Income, Wealth, and Political Power in North Korea

Abstract

IntroductionThe joint determination of the distribution of income, wealth, and political power is a phenomenon that can be observed across countries and economic sys- tems; however, it is far from being the same in every economic system. In a market economy and democracy, access to the political process might be enhanced by wealth, but citizenship is not defined by wealth and income. The greater the political influence on economic institutions and economic outcomes, the greater will also be the likelihood that income and wealth are positively correlated to political power. North Korea is a prime example of this relation. Almost nowhere else in the world have economic processes been so thoroughly politicized and dominated by political aims, which led to a widespread famine from the mid-1990s onward. However, North Korea offers interesting insights through its experiences with economic reform due to the breakdown of central planning, which took place in the 1990s. The reform process has neither been gradual, nor has it taken the form of shock therapy, but it has been rather uneven and experimental, with survival of the regime at the top of the agenda. The distributional consequences have been tremendous. The politically influenced distribution of wealth and income has sometimes been challenged and sometimes enhanced by the spontaneous structures emerging alongside the official economy. In absolute terms, hyperinflation and famine make North Korea one of the poorest countries in the world, which leads to huge differences in wealth and income between those having access to foreign currency and those depending on the state for distribution of food.Nevertheless, while North Korea has experienced a strong reduction in its state capacity, basic state functions have remained intact and, recently, the state has seemed to regain some of its economic and political control. Paradoxically, despite its reputation as an alleged rogue state, foreign aid from the international community, particularly from China and South Korea, plays an important role in that stabilization process. In addition to humanitarian considerations, fear of nuclear weapons and potential military tactics are a driving factor for this aid. One of the main benefactors from South Korea has also pointed out that fear of the possible need for a German-style absorption of North Korea and its associated costs is a compelling element in foreign aid. At the culmination of the aid flows, the United Nations World Food Program was feeding approximately 7 million North Koreans, or one third of the population of the country. Therefore, North Korea is also an interesting case for discussion of the distributional consequences of large foreign aid flows and their connection to political institutions. Given the military threat by North Korea, aid has been quite closely and often critically observed.By the end of 2005, North Korea had ended most humanitarian activities because it was concerned about the enhanced flow of information in and out of the country through aid workers and their monitoring activities. Free flows of information have been considered a threat to the regime ever since they caused Eastern Europe- particularly East Germany and Romania-to collapse in the late 1980s. However, the statistical blackout (Eberstadt, 2000) of North Korea began long before that. It is one of the great ironies of history that the original economic system envisaged by North Korea, the centrally planned economy, is the system with the highest possible degree of centralization of information, but at the same time requires a high degree of data dissemination for planning purposes. In the 1960s, as South Korea, the arch enemy, began to show higher growth rates, North Korea stopped all data dissemination.In addition to the consequences for economic policy-making and foreign aid planning, this also calls into question the ability to discuss the relations between income, wealth, and political power in North Korea in a meaningful way. …