The North Korean "Economic Miracle"
During the first two decades after division, many Koreans, perhaps even a significant majority, viewed North Korea more favorably than South Korea. Reflecting this sense of superiority, it was the North, not the South, that made repeated offers for greater North-South communication and exchange. The South Korean government not only rejected these offers, it refused to make any counterproposals. Perhaps even more revealing of Korean impressions of the two Koreas is the fact that in 1960, some 450,000 Koreans living in Japan officially selected North Korea as their "mother country" as compared with 165,000 that selected the South. This difference is even more impressive because the great majority of Koreans living in Japan were originally from southern Korea. Between 1959 and 1962, approximately 75,000 Koreans left Japan to permanently settle in the DPRK.
One reason that North Korea was able to confidently approach the South and attract tens of thousands of Koreans from Japan was its economic superiority. While South Korea struggled with recession and high rates of unemployment during the 1950s, the North Korean economy generated full employment and rapid growth. And even though new state-dominated relations of production enabled the South Korean economy to grow rapidly over the following decade, the North Korean economy continued to outperform it in terms of employment, income distribution, and growth.
North Korea's strong economic performance was the result of a thorough state-directed transformation of Northern economic and social relations. Although Japan did "industrialize" Korea, it did so in an uneven way. In 1940, approximately 85 percent of Korea's heavy industry was in the north while 75 percent of the country's light manufacturing and almost all its agricultural production was in the south. The division of the country left each side with half an economy. The North Korean leadership responded to this historical legacy by implementing a number of sweeping reforms which radically changed workplace, gender, and ownership relations. It also launched a series of economic plans -- one-year plans in 1947 and 1948, and a two-year plan covering 1949 to 1950 -- that were designed to create a more balanced and self-sufficient economy. These initiatives were both popular and effective.
North Korea's economic progress was temporarily interrupted by the Korean War. At the end of the war, power production was only 26 percent of what it had been in 1949, fuel 11 percent, chemicals 22 percent, and metallurgy 10 percent. Agriculture was also in chaos (primarily because of the massive U.S. bombing of the country's dikes and dams).
Almost immediately after the armistice, the North began an impressive rebuilding program, pursuing what Stewart Lone and Gavan McCormack call "possibly the most centralized and planned economic development strategy of any country in the world." A three-year plan was produced for 1954 to 1956 that gave priority to the development of heavy industry. The plan's targets were actually met some six months ahead of schedule. A five-year plan was then drawn up covering 1957-1961, and its targets were also met ahead of schedule. According to the DPRK, its completion meant that the country had successfully built "a base for the development of an independent national economy." A new seven-year plan was launched in 1961, with the aim of modernizing the country's newly created industrial base, as well as establishing more technologically advanced industries.
In the postwar period, the state also completed the task of eliminating private ownership of productive assets. Agriculture went through a process of collectivization which proceeded in stages between 1953 to 1958, a process largely driven by the destruction left by the Korean War, which made the pooling of limited resources and labor necessary for survival. Lone and McCormack describe the collectivization experience as follows:
"Despite the urgency of the task of capital accumulation for industrialization, the regime seems not to have squeezed the farmers too hard, allowing them to experience gradually rising living standards and reduced taxation levels, until the tax on the agricultural yield was eliminated entirely in 1966. Irrigation, terracing of hillsides, mechanization (large scale production and allocation of tractors) and chemicalization (use of fertilizers) were promoted on a large scale."
Urban handicraft as well as small-scale, privately owned enterprises involved in commerce and industry also went through a similar process of collectivization. By August 1958, the North Korean leadership, basing its assessment on the extent of state ownership, announced that the country had achieved "the socialist transformation of the relations of production, in both the rural and the urban communities."
