The 1954-56 three year plan repaired the massive damage caused by the war and brought industrial production back to prewar levels. This was followed by the five- year plan of 1957-61 and the seven year plan of 1961-67. These plans brought about further growth in industrial production and substantial development of state infrastructure. By the 1960s North Korea was the second most industrialized nation in East Asia, trailing only Japan. While a number of internal limitations appeared, such as in the production of consumer goods, the national standard of living was considered by many third-world nations as an alternative to the capitalist model of development sponsored by the United States. Building upon the ruins left by the Korean War, the North Korean economy by the late 1960s provided its people with medical care, universal education, adequate caloric intake, and livable housing.
Kim ll-sung promoted Juche (self-reliance), a slogan he began in the late 1950s and which he ultimately made North Korea's official ideology, displacing Marxism-Leninism. The goal of Juche is to make North Korea strong enough to resist foreign invasion and capitalist intervention. Juche did not aim to make North Korea self-sufficient. The North Korean people were making use of domestic materials, technology, and innovations instead of becoming dependent upon those from outside the nation. Juche urged the North Korean people to resist foreign invasion by launching a series of mass-campaigns designed to strengthen the country economically, militarily, and culturally.
North Korea's position was complicated by the Sino-Soviet split, which began in 1960. Relations between North Korea and the Soviet Union worsened when the Soviets concluded that Kim ll-sung was supporting the Chinese side, although in fact Kim hoped to use the split to play China and the Soviets off against each other while pursuing a more independent policy. The result was a sharp decline in Soviet aid and credit, which could be not be replaced by the less advanced Chinese. In fact, Kim's enthusiasm for Mao Zedong's policies was limited, despite his rhetorical denunciations of "revisionism." While he supported Chinese campaigns such as the Great Leap Forward, he saw Maoist initiatives such as the Hundred Flowers Campaign and the Cultural Revolution as destabilizing and dangerous. In this way, Kim ll-sung showed his determination to mark an independent path for North Korea when possible.
Template: NPOV section due to internal limitations in the idea of Juche, a series of poor policy decisions concerning military expenditures and mining industries, and radical changes in international oil prices by the late 1970s the North Korean economy began to slow down. These decisions eventually affected the whole economy and led having to acquire external debts. At the same time the North Korea's policy of self-reliance and the antagonism of America and its allies made it difficult for them to expand foreign trade or secure credit.
In the 1970s the expansion of North Korea's economy, with the accompanying rise in living standards, came to an end and a few decades later went into reverse. A huge increase in the price of oil following the oil shock of 1974 hurt the economies of countries throughout the world, North Korea among them. North Korea has no oil of its own, and it had few export commodities of interest to the west. Compounding this was a decision to borrow foreign capital and invest simultaneously in the military and mining industries. North Korea's desire to gain as much independence as it could from China and Russia prompted the expansion of its military power. They believed such expenditures could be covered by foreign borrowing and increased sales of its minerals in the international market. North Korea invested heavily in its mining industries and purchased a large quantity of extractive machinery and tools from abroad. However, soon after making these investments, the international prices of for many of these minerals fell, leaving North Korea with large debts and an inability to pay off the debts and provide a high level of social welfare to its people.
Adding to the above, the centrally planned economy, which emphasized heavy industry, had reached the limits of its productive potential in North Korea. Juche repeated demands that North Koreans learn to build and innovate domestically had run its course as had the ability of North Koreans to keep technological pace with other industrialized nations. By the mid to late-1970s some parts of the capitalist world, including South Korea, were advancing into new phases of technology and economic development and phasing out the coal-and-steel-based economies of the earlier period.
Kim ll-sung, trapped in an ideology that had once been highly successful, was unable to respond effectively to the challenge of an increasingly prosperous and well-armed South Korea, which undermined the legitimacy of his own regime. Having failed at their earlier attempt to turn to the market and conduct market-economy reforms such as those carried out in China by Deng Xiaoping, Kim opted for continued ideological purity. The DPRK by 1980 was faced with the choice of either repaying its international loans, or continuing its support of social welfare for its people. Given the ideals of Juche, North Korea chose to default on its loans, and by late 1980s its industrial output was declining.
Kim ll-sung died in 1994, and his son, Kim Jong-il, succeeded him as General-Secretary of the Korean Workers Party. Although the post of President was left vacant, Kim Jong-il became Chairman of the National Defense Commission, a position described as the nations "highest administrative authority," and thus North Korea's de facto head of state. Hiss succession had been decided as early as 1980, with the support of the most important interest group, the armed forces led by Defense Minister Oh Jin-wu.
During the decade of Kim Jong-il's rule, North Korea's economy has continued to deteriorate
and the standard of living of its 23 million people has continued to fall. From 1996 to 1999 the country
experienced a large scale famine which left some 600-900,000 people dead. The fundamental cause of this
decline is that the state, which runs the entire economy, is bankrupt, and cannot pay for the necessary
imports of capital goods to undertake the desperately needed modernization of its industrial plants. The
inefficiency of North Korea's Stalinist-style collective agricultural system also contributed to the disaster.
