What program receives the majority of the country’s budget? The economic system of North Korea is called a centrally planned economy. This means that the economy of North Korea is directly planned. It is run by the Communist government in power. The government makes all of the economic decisions. It says what products are made and grown. It says who can buy these products. The government limits who can invest in the country. Most companies from other countries are not allowed to do business in North Korea. Individual people in North Korea cannot own a business. They cannot own property. Nearly all property belongs to the government. The constitution states that these activities are against the law. However, they do exist in limited cases and without the knowledge of the government.

The flag of North Korea. At top is a horizontal blue bar, followed by a thin white bar, a red field, a thin white bar, and a blue bar at bottom. In the red field is a white circle with a red star in the middle.
North Korea flag
The economy of North Korea faces many problems. Buildings, factories, machines, and equipment—the capital stock—in North Korea are outdated and beyond repair. The government has not invested money to keep its capital stock updated. There is a shortage of spare parts to fix broken machines and repair factories. Crop failures and increased military spending also negatively affect the nation’s overall economy.

Military Spending
North Korea is a dictatorship. One person controls the entire country for life. The military of North Korea is the main force in the nation. A large share of the nation’s resources, or gross domestic product (GDP), goes to military spending. In recent years, North Korea has invested heavily in a nuclear program. It wants to build atomic bombs. It will try to deliver them through ballistic missiles. The result of this investment is that resources that are needed elsewhere are not available. There isn’t money to improve North Korea’s capital stock or to feed and house its people.

Another result of this military spending has been that some nations of the world have taken actions against the economy of North Korea. Countries such as the United States, Britain, and Germany no longer trade with North Korea. Businesses in these countries are forbidden to do business with North Korea. These actions further limit the amount of resources available for the people of North Korea.

Agricultural Challenges
North Korea has a very limited amount of land that can be used for farming. The land that is available oftentimes is of poor quality. Crops have difficulty growing in it. Fertilizer, tractors, and fuel are also in short supply. This limits how much food can be grown. Weather is also unpredictable. From the mid-1990s to the mid-2000s, the nation faced famine and starvation. The people of North Korea had very little food to eat.

Today, the country has increased the production of corn and rice. However, these increases still do not meet the needs of the people. North Korea must still import significant amounts of food to feed its people. Many North Koreans today suffer from malnutrition and poor living conditions.

The Future of the North Korean Economy
The government of North Korea has said that the goal of the economy is to improve the standard of living of its people. That goal is an elusive one for most North Koreans. The government has done little to achieve an improved standard of living. In 2016, the government released its economic plan for the next five years. This plan outlined the steps needed to improve economic growth across the many parts of the country’s economy. However, maintaining unquestioned political control of the nation is the government’s first concern. Changes needed to help the economy of North Korea grow may not occur if these changes conflict with the need of the government to maintain firm control of all parts of the economy.