Secrets for Survival and the Role of the Non-State Sector in the North Korean Economy

North Korea has survived both political and economic crises under the Kim Jong Il regime. The economic survival of the state is in large part due to the growth of the second economy or non-state sector, which should play an important role in the overall transition strategy of North Korea. Currently, North Korean reform focuses on an open-door policy without much import liberalization and on a partial domestic liberalization limited to the consumer sector—in sum, a variant of the so-called East Asian growth model. During the entire reform process, the non-state sector is vital to keep the economy growing and to maintain jobs and incomes for survival. Promotion of the non-state sector is crucial since it would be very costly to build a reliable social safety net in a short period of time, and would minimize the crowding-out effect of the non-state sector given the slack in the state sector.