North Korea remains a closed society. Timely collection of data is extremely difficult, and reported economic statistics must be considered highly speculative. Nevertheless, it is possible to determine that North Korea scores some minimal points only in property rights and freedom from corruption, and its overall score is only 1.3 points, hardly measurable on the Index scale. North Korea continues to be the world’s least free economy.
North Korea is an unreformed dictatorial state. Little is known about the economic policy intentions of Kim Jong-un, the hermit kingdom’s third-generation “supreme leader,” but his time in power has been marked by inconsistencies.
Calling for North Korea to become an “economic giant,” Kim has attempted to attract more foreign direct investment with such measures as designating new economic development zones. There have been few takers. Additionally, a new Ministry of External Economic Affairs was formed in June 2014. The regime firmly upholds the development of its military and nuclear strength as key priorities, severely undercutting any chance of economic reform and development.
Western-educated North Korean dictator Kim Jong-un rules a totalitarian state unchanged since his father died in 2011. Kim rejects any alterations in the status quo, warning of the dangers of outside contagion to the stability of the country. He has maintained Pyongyang’s aggressive rhetoric and provocative behavior toward its neighbors and the international community. North Korea continues to conduct nuclear and missile tests in violation of U.N. Security Council resolutions. It has threatened nuclear attacks on the United States and its allies, and it continues to augment and refine its nuclear and missile-delivery capabilities. Typically, Pyongyang escalates and then lowers tensions in attempts to win diplomatic and economic benefits. The Obama Administration, South Korea, and Japan have refused to resume negotiations on denuclearizing the Korean Peninsula without tangible signs of change in North Korean policy.
Bribery is pervasive, and corruption is endemic at every level of the state and economy. A modern, independent judiciary does not exist. The Workers’ Party, the Korean People’s Army, and cabinet officials run companies that compete to earn foreign exchange. Almost all property belongs to the state. Government control extends to all imports and exports as well as domestically produced goods.
No effective tax system is in place. The state commands almost every part of the economy and directs all significant economic activity. The government sets production levels for most products, and state-owned industries account for nearly all GDP. Large military spending further drains scarce resources. Despite attempts to crack down on them, black markets have grown.
The state regulates the economy through central planning and control. The private sector is virtually nonexistent. Since the 2002 economic reforms, factory managers have had limited autonomy to offer incentives, but the government controls the labor market. The botched currency reform in late 2009 has exacerbated monetary instability. “Yuanization” of the economy, especially in areas abutting China, is increasing.
North Korea is isolated from the global economy. International trade and investment are tightly controlled by the government. Limited foreign participation is allowed in the economy through special economic zones, investment in which is approved on a case-by-case basis. The limited financial sector is tightly controlled by the state.