There are many reasons why the North Korean economy is so inefficient now, even though in the late 1930s, it was the most advanced economy in continental East Asia. Things now are clearly not what they once were. The principal reason of decline is, of course, the hyper-centralized economic model, based on Leninist central planning. But there are some other additional factors that also contribute to the sorry state of the contemporary North Korean economy.
Among such factors, one should mention the “spirit of self-reliance”, the battle cry of North Korean industrial policy since the late 1950s. Actually, the North Koreans use four characters of Chinese origin to describe this policy, officially known as Charyok Kaengsaeng (자력갱생; 自力更生）. As everyone with even the most cursory knowledge of the Chinese language and history would instantly realize this slogan, as well as the policy itself, was plagiarized wholesale from Mao’s China. However, the vast majority of North Koreans are completely sure that it was originally invented by the Great Leader, Kim Il Sung himself.
It is not incidental that the idea of “self-reliance”, was once conceived of by Chairman Mao, and that it met with such enthusiasm in Kim Il Sung’s North Korea. Both Mao and Kim spent their formative years as guerrilla field commanders, fighting a desperate war against a much stronger enemy, in more or less complete isolation. They saw the outside world as hostile and irrelevant, and they relied on what they could command in their immediate environment. This is how guerrilla units survived, and both leaders believed that there was no reason why an industrial enterprise, a county, province or even an entire nation should not behave the same way.
Self-reliance implies that every industrial unit, as well as every administrative unit, must produce pretty much everything that it needs, using locally available resources. Trade, or for that matter, any other kind of reciprocal exchange with the outside world was seen as undesirable.
This policy can be further demonstrated with some examples from the North Korean media, even though the Mao-era Chinese media had rather more examples to offer.
In the 1980s, the North Korean media reported that workers of the Pyongyang granary needed some kind of small-size railway locomotive to push around the carriages with grain. Instead of lobbying their superiors and asking for a locomotive to be delivered, the good workers paid even more attention to the words of the Great Leader, and chose to use their own expertise, resources and simple equipment available to produce a locomotive. The North Korean media never reported how long it remained operational, but the newspapers were keen to extol such revolutionary heroism.
Another example is the oft-repeated notion that one should not bother looking for more metal working equipment, but instead produce such equipment at any workshop that can build the necessary machine tools. The idea was to create the industrial equivalent of a perpetual motion machine, a system of self-replicating equipment, and this policy was pursued with great zeal in the 1960s and 1970s.
The results of these kind of policies were predictable: North Korean, a comparatively small nation of 25 million people, fared poorly in the global economy, compared to its neighbors. There was no way for such a country to produce the full variety of sophisticated products that any modern economy needs. Indeed, low quality replacements can and were often produced, but performance was predictably lacking, creating additional burdens.
Comparative advantages
In the modern world, there is no reason to spend too much time talking about the advantages as what is known in modern economist jargon as ‘comparative advantage.' Small countries can prosper, but only so long as they are specialized. One can think of many places, including Switzerland – famous for its precision machines, dairy products and financial services.
Fortunately, it seems that the self-reliant industrial policies of the past have all but died. North Korean ideologues remain remarkably reluctant to officially repudiate old doctrine, but the rise of the North Korean economy over the last decade has almost nothing to do with such still officially lauded principles. Like it or not, in spite of all “self-reliance” rhetoric, North Korea nowadays emphasizes its own comparative advantages, however small they are. It is a country of cheap labor, cheap coal and cheap seafood, essentially. Not very attractive, perhaps, but after decades of the remarkably nonsensical economic policy one could hardly count on a much better outcome.