A typical communist style statue in the capital city of North Korea, photo by alexkuehni/Getty Images


(38 North)

August 12, 2019

Searching for Signs of Doi Moi in North Korea

Photo by alexkuehni/Getty Images

by Derek Grossman, Christian Curriden, Dung Huynh

Last month, Kim Jong Un recalled Kim Myong Gil back to Pyongyang from Hanoi, presumably to be involved in nuclear talks with Washington. Although a veteran nuclear talks negotiator, Kim also just finished a stint as North Korea's ambassador to Vietnam—suggesting that Kim Jong Un may also value his insights on Vietnam's economic development and how that model might apply to North Korea. Indeed, President Trump's second summit with North Korean leader Kim Jong Un this past February in Hanoi prompted voluminous commentary about whether Pyongyang might adopt the “Vietnam model” of economic reform and opening up, known as doi moi or “renovation” policy.

However, the trouble with much of the current debate comparing the two is that it lacks the deeper historical perspective about the key drivers that pushed the Vietnam Communist Party (VCP) leadership by the early 1980s to believe Vietnam had no better choice but to enact doi moi. It is unclear if those same factors exist in North Korea to push the country in the same direction Vietnam chose to go. In examining the current political, economic and social conditions in North Korea, there seem to be few similarities to the conditions in Vietnam prior to doi moi, probably dampening the prospects of reform and opening up anytime soon. Nevertheless, given the North's leadership structure, if Kim thinks boldly—and more importantly, is willing to act boldly—then he alone could override these differences and transform North Korea for the better, although potentially at the cost of the regime's control over society.

What Prompted Doi Moi?

At least six main drivers pushed the VCP toward enacting doi moi. First, the VCP, staying true to Marxist-Leninist form, mandated that farmers and industrialists rely on the state for their supplies and product consumption. Yet Vietnam was perpetually behind the curve (PDF) in delivering supplies and distributing output in a timely and efficient manner. People were regularly impacted by command economy inefficiencies as well. Particularly in the run-up to doi moi, supplies of consumer goods were woefully inadequate (PDF). The basic problem (PDF) was a lack of motivation or incentives for production due to the stated-owned and distributed system of economic resources and output. In addition, many consumer goods were the product of industry, but industrialization could not fully occur without first releasing the labor and capital from farms. To release labor and capital from farms, incentives for farmers and mechanization of agricultural production were first required, creating an intractable catch-22. Unfortunately for Vietnam, neither was achieved, and Hanoi became locked into the worst of both worlds: unable to produce desperately needed consumer goods, and unable to farm enough food to provide for the people—creating a food scarcity and ultimately starvation crisis by the late 1970s. Adding to the misery, a currency crisis, which saw hyperinflation rise to 775 percent in 1985, punctuated the sense of urgency to fix the economy.

Second, because the state was so inept at providing basic goods for production, state-owned enterprise (SOE) employees were incentivized (PDF) toward black market trading, which led to mass corruption. Corruption itself would not be considered new for Vietnam or indeed anywhere in Southeast Asia. However, corruption at this precarious moment in Vietnamese history significantly contributed to the decline of state socialism as those running illegal businesses continued receiving state subsidies. In fact, state subsidies were actually rising (PDF) to address Vietnam's economic woes, thus expanding the pool of resources available to those who refused to pay back into the command economy. Additionally, shirking—the practice of working less when returns decrease—became prevalent (PDF) throughout the system, depressing productivity even further.

Third, the VCP's expansion of socialism in 1975 into what was formerly South Vietnam brought about difficulties as well. Southern Vietnamese compatriots were accustomed to capitalism, and although the VCP at first proceeded to integrate the South's economy into socialism cautiously (PDF), anger and frustration with the new regime inevitably ensued. For one thing, forced collectivization diminished or eliminated past profits. In addition, the Party viewed certain class background as “suspect” (PDF)—predictably former South Vietnamese leaders and the wealthy—who were subject to exclusion unless rehabilitated before reintegrating with the new society.

Fourth, the death of Party legend Le Duan was another key factor in prompting the VCP to enact doi moi reforms. Le Duan was an original communist revolutionary and a founding member of the Indochina Communist Party in 1930. He was a trusted adviser to the father of communist Vietnam, Ho Chi Minh, and Ho selected him to become the Party's first secretary in 1959. Le Duan became general secretary in 1960 and remained in the most powerful position until his death in 1986. This year also happened to be the same year as the 6th Party Congress when doi moi was adopted. Although Le Duan had actually supported many reforms, he seemed to prefer an incremental approach. His passing in July 1986 offered a historic opportunity to shift the VCP away from incremental changes to a bolder and wholesale reimagination of state-run socialism—toward a market-driven economy.

Fresh leaders would now have the opportunity to express their views and finally be in the position of decision making. One of them in particular, Nguyen Van Linh, who became general secretary from 1986 to 1991, was instrumental in pushing forward doi moi. Linh had served since 1975 as party secretary of Ho Chi Minh City, and was an advocate of market-based reforms. He was given fairly wide latitude to deviate from Party ideology (even though he was briefly removed from the Politburo) probably because of his experience as a communist revolutionary and having served as a leading political figure for the Viet Cong during the war. Other VCP leaders rose to power during this time as well. Regardless, all eschewed the extremes of collectivization and especially ideologically driven campaigns. Notably, China's Great Leap Forward and Cultural Revolution were considered inappropriate for Vietnam.

