if you don't understand economics, it's hard to see clearly.

So, the analogy is: if you look at North Korea without understanding economics, it's like being lost at sea without a map or knowing where you're going. But if you understand economics, it's like a ship that has dropped anchor and you can see how far it can move, where it can go, and why it cannot go further. And economics, because we grasp it with numbers, is factual. Are there any other academic fields that can reveal facts about North Korea? They are all speculation, or at best, estimations. Economics has data, so you can see that North Korea is anchored here, trying to move somewhere, but cannot because the anchor is not lifted. So today, I will speak based on facts about the North Korean economy and then expand on their implications for the future of the Korean Peninsula. We will then have a break for about 50 minutes, followed by a Q&A session. I have seen in advance...

It seems there were about three pre-submitted questions. They are very good questions, so I will answer them first, and then take questions from here. The very first topic is the long-term economic growth rate of North Korea. Why is this important? As I mentioned earlier, power comes not only from the barrel of a gun but also from the stomach. While the gun may be effective in the short term, the stomach is effective in the long term. You can threaten people with guns in the long term, and they will obey, but if they cannot eat in the long term, their obedience to the dictator's words is questionable. Economic difficulties began not only in the 1990s due to the collapse of the socialist bloc and natural disasters in North Korea, but this is only a small part of the facts. It has been difficult for a long time.

When did it start? After the Korean War, the North Korean economy grew rapidly. It is common for growth rates to be fast after a war because much of the country is destroyed. North Korea, in particular, received much aid from the socialist bloc. As you can see, in the 1950s, it was around 10% annual growth. However, in other countries, such high growth tends to continue. But in North Korea, as you can see, the growth rate sharply declined in the 1960s.

Why? With the Sino-Soviet split, North Korea pursued an equidistant policy towards China and the Soviet Union and, with its Juche ideology, maintained a certain distance from both. Consequently, China and the Soviet Union reduced their aid, and the resources available for the economy decreased. Furthermore, North Korea's economic system was not a scientifically planned socialist system like the Soviet Union's, but a hybrid economy mixing various elements. This economic system, combined with the decline in growth, led to negative growth rates in the mid-1990s. This was the period of the Arduous March.

Therefore, the current difficulties in the North Korean economy are not due to external shocks but rather the prolonged accumulation of inefficiencies that are now more apparent. Long-term problems. So, what is North Korea's per capita income now? We want to know this in dollars. It's good to know per capita income in dollars for international comparison, but no one knows the exact figure. The Bank of Korea's reported North Korean income is based on the North Korean won. Then, when converting won to dollars, should we use the South Korean won-to-dollar exchange rate? That's not possible. Because the South Korean won-to-dollar exchange rate includes South Korea's stage of economic development.

If North Korea, a developing country, were to have its currency traded in a foreign exchange market, the exchange rate against the dollar would be different from South Korea's won exchange rate. Therefore, when the Bank of Korea estimates North Korea's national income by converting won, it is difficult to convert it to a dollar base. Based on my estimation of North Korea's per capita income through other methods, in 2014, North Korea's per capita income was $770, while South Korea's was $28,000. In the same year, the ratio of per capita income was 1:36.4.

Countries with a similar per capita income to North Korea are Mali and Nepal. If you rank all countries worldwide, North Korea is in the bottom 10% of developing countries. Now, there is much misunderstanding about when South Korea surpassed North Korea in terms of per capita income. Many people think it was in the mid-to-late 1970s. If anyone here says that, please tell them that I, who have studied the North Korean economy, am wrong. The problem is that socialist statistics are inflated. According to official statistics, the Soviet economy grew at an average annual rate of 8-9% from 1928 to 1989.

Excluding 1985, how could the economy have collapsed? However, the US CIA, after removing this inflation, found that it was only about half of the Soviet Union's official announcement, i.e., about 4% annually. The claim that North Korea was richer than South Korea until the mid-1970s is based on North Korea's inflated statistics. Because this has been perpetuated for so long, many people believe that North Korea was richer than South Korea in the past. But as the chart showed earlier, North Korea's growth rate sharply declined in the 1960s. South Korea began to develop in the mid-1960s. Therefore, by 1968, it had surpassed North Korea.

In other words, South Korea became richer than North Korea not in the mid-1970s, but in 1968. I was entering elementary school then. That's not important, but what does it mean? It means a lot. As I mentioned, economics is about facts, and this is what it tells us. When we judge facts and forecast problems, if we have the right facts, we can forecast much more accurately. In the 1970s, if our policymakers thought, 'We are poorer than North Korea,' would they want to engage with North Korea?

Or would they want to distance themselves from North Korea? What would they do? Since we were poorer, right? So, they would want to keep some distance from North Korea, perhaps fearing absorption? That the people, seeing that we are doing well, might think, 'Let's try to get along with them.' If, from the 1970s onwards, consistent policies had been implemented within North Korea, would the inter-Korean relations and the nuclear issue have become like this? I wonder. Those in power at the time were afraid because North Korea was doing well. So, they promoted anti-communism and anti-enemy policies while maintaining distance. A single statistic can change policies enormously. That's why we need to know many facts to make accurate policies. So, as I've given you a hint, I'll give you a quiz. The cause of growth inefficiency: North Korea's economic system is a combination of a planned economy, arbitrary economic intervention by dictators, and mass mobilization, resulting in a system that has lost consistency. What is the four-character phrase that fits here? Or three characters?

