In the 1990s, North Korea entered the international spotlight when the collapse of the Soviet Union coupled with natural disasters caused severe economic hardship and famine, resulting in the deaths of millions. This period, known as the “Arduous March,” is often cited as one of the most devastating events in the country’s history.
In an interview I conducted with North Korean defectors in July 2024, they compared the recent economic situation with the Arduous March noting, “The North Korean people are suffocating right now.”
This is a result of the 2017 United Nations Security Council sanctions and the self-imposed isolation that began in 2020 due to the COVID-19 pandemic. The country closed its borders for nearly three years, causing exports to plummet by over 97 percent, from $2.8 billion in 2016 to just $89 million in 2020 and $81 million in 2021. The decline in exports resulted in a significant reduction in government revenue, and foreign currency reserves have decreased significantly over time.
At the same time, imports dropped from $3.7 billion in 2016 to $773 million in 2020 and $673 million in 2021. The contraction of imports of both raw material and final goods suppressed production and economic activities within the country.
In 2020, foreign currency reserves were estimated to be as low as $1.7 billion, and given the post-2020 trade deficit, it has likely been further depleted. This has compelled the regime to resort to other means to raise revenue.
Furthermore, North Korea has been facing chronic food shortages due to its inability to import fertilizers or equipment. The Korea Institute for National Unification estimated that the country needs 5.5 million tons of grain annually, yet on average from 2016-2022 North Korea has produced 4.6 million tons of grain – a chronic shortage of about 1 million tons annually.
Additionally, currency exchange rates have fallen sharply in North Korea in the past year with now 30,000 North Korean won to 1 U.S. dollar, while in April 2024 it was only 8,000 won, marking a sharp decline in the value of its currency. Simultaneously, rice prices surged to new highs in September 2024 with 1 kilo of rice now costing 6,300 won in Pyongyang, with similar trends observed across regions.
Yet, North Korea did not face a second Arduous March and Kim managed to avoid the seemingly impending collapse of his government. How?
What is often not understood about North Korea’s economy is its extractive economic system. This manifests in three different ways:
First, the regime requires individuals to pay into the Juseok Fund and Revolution Fund, which directly fund state activities.
Second, North Korea requires citizens to work for free or at a highly discounted wage, making it extremely difficult for workers to sustain a livelihood. Labor extraction has intensified after the 2017 sanctions, especially post-pandemic, as the regime’s economic situation has worsened. This has been confirmed in my interviews with defectors and in separate news reports – like a May 2024 article detailing students, from those in elementary school to those in university, being forced to transplant rice seedlings for no pay as part of the state-mandated farm assistance period.
Another example is North Korean diplomat Ri Il Gyu, who recently defected and claimed to earn only $0.30 monthly when working in North Korea. Forcing government employees to essentially work for free represents massive savings for the regime. This form of labor extraction essentially acts as a hidden tax and another source of revenue for the Kim regime.
Third, labor extraction also occurs with North Koreans working abroad, whose earnings amounted to $6.29 billion from 2017 to 2023, according to an Institute for National Security Strategy report. In 2023, approximately 100,000 North Korean workers were employed abroad, generating around $500 million for the North Korean regime, according to a U.N. report. These workers retain only a fraction of their earnings while the majority is seized by North Korean government agencies. North Korea continues to circumvent U.N. sanctions by maintaining overseas labor contracts in over 40 countries.
Overall, as North Korea’s economic situation worsens, it becomes increasingly dependent on labor exploitation to raise funds while avoiding excessive currency printing that could trigger inflation. Extraction, through forced monetary contributions and foreign and domestic labor extraction, is a sustaining force for the North Korean economy.
Kim Jong Un also used the same methods as Kim Jong Il did to survive the Arduous March: Through “benign neglect” he allowed marketization from below, resulting in a proliferating informal sector, which now accounts for 70 percent of all economic activity.
In addition, the regime has heavily relied upon illegal earnings to bring in revenue and foreign currencies. Cryptocurrency theft and other cyber crimes, along with the smuggling of drugs, cash, and other illicit goods and the arms trade have helped the regime bypass financial restrictions. This provides North Korea with a crucial stream of income primarily used to fund its nuclear weapons and ballistic missile programs.
Cryptocurrency provides a substantial source of funds. According to the 2024 Crypto Crime Report, from 2016 to 2023, North Korean hackers earned $4.25 billion, while the Institute for National Security Strategy reported higher estimates of up to $13.5 billion in total crypto theft. With strict crackdowns on the movement of both people and goods, cryptocurrency crime has been a means of continuing illegal earnings even in a restricted environment.
Media reports over the past years have shown the regime’s increased violence and repression against the population to maintain its rule despite economic turbulence. This manifested in its increasingly belligerent foreign policy, inducing an atmosphere of constant military alert, uniting the people behind the regime against a common enemy, real or imagined. Further, the Kim regime has prioritized the military and developed his nuclear weapons program – a great achievement for him. Finally, he consolidates his rule through the small coalition system, where elites are provided revenue streams and other perks in exchange for their loyalty to the regime.
The North Korean regime managed to stay afloat after sanctions and self-imposed isolation, but its survival methods, heavily depending on labor extraction and repression, further distorted the economy. The North Korean economic system, like any extractive system, is an impediment to the country’s economic development because the economy’s benefits accrue to only a few chosen members of the ruling class and are not shared among people. This is what Daron Acemoglu and James Robinson, this year’s winners of the Nobel Prize in economics, explained in their famous work “Why Nations Fail.”
The people of a nation are not to blame for the economic failure of a system that, throughout history, has consistently failed, without exception. North Korea must replace its extractive system with an inclusive one if it is to achieve real economic development. Otherwise, though North Korea appears as a growing threat on the international stage, its regime is still on the verge of collapse and Kim Jong Un is living on borrowed time.