North Korean leader Kim Jong Il is ignoring economic and political advice from his last remaining patron; China. Kim is carrying out a propaganda campaign to anoint his youngest son (Kim Jong Un) as his heir apparent. Kim also refuses to adopt economic reforms (along Chinese lines, with a free market economy). The recent currency revaluation (which wiped out the savings of most North Koreans, especially those that ran small businesses), and the attempt to shut down the few free markets, turned out disastrously. Kim Jong Il made a rare public apology, but responded by punishing dozens of senior officials and ordering the security forces to crack down on smuggling, using cell phones and fleeing the country.
The damage done by the currency "reform" could not be undone, even though the government allowed business people to exchange nearly all their old currency. North Koreans have lost faith in their currency, and the economy is paralyzed. At least the official economy. The state run shops are growing barren, factories are shutting down. The government is urging unemployed urban workers to move to the countryside, and help alleviate a labor shortage there. Actually, there is a greater shortage of fertilizer and fuel for farm machinery. Farmers are encouraged to revive ancient farming methods, that relied less on new technologies. The government is trying to be careful with this "back-to-the-country" campaign, as hungry and unemployed city folk are getting really angry. Spontaneous riots are on the increase, and not always just over food. There is a sense of desperation in the air.
In response, the government announced a new ten year plan that, on paper at least, encourages foreign investment and exports. All under strict state control. But before foreign nations will help out, the problems with nuclear weapons, gunrunning, illegal drugs, counterfeiting and general bad behavior has to be dealt with.
Farmers still farm, as best they can, but more and more of the buying and selling of food, and other goods is off-the-books. The black market is back, even if the merchants risk a trip (often one-way) to a labor camp. North Korean cash is basically worthless in China. Because so many goods are imported from China, this means that the use of Chinese, instead of North Korean, currency is spreading throughout the north, at least in the black market. Barter is becoming more common, especially using highly valued gadgets from South Korea. These items often come from the families of government officials, who are also starting to feel the shortages. Even the army is on short rations, with some soldiers being ordered to deal with the hunger by sleeping more.
But there is still an absolute shortage of food. Starvation is more common, and is expected to get worse in the next few months. The price of black market rice has doubled so far this year. There is increasing violence involving food, and suicides are way up. The government is assigning more armed guards to food shipments. Trainloads of rice still arrive from China, and large numbers of people often storm the trains, just for the opportunity to grab some rice and run. Food storage areas need more guards now. The guards need more guards as well, because police and military personnel, even if well fed, have kin who are hungry. There is simply not enough food for too many people up north.
The North Korean government is broke, and scrambling to raise hard currency any way it can. Tourists from China are being encouraged (not just tolerated) and, for the first time, American tourists are being welcomed. Rents for foreign embassies suddenly went up 20 percent in January. More counterfeit American hundred dollar bills are showing up. Illegal arms exports are up, which is one reason more of them are being intercepted. Big customers like Iran, are willing to pay well for missile technology and components, but the goods have to get through. More wealthy (usually because of a kin who are powerful government officials) families are moving closer to the Chinese border. Partly because it is easier to buy many things up there, and partly to be closer to the escape hatch if the country implodes. Moving food, or anything of value, from the Chinese border to the capital is getting more expensive, because more security forces are watching the roads, and demanding more bribes, or part of the cargo. Makes more sense to move the stomachs north, with so much less food coming south.
North Korean diplomats are still using the traditional tools of carrot and stick. No innovations here. The latest stick is the establishment of a new ballistic missile unit, equipped with Taepongdong 1 rockets. These have a range of 3,000 kilometers, enabling them to reach U.S. bases in Japan and Guam. The U.S. responded by pointing out that Japanese and Guam are guarded by anti-missile missiles. The latest carrot is a mention that a resumption of six party talks could take place next month. In past talks, North Korea demanded lots of food and other aid, and offered vague promises (that were usually broken in letter or spirit.)