Flexibility. That's not the answer, but it's related. What is it? Autonomy. Not autonomy either. What is it? Rationality. All are related, but not the answer. What am I looking for? The Soviet economy was centrally planned, China's economy was centrally planned and used mass mobilization, and North Korea added arbitrary economic intervention by dictators. What fits in the blank? Consistency. That's the answer. Consistency. If you look at it macroscopically, it's important. But the most crucial thing is that an economic system must have consistency.

In capitalism, what is it? Private ownership of the means of production, and the market coordinates economic activity. That's the principle. What about socialism? The plan coordinates economic activity, not the market, and the means of subsistence are state-owned. So, what does central planning coordinating economic activity mean? It means the central plan sets everything. What plan? It collects data from all socialist enterprises and devises a plan for what each enterprise will produce, how much, and to whom it will supply the output.

In other words, what would a capitalist be? It would be someone who owns the means of production, and then the market coordinates economic activity. That's the idea. Then, what is socialism? Socialism is where planning coordinates economic activity, not the market, and the means of subsistence are state-owned. So, what does central planning coordinating economic activity mean? It means central planning sets all the plans. What kind of plans? Plans that utilize data from all socialist enterprises, dictating what each enterprise should produce, how much, and to which other enterprise it should supply its output.

In other words, if the final product is paper, then the raw material for paper is pulp. To make pulp, you need electricity, and the power plant needs fuel. The plan accounts for all of this. In a market economy, capitalism, enterprises trade through the market. You buy fuel and receive electricity to make pulp, and then you sell it. That's the market. The market governs our activities. That's capitalism. But socialism abolished the market. The plan governs economic activity. So, what happens? You have to create the plan, right? So, in the past, in the Soviet Union, there was an agency responsible for planning. It collected data from many enterprises in the Soviet Union.

In the past, before computers, it was collected on paper, and dozens or hundreds of trucks were used to transport the data. Then, public officials would calculate it, saying, 'Enterprise A must produce this much paper and supply it to consumers.' This enterprise producing paper was state-owned. The enterprise was instructed to receive pulp supply. Everything was planned, not through market transactions. So, central planning is data-driven. It must be driven by data. How much fuel is needed to produce this much paper? It must be produced in this quantity. That way, there's no surplus or shortage. It's a matter of supply and demand.

But this is scientifically data-driven central planning. China couldn't do this central planning properly. Why? Because creating such a plan requires immense technical skill, knowledge, data, and the necessary technology. So, the Soviet Union could do it, but after the Sino-Soviet split, they didn't help. So, Mao Zedong wanted to develop quickly, but central planning was difficult. What did he do? He tried to develop socialism quickly in an East Asian style. What was it?

Mass mobilization. Through the Great Leap Forward, they maximized human will. In our East Asian way of thinking, we believe that humans can achieve anything, right? Like changing humans for the better? Or maximizing human will? That kind of thinking. It failed, didn't it? What about North Korea? In addition to this central planning and mass mobilization, there was something else: arbitrary economic intervention by the dictator. For example, the on-site guidance by the leader is mentioned here.

What does it mean? Central planning should be based on objective statistics, but mass mobilization and arbitrary economic intervention are not objective. They are subjective. How can human will be measured? How much to produce? Mass mobilization and arbitrary economic intervention. It must be through on-site guidance. Therefore, the North Korean economy, from the beginning, was not objective and was mixed with subjective elements, so the efficiency of central planning was not guaranteed.

Central planning alone has many problems, but the objectivity of central planning was ruined by subjective mass mobilization and arbitrary economic intervention. Such a system never performed well from the start. That's the problem with the North Korean economy; it's a systemic problem. There are photos of on-site guidance, right? As you can see, Kim Jong-un visits somewhere and gives instructions, and people diligently take notes next to him. It's survival of the fittest. When I accompanied the president to a meeting in the past, public officials diligently took notes. Seeing photos like this, I thought, 'North Korea also takes notes, and South Korea also takes notes. What's the difference?' As a joke, I said, 'In South Korea, how many people would take notes exactly as the president says?' But on the right side, you see Kim Jong-un inside. One of the places he frequently visited was a cosmetics factory. North Korea also has cosmetics factories.

He looks at them and says things. Does he know much about them? But when he visited previously, he said something like this: 'The quality of cosmetics in our North Korea is poor.' He used mascara as an example. I don't know what mascara is. It's for the eyes, right? He said that if women in North Korea wear mascara made in North Korea and yawn, it smudges around their eyes, turning their eyes into raccoon eyes. You know what raccoon eyes are, right? When you yawn, you tear up a little, and the water mixes with the poor quality dye of North Korean mascara, making their eyes look like raccoons. But he said that Western mascara stays put even when it rains. He ordered them to improve the quality of North Korean mascara to the level of Western products. What can they do? Suddenly? I think they must have received an order, so they had to do something. Usually, when such instructions are given, some additional input is provided, such as money or materials. I suspect that this North Korean cosmetics factory must have purchased something from abroad, mixed it with some North Korean elements, and then presented it as their own when the leader visited again. That's how it works.

