Myanmar and North Korea: Informality in Asia's Pariah States

Myanmar (Burma) and North Korea are the only two countries in Asia that remain isolated from the international community and face severe internal economic distress. In both countries, the existence and extent of the informal economy is symptomatic of deep flaws in economic policy and in the relationship of the state to the people. Yet the different historical, geographic, and social contexts of Myanmar and North Korea shape the dynamics of their informal economies in ways that lead to very different characteristics and implications for any strategies intended to bring about positive change in these two countries. This paper examines these differences and argues that a contextual understanding of any informal economic system is needed to shape effective policies and strategies for national development.

Current Conditions

Both Myanmar and North Korea have troubled political histories that have brought the need for fundamental change to a head. Following the period of British colonial administration that was noteworthy for its "divide and rule" strategy and use of imported civil servants from India rather than indigenous people for administrative support, Myanmar experienced the violence of World War II and a troubled start as a new democracy. The assassination of the founder of the modern Burmese state, Aung San, and the paucity of Burmese experience with running modern political and administrative institutions foreshadowed a military coup by General Ne Win in 1962. Four decades of military rule in Myanmar have resulted in a loss of political direction for the future. Pro-democracy sentiments among the people, dramatically upheld by Aung Sang Suu Kyi and the National League for Democracy, have come into sharp conflict with the entrenched interests of the military government. Throughout this period there has been a gradual deterioration of the human capital developed under British rule and a growing realization that Myanmar has not lived up to expectations of its potential. Today, Myanmar stands out even among conflicted states for its troubled internal and external relationships.

Five decades of communist rule in North Korea have also brought that country to a critical moment in its history. The collapse of the Soviet Union and end of the Cold War robbed North Korea of both its economic lifeline and its socialist legitimacy. China's transition toward market economic mechanisms and improved relations with South Korea and the United States also contributed to the growing isolation of North Korea from its former patrons. The sudden death of the founder of North Korea, Kim Il Sung, in 1994 set the stage for succession by his son, Kim Jong Il, and a delicate period in which he consolidated his authority over the military, party, and government bureaucracy. Now in control, and recognizing that North Korea is unable to stand on its own, Kim Jong Il has decided to change course and open relations with North Korea's former enemies and the international community more generally.

Both Myanmar and North Korea are experiencing severe social and economic distress characterized by growing malnutrition, poor health, very low levels of saving and investment (especially in infrastructure and social services), depleted foreign exchange reserves, growing arrears in servicing foreign debt, low levels of foreign investment and official trade, extreme price distortions, domination of the formal economy by the state and its attendant constraints on the activities of the private sector, and protection of the military at the expense of civilian society. The informal economy has been growing in both countries as the people try to meet basic household needs and attain economic security by resorting to participation in economic activities that fall outside the law and control by the state.

In Myanmar, the large majority of the 48 million people live in rural areas and earn their livelihood through agriculture. Poverty is widespread, exacerbated by many rural households being landless or having plots too small to be viable, with limited opportunity for off-farm work. While government procurement and distribution of rice is regulated...