A rule-of-thumb economy

I visited an outpost of the Russian National Library on the outskirts of Moscow to search for unofficial data from the former Soviet Union in the spring of 1994. I took a two-hour journey on a subway and bus and leafed through..

Kim Byung-yeon

The author is an economics professor of Seoul National University.

I visited an outpost of the Russian National Library on the outskirts of Moscow to search for unofficial data from the former Soviet Union in the spring of 1994. I took a two-hour journey on a subway and bus and leafed through hundreds of research papers by Russian economists. My efforts were in vain because none of them had meaningful numbers. Empirical analysis crucial to economic reports was nowhere to be seen. The papers commonly had lengthy introductions citing the quotes of Marx and Lenin and propagandist arguments.

Compared with North Korea, the Soviet Union was pretty resourceful in terms of data. It published an annual 700-page “white books” until the Soviet Union fell apart in 1991. North Korea has not released any annual statistics book since the 1960s. It is the only country without such public data among state-controlled economies. The country stopped releasing data since its economy began shriveling. As North Korea ran on the juche (self-sufficient) ideology, it could manage to get away with a planned economic policy without the backing of statistics.

In a surprising turn, however, North Korea shared a piece of data at the eighth Congress of the Workers’ Party last month. The regime announced a cement production target of 8 million tons in its five-year economic plan from 2021 to 2026. Pyongyang usually uses various ways to get around numbers in policy announcements, including announcements of growth rate without releasing output data, or inflating the growth data.

But this time, North Korea set a specific production target. It is not clear if the country made a mistake out of desperation to achieve its cement production goal as declared by its leader Kim Jong-un two years ago. But if its cement production target is set for 8 million tons by 2026, its real output in 2020 is projected to be 5.2 million tons at most on the assumption that its output grows 9 percent per annum over the next five years given its tendency to set a target beyond its limits. The number also matches a projection by the Bank of Korea (BOK) based on intelligence records. The BOK estimated North Korea’s cement output at 7.08 million tons for 2016 and 5.6 million tons for 2019.

By unveiling its cement output target, North Korea has unintentionally exposed the severity of international sanctions. The numbers are an admission that cement output plunged by more than a quarter from 2017 to last year because of sanctions. North Korea’s cement industry would have been less affected by sanctions than other sectors that rely on raw material imports or overseas demand. Cement can be produced with materials at home and shipments are not affected as long as there is domestic demand. But if even that industry has seen a contraction of more than 25 percent, the effect of sanctions on other more vulnerable industries can be imagined. The self-sufficiency ideology of North Korea is under a serious challenge.

North Korean leader Kim Jong-un delivers a speech to the eighth Congress of the Workers’ Party in Pyongyang on Jan. 5. [NEWS1]

It seems that the Pyongyang regime does not know the country’s real economic conditions. It does not know how much a household earns or spends since there is no official data. Residents who live off black market activities and smuggling would hardly report their earnings and expenditures honestly. Even as self-sufficiency nears its limits — another way of saying this is reaching the bottom of the barrel — Kim vowed to fight economic difficulties with the juche philosophy during the 8th Congress of the party. He is also repeating the can-do slogan as in the Soviet days.

The economic plan the Workers’ Party announced at the latest convention is a dangerous blueprint as it lacked a sense of reality or genuine solution to the challenges faced. Kim appears to envision North Korea as a normal state. In the party Congress, he stressed that 10 percent of the party attendants were women as if the country had become a model of gender equality. But North Korea is far from normal. Its ambition to deliver a nuclear missile that can precisely hit within 15,000 kilometers (9,320 miles) is not compatible with its goal of producing 8 million tons of cement by 2026. The contradiction shows how seriously Kim lacks a sense of reality. If he really cares for his people, he must seriously deliberate on what can help the people — nuclear weapons or economic development. His fate hinges on that choice.

Translation by the Korea JoongAng Daily staff.