On-site guidance by the leader means that the dictator arbitrarily intervenes in the economy, showing how great a ruler he is. 'Improve the quality,' so they improve it. 'If you follow my instructions, production increases severalfold.' The Rodong Sinmun and other newspapers would report this, and the citizens would think, 'Our Supreme Leader is a great ruler. Our Chairman is like this.' It's a structure where politics subordinates economics. Such a system cannot achieve economic development. So, if you meet Kim Jong-un, the first thing he should stop doing is on-site guidance. Even an African chief wouldn't do that. What president goes around giving instructions about mascara? It's so unsophisticated.

He wants to stop, but until now, he has used it to show how much he loves his people, how he cares about women's cosmetics, and how much things have improved due to his instructions. He wants to show this, all lies, of course. Then there's the mobilization system. This traditional North Korean economy changed significantly in the mid-to-late 1990s. When I give lectures, I say the extent of this change is like moving from the Stone Age to the Bronze Age. Originally, socialism was not supposed to involve markets. Marxism-socialism was a system that sought to abolish markets.

But in North Korea today, the market sustains the economy. The most important source of livelihood for North Koreans is market activities. Simultaneously, it is a system where individuals produce for themselves and their families, not socialism. But this has changed in North Korea, especially after the mid-1990s. The two pillars supporting the North Korean economy are the market and trade, which are capitalist elements. So, the two pillars supporting the North Korean economy are borrowed from capitalism. It has changed like this. What caused this change? You probably know, but during the Arduous March, people fell into starvation, so...

They began to sell anything they could to obtain food. Until then, if an individual engaged in commercial activities, they would be legally punished. Because it was socialism. But to avoid starvation, the government could not stop North Koreans from trying to sell things. If they stopped them, more people would starve. So, they allowed it. As a result, markets have spread like mushrooms, and now they dominate not only consumers but also the labor market, financial market, and raw material market. This is from a book published during the Kim Jong-il era. At that time, the proportion of household income derived from market activities was 16% for consumer goods, but in North Korea, it was at least 70%. Almost all income came from market activities. This has never happened in the history of socialism.

It is unprecedented. This has many implications, which I will discuss later. What kind of activities are there? All imaginable activities are being carried out in North Korea. How to make a living from one's position using the market. This categorizes various activities, but it's all imaginable. A defector I met said she sold candy in a mine. Miners get paid a little more, but it's not enough. So, she stole coal and made candy at home. But when you make candy, you need electricity, right? And if you open the window, the electricity goes out, so you might get caught stealing something else, right? So, she closed all the windows and doors and made candy, and her wallpaper peeled off. She said that. Then she loaded the candy onto a cart and sold it in the market. There are people like that. Another defector couple: the husband smuggled cosmetics to China, and the wife sold them in North Korea. All sorts of activities.

Trade, agriculture, and extraction—some people mine gold, and others gather honey and medicinal herbs. Services include tutoring in North Korea. Wealthy people hire tutors, especially for English and math. Brokers are called 'geogun' in North Korea. Real estate agents are called 'daekbang' in Japanese, but in North Korea, these brokers are called 'daekdeul' (집데끌). 'Dondeul' (돈데끌) means money changer. This is a huge change in North Korea. There's also handicrafts, and some people work abroad. Before sanctions were imposed, there were about 100,000 North Koreans working abroad in Russia, China, etc., engaged in smuggling and other activities. So, this consumer market in North Korea, which started as a way to obtain food, began to be regulated by North Korea from 2019 onwards. The scope has expanded to include raw materials, labor, and financial markets. I heard an anecdote from Japan.

Occasionally, North Korean fishing boats drift to Japan. Then the Japanese police take them in for questioning. During the investigation, an interpreter is called. The Japanese police, assuming everything in North Korea is state-owned, asked whose fishing boat it was. The captain said it was his. No matter how much they asked, he kept saying it was his. And he said he hired the crew. This is the labor market. In society, hiring people should be punished. So, the police couldn't understand. They kept asking, but the answer was the same. So, they had to call an expert. They asked the expert, 'Is it true that the captain owns the fishing boat and hired the crew?' The expert said, 'That's the changed face of the North Korean economy.' In other words, private ownership has emerged. Originally, a fishing boat was state property. But it must have been sold by a state agency to this person. Then, since he bought it...

He owns the fishing boat and hires crew members to catch fish and sell them, paying them wages. This is a capitalist activity. But the more interesting anecdote I heard was about their meals. They were offered meals, but they refused, saying they had no money. They starved because they thought they had to pay for the food provided by the Japanese police. When the interpreter explained that the meals were free, they finally relaxed and asked a few more questions. After eating heartily, they returned with plump faces. It's pitiful, isn't it? This is natural in a democratic country. But they thought they had to pay for it. So, does this market activity only have economic implications? No.

