Marcus Noland has an interesting post on the plethora of obstacles the DPRK must navigate before it can take advantage of the full range of trade and development programs across the globe.
Archive for the ‘Peterson Institute’ Category
I was in Washington today for the release of Haggard’s and Noland’s new book Witness to Transformation: Refugee Insights into North Korea. According to the Peterson Institute’s web page:
Despite its nuclear capability, in certain respects North Korea resembles a failed state sitting uneasily atop a shifting internal foundation. This instability is due in part to the devastating famine of the 1990s and the state’s inability to fulfill the economic obligations that it had assumed, forcing institutions, enterprises, and households to cope with the ensuing challenges of maintaining stability with limited cooperation between the Korean government and the international community. The ineffective response to the humanitarian crisis triggered by the famine resulted in the outflow of perhaps tens of thousands of refugees whose narratives are largely overlooked in evaluating the efficacy of the humanitarian aid program. Witness to Transformation: Refugee Insights into North Korea uses extensive surveys with refugees who now reside in China or South Korea to provide extraordinary insight into the changing pathways to power, wealth, and status within North Korea. These refugee testimonies provide an invaluable interpretation of the regime, its motivations, and its capabilities and assess the situation on the ground with the rise of inequality, corruption, and disaffection in the decade since the famine. Through the lens of these surveys, preeminent North Korean experts Stephan Haggard and Marcus Noland carefully document the country’s transition from a centrally planned economy to a highly distorted market economy, characterized by endemic corruption and widening inequality. The authors chart refugees’ reactions to the current conditions and consider the disparity between the perceived and real benefit of the international humanitarian aid program experienced by this displaced population. Finally, the book examines these refugees’ future prospects for integration into a new society.
I have read the book and found it tremendously helpful for understanding the changing dynamics within the DPRK.
In conjunction with the release of the book, the two authors have launched a new blog. You can see it here. They have already posted some fantastic data—and we can also see a sense of humor as well!
Reuters published a concise report of the DPRK’s recent restrictions on market activity which is compiled from work by Marcus Noland and Stephan Haggard. Here is the Reuters report:
Reclusive North Korea has imposed a series of measures since 2008 to rein in market activity, foreign trade, and activity across the border.
A Peterson Institute for International Economics policy brief published this year outlines some of the rules put in place:
January – Women under 40 banned from trading in markets, followed by efforts to redeploy them to workplaces.
April – Wide-ranging Antisocialist Conscience Investigation of Sinuiju, the country’s main land port with China, including the books of trading organizations. Restrictions placed on carrying merchandise on bicycles and carts in Sinuiju.
July – Party, police, and market management office coordinate efforts to limit large sales in the Pyongsung market, an emerging wholesale center for the country in Pyongan province.
October – Nationwide ban on sale of shoes in markets and new restrictions limiting trade in foodstuffs to individually cultivated fruits and vegetables.
November – Major directive announcing the conversion of markets back to the more restrictive farmers’ market format. Markets to be open only on the 1st, 11th, and 21st of each month, and to be limited to retail sales of individually cultivated food; other foodstuffs and manufactures to be sold through the ‘public distribution system’ and state-run stores. Major cities, including Pyongyang, Hamheung, Soochun, Kaesung, and Chungjin, set up model farmers markets.
January – National Security Agency special investigative unit scrutinizes names, number of family members, and livelihoods of households in the National Border Area suspected of involvement in border crossing and trade. Public education campaigns and increased punishment for border crossing.
March – New controls over lodging and movement without passes in National Border Area [and] imposition of strict movement controls in connection with the Supreme Peoples Assembly elections; intensified controls following the elections.
May – Announcement of 150-day campaign accompanied by renewed implementation of market restrictions on women under 40 and restricted items, including products of joint ventures, industrial goods, and American and South Korean products. Punishment of emergent back-alley markets and ‘sell and run’ sales. Public education campaigns against market activities.
June – Closure of Pyongsung market in Pyongan province.
July – Increased control and surveillance over households in National Border Area with defectors.
November – North Korea announces a reform to replace all currency in circulation with new bills and coins.
