The marketplace presents the most stable,
long term, and practical conduit into North Korea. Market reform has
historically been the tip of the spear, thrusting isolated dictatorships and
post communist states towards openness and liberalization. But financial
reforms are dependent upon political “sister policies.” There’s no drawdown on
sanctions without diplomatic easing, no flourishing trade without dialing back Fearpolitik,
no currency reform without domestic compromise. The survivalist Kim Dynasty has
become addicted to these tactics, but with a little bit of elbow grease and
some investment in the “jangmadang generation,” we can prove that totalitarian
tactics are actually more poisonous than helpful over the long run. It’s up to
the outside world to make openness an irresistible alternative to the status
quo.
 China vs. Peers, GDP Per Capita 1700-Present. Image: Maddison, Angus. 2001 |
From
Hermit to Social Butterfly: In 1868, the Meiji restoration brought about rapid
industrialization and capitalist transformation in Japan. One of the central
ingredients to Japan’s success was its openness and eagerness to trade. China,
on the other hand, was stubbornly isolationist well into the 20th century.
Largely due to its isolationist tendencies, the per capita income in once great
China declined for nearly 1000 years when compared to Western Europe. But not
everyone in China was content to see their economy limp along. Witnessing the
Meiji restoration’s success in Japan, some young upstarts urged the Ching Dynasty
to follow suit with a carefully devised 100 day program of reforms. When the
would-be reformers were locked up and executed, it was clear to all that the
Empress had rejected their proposal. This accounts for why the world witnessed
exponential growth in Japan and painfully slow growth in China until the end of
the 20th century, according to British economist Maddison Angus.
In a new “Voice of Korea” video encouraging
foreign investment into their Special Economic Zones (SEZs), North Korea touts
“low taxes,” and “foreign-friendly regulations.” Indeed, as China’s middle
class expands and they begin to outsource manufacturing, North Korea looks
better and better as a cheap source of labor. North Korea already excels in the
garment industry, boosting rock bottom prices and a reputation for quality,
according to industry insiders. The Chosun Exchange’s Andray Abrahamian writes
that, although “a handful of SEZs will be positioned to attract moderate
investment should North Korea’s relations with neighboring countries improve,”
most are too isolated and underfunded to present any real allure. Furthermore,
after being unable to withdraw profits, the Egyptian telephone company that set
up NK’s cell phone network recently froze their accounts. Jang Song Thaek’s
execution put the kibosh on two SEZs abutting China. Political relations, then,
will be the sticking point moving forward. Ending isolationism isn’t just about
sending out invites; it’s about building trust. Before we despair, the
seedlings of those relationships have already been sown.
The North Korea Strategy Center estimates
that approximately 100 thousand North Korean laborers are working overseas,
netting a profit of about USD 200 million a year for the regime. Through
government programs, North Koreans can get work as loggers in Siberia, factory
workers in China, or ditch diggers in Myanmar. The gigs are dangerous, low
paying, and arduous. The Seoul-based organization NK Watch found that most
workers are paid fractions of what they were promised or not at all. Given that
the positions are voluntary, one has to wonder why anyone would sign up at all.
Reports from earlier this summer suggest
that many overseas workers are turning down their pay in exchange for receiving
permission
to moonlight in side jobs outside the state enterprise. They forego receipt
of their yearly USD 800-1,000 paycheck so that they can earn two to three times
that by burning the midnight oil at other job sites. This demonstrates that the
SSD agents charged with helming the overseas operations value money over
loyalty; an attitude which threatens to flower
into outright dissent. While outside North Korea, overseas officers and
laborers are exposed to foreign ideas and opportunities, creating contacts and
giving inspiration for potential businesses down the line. International
exposure also pumps new information into the reclusive state. The officers and
laborers act like carrier pigeons upon their return. “You’ll never believe what
I saw in China…”
After isolated countries like Poland and
China plugged themselves back into the global marketplace, they met with
resounding success. And though openness is an essential ingredient, it can not
do the trick alone. Russia’s stumbling transition away from communism in the
1990s proves that to be effective, openness needs to be paired up with sound
fiscal policies that stabilize the currency, end price controls, and prevent
oligarchies from monopolizing key industries. Investors only come flocking in
once they see sound monetary regulations signed and enforced.