In fact, the transition from the Middle Ages to the modern era was the era of commerce, the era of markets. In economics, the impact of markets on European society was immense. When commerce emerged, what happened? People had to interact with strangers. They began to pursue their own interests. 'I make money through trade.' In the Middle Ages, what was it like? According to Christian principles, pursuing self-interest was not justified. It was wrong to charge a higher price than the cost plus a small profit. If you sell something for a much higher price, it's usury. If many people create things that can be sold in the market, they make more money. This leads to specialization, and with more money, they build factories. This was a great shock to people at the time. Because the ethical consciousness that dominated the Middle Ages was weakening.

So, they thought society would collapse. Thomas Hobbes, for example, argued in Leviathan that although all individuals are born with freedom, if they only pursue their own interests, society will inevitably collapse. Therefore, to maintain society, individuals must surrender their freedom to a dictator, Leviathan, who will rule for the public good. The commercial society was a shock. But Adam Smith, the most famous economist, welcomed this commercial society in The Wealth of Nations and The Theory of Moral Sentiments.

He persuaded people to wholeheartedly embrace this new system called the market economy. So, what about North Korean residents? If they engage in trade and make money in the market, will they still hold onto the Juche ideology? Probably not. Because in the past, when they received rations from the state, they thought it was natural for the state to feed them. But now, they have to fend for themselves. And they find it interesting. If they trade well, they can afford tutoring for their children and eat rice. If they fail, they have to hide. For the first time, they are taking responsibility for their families and leading them. As someone mentioned earlier, autonomous individuals are emerging.

Just as they worried about this during the transition from the Middle Ages to the modern era, North Korea faces the same issue. This autonomous individualism, this sense of the individual, how will it maintain social order? In North Korea, it's similar. In the past, when the market began, they worried that individualism would spread, and self-interest would be justified. The biggest desire of North Korean residents now is to live well. If you ask North Korean residents their innermost thoughts today, I would ask them – I can't go to North Korea, so I can't ask directly, but if I could, they would probably answer like this: What is your most important goal? Is it loyalty? No. It's to live well. To live well and for my family to live well. That is the highest goal. This is the result of the market taking root.

So, what are the political and economic limitations of this development? Simply put, as the analogy suggests, the human type of North Korean residents in the past was based on the Juche ideology. Now, the human type of North Korean residents is based on economics. Therefore, their goals and way of life are different, and their political attitudes will also be different. In the past, it was unconditional obedience. In return, they received rations and could survive. Unconditional obedience was considered natural. But now, in economic matters, they manage on their own. They dislike interference and instructions. North Korean residents have their own autonomous space where they make decisions, take risks, and experience gains and losses within the logic of capitalism. Such people think, 'I'll take care of my own economic life, so you, Kim Jong-un, just take care of politics.' That's the kind of thinking that emerges. This is the internal increase of capitalist values. The graph shows that 30 points is the most supportive of capitalism. As you move left, the support for socialism increases. Then, on the right side, the light green and dark green represent South Koreans. Those born in South Korea are more supportive of capitalism than defectors.

But among the defectors, there are two groups. What are they? Those who engaged in market activities while in North Korea are more supportive of capitalism. Those who did not are relatively more supportive of socialism. If South Koreans' support for capitalism is 100, and defectors who did not engage in market activities in North Korea are 0, then those who did engage in market activities fall in between. To be precise, 38% of North Korean defectors who participated in market activities in North Korea are more supportive of capitalism than those who did not. This is when all other factors are equal.

In fact, the North Korean market has only existed for about 30 years since the 1990s. The average period of market participation for our sample group is 6 years. In 6 years, a change of 38% has occurred. What will happen if this continues for 10 or 20 years? This is about the market. And the other is trade, which I mentioned. Many people think that North Korea, being socialist, does not engage in trade and produces everything itself. That is also incorrect. This chart shows North Korea's trade volume trends. It's the easiest data to find. North Korea rarely publishes its economic statistics. So, how can we know? Trade involves a partner country. North Korea's exports are imports for the partner country, and North Korea's imports are exports for the partner country. So, using their statistics, we can see the trend. As you can see, North Korea's exports and imports increased from the 2000s and then significantly increased after 2010. By 2014-15, North Korea's trade, combined with inter-Korean trade, reached about $10 billion. In 2014, North Korea's GDP was $18 billion.

In economics, the trade openness index is calculated by dividing the sum of exports and imports by GDP. This is what it shows. The dotted line above represents the global average. The solid line below represents North Korea's openness. In the 1990s, the difference was very large, right? But by 2014-15, it was close to the global average. Before the economic sanctions, before 2010, North Korea's economy was heavily reliant on trade, comparable to the global average by 2015.

In other words, North Korea's economy is sustained by trade and markets. It has changed like this. This is the effect of the economic system. If North Korea were self-reliant, would economic sanctions have any effect? But North Korea has changed. That's why there's so much smuggling across the North Korea-China border. No one knows the exact scale, but if you combine it all, North Korea might be as open an economy as South Korea, relying heavily on trade. Then, sanctions were imposed, and they worked particularly well in 2017.