North Korea spends about a quarter of its GDP on armaments, including the development of nuclear weapons,
and keeps nearly all able-bodied males aged 18-30 in uniform, while the basic infrastructure of the state
is allowed to crumble. As a result, North Korea is now dependent on international food aid to feed its population.
According to Amnesty International, more than 13 million people suffered from malnutrition in the DPRK in
2003. In 2001 the DPRK received nearly $US300 million in food aid from the United States, South Korea, Japan,
and the European Union, plus much additional aid from the United Nations and non-governmental organizations.
Unspecified ( but apparently large) amounts of aid in the form of food, oil and coal are also provided by
China every year. Despite this North Korea maintained its violent rhetoric against the U.S., South Korea
and Japan. The supply of heating and electricity outside the capital is practically non-existent, and food
and medical supplies are scarce. When there is a bad harvest , as has been persistently the case over recent
years, the population faces actual famine: a situation never before seen in a peacetime industrial economy.
Since 1997 there has been a steady stream of illegal
Kim Jong-il has said that the solution to this crisis is earning hard currency, developing information technology, and attracting foreign aid, but despite some movement towards reform it has not substantially reduced the state's control over the economy or introducing the market-oriented reforms which have produced spectacular economic growth in China since 1979. North Korea instead, seems to be pursuing the same path as in Vietnam. So far the DPRK, not surprisingly given Juche and U.S. attempts to isolate them, has made little progress in attracting private capital.
In July 2002 some limited reforms were announced. The currency was devalued and food prices were allowed to rise in the hope of stimulating agricultural production. It was announced that food rationing systems as well as subsidized housing would be phased out. A "family-unit farming system" was introduced on a trial basis for the first time since collectivization in 1954. The government also set up a "special administrative zone" in Sinuiju, a town near the border with China. The local authority was given near-autonomy, especially in its economic affairs. This was an attempt to emulate the success of such free-trade zones in China, but it attracted little outside interest. Despite some optimistic talk in the foreign press the impetus of these reforms has not been followed with, for example, a large-scale decollectivization such as occurred in China under Deng.
President Kim Dae-jung of South Korea actively attempted to reduce tensions between the two Koreas under the Sunshine Policy, But this produced few immediate results. Since the election of George W. Bush as president of the United States, North Korea has faced renewed external pressure over its nuclear program, reducing the prospect of international economic assistance. By labeling North Korea as a member of the "axis of evil," Bush antagonized the Northern leadership and contributed to the regression in relations between the North and the South.
North Korea remains a Stalinist state. The lack of access to the foreign media and the tradition of secrecy in North Korea means that there is little news about political conditions, but Amnesty International's 2003 report on North Korea says that "there were reports of severe repression of people involved in public and private religious activities, including imprisonment, torture and executions. Unconfirmed reports suggested that torture and ill-treatment were widespread in prisons and labour camps. Conditions were reportedly extremely harsh."
There seems little immediate likelihood that North Korea will undergo an East German-style collapse: a prospect that South Korea and China view with great trepidation because of the fear of a sudden and large exodus of North Korean refugees into their countries. There appears to be little internal opposition to the regime. Indeed, a great many of the food refugees who have fled to China still showed significant support for the current government as well as pride in their homeland. Many of these food refugees reportedly return to North Korea after earning sufficient money.
In 2002 Kim Jong ill declared that "money should be capable of measuring the worth of all commodities," followed by some small market economy relaxations, and the creation of the Kaesong Industrial Region with transport links to South Korea was announced. Experiments are under way to allow factory managers to fire underperforming workers and give bonuses. China's investment increased to $200 million in 2004. China has counseled North Korea's leaders to gradually open the economy to market forces, and it is possible this path will be successfully followed as well as China's policy of keeping political control firmly in the hands of the communist party.
North Korea declared on Feb. 10, 2005 that it has nuclear weapons, bringing widespread calls for the North to return to the six-party talks aimed at curbing its nuclear program. It was initially disputed by outside sources whether or not North Korea has nuclear weapons, and many Russian sources denied that North Korea has the technology necessary to build a nuclear weapon. On Monday, 9th October 2006, North Korea has announced that it had successfully detonated a nuclear device underground at 10:36 am local time without any radiation leak. An official at South Korea's seismic monitoring center confirmed a magnitude-3.6 tremor felt at the time North Korea said it conducted the test was not a natural occurrence.
North Korea unsuccessfully tested a long-range missile in 2006 that theoretically may be able to reach the U.S. Such a missile would not provide North Korea with a deterrent missile force remotely as powerful as that the U.S. has pointed at North Korea.
On October 9, 2006, when North Korea announced their nuclear explosion, tensions were immediately heightened, with nearly universal condemnation of the test. On October 14th, 2006, the U.N. voted to back a proposal to implement sanctions against the DPRK. It is not evident what, if any, effect the sanctions will have in bringing Korea back to the negotiating table with regard to the further development of nuclear weapons. What is evident is that a population already suffering from widespread malnourishment will bear the brunt of sanctions.