How North Korea Keeps Going: An Overview of the Hermit Kingdom’s Economy
By Noah Chan
Introduction
Since its establishment in 1948, the Democratic People’s Republic of Korea (DPRK), simply known as North Korea, has been a secretive state. Dubbed “the Hermit Kingdom,” it is a remnant of the Soviet era. Since the collapse of the Soviet Union in 1991, North Korea has had a sharp economic downturn. The country has been plagued with famines, including one in the late 1990s that is estimated to have killed 600,000 to one million people, or 3-5 percent of its population (Association for Asian Studies).
North Korea in the Past
Before the USSR’s fall, Soviet aid kept North Korea afloat. In fact, prior to 1965, North Korea’s economy was stronger than South Korea’s economy was. The South was heavily dependent on American aid, while the North was relatively prosperous due to its industrial capabilities, albeit with Soviet assistance (Association for Asian Studies). However, South Korea soared ahead of North Korea in the 1960s and 1970s due to the South’s economic liberalization (KDI Journal of Economic Policy), while North Korea remained dependent on the Soviet Union and China, even throughout the Sino-Soviet split, and maintained its isolation from capitalist countries.
Sanctions
North Korea has been hit with sanctions due to its nuclear weapons program. In 2006, the country conducted its first nuclear test, leading to the United Nations imposing sanctions targeting heavy weaponry, missile technology and material, and select luxury goods (Council on Foreign Relations - nuclear weapons). In the years that followed, the U.N. strengthened sanctions on North Korea as the nation conducted more nuclear tests, although Russia and China have opposed some resolutions, such as in 2022 when both countries vetoed a resolution drafted by the U.S. which would have passed new sanctions prohibiting tobacco and oil imports into the country (Council on Foreign Relations - nuclear weapons).
One of the Last Communist Countries
North Korea is one of the last remaining command economies in the world. The only other communist states are China, Cuba, Laos, and Vietnam (Fox News). Furthermore, China, Laos, and Vietnam are market economies (export.gov), leaving Cuba and North Korea as the only centrally planned economies. The Cuban government has been slowly making capitalist reforms (Bulletin of Latin American Research).
How North Korea Generates Income
The North Korean government owns virtually all businesses within its borders, and upwards of 90 percent of the DPRK’s trade is with China (Council on Foreign Relations - China-North Korea). North Korea’s top export is unknown, although the country’s exports include military equipment, firearms, natural resources such as coal and metals, textiles, and agricultural goods (Council on Foreign Relations - nuclear weapons). Through its labor camps, the state participates in human trafficking, which is split into two categories: forced labor and sex trafficking. Its prisoners, including 80,000-120,000 political prisoners, are forced to work long hours in grueling conditions performing tasks such as logging, mining, manufacturing, or farming (U.S. Department of State), which propel the country’s economy. Juveniles work 12-hour days and receive minimal education. Civilians are often jailed arbitrarily and placed in forced labor camps.
The country is known for exporting laborers abroad. These workers are still under the supervision of North Korean authorities overseas and do not receive compensation until they return to North Korea, forcing them to further coercion and exploitation (Reuters). Additionally, the central government takes up to 90 percent of the laborers’ wages, explaining the origin of some of the government budget. These garnished wages are used to support the regime’s endeavors (Reuters). It is estimated that 100,000 North Koreans work outside of the country, with the majority in construction and manufacturing in northeastern China, earning an estimated $740 million for the regime from 2017 to 2023 (BBC). Other clients have included the Czech Republic, Russia, Libya, Bulgaria, Saudi Arabia, and Angola (U.S. Government Publishing Office).
North Korea’s economy also includes illicit activities, such as drug trafficking and producing counterfeit currency, especially U.S. dollars (Financial Times). The North Korean government has formed ties with foreign criminal organizations, including triads and the Yakuza, to assist with financing these illegal trades and obtaining illegal goods. To engage in this business, the DPRK uses shell companies, financial institutions, and overseas bankers in its network. Lately, North Korea has turned to cybercrime, such as hacking and cryptocurrency theft, to supplement its criminal economy (Financial Times). North Korea also produces counterfeit goods, such as cigarettes and pharmaceuticals. It is estimated that there are 12 government-owned counterfeit cigarette factories in North Korea, in addition to others owned by foreign entities seeking a safe haven for the production of knockoff goods (U.S. Government Publishing Office). From 2002 to September 2005, there were 1,300 reports of North Korean counterfeit Marlboro cigarettes in the United States (U.S. Government Publishing Office). North Korea’s narcotics enforcement is centered around combating small-time drug traffickers to protect the state’s drug trafficking business (NPR). The DPRK also has an industry for producing other dictators’ statues (NPR), which may not come as a surprise considering the country’s own statues of Kim Il-sung and Kim Jong-il. Within North Korea, a shadow economy emerged in the 1990s due to the collapse of socialism. This black market includes supplies stolen from government facilities, such as grain and tobacco. Teachers have even sold grades to students. However, the informal economy’s impact on the overall economy is unknown (Taylor & Francis).
North Korea and COVID-19
The COVID-19 pandemic brought troubles for most economies but especially for that of North Korea. As one of the first countries to shut its already-tight borders in response to the virus, North Korea’s economy fell by 4.5 percent in 2020, further exacerbating the country’s economic crisis stemming from sanctions on external trade (Brookings). Trade with China fell by over 80 percent, and official Chinese exports to North Korea dropped from nearly $200 million in November 2019 to a meager $148,000 in November 2020 (Brookings). This figure rose to $22.5 million in August 2021 but was nowhere close to pre-pandemic levels of trade (Brookings). The United Nations estimated that 43 percent of North Koreans suffered from food insecurity in 2019, and the pandemic with its financial woes have only worsened this (Brookings). Strong typhoons slammed the country in 2020, resulting in a poor harvest and further expanding the scope of food insecurity (Brookings).
The DPRK has rejected foreign aid in the midst of its struggles, turning down nearly two million doses of the AstraZeneca COVID-19 vaccine from COVAX due to concerns of side effects and refusing Chinese vaccines, including three million Sinovac doses, citing uneasiness about efficacy (NBC News).
Defense Expenditure
Under Kim Jong-un, North Korea has largely continued its emphasis on its military. It is estimated that from 2010 to 2010, 20-30 percent of the country’s gross domestic product (GDP) went towards defense, or about $7 billion to $11 billion (CIA). For comparison, the United States, a country often criticized by its own citizens for seemingly excessive defense spending, is estimated to have spent just 3.2 percent of its GDP on its military in 2023 (CIA). The North’s frequent missile tests cost up to $10 million each, which is lower than other countries’ missile tests due to North Korean labor exploitation (Associated Press).
The Future of the North Korean Economy & Conclusion
The future for North Korea is bleak. The country’s trade is mostly limited to Russia and China and is focusing primarily on heavy industries in the foreign trade that it has (East Asia Forum). The DPRK continues to be a command economy ruled by an authoritarian government under the control of one man. Due to the Hermit Kingdom’s secrecy, accurate GDP figures are hard to come by, but in 2015, North Korea’s real GDP was estimated to be $40 billion, and its real GDP per capita was a measly $1,700 (CIA). With its isolation and centrally planned economy that only benefits those at the top, North Korea is all but destined to remain one of the poorest countries in the world.
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