They began to sell anything they could to obtain food. Until then, if an individual engaged in commercial activities, they would be legally punished. Because it was socialism. But to avoid starvation, the government could not stop North Koreans from trying to sell things. If they stopped them, more people would starve. So, they allowed it. As a result, markets have spread like mushrooms, and now they dominate not only consumers but also the labor market, financial market, and raw material market. This is from a book published during the Kim Jong-il era. At that time, the proportion of household income derived from market activities was 16% for consumer goods, but in North Korea, it was at least 70%. Almost all income came from market activities. This has never happened in the history of socialism.

It is unprecedented. This has many implications, which I will discuss later. What kind of activities are there? All imaginable activities are being carried out in North Korea. How to make a living from one's position using the market. This categorizes various activities, but it's all imaginable. A defector I met said she sold candy in a mine. Miners get paid a little more, but it's not enough. So, she stole coal and made candy at home. But when you make candy, you need electricity, right? And if you open the window, the electricity goes out, so you might get caught stealing something else, right? So, she closed all the windows and doors and made candy, and her wallpaper peeled off. She said that. Then she loaded the candy onto a cart and sold it in the market. There are people like that. Another defector couple: the husband smuggled cosmetics to China, and the wife sold them in North Korea. All sorts of activities.

Trade, agriculture, and extraction—some people mine gold, and others gather honey and medicinal herbs. Services include tutoring in North Korea. Wealthy people hire tutors, especially for English and math. Brokers are called 'geogun' in North Korea. Real estate agents are called 'daekbang' in Japanese, but in North Korea, these brokers are called 'daekdeul' (집데끌). 'Dondeul' (돈데끌) means money changer. This is a huge change in North Korea. There's also handicrafts, and some people work abroad. Before sanctions were imposed, there were about 100,000 North Koreans working abroad in Russia, China, etc., engaged in smuggling and other activities. So, this consumer market in North Korea, which started as a way to obtain food, began to be regulated by North Korea from 2019 onwards. The scope has expanded to include raw materials, labor, and financial markets. I heard an anecdote from Japan.

Occasionally, North Korean fishing boats drift to Japan. Then the Japanese police take them in for questioning. During the investigation, an interpreter is called. The Japanese police, assuming everything in North Korea is state-owned, asked whose fishing boat it was. The captain said it was his. No matter how much they asked, he kept saying it was his. And he said he hired the crew. This is the labor market. In society, hiring people should be punished. So, the police couldn't understand. They kept asking, but the answer was the same. So, they had to call an expert. They asked the expert, 'Is it true that the captain owns the fishing boat and hired the crew?' The expert said, 'That's the changed face of the North Korean economy.' In other words, private ownership has emerged. Originally, a fishing boat was state property. But it must have been sold by a state agency to this person. Then, since he bought it...

From 2018, as North Korea and China became closer, the sanctions gradually weakened. Especially with the summits between Xi Jinping and Kim Jong-un, and the North Korea-US summits, and inter-Korean dialogues, China began to open the back door of sanctions wider. So, in 2018 and 2019, the sanctions became less effective. In 2020, COVID-19 occurred. The impact of COVID-19 was similar to sanctions. Because North Korea, to prevent the virus from entering the country, banned smuggling from early 2020. Consequently, trade suddenly decreased significantly.

Looking back at January 2016, it was a difficult time. I told my students not to study the North Korean economy. It's good to take courses, but majoring in it can be stressful. No field of economics should cause such existential stress. But studying the North Korean economy causes a lot of stress. I give three reasons. The first reason is that studying the North Korean economy will skew your income expectations. For example, if you major in finance or industrial engineering, the income prospects are good.

So, what is the meaning of this? It means a lot. As I said earlier, economics is about facts, and this is what it tells us. When we judge facts and forecast problems, if we have the right facts, we can forecast much more accurately. In the 1970s, if our policymakers thought, 'We are poorer than North Korea,' would they want to engage with North Korea?

Or would they want to distance themselves from North Korea? What would they do? Since we were poorer, right? So, they would want to keep some distance from North Korea, perhaps fearing absorption? That the people, seeing that we are doing well, might think, 'Let's try to get along with them.' If, from the 1970s onwards, consistent policies had been implemented within North Korea, would the inter-Korean relations and the nuclear issue have become like this? I wonder. Those in power at the time were afraid because North Korea was doing well. So, they promoted anti-communism and anti-enemy policies while maintaining distance. A single statistic can change policies enormously. That's why we need to know many facts to make accurate policies. So, as I've given you a hint, I'll give you a quiz. The cause of growth inefficiency: North Korea's economic system is a combination of a planned economy, arbitrary economic intervention by dictators, and mass mobilization, resulting in a system that has lost consistency. What is the four-character phrase that fits here? Or three characters?

Flexibility. That's not the answer, but it's related. What is it? Autonomy. Not autonomy either. What is it? Rationality. All are related, but not the answer. What am I looking for? The Soviet economy was centrally planned, China's economy was centrally planned and used mass mobilization, and North Korea added arbitrary economic intervention by dictators. What fits in the blank? Consistency. That's the answer. Consistency. If you look at it macroscopically, it's important. But the most crucial thing is that an economic system must have consistency.

