I am wondering if raw materials exports are the best way to “build a market economy.” Raw materials-led exports seem to ruin as many economies as they help because governments become too dependent on their revenues, meanwhile human capital remains undeveloped as does contract and property law, commercial best practices, banking and finance, etc.

South Korea, if I am correct, never exported raw materials, but finished goods–meaning that value was added within the country (Improving human capital). With raw materials exports, you just have to get the stuff out of the ground and to the ports, which carries little extra benefit to the average North Korean worker. The DPRK needs to do figure out how to “add value” to these exports–through refining and/or textile manufacturing.

Any thoughts?

The North Korean economy is currently experiencing a stage where the mechanisms of the centrally planed system are not working properly any more but the market-oriented system has not yet been built. To some degree, the North Korean leadership is trying to emulate the South Korean model of export-based development, where a strong, dictatorial government aims for the increase of industrial productivity at any cost. But the main obstacle for this scenario is the lingering taboo on capitalist form of proprietorship in the DPRK. Politically, the country remains closed and extremely sensitive to foreign and domestic criticism. This is not a democratic way of development but it guarantees stability and precludes any possibility of labour unrest in the period of high growth.

North Korea is an industrialised (43%) nation, with moderately developed (33%) service sector and a small (23%) agricultural sector, which was badly affected by human mistakes, natural disasters compounded by the energy crisis and foreign trade sanctions. In July 2002 a series of measures to liberalise the national economy were undertaken but no steps were made toward privatisation of the means of production or real estate. Although all businesses and enterprises in North Korea are still treated as government-owned and collectively-run, these days they receive unprecedented freedom in managing the production and sales.

Profitability is the motto in today’s North Korea. Any prospect for foreign investment coming into the North Korean economy immediately opens doors to the high echelons of power. Since the industrial production in the DPRK was halted more than ten years ago and the import capability has been extremely limited, North Korea now has a huge appetite for goods and services.

One of Pyongyang’s major goals, following the removal of internationally imposed sanctions, remains long-term collaboration with foreign mining companies to modernise existing mines and to find and extract undeveloped mineral resources, with payment in minerals.

See more at http://www.nautilus.org/fora/security/08037Petrov.html

LP