North Korea's economic achievements were truly remarkable. Agricultural output grew by an average of 10 percent a year during the 1950s and 6.3 percent during the 1960s. By the end of the 1960s, the government was able to declare that the country had achieved food self-sufficiency. Industrial growth rates were even more noteworthy. Gross Industrial Product in 1956 was almost three times what it had been in 1953; in 1960 it was almost 3.5 times what it had been in 1956. As a result, industry's share of national income rose from 16.8 percent in 1946 to 64.2 percent in 1965." And by 1960, machine-building had become the country's largest industrial sector. These achievements were so remarkable that even Western economists began to speak of the "North Korean Miracle." In fact, according to the economist Joan Robinson, writing in 1965, "All economic miracles of the postwar world are put in the shade by these achievements."
The End of the Economic Miracle
North Korea's economic advance began to slow in the second half of the 1960s. The government announced in 1966 that its seven-year plan would not be completed on time, and the planning period was extended for three years, until 1970. A new six-year plan was launched in 1971. Although the North announced its successful completion in late 1975, four months ahead of schedule, no new plan was presented in either 1976 or 1977. In spite of these difficulties, even CIA estimates, as summarized by Lone and McCormack, showed that, "as of early 1976, the North Korean economy was out-producing the South in per capita terms in almost every sector, from agriculture through electric power generation, steel and cement, to machine tools and trucks (but not in televisions and automobiles)." Nevertheless, the North was losing the economic race. Between 1960 to 1976, Northern per capita GNP grew by an average annual rate of 5.2 percent; Southern per capita GNP grew by 7.3 percent. The South caught the North on a per capita basis sometime in the mid to late 1970s, and then continued to pull further ahead.
North Korea's economic difficulties had several causes. Among the most important were the decline in aid from the Soviet Union and the division impelled diversion of scarce resources into the military sector. While North Korea has always prided itself on following an economic strategy based on the traditional principle of juche (self-reliance), the country also benefited significantly from foreign aid. For example, North Korea received substantial aid from the Soviet Union and other Eastern European countries in 1953 and 1956 that helped finance its three-year plan. According to one scholar: During the Three Year Plan, 75.1 percent of all capital investments of the DPRK was financed from the grants from the communist bloc. In these years 24.6 percent of the Pyongyang state budget was financed from aid from the bloc countries (including credits). Finally, aid and credits from socialist countries financed 77.6 percent and 3.9 percent respectively of all DPRK imports during the Three Year Plan.
The Soviet Union also gave substantial scientific and technical aid, almost all without charge. By 1962, the Soviets had given North Korea over 2,581 technical documents; some 935 were drawings of complete plants or machinery. This technical support enabled North Korea to produce many industrial products, including trucks, cranes, compressors, agricultural machinery, electric motors, transformers, and tractors, which greatly contributed to the country's rapid industrialization.
Beginning in the late 1950s, relations between the DPRK and the Soviet Union grew tense. In 1956, the Soviets started pressuring the North to give up its attempt to construct a heavy industrial base and instead concentrate on producing light manufactures and primary commodity exports as part of a COMECON-structured division of labor. The DPRK did join COMECON in 1957, but only as an observer; it refused to accept any limitations on its national planning.
Complicating the dispute over economic strategy was a growing split between China and the Soviet Union. Kim had worked hard to remain friendly with both countries and was therefore placed in an awkward position by this development, especially the increasingly frequent Soviet criticisms of China. Kim actually supported the Chinese in their confrontation with the Soviet Union. He was critical of what he saw as Soviet revisionism, especially the policy of "peaceful coexistence" with the United States, the very country that had prosecuted the Korean War. Kim believed that "peaceful coexistence" reflected a racist attitude on the part of the Soviet Union toward Asia. As he saw it, détente was a policy that was developed strictly within, and had meaning only in, a European context. It could have no meaning for Vietnamese, Chinese, or Koreans, people whose countries were divided, with the socialist halves under threat of attack from the United States.
In the early 1960s, when the Soviets started openly criticizing the DPRK for its economic plans and unwillingness to condemn China, Kim stood his ground. The result was the sudden withdrawal of Soviet aid and technical support and, from 1962 to 1965, a reduction in trade between the two countries. Not surprisingly, this had a serious impact on the North Korean economy
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