4 - Economic Decline and the Crisis of the 1990s

Summary

In chapter four, we examine the North Korean regime’s attempts to overcome its secular economic decline through the opening of trade relations with the West in the 1970s. As elsewhere in the socialist bloc, declining growth rates and superpower detente led to growing engagement with the West. However, the collapse of raw material prices in the 1970s and North Korea’s failure to export its manufactures made it increasingly difficult for the country to service its debts and, as a result, Pyongyang defaulted in the mid-1970s. Locked out of world capital markets, North Korea made some attempts to attract FDI investment in the 1980s, though these attempts were limited and largely unsuccessful. As a result of a poor investment climate and continued geopolitical instability, North Korea became increasingly reliant on aid from the Soviet Union and China. However, the collapse of the Soviet Union along with the pragmatic shift in China’s foreign economic policy in the early 1990s immediately exposed North Korea’s excessive reliance on cheap energy imports. The earlier “privileges of backwardness” possessed by North Korea thus quickly became a curse, leading to economic collapse and to mass famine. North Korea’s strong developmental nationalism along with the almost complete elimination of civil society meant instead that the country’s socio-political system was relatively impervious to the transformations elsewhere in the socialist world between 1989 and 1991.