I should also point out that many of these dictates were uniformly unenforceable and many have been rescinded (including the 10-day rule) since the currency reform was implemented.
Read the full story here:
Factbox: How North Korea has tightened controls
Marcus Noland wrote an op-ed for the BBC which is posted on the Peterson Institute web page. There are some differences in the two (the BBC piece is shorter), so you can read whichever you prefer. Below, however, I have posted the graphs from the Peterson Institute web page with some commentary:
This chart indicates the market for rice was surprisingly efficient before the currency conversion. Over a two year window, the observed price seems remarkably stable (although the scale of the graph makes it hard to see the the actual level of price volatility). Still, it seems fair to say that North Korean rice producers, vendors, and smugglers are quick to spot and eliminate regional price differentials through arbitrage. The supply of rice must also be highly highly elastic. If the North Korean economy was experiencing inflationary pressures in this time, productivity gains and competition would have to have kept the nominal price essentially flat and caused the real price of rice to fall!
The price of corn is somewhat more volatile and I would be interested in hearing theories as to why this is.
This chart is surprising as well. We see a highly stable US Dollar/DPRK won black market exchange rate (though again, the scale of the graph makes it difficult to determine just how stable). Although the DPRK has not published its monetary policy goals (as far as I am aware), I think it is fair to say that the North Koreans practice exchange rate targeting. Most likely the target is not the US dollar, but the Chinese yuan–which trades at a nearly constant level with the US dollar. Since China is the DPRK’s largest trading partner, it would make sense that the authorities would aim for exchange rate stability. This would suggest, however, that the DPRK’s monetary authorities are well aware of the black market value of their currency and have the tools to affect the exchange rate (i.e. lots of RMB reserves to sell on the black market). I am not sure how plausible this is, but I am not sure how else we can explain this level of exchange rate stability.
Peterson Institute Policy Brief
Stephan Haggard, Marcus Noland
On November 30, 2009, North Korea announced a reform to replace all currency in circulation with new bills and coins. North Korean officials have made no bones about their motivations: The “reform” constitutes a direct attack on the emerging market economy and the independence from state control that it represents. In an interview following the conversion, an official of the North Korean central bank noted that the reform was aimed at curbing private trade and underlined that North Korea is “not moving toward a free market economy but will further strengthen the principle and order of socialist economic management.”
Without doubt the currency reform will reduce the well-being of the North Korean population at a time when the country is already struggling with economic stagnation, spiraling prices, and a return of chronic food shortages. The open questions are two: Will the government ultimately be forced to adjust its strategy or will it persist in enforcing the new antimarket course of action? The New Year’s joint editorial of prominent official news organs, an important statement of the government’s policy intentions, conveys a mixed message consisting largely of blather about revolutionary upswing; it does not even mention the currency reform—potentially signaling a lack of resolve in carrying it out. The second question is whether the discontent this new government action has sown will have implications for the country’s political stability. Preliminary signs suggest the regime is leaving nothing to chance and that heightened repression is a central feature of the new economic controls.
Abstract: The state is often conceptualized as playing an enabling role in a country’s economic development—providing public goods, such as the legal protection of property rights, while the political economy of reform is conceived in terms of bargaining over policy among elites or special interest groups. We document a case that turns this perspective on its head: efficiency-enhancing institutional and behavioral changes arising not out of a conscious, top-down program of reform, but rather as unintended (and in some respects, unwanted) by-products of state failure. Responses from a survey of North Korean refugees demonstrate that the North Korean economy marketized in response to state failure with the onset of famine in the 1990s, and subsequent reforms and retrenchments appear to have had remarkably little impact on some significant share of the population. There is strong evidence of powerful social changes, including increasing inequality, corruption, and changed attitudes about the most effective pathways to higher social status and income. These assessments appear to be remarkably uniform across demographic groups. While the survey sample marginally overweights demographic groups with less favorable assessments of the regime, even counterfactually recalibrating the sample to match the underlying resident population suggests widespread dissatisfaction with the North Korean regime.