Opening up could also solve North Korea’s
foreign currency problem. The regime is so hard up for cash that they’ve
famously ordered diplomatic
officials to sell drugs, required residents to provide
kidney beans, and demanded students
to provide two rabbit skins apiece as a source of income. Ultimately,
anyone arguing that opening up is in the regime’s best interest must answer to
the information paradox. North Korea’s economy is ready and able to engage with
the world. But doing so would open the door to nasty ideas like democracy and
free speech. The regime built its political bedrock on top of idolization and Fearpolitik.
These strategies have been remarkably effective at maintaining order, but
remain vulnerable to the equalizing effect of unencumbered information
distribution. Which means the burden is on me to explain why Fearpolitik is
ultimately not in the regime’s favor.
The politics of fear not only flourishes in dictatorships, but it’s difficult for a
dictatorship to sustain itself without becoming expert in the art of
intimidation. The very basis of a dictatorship’s legitimacy derives from the
fact that anyone in a position to challenge the regime’s authority is too
petrified to do so. But these qualities are toxic to the economy over the long
term. An example is in order. Communist China had a misinformation problem stemming
from the fact that it was generally considered unwise for managing officers to
report failure to their supervisors. China scholar Benjamin Valentino writes
that some officers were executed for falling short on grain quotas. Fearpolitik
simultaneously commands loyalty and produces false impressions at the top of
the food chain, meaning that the party cadres are woefully misinformed about
the economic and social realities of their country.
During the Great Leap Forward, Chairman Mao
ordered millions of peasants to switch from farming to producing steel using
backyard mills. As the economy quickly became unhinged, the system’s
inefficiencies went unreported. By the end of it, between 20 and 43 million
people are believed to have died of starvation, according to Chinese population
studies expert Dr. Peng Xizhe. Many of Beijing’s current leadership grew up in
the countryside during this time, which has made them savvy about the dangers
of Fearpolitik.
By contrast, most of the Workers’ Party
leadership grew up in a petri dish in Pyongyang where they experienced limited
exposure to the disastrous effects of the party’s ineffective policies. Kim Il
Sung only became aware of the 1990s famine just before his death. He was
furious that his son had concealed from him just how desperate the situation
was outside Pyongyang. Kim Jong Il’s ruthless and deceptive ways have become
standard operating procedure.
In an attempt to clean house and instill
absolute loyalty, Kim Jong Un has engaged in one of the most aggressive and
brutal purges seen in decades. From the execution of Jang Song Thaek to the
aircraft gun assassination of Hyon Yong Chol, Kim is tightening
the reins on the Ministry of the People’s’ Armed Forces. But analysts
believe this is a
sign of insecurity on the part of the regime. Furthermore, Ahn Jong Sik,
the Deputy Head of SBS’s political department, wrote that, “fear-instilling
politics to the extreme and chasms between the leadership and power elite could produce
factors of unpredictability.” As we saw with China, unpredictability makes
it difficult for economic and political actors to do their jobs properly. The
intimidating environment also presents a heightened barrier to entry for
overseas investors and business partners.
Pirate radio and smuggled USBs, containing
media from the outside world, are our best bet for breaking the regime’s spell
by ending the monopoly of information. While Workers’ Party cadres are tasked
with beating back the pernicious influence spread by these devices, we have
evidence that cadres
embrace more outside media than anyone else. These officials are largely
immune to sweeps by the National Security Agency and the Ministry of People’s
Safety. They
binge on radio broadcasts using the latest
smuggled electronics to stay abreast of international and domestic news
updates. Their high level of education means that, along with college students
and intellectuals, they have the background to understand the content.
The North Korean education system distorts
history to present heroic depictions of the Kim Dynasty. The result is that,
even when foreign broadcasts are in Korean, ordinary residents have a tough
time contextualizing and understanding the incoming news. Stations that beam
into NK, such as Radio Free Chosun and Radio Free Asia, bear this in mind, and
ultimately produce content that is easily digestible and maximally informative.
Residents have been taught, for example, that the Korean War began when the
South invaded the North. But thanks to the prevalence of USBs and pirate radio,
residents who know better are starting
to criticize that kind of shameless propaganda. Eroding Fearpolitik will
start with these important organizations gaining headway on an ideological
battleground. The information they disperse will continue to couple with the
healthy skepticism produced by the 1990s famine and the 2009 currency
devaluation to eat away at juche, the North Korean idea of self determination
that justifies the regime’s unlimited power and isolatinist policies.