In capitalism, what is it? Private ownership of the means of production, and the market coordinates economic activity. That's the principle. What about socialism? The plan coordinates economic activity, not the market, and the means of subsistence are state-owned. So, what does central planning coordinating economic activity mean? It means the central plan sets everything. What plan? It collects data from all socialist enterprises and devises a plan for what each enterprise will produce, how much, and to whom it will supply the output.

But who gives money to those who major in North Korean economy? Does Kim Jong-un give it? Does our government provide it? Our companies are not interested. Therefore, income is a North Korean vision. Second, although Korea has so many economics departments, how many people study North Korean economy? In hundreds of universities in Korea, how many professors specializing in North Korean economy are there? Try to count them. How many were there, Kim Min-jeong? Oh, really? That's right. There is one. One. When I retire, who will study North Korean economy? I have three and a half years left.

It's truly bleak. Because of this, if you get a Ph.D. in North Korean economy, it's almost impossible to get a position in an economics department. Of course, there are other fields, but there are limitations to pursuing a Ph.D. in economics, aren't there? You don't need to listen to this your whole life, but you want to listen to it all. If you talk about North Korea, half the people oppose it. No matter what I say, I've been writing a column for the JoongAng Ilbo for about 10 years. I wrote it for 10 years starting in 2014. It's the longest-running North Korea-related column. When writing a North Korea-related column, if I'm wrong today, and if it's published a week later and I'm wrong again, they tell me to stop writing. I've been writing for about 10 years. It's not because I'm good at it, but because it's economics.

Economics departments look at facts, so they don't make many mistakes. Anyway, I don't read comments much after I write, but I sometimes do, to see if I can get any insights. Sometimes I'm called a communist. Sometimes I'm called a pro-Japanese traitor. And sometimes I'm called a native traitor. So, the most touching comment I read was, 'Such native traitors should be hanged in Gwanghwamun.' That was the most touching comment. Anyway, I'm very happy that you're interested. Because of this, studying North Korea is very difficult.

It's helpful emotionally, and they are our compatriots, our neighbors. But why do I mention 2016? Because it was a difficult time. North Korea conducted another nuclear test, and this nuclear test, as shown in the example I presented earlier, North Korea's mineral exports to China surged from early 2012 to 2015. This surge means North Korea sold a lot of minerals. Minerals accounted for 80% of their exports. In other words, they earned foreign currency equivalent to the amount they gambled. Conducting a new nuclear test with this money means they will continue the nuclear tests.

In the past, they didn't have money, so they tested every 3-4 years. But now that they've accumulated so much money, they will conduct tests at shorter intervals, and if they launch an ICBM, how will we respond? No matter how much I think about it, there's no other option but sanctions. I started writing about these sanctions in January 2016. And they were included in the UN sanctions. But how effective will this be? In my opinion, the almost absolute reason North Korea came to the negotiating table until the Hanoi summit was sanctions. Because North Korea itself asked for sanctions to be lifted, didn't it?

So, how effective will it be? I'll explain briefly, as time is a bit short. First, regarding the decrease in income for North Korean residents, how do we measure it? Among defectors, there are those who have not resided abroad for a long time and left North Korea to come to South Korea in a short period. The Seoul National University Institute for Peace and Unification Studies surveys about 100 of them annually. They ask various questions, one of which is about economic activities when they were in North Korea. They also ask about income. The results showed that the median monthly income of North Korean residents in 2014, 15, and 16, i.e., before the sanctions, was $49.

That is, a family of four lived on about $50 per month. But after the sanctions were imposed, this decreased by about 25%. This was almost entirely due to the sanctions, as there were few other factors. In addition to the defector survey, another indicator we can look at is nighttime light intensity from satellites, which objectively shows a country's economic activity. Based on nighttime light intensity captured by satellites, North Korea's manufacturing production decreased by about 20% during the 17-18 years after the sanctions, and GDP fell by about 12%, 12%.

There is a paper like this. Amidst this, Kim Jong-un, after the 2019 Hanoi summit, abandoned his previous stance of tolerating or being lenient towards the market, and instead emphasized state-led economy, i.e., state control. He decided to regain state control over commerce and trade. However, as shown in the previous diagram, self-reliance is difficult for North Korea's economy, which relies on markets and trade. Removing the market pillar and trying to re-establish state control is a very difficult task. It's almost impossible.

Returning an economic system like North Korea's, a hybrid, back to socialism is like teaching a pig to fly. It's quite unimaginable, isn't it? Who would believe that pigs can fly? It's a very reckless endeavor. Recently, there have been reports of worsening food shortages in North Korea. It may not be as severe as during the Arduous March, but there will likely be international concern. The reason is the COVID-19 pandemic, and more importantly, controlling the market as described above has blocked the means of survival for North Korean residents. However, unlike during the Arduous March, a large-scale famine is unlikely to occur because food production has increased, imports are still possible, and China will likely help if things get very difficult. That's what I think.

Moving beyond economics a bit, we need to think more about how we should approach North Koreans. Currently, when it comes to North Korea, the issue is divided into conservative and progressive camps. If you ask someone what they think about North Korea, they ask about my ideology. They want to categorize me based on my beliefs. Many people think this way.

