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According to the South Korean government, the North Korean economy shrank in 2010, marking the second consecutive year of negative growth. On South Korean reckoning, per capita income in North Korea remains 25 percent below its 1990 peak.
This conclusion stands in contrast to numerous anecdotal reports of improved living standards in Pyongyang, though is consistent with the less numerous reports of grim conditions in provincial cities. Steph Haggard calls this phenomenon “Pyongyang illusion” and believes that it may well go beyond typical urban- or capital-bias and represent an attempt by an insecure regime to forestall any Tahrir Square type activity in the capital city.
For its part, the North Korean government predictably denounced the report. The official news agency, KCNA, reported that
[The Bank of Korea report is] sophism aimed to distort the true picture of the DPRK's self-supporting economy.
The recent two years, mentioned by them, are a stirring period in the DPRK in which unprecedented miracles and innovations have been wrought in the efforts to improve the people's standard of living and build socialism.
In this period the DPRK witnessed the successive completion of its plans for economic modernization, so ardently desired and accelerated by it with much efforts. In other word, it ushered in an epochal phase in building an economic power.
Today the DPRK's economy is at the highest tide of its development ever in history.
So who is right?
Estimation of the level of income or its growth in North Korea poses some formidable technical challenges. The Bank of Korea (BOK) which would be responsible for supplying liquidity to a unified Korean economy needs to know how large the North’s economy is. Its annual estimate of North Korean national income is constructed by applying presumably innappropriate South Korean value-added weights to physical estimates of North Korean output obtained through classified methods. Ergo, this estimate may differ significantly from the true underlying figure due to the inadequacy of the calculation method, and in any event, it is not subject to any verification by outside analysts. The BOK figure is then subject to interagency discussion and it is widely acknowledged at times has been subject to a high degree of politicization. Once a consensus is reached, it is announced to the public via the BOK. Normally, this figure is released in the spring. This year, for reasons not explained, the release of the report was delayed until November.
The BOK figures are the most widely cited in the public discourse and represent the official position of the South Korean government. Hence they deserve serious consideration. But readers might want to think of them as coming with wide uncertainty bounds attached, and further remember that the averages may obscure very different developments in different parts of the country or among different socio-economic groups. In other words, to be consumed with a grain of salt. Caveat emptor!