JEL Codes: P2, P3, F22
Keywords: failed states, transition, reform, North Korea, refugees
Working Paper (Download PDF here)
Marcus Noland, Peterson Institute for International Economics
Abstract: This study finds that North Korea’s nuclear test and the imposition of UN Security Council sanctions have had no perceptible effect on North Korea’s trade with its two largest partners, China and South Korea. Before North Korea conducted an underground nuclear test, it was widely believed that such an event would have cataclysmic diplomatic ramifications. However, beginning with visual inspection of data and ending with time-series models, no evidence is found to support the notion that these events have had any effect on North Korea’s trade with its two principal partners.
In retrospect, North Korea may have calculated quite correctly that the direct penalties for establishing itself as a nuclear power would be modest (or, alternatively, put such a high value on demonstrating its nuclear capability that it outweighed the downside risks, however large). If sanctions are to deter behavior in the future, they will have to be much more enthusiastically implemented.
Keywords: Sanctions, North Korea, Nuclear, United Nations, Trade equations
JEL codes: F51, P2, D74
On one side of the debate, the UN World Food Propgram claims that North Korea has a 1.67 million ton grain shortfall leaving 6.5 million individuals at risk. These are North Korea’s numbers and the WFP/FAO is required to accept them.
On the other side of the debate, Marcus Noland and Stephan Haggard argue the DPRK’s grain shortage is closer to 100,000 metric tons. The discrepancy arises because the UN’s estimate is based on individuals needing 460 grams of grain per day to sustain life, but in reality, grains are supplemented by potatoes and other vegetables, lowering the amount of aid needed to sustain the population. Their calculations are explained here.
South Korea’s National Intelligence Service and Ministry of Unification buttress the Noland/Haggard assertion that things are not as bad as the UN numbers suggest (Daily NK).
In an effort to document the state of affairs via field research, the UN WFP is conducting a survey across 50 counties in the DPRK. According to the BBC:
Staff from the UN World Food Programme have been given rare access to North Korea’s countryside to assess the seriousness of food shortages there.
The audit, being carried out across more than 50 counties, comes at a critical time.
Some recent reports suggest that the country may be on the brink of famine.
North Korea is estimated to have a shortfall of 1.6 million tonnes of grain because of last year’s flood-affected harvest.
But a true picture of the scale of the crisis is very difficult to determine.
Twelve WFP staff and eight US aid agency workers are now fanning out through North Korea, albeit with government minders, visiting hospitals, schools and individual households.
Their work is expected to take two weeks, by which time the world should have a much clearer understanding of the true nature of North Korea’s food crisis.
Here is the World Food Program’s North Korea Page. I have not found anything on the survey team, methodology, or operations. I will post something here if I do.
Read the full artilces here:
Balance of Principle and Flexibility Are Needed When Providing Food Assistance to North Korea
Choi Choel Hee
Asia’s Other Crisis
Stephan Haggard and Marcus Noland
UN assesses N Korea food supply
Peterson Institute for International Economics Working Paper
Stephan Haggard, University of California, San Diego
Marcus Noland, Peterson Institute for International Economics
Erik Weeks, Peterson Institute for International Economics
Download the paper here: haggard_noland_weeks_pb.pdf
North Korea is on the brink of famine. As detailed [in this policy brief], the margin of error between required grain and available supply has virtually disappeared. Local food prices are skyrocketing even faster than world prices. Aid relationships have been soured and the regime’s control-oriented policy responses are exacerbating distress. Hunger-related deaths are nearly inevitable and a dynamic is being put in place that will carry the crisis into 2009, even if as expected, the US announces that it is sending 500,000MT in return for a signed nuclear declaration.
The US can provide aid in ways that maximize its humanitarian impact while limiting the degree to which aid simply serves to bolster the regime. We know that aid is diverted. Yet given the fragmented nature of markets in North Korea, diverted aid often finds its way into markets in the catchment area where it is delivered. Geographically targeting aid to the most adversely affected regions and providing it in forms such as barley and millet that are not preferred by the elite can increase the ameliorative impact of assistance. The Bush Administration has taken up the first part of this equation–requiring that most of its contribution to the World Food Program be targeted at the worst affected regions–but it could do more on the second part: providing aid in forms less preferred for elite consumption. It can also encourage others such as South Korea to follow suit.
