Socialist economic systems traditionally have been characterized by a centrally planned economy, in which a planning agency plans and organizes production as well as consumption to reach given objectives. The government carries out the plan while prohibiting unregulated economic activities. However, increasing difficulties in planning and severe shortages have resulted in a marked growth of unplanned economic activities in socialist countries. Activities outside the so-called plan have been termed the “second economy,” the “unofficial economy,” or the “private economy.” This paper will focus on the private economy.
The private economy in socialist countries refers to all production or trade for private gain and is usually run by the market mechanism (Grossman 1977). Private economic activity has increased in every sector and has helped ease economic scarcity in socialist countries during the transition period. Another important contribution of the private economy is that it has allowed entrepreneurial people in transitional economies to make use of their abilities during the period of transition (Lee and Chun 2001, 199–226).
While numerous changes have impacted every sector of North Korea (the Democratic People’s Republic of Korea, or DPRK), the military sector has not shown much change. It continues to take priority as far as receiving re- sources and investment. In fact, government military expenditures have remained stable while the rest of the economy has undergone a severe contraction. Kim Jong-il made the military his primary concern after his official takeover of power, and it takes only one visit to North Korea to recognize that the military is of the greatest importance. The military sector continues to be given priority in resources and investment, and government military expenditures have been stable even though the whole economy has undergone a severe contraction. North Korea’s impoverishment since the 1990s has made the military relatively stronger.
The private economy in North Korea has also gained significance in terms of its increasing scale as well as in its role of easing material scarcity. North Korea introduced reform measures to facilitate market mechanisms in 2002; these reforms were regarded by many experts as approval of already existing market mechanisms within the society. Since then, however, North Korea has added to these reform measures by stimulating the private economy further. The increase in market mechanisms through these reforms will expand the unplanned portion of the North Korean economy more rapidly, which may then strengthen the private economy and market mechanisms.
The changes to North Korea’s economic structure and economic capacity reflect changes in North Korean society. This paper attempts to show the changes to economic relations and draw implications from the political and economic points of view. This paper first explains changes to North Korea’s economic structure and then analyzes the reform measures with regard to a possible economic transition. The final section summarizes the paper briefly and draws conclusions.