History of North Korea - Economic Decline

Economic Decline

Due to a series of ill fortuned policy decisions concerning military expenditures and mining industries and the radical changes in international oil prices by the late 1970s, the North Korean economy began to slow down. These decisions eventually affected the whole economy, forcing the nation to acquire external debts. At the same time North Korea's policy of self-reliance and the antagonism of America and its allies made it difficult for them to expand foreign trade or secure credit.

In the 1970s, expansion of North Korea's economy, with the accompanying rise in living standards, came to an end and a few decades later went into reverse. Compounding this was a decision to borrow foreign capital and invest heavily in military industries. North Korea's desire to lessen its dependence on aid from China and the Soviet Union prompted the expansion of its military power, which had begun in the second half of the 1960s. The government believed such expenditures could be covered by foreign borrowing and increased sales of its mineral wealth in the international market. North Korea invested heavily in its mining industries and purchased a large quantity of mineral extraction infrastructure from abroad. However, soon after making such investments, international prices for many of North Korea's native minerals fell, leaving the country with large debts and an inability to pay them off and still provide a high level of social welfare to its people.

Worsening this already poor situation, the centrally planned economy, which emphasized heavy industry, had reached the limits of its productive potential in North Korea. Juche repeated demands that North Koreans learn to build and innovate domestically had run its course as had the ability of North Koreans to keep technological pace with other industrialized nations. By the mid to late-1970s some parts of the capitalist world, including South Korea, were creating new industries based around computers, electronics, and other advanced technology in contrast to North Korea's Stalinist economy of mining and steel production.

Continuing a "self-reliance" ideology that had once been highly successful, Kim Il-Sung was unable to respond effectively to the challenge of an increasingly prosperous and well-armed South Korea, which undermined the legitimacy of his own regime. Having failed at their earlier attempt to conduct market-economy reforms such as those carried out in China by Deng Xiaoping, Kim opted for continued ideological purity. The DPRK by 1980 was faced with the choice of either repaying its international loans, or continuing its support of social welfare for its people. Given the ideals of Juche, North Korea chose to default on its loans and by the late 1980s its industrial output was declining. A 1984 visit to Pyongyang by CCP General Secretary Hu Yaobang was received politely, but failed to sell Kim on making any economic reforms.

That same year in 1984, North Korea again drifted towards the Soviet Union after Kim visited Moscow during a grand tour of the USSR (his first trip to Moscow since 1966) as well as Eastern Europe (he made public visits to East Germany, Czechlosvakia, Poland, Hungary, Romania, Bulgaria and Yugoslavia). However, DPRK-USSR relations ran out of gas by 1986. The basic nature of Pyongyang's political system was very different from Moscow's. The Korean Workers Party still existed, but it was essentially ceremonial and had long since been subordinated to Kim's personal dictatorship. Moreover, his Juche philosophy had effectively replaced Marxism-Leninism as North Korea's official ideology (as outlined in the 1974 North Korean constitution). In addition, the personality cult of Kim had assumed proportions not seen anywhere else in the world. Most of this (as well as the Juche philosophy) was the work of his son Kim Jong-Il, who had been officially nominated as his father's successor in October 1980. The elder Kim was unmoved by the social and ecomomic reforms of Soviet leader Mikhail Gorbachev starting in 1985, and this contributed to the decline in relations with Moscow. Chinese ecomomic reforms also had little effect in North Korea, as did the fall of communist states in Eastern Europe during 1989. China endured a period of international isolation after the Tiananmen Square Massacre, which caused it to embrace Pyongyang as one of the world's only surviving communist states. Even so, China alienated North Korea when they participated in the 1988 Summer Olympics in South Korea in defiance of the North Korean boycott. Relations with North Korea were further strained in 1990 when the Chinese agreed to recognize both Korean governments equally.

The collapse of the Soviet Union in 1991 deprived North Korea of its main source of economic aid, leaving China as the isolated regime's only major ally. Without Soviet aid, North Korea's economy went into a free-fall. Kim Jong Il was already conducting most of the day-to-day running of the state, and apparently kept his aging father in the dark about the growing economic disaster throughout the country. Also at this time, North Korea was attracting the ire of the international community for its attempts at developing nuclear weapons. Former US president Jimmy Carter made a visit to Pyongyang in June 1994 in which he met with Kim and returned proclaiming that he had settled the nuclear question.