When it comes to North Korea, people try to categorize individuals into one side or the other. Is that necessary? Will that help our future? The way to survive is to abandon that, and it's the way to survive on the Korean Peninsula. So, what do I think? I believe denuclearization in the short term is essential. The risk of a nuclear-armed North Korea is enormous. Therefore, skipping denuclearization and trying to get along with North Korea is, as I said before, almost an impossible mission, at that level. Some people in the previous administration, though not directly involved, suggested that the U.S. should impose sanctions while we pursue economic cooperation, dividing roles – the bad cop and the good cop. Will the international community accept this?

Beyond short-term denuclearization, nothing else can be done. However, denuclearization is not the ultimate goal. Ultimately, the future of our nation lies in unification in the distant future, but how will we achieve it? We need to know the bridge. So, what will that bridge be? I believe that after denuclearization, we should integrate our economies, like Europe, and then that generation can achieve unification. But can economic integration happen suddenly? North Korea's system has not yet transformed into capitalism, has it? So, what will bridge the gap between denuclearization and integration? It will be economic cooperation. Economic cooperation, not now, but linked to denuclearization. Then, with denuclearization leading to economic cooperation, and economic cooperation leading to integration, and integration leading to the next generation preparing for unification, that would be ideal. I think so.

So, what should we do? When the current government first took office, I called it a complex sequential strategy. What is complex? When a conservative government takes office, it used to be the theory of North Korean collapse, which I likened to a menu. Our progressive government offers Jjambbong, and our conservative government offers Jjajangmyeon. That's all. Will that work? Society is so complex, and people have so many desires. Because such simplistic thinking has dominated for a long time, people perceive the North Korean issue in that way. So, what should we do? We should mobilize all available menus.

What are they? There will be sanctions against North Korea, but by developing the North Korean economy, North Korea will no longer be like it is now. If the North Korean economy improves, it will be like South Korea, and we won't have to worry about nuclear proliferation. Then, a peace regime on the Korean Peninsula can be established. If possible, North Korea and the U.S. can establish diplomatic relations, sign a peace treaty, and China can certify it. This approach would be ideal. However, from a security perspective, details are necessary, so these should be pursued in a complex manner.

In other words, the menu for our new government, like a trendy restaurant these days, should include everything from appetizers to desserts. When a customer comes in, we should devise a menu that caters to their taste, from the beginning to the end. This is what I called the complex sequential strategy. Another necessary element is that you, the younger generation, will likely feel this more keenly. If you do business with North Korea in your generation, you will make a lot of money. Some might think, 'If I compete with North Korea, will my job be taken?' Your human capital level is likely to be much higher than that of young North Koreans, who will have almost no capital. Only a small percentage of them will compete with you; most will have skills far below yours. When I finished school and started my first job in finance, it was at an institution founded by a Korean-American. Occasionally, Korean-Americans would visit and speak, and they were impressive. Their knowledge, their insight, were wonderful. But it turned out that Japan had progressed 10-20 years ahead of us, so in that world, the future path was clear. When you go to North Korea, you will see how North Korea has developed. You will know how to make money and how to help North Korea.

North Korea is a new opportunity. It's not about competing with you and taking your job. More importantly, it's about sharing our knowledge so that North Korean residents can live better lives. I think that's also necessary. However, support for the necessity of unification in our country is declining, as shown in the diagram. Even though I say that unification is an opportunity for you and not a threat to your jobs, it is. How much has it declined? In 2007, the Institute for Peace and Unification Studies asked about the necessity of inter-Korean unification. 64% said it was necessary, more than 6 out of 10 people. What about now? Less than half. Why has this decline occurred? The younger generation thinks unification is less necessary. And the proportion of this younger generation is increasing, isn't it? As the older generation passes away, support for unification might drop to 20% in 20 years. Then the driving force will be significantly reduced. Many people wonder why unification is being pursued. Most cite the cost, the cost of unification. But I think there are two types of unification.

In 2007, the Institute for Peace and Unification Studies asked about the necessity of inter-Korean unification. 64% said it was necessary, more than 6 out of 10 people. What about now? Less than half. Why has this decline occurred? The younger generation thinks unification is less necessary. And the proportion of this younger generation is increasing, isn't it? As the older generation passes away, support for unification might drop to 20% in 20 years. Then the driving force will be significantly reduced. Many people wonder why unification is being pursued. Most cite the cost, the cost of unification. But I think there are two types of unification.

There are gradual unification and abrupt unification. Abrupt unification incurs costs, like in Germany. However, gradual unification, as I mentioned, involves economic cooperation and economic integration, which incurs almost no cost. Why? The biggest cost of German unification was the social safety net. When East and West Germany suddenly unified, East German residents had lower incomes compared to their qualifications. But the cost of living was the same, so they suddenly couldn't afford to live. The income disparity between North and South Korea is even greater, isn't it?

The income disparity between North and South Korea is even greater, isn't it? If we compare it to 100 to 8, then the cost of unification for Korea will be greater than for Germany. But that's not the only factor. Gradual unification, like in the European Union, involves economic integration first, and then both North and South Korea can develop together. As Professor Haengseon Lee mentioned, they can achieve co-prosperity. If this process continues and the per capita income of North Korea reaches tens of percent of South Korea's, then unification will incur almost no cost. So, unification is not necessarily abrupt; there is a gradual approach. And I believe the most rewarding column I've written over the past 10 years is this one.

