When one thinks of Friedrich Hayek, North Korea is not usually what comes to mind. But maybe it should.
In the mid-1990s, it was easy to assume North Korea’s destiny was to go the way of the Communist bloc: either they would collapse, like the Soviet Union and East Germany, or they would follow the example of the People’s Republic of China (and later, Vietnam)—a one-party state that carried out market reforms while seeking foreign direct investment and outside technology.
After all, North Korea was even less developed than other communist states, like the Soviet Union, and certainly less than East Germany, whose people abandoned a socialist model when they got a closer look at their West German counterparts.When the state could no longer feed them, freedom of exchange helped them feed themselves. In the case of North and South Korea, the differences were even more stark, with North Korea’s economy flatlining by the 1970s and South Korea’s GDP per capita accelerating, dwarfing the North’s by the early 1990s.
Fast-forward to 2019, and North Korea has survived not only its communist allies collapsing and normalizing relations with South Korea but also a disastrous famine that killed hundreds of thousands of people. One can pinpoint many factors for their continued survival– extraction of aid through nuclear brinksmanship, ethnic nationalism that has unified the populace and sown fear of outsiders, and South Korea’s hesitance to take responsibility for their North Korean brethren and thus a willingness prop up the Pyongyang regime. But all of these would have been irrelevant in the absence of North Koreans’ spontaneous embrace of markets during the famine of the 1990s.
Making the Best of It
Famines occur in North Korea with tragic regularity, dating back to the 1950s due to agricultural collectivism. North Korean defectors have told academics that by the early 1990s, they were largely conditioned to periodic food shortages and as a result did not initially notice the severity of the Great Famine, later known as the Arduous March. This can be explained partially by the inadequacies of the state-controlled food distribution system but also by the inclement weather that regularly afflicts the Korean Peninsula in the summertime. Yet the famine that began in 1994 surpassed previous shortages.
Why? One reason was the Eastern Bloc’s collapse, after which both the newly formed Russian Federation and the reform-minded regime in Beijing favored Seoul over Pyongyang. Another is that the North’s founder and first “Great Leader,” Kim Il-sung, died in 1994, leading his son and successor, Kim Jong-il, to demand a period of national mourning that all but halted economic activity for months. Further, in the decades before the Arduous March, North Korea had reorganized society according to perceived loyalty to the state. The most favored class would receive the best privileges and social services. The least favored—those considered potentially disloyal—received the least, and they were frequently left to starve in the famine. It is no coincidence that the majority of those driven to escape the regime come from the two provinces farthest from the leadership and its privileges.
Increasingly, North Koreans turned to buying and selling essential items among themselves—namely food—to ensure survival.
But defection was not the only option for North Koreans abandoned by the state during the famine in the late 1990s. Increasingly, they turned to buying and selling essential items among themselves—namely food—to ensure survival. The state, which had officially banned private buying and selling, increasingly looked the other way, and citizens of the North not only lived but also kept the social order afloat.
The result? A new wealthy class, whose members are sometimes in defiance of what social caste they came from, has emerged. The previous neighborhood watch system designed to keep people in line has fallen into irrelevance because those who would participate are too busy making money. Areas designated as markets, known as jangmadan, can be seen via satellite and are no secret. Kim Jong-il made some abortive attempts at banning them (most notably the currency revaluation disaster of 2009), but his son, current leader Kim Jong-un, seems to have unofficially given them his blessing.
Friedrich Hayek perhaps did more than anyone to explain how spontaneous order can emerge in the absence of planning. In 1945, with the New Deal ascendant in the United States, the United Kingdom turning decisively toward socialist methods for post-war reconstruction under Clement Attlee, and the Iron Curtain descending on Eastern Europe, Hayek laid down a challenge to central planning in “The Use of Knowledge in Society.” Written as a response to those assured that proper government planning could result in a “rational” economic order, Hayek warned that such knowledge
never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
Hayek stressed that each individual possesses knowledge of their individual circumstances that planners cannot and that economists preoccupied with “statistical aggregates” can never provide a substitute for individuals on the ground making “constant deliberate adjustments” on a daily basis as circumstances change.
The economy of North Korea, particularly under Kim Il-sung, was a centrally planned nightmare. While South Korea sought knowledge from the outside world, promoted exports, and embraced technological change, North Korea attempted self-sufficiency but remained dependent on the agricultural collectivization the Soviet Union had turned away from after 1940. Additionally, planned industrial pushes attempted to unite the country politically but fell well short of their ambitious targets.
In 1989, before North Korea’s great famine, defections spiked when a South Korean leftist illegally traveled to the North to tell Pyongyang residents about the evils of South Korean capitalism and inequality but inadvertently revealed that South Korea was not poor (as North Korean propaganda had claimed), that she herself was remarkably well-fed despite her opposition to the government, and that dissidents like her could openly express their beliefs.
Truly helping North Koreans endure economic challenges—or escape them—means directly helping them rather than the regime itself.
When the market system finally arrived during the famine, it first emerged among local communities, such as families and neighbors helping one another acquire necessary goods. Over time, they grew in scale and sophistication, with escapees who had carved out a living in China providing loans to relatives still in the North to finance their market activity. In many cases, bartering is the preferred means of exchange today, lending credence to Hayek’s contention that “every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made.” By 2015, long after the end of the famine and after Pyongyang had mended fences with both Moscow and Beijing, markets were providing families with anywhere from half to two-thirds of their income.
Sadly, this has not yet translated into more political freedom for North Koreans. Markets are the sites of surveillance for anti-government activity, Kim Jong-un has proven effective in consolidating more and more power to himself, and extraordinary violence is meted out against potential challengers to his rule. There remains very little in the North Korean government’s words or deeds to suggest they will ever abandon nuclear weapons in order to grow their economy faster.
Therefore, while President Donald Trump’s turn toward diplomacy with the Kim regime is a welcome departure from his earlier bellicosity, truly helping North Koreans endure economic challenges—or escape them—means directly helping them rather than the regime itself. Fortunately, there are many ways to do that.