Whatever the opposite of the Midas touch is, North Korea's leaders seem to have it. Located in a region where all of its neighbors have experienced remarkable economic growth, the North Korean economy has stagnated for more than two decades. For the last several years, North Korea's leadership has promised a new dawn of prosperity by April 15, 2012, the 100th birthday of the country's founding leader Kim Il Sung. Instead, the country has bounced from an avoidable famine in the mid-1990s to a disastrous currency reform in 2009 to a costly -- and failed -- missile launch earlier this week. The country now has an annual per capita income of about $1,000, roughly the same as Pakistan. Did it have to be this way?
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It's not as if the North Koreans haven't thought about development. In 1998, after a famine that killed between 600,000 and a million people, Dear Leader Kim Jong Il rolled out two new concepts that have served as the core ideological and propaganda pillars of the regime ever since: "military first politics" (songun) and the objective of becoming a "strong and prosperous nation" (kang song dae guk). The latter involved achieving ideological and military as well as economic strength. The regime proved its ideological resilience by sticking with socialism and surviving the collapse of communist rule in the Soviet Union and Eastern Europe. Testing nuclear weapons in 2006 and 2009, and a long-run missile this week, was meant to demonstrate military strength.
That left economic growth. North Korea has failed miserably in this area, but we can speculate about what might have been. Other countries in the region, like Japan and China, have sustained economic growth in excess of 8 percent for several decades. Many began in equally inauspicious circumstances: South and North Koreans were on par in the 1950s, but South Korean incomes are now more than 20 times higher.
For North Korea to have succeeded would have required a fundamental change in mindset: greater openness to the international economy, willingness to admit mistakes and seek help, and an earlier recognition of the benefits of trading with China. Above all, the leadership would have had to allow the organic, home-grown market economy more space to develop. If, from the end of the Cold War in 1990, North Korea had started making sensible economic decisions, its per capita income could have tripled from 1990 to the present, putting it in league with Ukraine or Morocco.
That's not, of course, what happened. Heavily dependent on Soviet oil and other inputs, North Korea's industrial and agricultural sectors went into a steep decline after the 1991 collapse of the Soviet Union. Three years later the only ruler the country had ever known was dead. In South Korea and Vietnam, crises have spurred reforms; North Korea would have needed to act with alacrity.
Some, including the Chinese leadership itself, have argued that North Korea should have simply followed the route pioneered by its larger neighbor by providing greater incentives to farmers. Although that would have helped, North Korea's limited arable land and lousy weather mean it wouldn't have gotten the same bump from the agricultural reforms that played a crucial role in the Chinese transition. North Korea should have gone global early, aggressively seeking out foreign investment and expanding exports of manufactured goods and its ample endowment of natural resources.
Such a radical turn in direction seems far-fetched: North Korea derives much of its legitimacy from being the socialist alternative to the South. A rapprochement with Seoul to bring Korean conglomerates such as LG and Hyundai into the country would have looked like capitulation. But the two countries came tantalizing close to détente with a well-crafted North-South political agreement in 1991 that sought to ease tensions on the peninsula. Even a modest and gradual opening to the South would have provided significant gains to the economy in the 1990s when it was hurting the most.
Given the regime's nervousness about the presence of foreign companies, it could have accomplished this objective by establishing export processing zones that were initially isolated from the rest of the economy, like China did in Guangdong in the 1980s, as well as through joint ventures with China, a less threatening partner. Beginning in the early 1990s, North Korea experimented with such zones in the northeast of the country, near the Russian border, but never prioritized them. Moreover, the leadership was surprisingly slow in seeing the benefits of proximity to China, reading Beijing's post-Tiananmen massacre reforms as a sign of right-wing deviationism. China has kept North Korea afloat since 2000, but earlier engagement would have accelerated growth.
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