Every diplomatic strategy thus far employed
to engage with North Korea has ultimately failed to normalize relations. Both
Lee Myung Bak’s hardliner May 24th Measures and Kim Dae Jung’s Sunshine Policy
have been kicked to the curb by an anxious Pyongyang. At the same time, the
free market has had much more success, helping to forge lasting bonds between
the Koreas, provide a livelihood to scores of North Koreans, dispel myths about
the outside world, and lay the foundation for a civil society. Former
Unification Minister Ryu Kil Jae urged that unification can only be
accomplished by evaluating the realities of North Korea and then actively
seeking out collaboration through trade and other projects. Korea University
Professor Kim Hyo Jin has encouraged us to dump
zero sum strategies in favor of cooperative endeavors, following the
precedents of the Kaesong Industrial Complex and Geumgang Tourism Center.
 Inter Korean Talks at Kaesong Industrial Complex, March 13th, 2014. Image: Yonhap News |
While it is difficult for politicians to
say so in public, these crucial points of contact include both open, official collaborations
and covert exchanges. Open projects include the presence of foreign companies
such as Korean American Mark Kim’s Sunyang Shoe Company, the upcoming joint
archaeological excavation of the ancient Koryo capital in North Korea, and the
activities of NGOs such as business training from Chosun Exchange and
agricultural development from America’s Global Resource Services. Covert
efforts are just as important, especially when it comes to transmitting
valuable information to the truth-deprived North Korean population. These
covert exchanges include broadcasting pirate radio, connecting North Koreans
with their overseas relatives through illegal phone calls, and smuggling things
like solar panels, USBs, and textiles.
Given the regime’s unpredictable nature,
the market presents a much more stable, long term, and practical conduit into
North Korea. This is because we don’t have to rely on the good nature of the
regime to compromise and collaborate on symbolic “hearts and minds” projects.
Instead, we can rely on the motivation of individuals to grow their businesses
and maintain their livelihoods. Cold, hard cash makes a very attractive lure.
Counting on North Koreans to act on the prospect of raking it in is a safe
assumption.
Reuters correspondents James Pearson and Ju Min Park have shown us
that North Koreans are
embracing consumer culture and aspiring to the donjuLiterally "masters of money," donju refers to people who hav... More, or new money class,
by taking to business ventures. However, to stimulate meaningful change as an
outcome of said interactions, we need to consider the country’s economic and
cultural realities. In Towards a Political Analysis of Markets in North Korea,
Park Hyeong Jung encourages us to ditch the black market/ state enterprise
dichotomy that has become the most popular way to characterize the North in
favor of a
more cohesive and inclusive model, arguing that, “the economic structure,
including the grey markets, reflects politics and power distribution in… North
Korea.” It is this North Korea that we must engage with, not the war hawk or
the fractured state that we see in popular culture.
When we view the North as Park urges us to,
the evidence begins to pile up. The pattern of interactions occurring at the
intersection between state-sanctioned enterprises and the grey markets is creating
receptivity to market liberalization. We know that border
crackdowns, propaganda campaigns, and political purges have been ratcheted
up since Kim Jong Un rose to power. At the same time, jangmadang (marketplace)
regulations have been relaxed significantly. What’s more, city dwellers are not
the only ones enjoying the market’s increased autonomy. Rural folk are also
seeing the upside of this new attitude. It was recently reported that private
farmers are now
permitted to raise cattle for the first time. Since free market penetration
will continue to grow and shrink under the knife of the Kim regime, we should
turn our heads towards the relationship between state officials and the market.
 Kim Jong Un at a cattle farm, April 4th, 2015. Image: Rodong Sinmun |
Corruption and bloated bureaucracies
present devastating political roadblocks for those struggling to rebuild a
stagnant economy. North Korean coal mines and cellphones provide good examples
of how blockages naturally emerge from gift politics, wherein the ruling elite
reinforce their legitimacy by awarding lucrative contracts to their cohorts. We
might expect that this advantage gives the regime leverage to make jobs, but
the opposite is true.
The regime has become addicted to cheap/free labor and
the entire economy has become mired down by corruption, shortages, and
inefficiency. The regime is now unable to perform basic services like deal out
rations, maintain infrastructure, or provide utilities. North Korea is covered
with abandoned mines that were shut down when power outages dragged out and the
infrastructure crumbled. The state had no choice but to fire the workers and
leave the mines behind. Sensing an opportunity, North Korea’s emerging middle
class, or donjuLiterally "masters of money," donju refers to people who hav... More, have begun taking up the helm.
But this is a costly and
difficult investment for the donjuLiterally "masters of money," donju refers to people who hav... More. In addition to bribing various officials
along the way, anyone hoping to legally reopen the mines is also required to
purchase exorbitantly priced digging rights from the Ministry of People’s Armed
Forces and mineral rights from the Ministry of Mining Industries. Unwilling to
take such a huge loss up front, some
brazen donjuLiterally "masters of money," donju refers to people who hav... More are opting to risk it by jumping in without a license. The
result: North Korea’s abundant coal, mineral, and rare earth reserves – valued
by Goldman Sachs at over 140 times the GDP of the entire country – go largely
untapped.
