A Look At How North Korea's Economy Works

ARI SHAPIRO, HOST:

Our next guest says China's economic pressure on North Korea was key to prompting Kim Jong Un to start negotiating.

WILLIAM BROWN: China has come to the plate just in the last six months and slammed shut its imports from North Korea.

SHAPIRO: William Brown says if China keeps that door shut, it would devastate North Korea's already shackled economy. Brown is a retired CIA officer who worked on North Korea. He now teaches at Georgetown University. I asked him to explain how the North Korean economy works and where he thinks it could go. He says officially, North Korea has a command economy, meaning it's controlled by the government.

BROWN: Money doesn't operate. A ration ticket decides how much you eat, where you live, where you go to school, your doctor. Everything is dependent on that ration.

SHAPIRO: But North Korea is not a purely command economy. It's a mix, right?

BROWN: Right. It had a famine in the middle 1990s. As a result, the ration system broke down, and money started to circulate. But the money economy has never really totally taken hold. So they're in this very awkward, extremely inefficient half-market, half-command economy, which is kind of the worst of all worlds, if you think about it.

SHAPIRO: You had an interesting example of how this works involving electricity, which is free, but only for an hour or two a day.

BROWN: Yes.

SHAPIRO: So what do people do to get around this?

BROWN: They're buying car batteries from China, for example. And when the electricity is on, they'll plug them in, charge them up. It's free. They might use it for their own cell phone or whatever. But more likely, they'll take it down on the street and sell electricity at a huge price, right? So it's innovative. It shows you how enterprising North Koreans are. They're all this way.

SHAPIRO: Yeah, innovative, enterprising and also a huge headache for the people involved.

BROWN: Yes.

SHAPIRO: What does this mean for ordinary North Koreans?

BROWN: Well, they've learned to adapt. I mean, the famine forced them to adapt. Their standard of living is about, like, maybe Sudan, someplace like - about the lowest in the world. So here are educated people in a wonderful location, between China and Japan, eking out an incredibly low income.

SHAPIRO: So in terms of people's actual jobs, they're working.

BROWN: Yeah.

SHAPIRO: They're getting wages.

BROWN: The state wage is between 3,000 and 5,000 won per month.

SHAPIRO: How many dollars would that be?

BROWN: Forty cents a month.

SHAPIRO: A month.

BROWN: If that. You can't buy a cup of coffee. But within that state system, you get free perks, free housing, free everything, right? If you're working for a Chinese company in North Korea, you can get 300,000 won per month. Now, that's $40. It's still not much by our standards, but it's a lot more than the 40 cents.

SHAPIRO: Than the textile worker making 40 cents.

BROWN: So ideally, a family will have people in multiple jobs. And even if you just have a state job - a high school teacher, doctor or nurse, whoever you are - even a military person will sell their services on the market and not do their state job.

SHAPIRO: And is that part of what's making Kim Jong Un feel pressure to change his economy?

BROWN: Absolutely. I mean, he looks around and sees state machinery not being worked and everybody using state property to make private income. You know, he gave a kind of an amazing speech in April in which he says byungjin, the parallel development of nukes and economy, is over. We're now going to focus on the economy. This is a pretty big thing, especially because North Koreans now are getting very optimistic that something good is going to happen on the economy.

SHAPIRO: What would a reformed North Korean economy look like? Would it be like the Soviet economy or China or more like the United States?

BROWN: The new system would be a hard shift toward a open-money system. They're already halfway there. That's why I think they can do it. China has done it well over 30 years - how have they done it? They've slowly privatized their economy. So right now, North Korea owns the whole dadgum country. That's that Marxist system. China did in 1978. North Korea's effectively bankrupt. Nobody will lend them a dime.

But I like to think they're illiquid and not insolvent. They own so much assets - the government does. All they have to do is slowly, gradually peel off government assets and suck in the money. Sell farms. Sell apartment buildings. Sell coal lots - whatever. So by doing that, they pull in money to the government. That allows the government to sort of raise the wages for its workers. It's not that hard a solution. That's what I would hope that Kim Jong Un is starting to realize. There is a positive way that he can do this.

SHAPIRO: Bill Brown, formerly of the CIA, now with the Georgetown School of Foreign Service, thanks for joining us today.

BROWN: Thank you. Transcript provided by NPR, Copyright NPR.