Rollback
on Sanctions: Economist Jeffrey Sachs argues that, “sanctions aim to weaken or
topple a despicable regime, but often they simply impoverish the population of
the targeted country without toppling the regime.” The Cato Institute’s Doug
Bandow has suggested that curtailing sanctions should be on the table at future
Pyongyang-Washington talks. In the book Tailored Engagement, Stanford
University’s David Straub, Shin Ki Wook, and Joyce Lee make an eloquent case
for ending the May 24th Measures, a set of devastating sanctions that have not
only gummed up bilateral trade relations, but also stifled the growth of a
healthy international presence inside North Korea. Since the measures’
implementation in 2010, trade with China has helped North Korea liberalize and
has exposed its people to the power of global markets. This access has given a
boost to the middle class and a tool for the poor to lift themselves out of
poverty. Goods and communications landing in NK through China have also exposed
ordinary residents to the kinds of foreign ideas that eventually lead to a
civil society. But NK’s inroads to China have been dampened by a downturn in
Pyongyang-Beijing relations.
 The U.S. seeks to impose sanctions on institutions doing business with North Korea at a House Foreign Affairs Committee hearing in Washington D.C. on Jan. 13th, 2015. Image: Yonhap News |
From the perspective of foreign
entrepreneurs looking to engage with North Korean markets, sanctions are a
major hurdle. Acquiring the requisite licensing from the DPRK and remaining
compliant with UN and country-specific sanctions is an arduous and time
consuming process. Any money sent in and out of the DPRK is monitored by the US
Treasury Department. The UN has had sanctions in place since 2009, with each
country having additional, sundry regulations. Dual use goods, those that could
potentially be used for military application, are monitored extra closely.
Given that electricity is more luxury than commodity in the North, anyone
hoping to set up shop will need to bring their own generator. This dual use
item requires extra verification. Good manufacturing practice clearance took
two years for an entrepreneur in the pharmaceutical industry to acquire. Three
years after getting certified, he finally got out of the red.
Strict standards for dual use goods are
good policy, but relaxing restrictions on less threatening goods could go a
long way to improving relations and empowering the middle class. Sanctions
banning the South from helping with agricultural aid make no sense, as they
could help the North become more independent and are one way to mitigate the
graft problem inherent in shipping in things like rice, which end up getting
pilfered by the Korean People’s Army. As North Korea’s dry season extends
and food production struggles, the logic of agricultural sanctions looks
increasingly flawed and its effects are becoming increasingly detrimental.
Sanctions have effectively shut the door to Western businesses, leaving room
for only a small class of entrepreneurs with humanitarian aims who are willing
to wait years before eking out a profit. This has given China the lion’s share
of the market and the influence. Given the security implications, America and
South Korea should be eager to end this monopoly by ditching the most severe
sanctions in favor of a more embracive approach.
Although the road will undoubtedly be long
and difficult, we’ve seen that there is precedent for the kind of dramatic
shift North Korea will have to make. We’ve seen how dictatorships and post
communist countries struggled through a series of obstacles in order to
stabilize the currency, reduce barriers to entry, stimulate competition, nix
price controls, privatize state companies, reverse isolationist policies,
compromise with opposition leadership, diversify investments, make friends with
neighbors, and increase exports. Having endured a famine, the current
generation of North Koreans are independent, motivated, and ambitious. They
understand market incentive and are hungry for change. Earlier this month, a
massive brawl erupted between vendors and Ministry of People’s Security
agents at a Musan County market after the agents tried to confiscate goods,
revealing the conviction of North Korea’s emerging “jangmadang generation.”
For their part, the Workers’ Party has
demonstrated that they know how to step out of the way when convenient for
them. The economic reforms of July 2002, for example, were more of a reflection
of the regime’s inability to provide rations than of purposeful policy. By
legitimizing changes that the residents have already created on the ground,
they’re stuck in the backseat. If past is prelude, they’ll need to hop in the
front seat and introduce substantial reforms if they wish to see growth and
stability. The first step to that is helping the regime to realize that their
best prospects are predicated on reform measures, not on a continuation of the
status quo. This also means helping the regime to understand that economic
growth is contingent on political liberalization; sanctions will ease up when
diplomacy returns, SEZs will flourish when Fearpolitik gets dialed back, etc.
It may sound like an impossible goal. But good men and women are already on the
ground working hard to show the regime the err of their ways. They need the
support of the outside world.
*Views expressed in Guest Columns do not necessarily reflect those of Daily NK.
