VI.

Economy

The government of North Korea maintains a predominantly centralized, or state-controlled, economy. After the establishment of the Democratic People’s Republic in 1948, all industry was nationalized and agriculture was collectivized. Government economic policy emphasized a doctrine of self-reliance and downgraded the role of foreign trade. Economic plans gave emphasis to the development of heavy industry and the mechanization of agriculture.

North Korea became dependent on its Cold War benefactors, the Soviet Union and China, for crude oil, refined petroleum products, and feedstock for its fertilizer factories. Thus, when Soviet and Chinese aid declined after 1990, the country was unable to operate its fertilizer factories, its tractors, and its irrigation pumps. Flood damage in 1995 and 1996, in addition to the petroleum shortage, crippled agricultural production and led to famine conditions in some parts of the country. With only 18 percent of its largely mountainous terrain arable and agricultural production still inadequate to meet its needs, North Korea became dependent on foreign food aid, largely from China, South Korea, and the United States. Serious malnutrition persists. The loss of Cold War aid subsidies has also led to a deterioration of its economic infrastructure.

Beginning in 2002, the government initiated economic reforms designed to reverse the economic decline. These reforms included decentralizing control over many state enterprises, which no longer receive subsidies if they are unprofitable; a revised price and wage structure that has given farmers higher wages for their production; new work rules in agricultural cooperatives that reward the more productive farm workers; and private markets in which individual vendors sell agricultural and consumer goods. These goods, which are subject to government price controls, are either locally produced or imported from China, Japan, and South Korea.

A.

Labor

In 2005 the estimated total workforce of North Korea was 10.7 million, with 38 percent of the workforce engaged in agriculture. The major industrial and technical trade unions are affiliated with the General Federation of Trade Unions; also important is the Korean Agricultural Working People’s Union. Professional workers, including artists, writers, lawyers, and scientists, have their own trade organizations.

B.

Agriculture

Large-scale mechanization, irrigation, and land reclamation have increased crop yields. The principal crops (with their yields in 2005) include rice (2.5 million metric tons), corn (1.6 million), and potatoes (2.1 million). Other important crops are millet, barley, wheat, vegetables, apples, sweet potatoes, and soybeans. Livestock number about 3.2 million pigs, 578,000 cattle, 172,000 sheep, and 27 million poultry.

C.

Forestry and Fishing

Production of round wood stood at 7.3 million cubic meters (258 million cubic feet) in 2005. North Korea has a modern fishing fleet; in 2004 the catch was 268,700 metric tons, largely anchovy, tuna, mackerel, and seaweeds.

D.

Mining

Mining is an important sector of the North Korean economy, and efforts are being made to develop new deposits. The focus has been on iron ore and coal, which had, in 2004, outputs of 1.3 million and 30.1 million metric tons, respectively. Other important minerals include tungsten, magnesite, zinc, copper, lead, silver, gold, graphite, and uranium.

E.

Manufacturing

Metallurgical industries and the manufacture of heavy machinery represent a major share of North Korea’s national income. Other manufactures include trucks, diesel locomotives, heavy construction equipment, cement, synthetic fibers, fertilizers, and refined copper, lead, zinc, and aluminum.

F.

Energy

North Korea is well endowed with coal and hydroelectricity resources. Hydroelectric power accounts for 56 percent of the electrical output. In 2003 electricity production was 18.7 billion kilowatt-hours.

In the past, given its lack of proven petroleum reserves, North Korea also relied on imports of petroleum to meet its energy needs. Initially, it sought to reduce its dependence on these imports by maximizing the production of coal and hydroelectric power. But North Korea proved unable to keep up with its energy needs and turned to nuclear energy as the key to energy self-sufficiency. The extent of its natural resource endowments made it feasible for North Korea to pursue a peaceful nuclear program and a military one at the same time. North Korea possesses extensive reserves of the graphite and uranium needed for the gas-graphite type of nuclear reactor. While this type of reactor can be used to generate electricity, it is also uniquely suited to the diversion of nuclear fuel for military purposes.

In 1989 U.S. spy satellites discovered that a reactor at Yǒngbyǒn, nominally intended for civilian nuclear power generation, had been shut down, offering an opportunity for the diversion of plutonium to military use. This provoked a diplomatic crisis that resulted in a U.S.-South Korean-Japanese commitment in 1994 to construct two reactors in North Korea of a type not suited for military use. These reactors are known as light-water reactors (LWRs). Although the agreement broke down and the reactors were never built, North Korea continues to seek LWRs, which Japan, South Korea, and other countries use to generate electricity.

Another possible new energy source for North Korea, in addition to LWRs and petroleum, is natural gas. Russia’s natural gas monopoly, Gazprom, has conducted preliminary discussions with North Korea on a possible gas pipeline from a gas field in western Siberia or from Sakhalin Island that would cross through North Korea en route to South Korea and would supply North Korean power stations and fertilizer plants.

G.

Transportation

The railroad system of North Korea is electrified along most of its 8,530 km (5,300 mi) of track. It has direct links to South Korea, China, and Russia. In May 2007 two passenger trains traveled between North and South Korea for the first time since the Korean War began in 1950. The one-time event was regarded as largely symbolic of improved relations between the two countries. There are 31,200 km (19,387 mi) of roads, of which only 6 percent are paved. The Taedong River is important to internal trade; the total length of inland waterways is about 2,250 km (1,400 mi). Major ports include Namp’o and Haeju on the western coast and Ch’ŏngjin and Wŏnsan on the eastern coast.

H.

Currency and Banking

The unit of currency is the won (2.20 won equals U.S.$1; May, 1998). North Korea has three banks, all state-controlled; the Korean Central Bank is the bank of issue.

I.

Foreign Trade

The bulk of North Korea’s foreign trade through the 1970s was with the Union of Soviet Socialist Republics (USSR), China, and other Communist countries. Since then, however, trade has been diversified to include non-Communist countries. Bilateral trade in 2003 totaled $3.3 billion, according to estimates by the Central Intelligence Agency. The CIA estimated that North Korea’s exports in 2003 totaled $1.2 billion, primarily minerals, metallurgical products, manufactures (including armaments), and textiles. The principal trade partners for exports were China (29.9 percent), South Korea (24.1 percent), and Japan (13.2 percent). Imports totaled $2.1 billion, primarily petroleum, coking coal, machinery and equipment, textiles, and grain. The principal sources of these imports were China (32.9 percent), Thailand (10.7 percent), and Japan (4.8 percent).

In 2002 the government of North Korea announced the establishment of a special economic zone in the northwestern city of Sinŭiju, near the border with China and linked by rail to Beijing. The zone will operate autonomously with its own legal and economic systems, allowing free market principles that promote foreign investment and trade. Its creation marked the most significant reversal of economic policy in North Korea since 1948.