Understanding the unequal economic inequalities of South and North Korea

Posted on : 2023-10-11 17:09 KST Modified on : 2023-10-11 17:09 KST
Conservatives are unlikely to see their dreams of inequality in North Korea leading to social turmoil come true
Children skate through Kim Il-sung Square in Pyongyang in July 2013. (AP/Yonhap)
Children skate through Kim Il-sung Square in Pyongyang in July 2013. (AP/Yonhap)

Two bits of news caught my eye over the Chuseok holiday.

First was the news of suicides and lonely deaths in South Korea, which were all the more devastating to hear about during the holidays. South Korea has the highest suicide rate in the Organization for Economic Cooperation and Development, and the holidays appear to offer no respite.

As if to reflect the rise in single-person households, there were also several cases of lonely deaths. While the reasons for these tragic deaths are complex, many of the determining factors are related to economic hardship.

In a country of great affluence, suicide by poverty is a testament to one of the deadliest problems threatening our society: wealth is concentrated in the hands of certain groups and classes, the middle class is collapsing, and the social safety net for those in need is failing.

Income inequality is a problem, but wealth inequality due to asset gaps is already at crisis levels. According to a 2022 report by the World Inequality Lab, the top 10% of South Koreans held 58.5% of the country’s wealth, while the bottom 50% held just 5.6%.

Those with assets are getting richer and richer, while the majority of those living on labor wages are hit hard by inflation and interest payments. Those able to work can stay afloat, but those unable to due to health issues or family responsibilities quickly fall into a spiral of debt.

Donju: Money lords reliant on the North Korean regime

The other stories that piqued my interest were articles on North Korea’s economic polarization. While not intended as a comparison to the situation in South Korea, it was reported that inequality is growing in North Korea as well.

The difference being is that North Korean articles tend to focus on the luxury consumption of powerful people. Photos of key female figures in the North Korean regime, such as Ri Sol-ju, Kim Ju-ae, Hyon Song-wol, and Choe Son-hui, are featured prominently, along with details on the brands and prices of their fashion items.

In the face of severe economic hardship, the North Korean leadership’s consumption of luxury goods is clearly the most effective way to expose the regime’s immorality.

There have also been reports on the spending behavior of the middle class, especially in Pyongyang. People in Pyongyang are flaunting thousands of dollars’ worth of South Korean appliances, and the lives of donjus (North Korea’s nouveau riche) with tens of thousands of dollars in assets are no different from those of capitalists in capitalist societies.

This contrasts with recent reports about large numbers of starvation deaths — giving the impression that extreme economic polarization is also present in North Korea.

The question that arises here is whether the economic disparities in the North are actually comparable to the economic polarization in the South. It’s also a question of whether the North Korean economy is suffering from similar side effects to its capitalist counterpart.

It is a long-established view among academics that the North Korean economy can no longer be explained simply in terms of a socialist planned economy. Since the time of the period of famine in the 1990s known as the Arduous March, the concept of markets originating from below has ushered in a transition in the North Korean planned economy into a more mixed form that incorporates market mechanisms.

General markets and other forms of markets were legalized on July 1, 2002, with the “July 1 Economic Management Improvement Measures.” In 2014, the independence of businesses was broadened with the institutions of a “socialist enterprise responsibility management system.”

These measures were based on the practical conclusion that the state could not fulfill its responsibilities for the public’s livelihoods through a state-directed planned economy system alone. To take the place of food and daily essential supplies that were no longer available, the people themselves were empowered to cover the needed items through markets.

But the expansion of markets has not signified a weakening of state controls over all aspects of the economic structure. The means of production remain the property of the state — including land, businesses, and resources. When North Koreans achieve profits through the market, this happens under a system where they make suitable use of the state’s means of production.

This means that the donju who have developed in the North Korean market are not capitalists who actually own the means of production — they are merely a segment who have amassed wealth through distribution and trade. Moreover, what capital they possess is unsustainable without the protection of state authorities who enjoy absolute power.

Since not only the economic means but also most of the profits and capital obtained through economic activity are still in the hands of state authorities, there are basic limits on the ability of the donju to amass capably and expand it into the private realm. This is why the current economic polarization situation in the North cannot be simplified into something along the same lines as the inequality that capitalist societies experience.

In his book “Capital in the Twenty-First Century,” Thomas Piketty analyzes the issue of inequality in terms of the relationship between the net rate of return to capital (r) and the economic growth rate (g), which represents the rate of increase in income or production. He argues that inequality has intensified since the 1980s, when the difference between these rates began growing (r > g).

By this reasoning, the root cause of the intensifying economic polarization that South Korea is now experiencing is the slim rate of increase in income and production in comparison with the sharp rise in the rate of return to capital in areas such as real estate, stocks, and interest.

Ruling classes in both Koreas keep people hoodwinked

In contrast, the economic polarization situation in the North is one that arises between an extreme minority of politically powerful figures who own capital and the means of production and the vast majority of people who survive from day to day by selling their labor.

To be sure, some of those people are somewhat better off than others. There are those who show particular acumen — what North Koreans refer to as having a “clear head” — and there are residents of Pyongyang who take advantage of power to live more comfortable lives than others.

At the same time, it’s apparent that the disparity between them and the majority of the public is qualitatively different from the kind of economic inequality that threatens the very sustainability of capitalist society. Unfortunately, the majority of North Koreans live under conditions that are a far cry from abundance.

This is why the hopes among conservatives that inequality in North Korea will inevitably lead to social turmoil are still unlikely to come to pass. It’s necessary to reflect some more on what North Korean defectors mean when they speak of having been “so busy trying to put food on the table to think about other things.”

So the situations in the South and North are quite different — and that means they demand different solutions.

Piketty argues that a healthy democracy is necessary to resolve issues of inequality in a capitalist society. The wealth of the haves needs to be redistributed through taxation, which in turn entails establishing a generous social consensus.

In contrast, the situation in places like North Korea where the majority of people are poor demands the use of every possible means of boosting productivity and technology, including education and investment. It’s also necessary to take the means of production and resources that are monopolized by the state and redistribute them to the private sector.

But in South Korea, democracy has gone missing, while North Korea’s powers that be have allowed the public to languish in poverty. South Korea’s vested interests are obviously never going to take action themselves to redistribute the wealth of the haves. And from the standpoint of North Korea’s leaders, it isn’t a bad deal to have the public too concerned with surviving to think about other things.

Solutions do exist, but the South and North Korean leaders have no will and see no need to implement them. Instead, the response from the anti-communists, populists and nationalists alike has been to focus on keeping people hoodwinked.

As a result, the cries of the impoverished are all too easily forgotten.

By Kim Sung-kyung, professor at the University of North Korean Studies

Please direct questions or comments to [english@hani.co.kr]

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