1. 1
It has been argued that communism is inherently flawed due to its economic policies.
The two defining elements of communist economics have been centrally planned
economies (CPEs) and command economies. Initially, these were employed in China, the
Soviet Union, and North Korea, but more recently China has introduced market reforms
that have opened the economy and North Korea is the only prominent example of this
system. The breakup of the Soviet Union and the failure of its economy caused a variety
of issues in North Korea, but it also allowed China to adapt its system based on their
faults. Liberalized political control followed economic reform, and today China is seen as
one of the most successful examples of communism. North Korea, in contrast, has been
in decline since the 1990s. While both are similar in that they are authoritarian and
communist, there are important several distinctions. The fundamental differences in
methods of control by the government, as well as the prominence of ideology in North
Korea, substantiate the theory that a more open economy and a liberalized political
system would be counterproductive to the government’s goals. These make it clear that
for North Korea to introduce economic freedom would not be in its purview, nor would
liberalized control be practical for the regime to retain power.
Much of China’s economic success can be attributed to its ability to adapt and grow
based on its own mistakes and those of other communist regimes. One of its most notable
examples was the Soviet Union, in terms of both political and economic failures. David
Shambaugh has argued that, “… the collapse of the USSR taught the CCP valuable
lessons, leading it to implement effective policy responses,” (Pei, 2012, pp. 30). It was a
combination of issues that led to the collapse of the Soviet Union, but most notable was
the extreme decline in living standards and the lack of economic reform to combat it.
Economic failure was followed by the decreased legitimacy of the regime, and eventually
its collapse (Shirk, 1993, pp. 5). The Chinese Communist Party (CCP), conversely, has
learned to combine economic and political reform. Thus, market reforms that led to an
increasingly open economy also allowed for a more liberalized political system. Rapid
growth and a rise in standard of living lent more legitimacy to the CCP. As a result, strict
repression was not as necessary. While political activism is still closely monitored, the
regime is no longer present in the daily lives of its people (Pei, 2012, pp. 32). With
additional resources, the CCP was also increasingly able to co-opt elites and retain

2. 2
control of state owned businesses. China’s transition from a centrally planned economy
to a type of open socialist market allowed political liberalization and decreased
repression, while also increasing the legitimacy of the CCP. This was possible due to its
adaptability and previous control methods. It would be difficult for North Korea to
recreate its success due to its systematic differences and strong ideology.
Strongly rooted in North Korean policy is their ideology, know as “juche” and roughly
translated to “self-reliance”. It is a purposefully vague theory, adaptable to different goals
within the regime, and is meant to guide their way of life (Armstrong, 2007, pp. 40).
Ideology perpetrates the daily life of citizens at all levels. In conjunction, there is a strong
cult of personality surrounding each leader, which, from the outside, suggests that the
people worship them. The most vital element of control for the regime is the restriction of
information. Unlike other communist countries, like the Soviet Union, constraint is not
limited to international information, but also domestic. Hassig and Oh claim that, “…
people not only lack knowledge about what is going on outside their country but are even
ignorant about what is happening within North Korea,” (Hassig & Oh, 2009, pp. 134).
The state controls and censors every form of media, from news articles to radio, and
viewing outside information is a criminal offence. While some information does
inevitably leak in, through radio broadcasts or cell phone, these approaches are difficult
to come by and extremely dangerous. Similarly, China uses repressive tactics such as
censoring information and limiting civil rights, but not to the extent that North Korea
does. Over the past few decades China has shifted its focus and narrowed its approach.
They are less brutal and more capable of handling issues that may arise (Pei, 2012, pp.
32). Largely, the CCP is more adept at gaining legitimation and popular support through
less outwardly severe tactics, while North Korea must rely severe repression to maintain
power. The dilemma with speculating whether North Korea could combine decreased
authoritarian control and increased economic freedom as China has is that, with further
consideration, this would be counterproductive to the regime’s goals and their methods of
management of the country. There is no proof that the government could retain control of
its people as it has. Juche in particular, as vague as it currently is, would need to be
significantly adapted. China could become more liberalized due to its methods for