 The “Arirang” model smartphone produced in North Korea’s May 11th Factory. Image: KCNA |
Cellphones
exemplify the frustration from a consumer’s perspective. Even if you manage
to work your way through the dizzying bureaucratic maze of certifications and
approvals, you’re still not guaranteed a phone. That’s because the government has
recently had trouble selling a device called a watt-hour meter. Anyone hoping
to retain their mobile subscription is now required to buy the useless $32
meter, which essentially amounts to a “telecommunications tax.” Those who
refuse to purchase the meters and submit the receipt have had their service
discontinued. Taxes, of course, are healthy profit generators for the state,
but when bribe-based tax systems operate outside the legal system,
inefficiency, bloat, and inequality multiply at alarming rates.
It isn’t hard to see that the state and the
economy are strange bedfellows in a post-communist country. Rather than
comfortably settle into their new roles, the two are prone to backstabbing,
infighting, reneging, and beguiling each other in an effort to gain small
pieces of territory at a time. The unclaimed gets taken, and the unprotected is
up for grabs. When asked why Kim Jong Un has ordered less crackdowns on market
activity than his forebears, Daily NK economic correspondent Kang
Mi Jin said that there are three main reasons.
First, the extra slack is a
compensation for the malcontent caused by Fall and Spring mobilizations.
Because of the mobilizations, ordinary students, soldiers, and factory workers
have been forced to do arduous work for an extra two hours per day. This has caused
significant social unrest.
Second, the market deregulation demonstrates the
government’s tacit recognition of its inability to issue rations.
Third, and
perhaps most importantly, the Ministry of People’s Security collect
on the stall fees for traders in the jangmadang, so the more sellers the
merrier for them. In Hyesan, a city on the Chinese border, the stall fees from
a single market brought in approximately 100 million KPW in a single month.
When you consider that the city has five markets, it’s easy to see why the cash
strapped authorities are in no rush to clamp down on market activity.
 A Pyongyang Cosmetics Factory. April 29th, 2015. Image: Yonhap News |
Although it is hard to predict the specific
policies of the Workers’ Party, we can still use our knowledge of the regime’s
basic operating principles to make educated guesses about best and worst case
scenarios. Which is to say, we can use our flashlight to pierce through the
darkness. That being said, we have to know where to shine our light and what to
illuminate. Up until now, much of the scholarly work on North Korean
marketization has emphasized the role of the unofficial market while
underestimating the role of state policies.
Park Hyeong Jung not only wants us
to understand how economic and political systems reflect one another, he also
contends that marketization in North Korea today does more to defend the
political system than to undermine it. This is because the Workers’ Party uses gift
politics to reinforce its power base, damaging the market’s equalizing
potential.
Having endured a famine, the current
generation of North Koreans are independent, motivated, and ambitious. They
understand market incentive and are hungry for change. By transitioning from a
military first (Songun) to a parallel track (Byungjin) policy, the Workers’
Party has demonstrated that they know how to step out of the way when
convenient for them. But the regime has played a backseat role in North Korea’s
revival so far. By legitimizing changes that the residents have already created
on the ground, they’re still playing second fiddle. If past is prelude, they’ll
need to hop in the front seat and introduce substantial reforms to encourage
continued growth.
But it would be foolish to assume that they’d do this out of
the goodness of their hearts. Pundits have long hailed the introduction of
Chinese style reforms in North Korea, and have long been met with frustration
and disappointment when reform packages like Special Economic Zones (SEZs)
failed to live up to the hype. Some scholars are now predicting North Korea to
follow the ASEAN track by emulating the likes of Singapore and Vietnam. We’re
left to wonder whether these predictions will ever come to fruition. But
there’s no need to sit back and wait. History teaches us valuable lessons about
what’s to come.
Given the connected nature of the political
and economic systems, it might be helpful to take a closer look at what sorts
of political changes other post-Communist states made in order to smooth over
the transition to a market economy. Only then will it be possible to learn from
their failures and see which successes might be reasonable fits for the DPRK.
With that in mind, in parts two and three, we’ll take a tour of former
socialist economies like Poland, China, Vietnam, and Russia in order to sniff
out what sorts of challenges liberalization posed for them. Then we’ll try to
modify the more effective policies to fit inside NK’s specific socio-political
climate.
I’ll ultimately conclude that the reform package should focus on:
currency convertibility, a rollback on sanctions, an end to isolationism,
compromise between reform-minded and conservative officials, and the extinction
of Fearpolitik and gift politics. So, basically, a walk in the park. This
doesn’t mean anyone expects all those goals to happen in a windfall of
enlightenment and good cheer, but any decent archer will say that you need to
know what your target looks like before you even think about picking up the bow
and arrow.
*Views expressed in Guest Columns do not necessarily reflect those of Daily NK.