The most rewarding column I've written over the past 10 years is this one. It's titled 'Can We Forget North Korea?'. I encourage you to read it. I've lived a long life, over 60 years. The most rewarding thing is when I can serve students with my knowledge, even a little bit, and feel my life has meaning. What is rewarding for you? North Korean residents are our compatriots. If our lives can help North Korean residents in some way, this is empathy. This is the driving force for unification. Earning money in North Korea is a good idea, but perhaps greater empathy comes from helping the weak and uplifting them. That would be the greatest reward. I want to encourage you to challenge yourselves for that reward.

So, I want to emphasize that unification should be gradual, not abrupt. I've mentioned the risks. Finally, I'd like to discuss one more point for you to consider: the dictator game experiment. Economics departments often conduct such experiments these days. They create an environment in a laboratory and observe people's behavior to evaluate, or rather measure, their values. This involves giving participants 100,000 won and asking them to share it with an anonymous stranger. If you receive 100,000 won, you can keep it all, give it all away, or give some away. The recipient doesn't know who you are, and you don't know who they are. The only person who knows how much you gave is yourself. This setup was used to compare how much defectors and South Koreans would give to an anonymous stranger. Understand? That's the situation. So, let me ask you.

So, I want to emphasize that unification should be gradual, not abrupt. I've mentioned the risks. Finally, I'd like to discuss one more point for you to consider: the dictator game experiment. Economics departments often conduct such experiments these days. They create an environment in a laboratory and observe people's behavior to evaluate, or rather measure, their values. This involves giving participants 100,000 won and asking them to share it with an anonymous stranger. If you receive 100,000 won, you can keep it all, give it all away, or give some away. The recipient doesn't know who you are, and you don't know who they are. The only person who knows how much you gave is yourself. This setup was used to compare how much defectors and South Koreans would give to an anonymous stranger. Understand? That's the situation. So, let me ask you.

Yoo Hwa-jeong, if you received 100,000 won, how much would you give to someone else? 30,000 won? Kim Min-jeong, would you give it away? It's difficult, isn't it? You actually received 100,000 won, and you can give it all away, keep it all, or give some away. The other person doesn't know anything. So, how much would you give? It's economics. Actually, when conducting such experiments, economics and business majors are excluded. Because they have learned a lot, they think, 'If I keep it and use it well, the country will develop. Why should I give it away?'

So, if many economics and business majors participate, the results become strange. They contaminate the data, so these two individuals are excluded as contaminated samples. Giving away 50,000 won is an exceptional behavior for an economics student. So, Kim Jun-young, which group would be more likely to give to the other? Between defectors and South Koreans, on average, would the defector group give more to others, or would those born in South Korea give more? Why? Because they are more affluent? Because they are more affluent? Kang Jung-mo, what do you think? Why? Because South Koreans will help? Because they are South Koreans?

That sounds economically plausible. Who is correct? Let's see. The results are consistent across almost all countries. On average, 20,000 won is given out of 100,000 won. Even in capitalism, this is a matter of conscience, making it slightly less uncomfortable. So, they give about 20,000 won as a gesture of conscience. Here, the blue line represents South Koreans. On the x-axis, it's 1, and on the y-axis, it's 0.20, which is 20%. Why is that? As you said, it's because they are equality-oriented. I'm telling you this because it signifies something. Being equality-oriented is not necessarily bad. This can be a point of conflict in values when the two Koreas suddenly unify. In fact, German unification was similar.

15 years after German unification, a survey revealed that East German residents still voted for policies where the government collects more taxes and distributes them. That's understandable, right? But even after 15 years, their values haven't changed. Values last a long time. So, the subtitle of that paper is 'Goodbye Lenin?' Did they say goodbye to Lenin? In Germany's case, it's 10 won. So, in reality, the cost of unification arises from various aspects, but also from such clashes of values. In Germany, however, 80% of the unified German population were middle-class voters, so politics would have changed, right? But if North and South Korea were to suddenly unify, North Korean residents would be half the population of South Korea. Currently, North and South Korea are evenly divided, 50-50, between conservative and progressive values.

Then, how will the political landscape of a unified Korea change? Which party will become more influential? Progressive or conservative? In the case of abrupt unification, the conservative government, which is disadvantageous, will have many supporters for abrupt unification policies. The progressive government, which favors gradual economic cooperation, will have... What does this mean? People talk a lot about unification but know nothing about it. They've never thought about it. This kind of unification is a ideological battle. Preparing for unification means anticipating and preparing for the aftermath of unification. Instead, we sing songs about unification, and instead of thinking, we engage in ideological confrontation. Such processes are our failures and mistakes.

Therefore, I hope you will move beyond such times and become individuals who can consistently think about and prepare for a new future for North and South Korea, a new preparation for unification, and if possible, as I mentioned today, a consistent approach to denuclearization, economic cooperation, integration, and unification.