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Prospects and Preconditions for Market Economic Transformation in North Korea
Author: Anders Aslund
Published May 25, 2011
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Since 1989, approximately 30 countries have attempted to move from a socialist system to a market economy in Europe and Asia. The outcomes have been remarkably different. Most have succeeded. In Central Europe and the Baltic countries, normal West European democracies and market economies have been established. In Belarus, Turkmenistan, and Uzbekistan, by contrast, little has happened but the exit of the Communist Party, while dictatorship and socialist economies persist. State ownership and state regulation predominate, and dictatorship remains firm. China and Vietnam have undertaken successful market economic transformation, while their Communist parties remain in power. Other countries fall somewhere in between. Thus, the outcome of postcommunist transformation is by no means given. It varies with initial conditions, the economic policy pursued, and policies of the outside world.

Two true Stalinist states soldier on: Cuba and North Korea. These holdouts cannot be expected to last much longer. This paper offers a discussion of which economic policies might be relevant for North Korea in light of the experiences of the transformation of other postcommunist countries. I do not claim expertise on North Korea, about which my knowledge is rudimentary at best. Yet Communist systems have many features in common, and if one studies many of these economies, one knows what to look for. I have tried to establish relevant North Korean peculiarities and see parallels with countries in the former Soviet bloc that appear reasonable. What lessons can be learned from those countries, and to what extent may they be applicable to a future North Korean transformation? Trying to draw the most appropriate parallels, I suggest a scenario for how North Korean Communism may crumble. A key question, of course, is whether the North Korean state will crumble or not. Having drawn up such a scenario, I proceed to prescribe advisable policy actions with regard to economic liberalization, financial stabilization, privatization, and foreign assistance.

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