Fifth, Vietnam's war in 1978 against Cambodia put a severe drain on already depleted state coffers. The funds used to prosecute this war could have gone toward fixing the command economy and other related challenges, but did not. Instead, the war resulted in international isolation of Vietnam. The Association of Southeast Asian Nations, in conjunction with China, the U.S. and other Western states, formed an economic sanctions regime against Vietnam, with many of them canceling (PDF) economic assistance altogether. The Soviet Union's subsidies were insufficient in making up for the shortfall. Of all countries involved, China was particularly incensed that Vietnam would attack its Khmer Rouge ally in Cambodia. Beijing subsequently launched attacks along the China-Vietnam land border in 1979 to “teach Vietnam a lesson,” followed by continual border skirmishes until the mid-1980s, forcing Hanoi to waste even more resources. By 1982, Sino-Soviet relations had sufficiently recovered so that Beijing was no longer as concerned about losing influence to the Soviets and their proxies in Indochina. China, therefore, sought (PDF) to “bleed Vietnam white” by encouraging it to stay longer to fight insurgency in Cambodia. Hanoi did not fully withdraw from military operations in Cambodia until 1989.

Finally, the series of economic reforms taking place within the Soviet Union in the mid-1980s had a significant impact on the VCP's decision to move forward with doi moi. The Soviet reforms, known as perestroika, were championed by Soviet leader Mikhail Gorbachev and advocated transitioning SOEs into self-financing companies. Although potentially a form of revisionism, Vietnam was able to accept the change to market economics probably because it was coming from the originator of Hanoi's own state-run socialism and its primary benefactor. On the latter point, and for practical purposes, the VCP was compelled to respond to perestroika because it began to result in the steady drying up of yearly Soviet economic assistance to Vietnam. By 1990, the aid had completely ended (PDF).

Implications for North Korea Analysis

The period between Vietnam's reunification in 1975 and the 6th Party Congress in 1986 featured a series of events agitating for serious and systemic reforms to the command economy. Similar trends may be present in North Korea, and if they are, it might bolster the notion that Kim is genuine about the need for his country to undergo economic reforms and some level of opening up to the outside world. However, it is far from clear this is the case.

Like Vietnam, North Korea has struggled to provide supplies to its SOEs and goods and services to its people, and though not involved in foreign wars, it also labors under the weight of excessive military expenditures. Still, Pyongyang lacks some of the other factors that helped Hanoi reform. For example, the Kim regime has not conquered South Korea and, therefore, does not have to deal with the sticky questions of how best to expand its administrative grid on the peninsula to already-established and robust capitalist markets without sacrificing elements of control. While many North Korean government officials have grown rich by collecting rents on market activity and engaging in business themselves, they do not seem to constitute a coordinated faction capable of making a concerted push for programmatic change. Many of them are more interested in maintaining their privileged position than in broader economic reform.

While both North Korea and pre-doi moi Vietnam share a dependency on a major foreign power, the Soviet Union seemed unwilling to continue providing an economic lifeline to Vietnam after its collapse, and this sudden disappearance of a foreign guarantor of economic stability helped to catalyze change. China, on the other hand, has consistently proven willing to provide at least a modicum of support to keep the Kim regime viable, even in the face of sanctions. In addition, North Korea is not currently conducting foreign military operations that it could end to save money and normalize relations with great powers, as was the case with Vietnam.

Perhaps most importantly, North Korea does not yet seem willing to engage in wide-ranging economic reforms. In the past when Pyongyang faced major economic upheaval comparable to that faced by Vietnam, its response was to tacitly accept the bare minimum of reform essential to keeping its people alive, and then crack down on private economic activity as soon as it felt strong enough to do so. While Kim Jong Un has actually enacted policies that give SOEs and collective farms more autonomy, in effect loosening some socio-economic space for market activities, these reforms are typically small scale and experimental in nature. North Korea has yet to implement reforms that would bring its grey markets and businesses fully into the light. Perhaps even more significantly, despite the creation of “special economic zones,” there seems to be no attempt on the part of the regime to curb extortionist and rent-seeking policies that burden the economy and drive off foreign investors. Even Chinese businesspeople, who regularly trade with North Korea and have a relatively high tolerance of political risk, seem unwilling to invest in the economy because of the lack of legal protections and frequent government extortion campaigns. Local officials who have become used to such extra-legal extortion (and dependent on it to survive regular shakedowns from Pyongyang) could complicate any attempts at reform even if Kim decides to make a more open effort to protect foreign firms. Finally, while Chinese and some South Korean firms will likely seek ways around sanctions for political and economic reasons, the international sanctions regime will pose an obstacle for any attempts by Pyongyang to open its economy and attract foreign investment.

Of course, these obstacles are not insurmountable. Kim may yet prove willing to make sufficient changes to his nuclear and human rights policies to get sanctions lifted, at least in part. Reducing corruption will be a challenge, but not an impossible one, and a variety of South Korean and Chinese firms stand ready to invest despite the risk. North Korea's first steps to formalizing its market system could be to build upon a regulatory and financial system that would further unlock the potential of its entrepreneurial population. Some version of doi moi is not impossible in North Korea, but it will likely be more difficult than it was in Vietnam and made all the more so by Kim's reluctance to risk losing absolute control.

Derek Grossman is a senior defense analyst at the nonprofit, nonpartisan RAND Corporation. He formerly served as the daily intelligence briefer to the Assistant Secretary of Defense for Asian and Pacific Security Affairs at the Pentagon. Christian Curriden is an analyst at RAND where he covers East Asian policy, North Korea, and PLA modernization. Dung Huynh is an assistant policy researcher at RAND and Ph.D. candidate at the Pardee RAND Graduate School.

This article was first published at 38 North, a project of the Stimson Center. It is republished with kind permission.

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