3. 3
control, but North Korea relies to heavily on ideology and strict repression for market
reforms and liberalization to be an option for the regime.
Before the major economic crisis of the 1990s, North Korea was a prominent example
of successful communism. Their first development program was inward oriented and
focused on industrialization, primarily in the chemical industry (Lee, 1993, pp. 9-10).
Following the Soviet Union’s example, they adopted central planning and a command
economy. Every means of production was nationalized, as was much of the land, and
goods were rationed through a state distribution system. Distinct weaknesses in the
system, which eventually led to stagnation in the 1970s and 1980s, were the lack of
market incentives, an inherent problem of command economies that was initially fixed
with ideological fervour, and the absence of foreign investment. Limited production of
consumer goods and their sale regionally did introduce some market mechanisms, but the
incentives and decision making was only granted to local bureaucrats, diminishing their
effect (Lee, 1993, pp. 16). One of the most critical components in driving the economy
forward was ideology in place of market incentives. Juche worked not only as a force for
political control, but also economic policy making and increased nationalization of all
industries. While it seemed to be a principal factor for increasing growth, North Korea
still received significant amounts of food aid from the Soviet Union and China. Flooding
and a sudden decrease in foreign aid, due to the breakup of the Soviet Union, preceded a
major economic collapse. On the surface, it appears that foreign investment and
economic freedom could be critical elements to improving the North Korean economy.
However, this poses inherent threats to the regime. In his analysis of North Korean
economic reform, Doowon Lee claims that, “The North Korean people may not be
disturbed by the fact that they are worse off than the United States or Japan, but once they
find out that they are far worse off than South Koreans, it will be such a shock that it will
put the current North Korean regime in danger,” (Lee, 1993, pp. 25). The extreme
repression of information has created a situation in which economic reform, followed by
political liberalization, would threaten the very existence of the system.
The emergence of a shadow economy in North Korea was not an unprecedented event.
Black markets occur in nearly every country, including the United States. The differences
between the North Korean shadow economy and other cases, even similar circumstances

4. 4
like the Soviet Union, were the type of goods and its effects on the system as a whole.
Within a communist country, the very existence of a black market for food and
necessities displays the failure of the command economy (Joo, 2010, pp. 115).
Specifically in North Korea, it shows the failure of the state distribution system. Though
the government described them as “capitalistic remnants” that would fade away as
socialism matured, they continue to be an important element of the economic system
(Joo, 2010, pp. 117). Until now, the depletive effects of the shadow economy have
remained minimal in North Korea, mostly due to the economic boom in China and the
minimal amount of consumer goods produced within the country. These effects, and the
continuation of the shadow economy, may not last. If it resulted in the tightening of
borders to prevent smuggling, the shadow economy could become more depletive and
collapse, as it did in the case of the Soviet Union. Conversely, the growth of the shadow
economy has also hindered the recovery of the official industrial sector (Joo, 2010, pp.
131). On one hand, it stabilized the economy after the crash in the 1990s, but it has also
caused numerous issues that are potentially dangerous to the regime, including
minimizing efforts in the workplace, impeding industrial sector growth, and encouraging
corruption and political discourse. While some might see the shadow economy as an
example of increased economic freedom and possibly political liberalization, but for the
government to integrate any of these elements would be dangerous to the control of the
regime. To even acknowledge their existence would be admitting the failure of the state
and its infrastructures, thus reducing its legitimacy. Even if integration of the shadow
market or increased economic freedom were within the state’s purview, there would still
be numerous issues relating to methods of control and the continued existence of the
regime.
The question of North Korea adopting “Chinese style” market reforms is not one
entirely of possibility, but of practicality. Traces of capitalism exist in illegal markets and
have thus far only had relatively minor effects on the state. Their continuation impedes
growth in several sectors and poses other issues for the regime. Furthermore, the very
existence of a shadow economy demonstrates the failure of the government and
communism. There is no proof that increased economic freedom or elements of
capitalism could be incorporated into the North Korean system. Due to the strict

5. 5
repression of information and the strong influence of ideology, it would be
counterproductive and dangerous for the government to attempt market reforms as China
did. A liberalized form of authoritarian control could ultimately cause the collapse of the
regime. Even with increases in living standard or economic growth, North Korea would
still be far behind many other countries. Whether or not market reforms were within the
state’s purview, to institute them would oppose the regime’s goals and any form of
decreased control would threaten their legitimacy. Liberalization and increased economic
freedom could only occur alongside reforms in ideology and control methods if the
regime was to continue holding power.

6. 6
References
Shirk, Susan L. (1993). The Political Logic of Economic Reform in China. Berkeley:
University of California Press.
Lee, Doowon. (1993). "Assessing North Korean Economic Reform: Historical
Trajectory, Opportunities, and Constraints." Pacific Focus 8.2, pp. 5-29.
Pei, Minxin. (2012). "Is CCP Rule Fragile or Resilient?" Journal of Democracy 23.1, pp.
27-41.
Joo, Hyung-min. (2010). “Visualizing the Invisible Hands: the Shadow Economy in
North Korea.” Economy and Society 39.1, pp. 110-145
Armstrong, Charles K. (2007). The Koreas. 2nd ed. New York: Routledge.
Hassig, Ralph C., and Kong Dan. Oh. (2009). "Chapter 5: The Information
Environment." The Hidden People of North Korea: Everyday Life in the Hermit
Kingdom. Lanham, MD: Rowman & Littlefield.