The US should also exercise quiet leadership with respect to the refugee question as well. The Chinese government’s practice of returning North Korean refugees may reflect a natural self-protective response against the threat of a flood of migrants and even the breakdown of the North Korean regime; it was, after all, the notorious “hole in the fence” that helped precipitate the collapse of the Eastern European regimes. But the policy of returning refugees does not conform with China’s obligations under the refugee treaty and does not in the end serve the country’s underlying political objectives either; it simply serves to cutoff another escape valve, however small, that has contributed to taking pressure off of a rapidly deteriorating situation.
On Wednesday I attended a panel discussion featuring Marcus Noland, co-author (with Stephan Haggard) of Famine in North Korea, and three North Korean defectors. Here is the video of the event. Below is the information on the event from the Peterson Institute website:
Press release (slightly updated w/ comments from the talk)
North Korea is once again headed toward widespread food shortage, hunger, and risk of outright famine. According to Peterson Institute Senior Fellow Marcus Noland, “The country is in its most precarious situation since the end of the famine a decade ago.”
Click for larger view
Calculations by Noland and Stephan Haggard, University of California, San Diego, indicate that the country’s margin of error has virtually disappeared. For technical reasons, estimates produced by the United Nations’ World Food Program and Food and Agriculture Organization (total demand) probably overstate demand implying recurrent shortages year after year (figure 1 above). Noland and Haggard argue that in recent years available supply has exceeded more appropriately calculated grain requirements (adjusted total demand) but that this gap has virtually disappeared. “This is a yellow light about to turn red,” says Noland.
Food prices have almost tripled in the last year, skyrocketing at a rate faster than either the overall rate of inflation or global food prices (figure 2 above). Anecdotal reports describe a breakdown in institutions and increasingly repressive internal behavior. Noland and Haggard forecast that the North Korean regime will ultimately weather this challenge politically by ratcheting up repression and scrambling, albeit belatedly, for foreign assistance.
The North Korean food crisis, now well into its second decade, presents a difficult set of ethical choices. North Korea is critically dependent on food aid, but the government has recklessly soured its relations with the donor community. Yet in the absence of vigorous international action, the victims of this disaster will not be the culpable but the innocent. As of this writing, it already may be too late to avoid at least some deaths from hunger, and shortages of crucial agricultural inputs such as fertilizer are setting the stage for continuing food problems well into 2009.
Noland discussed two recent papers, written with Haggard and Yoonok Chang, Hansei University, which are based on a pathbreaking survey of more than 1,300 North Korean refugees in China (11 different cities). The survey provides rare and extraordinary insight into both life in North Korea and the experiences of the refugees in China.
Paper 1: Exit Polls: Refugee Assessments of North Korea’s Transition
Results from a survey of more than 1,300 North Korean refugees in China provide insight into changing economic conditions in North Korea. There is modest evidence of slightly more positive assessments among those who exited the country following the initiation of reforms in 2002. Education breeds skepticism; higher levels of education were associated with more negative perceptions of economic conditions and reform efforts. Other demographic markers such as gender or provincial origin are not robustly correlated with attitudes. Instead, personal experiences appear to be central: A significant number of the respondents were unaware of the humanitarian aid program (40%) and the ones who knew of it almost universally did not believe that they were beneficiaries (96%). This group’s evaluation of the regime, its intentions, and accomplishments is overwhelmingly negative—even more so than those of respondents who report having had experienced incarceration in political detention facilities—and attests to the powerful role that the famine experience continues to play in the political economy of the country.
