Why North Korea’s Economy is Booming

In 2021, Kim Jong-un tearfully apologized for North Korea's economic failures amidst COVID-19 and a struggling economy. However, by early this year, he triumphantly declared a new, prosperous era, promising 'both sweets and bullets,' implying economic stability to support both its people and its nuclear program. This video explores the reasons behind this apparent turnaround.

North Korea wasn't always an economic basket case. In the decades after the Korean War, it actually outperformed South Korea, fueled by aid from China and the Soviet Union and a command economy focused on heavy industry. By 1960, North Korea was wealthier per capita than its southern neighbor. However, growth slowed in the 1960s due to reduced Soviet aid after Kim Il-sung's alignment with China and his isolationist 'Juche' self-reliance policy. This led to heavy borrowing in the 1970s and subsequent defaults, isolating North Korea from international markets.

The collapse of the Soviet Union around 1990 exacerbated North Korea's economic woes, ending vital aid and subsidized oil. This triggered a severe economic crisis and a devastating famine, killing hundreds of thousands and leading to widespread malnutrition. The state's inability to control the economy led to the rise of an informal, market-based economy in the 2000s, coinciding with China's economic boom which benefited North Korea.

Despite UN sanctions following its 2006 nuclear test, North Korea saw solid GDP growth in the early 2000s, as estimated by the Bank of Korea. Growth slowed by the late 2000s, intensifying in the mid-2010s when China agreed to stronger sanctions. The COVID-19 pandemic was particularly ruinous, causing trade collapse, agricultural decline, and a health crisis. However, since the pandemic, the economy has reportedly rebounded, with the Bank of Korea estimating over 3% GDP growth annually since 2023. Nighttime light data, a proxy for GDP, suggests even higher growth, with Pyongyang's luminosity essentially doubling since the pandemic. Significant infrastructure projects, like hydroelectric power plants, have also been completed.

Three main reasons are attributed to North Korea's economic improvement: 1) Russia: Arms, troops, and workers supplied to Russia for the Ukraine war have provided a lucrative source of foreign currency. 2) China: Weakened enforcement of UN sanctions by China has led to increased trade, allowing North Korea to benefit from China's economic growth and import goods like solar panels and electric cars at low prices due to China's 'overcapacity'. 3) Sanctions: Both UN and non-UN sanctions have become less effective over time as the world develops workarounds to insulate against frequent US-led sanctions.

Despite the growth, North Korea's GDP per capita remains low, in the thousands of dollars, and the prosperity of Pyongyang doesn't reflect the poverty in the rest of the country. Nonetheless, the improved economic situation, as evidenced by Kim Jong-un's changed tone, is generally seen as concerning, potentially leading to a more emboldened North Korea.