North Korea remains the world’s most repressed economy, firmly adhering to a system of state command and control under the regime’s long-standing songun (“military first”) policy. Every aspect of economic activity remains tightly controlled by the Communist Party and Kim Jong-un, the hermit kingdom’s third-generation “supreme leader.”
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 2.3 (up 1 point)
- Economic Freedom Status: Repressed
- Global Ranking: 178th
- Regional Ranking: 42nd in the Asia–Pacific Region
- Notable Successes: None
- Concerns: Rule of Law, Open Markets, and Regulatory Efficiency
- Overall Score Change Since 2012: +1.3
Although details are difficult to confirm, it has been reported that in 2015, changes occurred in a number of investment laws, including the foreign investment code and legislation governing “economic development parks.” Allegedly, market experimentation has allowed participation by state factory managers in limited economic activities such as setting workers’ salaries and buying raw materials.
Western-educated Kim Jong-un rules a totalitarian state unchanged since the death of his dictator father in 2011. Kim rejects any alterations in the status quo, warning of the dangers of outside contagion. Maintaining its aggressive rhetoric and provocative behavior toward its neighbors and the international community, North Korea remains in defiance of U.N. Security Council resolutions, has threatened nuclear attacks on the United States and its allies, and continues to augment and refine its nuclear and missile-delivery capabilities. Pyongyang typically escalates and then lowers tensions in attempts to win diplomatic and economic benefits from the international community. The U.S., South Korea, and Japan have refused to resume negotiations on denuclearizing the Korean Peninsula without tangible signs of change in North Korean policy.
Bribery is pervasive, and corruption is endemic at every level of the state and economy. A functioning, modern, and independent judiciary does not exist. The ruling Workers’ Party, the Korean People’s Army, and members of the cabinet run companies that compete to earn foreign exchange. Almost all property belongs to the state. Government control extends even to chattel property (domestically produced goods and all imports and exports).
No effective tax system is in place. The government commands almost every part of the economy. The government sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. Large military spending further drains scarce resources. Despite the state’s attempts to crack down on them, black markets have grown.
The state continues to regulate the economy heavily through central planning. As the main source of employment, the state determines wages. It also tightly controls the labor market and the movement of people. The botched currency reform in 2009 has disrupted already fragile monetary stability. North Korea receives extensive food and energy subsidies from China. Its monetary regime is completely controlled, and prices are politically determined.
North Korea is isolated from the global economy. International trade and investment are tightly controlled by the government. Multilateral sanctions on North Korea further restrict trade and investment. Limited foreign participation in the economy is allowed through special economic zones where investment is approved on a case-by-case basis. The financial sector is completely controlled by the state.