North Korea is facing a disorderly rise of a market economy as a consequence of its pursuit of nuclear power, William Brown, professor of economics at Georgetown University's School of Foreign Service, said.
"The nuclear program is killing the Marxist economy and the bombs, ironically, are creating a chaotic kind of capitalism (in North Korea)," Brown said. He teaches courses at Georgetown on the Chinese and North and South Korean economies.
He said the North's command economy is becoming so weak it cannot fend off the rise of natural and rather chaotic private markets.
"The best evidence for this is the growing circulation of U.S. dollars, an amazing development in an economy that not long ago only used socialist ration tickets as a kind of pseudo money," he said.
"In my thinking, the 2009 episode in which people fought back against the theft of their money via revaluation was a nail in the coffin of the Marxist command economy."
In Brown's view, Kim Jong-un has turned a blind eye to the increased use of money, especially hard currencies, which helps explain what observers are now seeing as a vibrant private economy amid the dilapidated state economy.
Brown said the nuclear program's progress over 35 years, and especially in the past 10 years,has coincided with the slow cracking and breakdown of the reclusive country's economy.
"That economy required lots of foreign aid, including aid from the Soviet Union, China, Europe, Japan, and even South Korea and the U.S.," he said. "But by making so many enemies with its nukes,North Korea now receives almost no aid, so the state economy is floundering."
Brown, who is a retired U.S. government economist having served in several U.S. departments and agencies, and in the U.S. Embassy in Seoul, said that this clearly is leading the world to a dangerous situation.
"At any time the system could collapse into chaos or the (Pyongyang) government may try again to take control, with huge impact since it has nuclear devices," he said.
Party Congress in May
Brown expects that North Korea will announce some important changes at its party congress in May because it has some big holes to fill with the closure of the Gaeseong Industrial Complex.
"The upcoming May party congress is very important to watch for signs of reform," he said. "My guess is we will see some important changes that formalize the beginning of private property rights."
He said he would not be too surprised to see some small acceptance of private wages and private farms bigger than the small private plots they now have.
"These kinds of reforms are very difficult for conservative North Koreans to tolerate because they are ideological and, more importantly, they decentralize economic power in a way that eats away at the state's absolute control," he said.
He pointed out that North Korea has pretty much opened its goods markets but not its labor or capital markets and farmers are still on their collectives.
"I suspect internal tensions are growing and sooner or later they will have to follow these steps with big changes implied for the North Korean economy and for its relations with the rest of the world," he said.
He said President Park Geun-hye's recent decision to shut down the Gaeseong Complex was a step in the right direction because it is not really true business.
"Workers there were not paid real wages — their dollars were changed into won at an extremely bad exchange rate, making their salaries worthless — but were provisioned by rations from the state agency, making them part of the command economy system, not the market economy," he said.
He said the money was sucked up by the government to use to develop nuclear materials.
"If the political environment improves, President Park might offer to reopen the zone under a changed wage system in which the workers are paid directly," he said. "This would be much better economic policy, since earnings would be spent locally, money would circulate and the market would expand.
No dependence on China
Professor Brown made three recommendations for South Korea to cope with the challenges stemming from the North's nuclear brinkmanship.
The first thing President Park should do is to push for her unification initiative, with a focus on prodding the North to decentralize its economy and create private property. "That way, when unification comes, integration can happen seamlessly and with big benefits for all Koreans," he said.
For encouraging market decentralization, he suggests the South avoid giving resources to the North Korean government and its agencies because Pyongyang can and does use dollars and gift commodities to "buy back" the market economy.
"South Korea can encourage decentralized activities by ensuring that any transaction includes money paid to the people who actually produce the goods or service," he said."Business-to-business engagement might be encouraged as long as both sides profit."
Lastly, given the growing danger to South Korea, he called for Seoul to maintain good relations with big countries that can help it should instability in North Korea occur.
"Strong allies willmake it easiernot to be tooafraid to take advantage of situations to bring change to North Korea and eventually let unification happen," he said. "This, of course, means good relations with the U.S. but I'm also thinking of Japan."
However, he said the South should cut its dependence on China, citing China's own separate interests in maintaining the status quo in Korea.