Paper 2: Migration Experiences of North Korean Refugees: Survey Evidence from China
Chronic food shortages, political repression, and poverty have driven tens of thousands of North Koreans into China. This paper reports results from a large-scale survey of this refugee population. The survey provides insight not only into the material circumstances of the refugees but also into their psychological state and aspirations. One key finding is that many North Korean refugees suffer severe psychological stress akin to post-traumatic stress disorder. This distress is caused in part by their vulnerability in China, but it is also a result of the long shadow cast by the North Korean famine and abuses suffered at the hands of the North Korean political regime: first and foremost, perceptions of unfairness with respect to the distribution of food aid, death of family members during the famine, and incarceration in the North Korean gulag, where the respondents reported witnessing forced starvation, deaths due to torture, and even infanticide and forced abortions. These traumas, in turn, affect the ability of the refugees to hold jobs in China and accumulate resources for on-migration to third countries. Most of the refugees want to permanently resettle in South Korea, though younger, better-educated refugees prefer the United States as a final destination.
Other speakers: Several North Korean defectors also spoke as part of North Korean Freedom Week here in Washington DC. Comments and biographies below:
Kim Seung Min: Founder and Director of Free North Korea Radio, the broadcasting program providing news and information to North and South Korea and China. Kim attended both elementary and high school in Pyongyang before serving in the North Korean Army. He escaped from North Korea to China in 1996 but was arrested and repatriated. While traveling from Onseong to Pyongyang to face punishment for leaving the country without government permission, he jumped from a moving train to escape to China again and eventually made his way to South Korea. He worked as a laborer at a coal factory in Yenji, China, until his uncle in South Korea helped him to escape to South Korea. He attended Yonsei University and Graduate School at Joong Ang University, where he received a Master of Arts degree. After serving in leadership roles in the North Korean defector groups, he founded Free North Korea Radio, which was available on the internet beginning April 2004 and began broadcasting on shortwave in December 2005 with regular daily broadcasting beginning in April 2006. (Born 5/6/62 in Jangang Do, North Korea)
*Mr. Kim was a captain in the KPA for 16 years. He talked about how soldiers were no better off in terms of access to food than ordinary North Koreans. Starting in 1986, the DPRK state limited food supplies to the military to only rice, leaving the generals up to their own devices for feeding the army. This led to a break-down in discipline and now people resent the personal behavior of many soldiers who are looking for food.
Kang Su Jin:Founder and Representative of the Coalition for North Korean Women’s Rights, the only organization focused specifically on increasing awareness of the horrors facing North Korean women in China, the role of women in democratizing North Korea, empowering and encouraging North Korean women who have resettled in South Korea, and building cooperation with other organizations. Kang was a member of the elites from Pyongyang and was the Manager of Supply from 1991 to 1998 of the Bonghwasan Hotel in Pyongyang, the biggest hotel in Pyongyang, which catered to high-ranking party and army officials and was used for special events. When food distribution stopped in Pyongyang in 1996, the regime announced that all hotels had to operate on their own, and conditions became very difficult for the workers. Kang visited China and saw how much better off the people were and decided to defect to South Korea. (Born 10/23/66 in Pyongyang, North Korea)
Kim Young-il:President and Founder of People for Successful Korean Reunification (P-SCORE), an organization founded in the fall of 2006, specifically to ensure the successful reunification of the Koreas would not adversely affect the South Korean economy. To that end, PSCORE, chiefly composed of young people, studies other reunification models, informs about the human rights conditions in North Korea, and prepares and educates young North Koreans to be ready to help lead a reunified Korea. Because Kim was not born into an elite family in North Korea, he was not allowed to attend university and was destined to become a coal miner after serving his mandatory military service. While in the military he witnessed many people including soldiers dying of starvation. His own uncle died of starvation and his cousins were left to wander the streets. His family made the decision to defect to China in August of 1996 instead of starving to death in North Korea. They survived there for five years bribing the police not to turn them in until they safely defected to South Korea in January 2001. Lim received a BA in Chinese from Hankook University of Foreign Studies in August 2006. (Born 4/10/78 in Hamheung, North Korea)
*Mr. Kim still communicates with people in the DPRK on a regular basis. He said that the price of rice inside the DPRK is sensitive to external supply shocks (or even the rumors of external supply shocks). This means that reports of aid cut offs could result in temporary domestic price spikes even if aid is delivered.
UPDATE: Photo and coverage in the Daily NK.