SEOUL, South Korea – North Korea’s regime is trying to reassert control over its economy, but it’s finding that the genie of market mechanisms cannot easily be shoved back into its bottle.

Regime leader Kim Jong-un, who took power in 2011, confronted two major policy challenges in recent years, one political and one economic: Mr. Kim’s failed personal summitry with former President Donald Trump led to a renewed focus on the country’s nuclear programs, and the global pandemic that started in 2020 led the regime to institute harsh border lockdowns. 

One casualty of the shifts, analysts say, was the regime’s enthusiasm to experiment with pro-market reforms to boost the country’s long-ailing economy.

---

---

Ordinary North Koreans, disappointed by the failure of his U.S. overture, also suffered from a sharp cutback in cross-border trade with China, long the country’s leading trade partner.

And a new factor has entered play in recent months: Two summits between Mr. Kim and Russian President Vladimir Putin in 2023 and 2024 have seen Moscow extend Pyongyang an economic lifeline without having to make market concessions that undercut the regime’s control of the economy.

Even so, North Koreans’ poverty amid prosperous, high-tech Northeast Asia is impossible to ignore, which may explain Mr. Kim’s break with Pyongyang precedents by showcasing his daughter to the North Korean public. The message: The pocketbook deprivations North Koreans are suffering in service of nuclear arms guarantee their next generation’s future.

Market economics, pros and cons

“When Kim Jong-un delivered his first public speech in April 2012, he said the residents of North Korea would not have to tighten their belts again,” Kim Byung-yeon, a scholar who studies the North Korean economy at Seoul National University (SNU), told foreign reporters. “From 2012 to 2018, he had been showing some pragmatism in policies, but from 2019 he has turned around and is arguing to ‘recover socialism.’”

The conundrum facing Pyongyang economic managers is the clash between the need for socialist control and the demands of market efficiency. The stormy dynamic has played out since the 1990s.

North Korea’s communist economy was rocked by the collapse of the Soviet Union in the early 1990s. No longer offered the preferential trade terms enjoyed for decades, North Korea faced deadly famines in the mid-1990s.

With state distribution systems defunct, the desperate regime opened a capitalist window, allowing private trade with China for essential foodstuffs and medicines. Even after famines subsided, jangmadang (“market grounds”) remained operating. Their efficient pricing and distribution mechanisms infiltrated the wider economy.

A 2024 report by Seoul’s Ministry of Unification, based on interviews with 6,351 defectors, found 70.5% of respondents relied on the private markets for food, and 44.9% for medicines.

The investment class which emerged — the “donju” or “money masters” — has, in recent years, shifted from trading to public-private investments in everything from luxury water parks to light industrial factories making goods for local consumption.

Pyongyang policy has vacillated between encouraging the jangmadang and the donju for national benefit, and cracking down on them.

Market forces not only eroded Pyongyang’s economic control, cross-border distribution nets that supplied the “gray” markets also enabled “black” smuggling of South Korean music, TV shows and films.

The regime maintains “effective control over the military and most of the people, but what they struggle with is control of market resources,” said Peter Ward, a North Korea researcher at Seoul’s Sejong Institute. “Once the genie was out of the bottle, they have never been able to put it back in.”

It’s not for lack of trying. Since 2019, the regime has been trying to recapture the genie along two policy lines.

“Before 2019, distribution had been led by the market or private sector, but Kim Jong-un argued it should be controlled and governed by the state, so the first constraint he tried to put on the market was selling and buying food,” said SNU’s Mr. Kim.

Grain markets are now back in government hands, though what percentage of the population receives a ration, and what percent still buys from markets is unknown, said Andrei Lankov, a North Korea watcher at Seoul’s Kookmin University.

The second policy was to sharply raise the salaries of mid-level officials, as much as 25-fold. The aim, Mr. Kim said, was to slash official corruption and rent-seeking, as bureaucrats turned to bribes to maintain their incomes and to keep their organizations running. Seoul’s unification ministry’s report found bribery has doubled under Mr. Kim, with 93.1% of respondents saying they perceived widening wealth gaps.

Still, even with the higher wages, government bureaucrats earn as little as one-sixth of what many donju take in, analysts said.

Despite the redistribution campaign, indications are that Kim Jong-un’s 14-year reign has left North Koreans poorer, hurt by heavy UN sanctions and the COVID setbacks. From 2017-2019, SNU’s Mr. Kim cited a 12% dimming of night lighting nationwide; a separate analysis estimated a 25% drop in national income between 2017-2022, he said.

Reading the tea leaves

North Korea’s economic path forward, both on the micro and macro fronts, remains murky. Outside analysts are forced to assemble a puzzle with many missing pieces, as Pyongyang does not publish economic reports, relying on data released by North Korea’s few trade partners, clandestine interviews with North Korean residents, satellite imagery and defector accounts.

It’s a tough call.

“Nuclear advancement is very visible,” conceded SNU’s Mr. Kim. “Economic development is not so visible.” 

Mr. Ward agreed, saying, “We do see conflicted signals.” Citing post-COVID falls in defections and cellphone informants, Mr. Lankov added, “Our knowledge of the North Korean domestic situation is at a nadir.”

Complicating the picture even more is Russia, which has been buying North Korean munitions for its war in Ukraine.

“Russia is providing, probably, some military technologies and probably also giving North Korea food or cash,” Mr. Ward said. “But relations with China are not in the best place, as Russia and North Korea love flouting sanctions, which makes China look bad.”

Arms sales may help Pyongyang balance its books – according to SNU’s Mr. Kim, Russia customarily runs an annual $2 billion trade surplus with North Korea.

However, the economy remains a major source of worry for the regime.

“Kim Jong-un is under pressure as all his plans for economic growth have collapsed,” said Mr. Lankov. “He is dependent on arms trade with Russia and unilateral trade with China.”

State news stories signal Mr. Kim’s sensitivity to his public’s woes. North Korea’s two hereditary transfers of power, in 1994 and 2011, were surprises: Neither the second- nor third-generation leader had been publicly revealed before they were elevated to the top job.

Kim Jong-un has changed that: Since 2022, he has been parading his pre-teen daughter, Ju Ae, at public events such as missile tests.

SNU’s Mr. Kim, suggested that while North Korea’s leader has broken his promise by requiring his people to “tighten their belts,” he could make the case that “it is the responsibility of parents to make sacrifices or feel hunger to protect our children’s safety.”

As such, Ju Ae’s appearance may be an attempt to argue that today’s nuclear programs — which some in South Korea believe consume more than a quarter of North Korea’s GDP — will be paying dividends tomorrow.

“He has a clear objective to put her at the forefront,” SNU’s Mr. Kim said, “to encourage people to recognize his [nuclear] achievements.”