'Money-masters' hold lifeline for
North Korea By Peter Ward
Speculation about how North Korea might
change and how it might collapse - in work by, for
example, Marcus Noland, Nicolas Eberstadt and
Andrei Lankov among many others - is valid and
meaningful but includes little discussion about
how North Korea might survive.
The
unspoken assumption of most research is that North
Korea is the illegitimate evil twin of the South,
a part of a divided country whose very existence
providence and Korean nationalism see as an
historical aberration.
Therefore, it is
assumed, the North must be reunified with the
South, sooner or later; it's people seemingly will
realize the truth - ie that their nation should
not exist and must be dissolved into the great
South Korea. But what if North Korea, through gradual
modernization and
development under its new young leader, Kim
Jong-eun, defied these expectations? Could in 50
years a divided but peaceful peninsula become the
norm? Could talk of Korean unification eventually
become as strange as, say, talk of a union between
the United States and Canada or Austria and
Germany?
North Korea is a strange place,
unlike anywhere else. It used to be a Stalinist
theme park, and at least in propaganda terms it
still is. The planned economy, though, is well and
truly dead (except for the military-industrial
complex and agriculture). The market and its
operating principles of monetary and material
incentives are what constitute the economy today.
At the lower level, slash-and-burn
agriculture on mountain sides, underground drug
factories and far more innocent activities such as
making garments and sweets are the jobs done by
the adult women who predominate among lower and
middle-class breadwinners.
The upper
echelons of the North Korean private economy are
dominated by two distinct but similar sets of
people. These work for what are ostensibly state
organizations, but in actual fact they have taken
these over. For the privilege, they pay kick-backs
to the state to ensure they are not legally
harassed for what is theoretically highly illegal
activity. What should be emphasized is that these
individuals perform a highly beneficial service to
the regime. If the regime wishes to maintain
itself in the long-run, it would be wise to make
their activities legal and even start to praise
them.
The donju (Korean for "money
masters", ie the rich) run many of the formerly
state-run restaurants, buses and even sometimes
mines. The state does not have the resources to
run these operations, so many of them were allowed
to close and then subsequently privatized by
officials or private entrepreneurs.
According to the pioneering work of Korean
economist Yang Mun Su, these people have
periodically come under intense scrutiny from the
central government in Pyongyang. Obviously, if the
state is bent on conserving the ideological
status-quo at all costs this makes some sense, but
surely for survival these people's activities
should be encouraged and bound to the existing
regime? The second group is those working in
what are known in Korean as waehwapori,
(literally "foreign currency earning")
organizations. These used to be state export
companies that have gradually seen much of their
organization and profits fall into the hands of
private investors and officials (often the same).
They can be small regional companies tied
to the party/military in a particular place and
which make money by exporting, for example,
mushrooms. They can be large organizations dealing
in mineral resources or seafood in order to fund
the extravagant lifestyle of the Supreme Leader
himself. What is important is that these companies
are no longer purely state enterprises, since they
are private in their profit motive and in terms of
who is making the money - that is, the people who
run them.
The North Korean economy
therefore is at an impasse. The North Korean
people rely on the market for their daily rice,
many survive hand-to-mouth, but some have become
very successful entrepreneurs. The new capitalist
class in North Korea, be they market vendors or
credit providers have, along with Chinese aid,
stabilized the country's economy.
They are
a force for social progress and change, if the
regime wishes to survive they should work with
these people. Not least because the re-imposition
of the Leninist planned economy is not feasible,
the state does not have the money to put people
back to work outside the market place (this point
was graphically illustrated by the failure of the
2009 currency reform). But the current economy,
necessary though it is, needs capital and
technology to grow. The case for reform seems all
but incontrovertible.
Politically, too,
the current economic situation is not sustainable
in the long run: the spread of information about
the outside world and slow-motion decline of
surveillance state are two major motives of
change. North Koreans were until the late 1980s
nearly completely ignorant about the lifestyle of
their wealthy southern brethren.
The
marketization of the North has brought with it the
seeds of social discontent - videos, DVDs and
computers were once nearly absent and have become
ubiquitous and have begun to tell North Koreans
about the wonders of life overseas. At the same
time, the Leninist economy has nearly collapsed,
and its socio-political foundations are gradually
eroding. The workplace where political discipline
was enforced is gradually starting to lose even
this functional capacity. The propaganda apparatus
having lost its informational monopoly, can no
longer sustain the average person's belief in the
system.
The elite face a stark choice:
either to continue Kim Jong-il's conservative line
of do nothing most of the time or embark on
root-and-branch reform. The former may eventually
lead to a Syria-like Armageddon as people grow
increasingly discontent. If this is to happen, the
elite have nowhere to run to and will have to
fight to the last. Root-and-branch reform may just
save the country, its leadership and also - lest
we forget - might be quite beneficial to most of
North Korean people (minus anyone who decides to
express discontent).
The North Korean
state must therefore adapt to survive. How can
this be done, what policies make sense from the
elite's point of view? Contrary to the predictions
of the "collapsists" (like Nicolas Eberstadt and
Andrei Lankov), such policies may exist even
though it remains to be seen whether the North
Korean leaders will be willing and capable of
implementing them.
So how can the current
elite ensure slow political change and that they
die in their sleep, not at gun point?
First, the existing entrepreneurial elite
must be allowed to expand their investments and
control over the economy. At the same time, the
state should maintain the de jure fiction of these
companies as state-owned, and even move to lionize
their de facto owners as if they were great state
officials - it might be a good idea to describe
them as a "socialist managerial strata" (or some
other nice words which will mask the capitalist
nature of this group with properly Leninist
jargon). In so doing, the state can take some of
the credit for the positive changes that
marketization is bringing, ie economic growth.
There are rumors coming out of North Korea that
such moves are indeed afoot, but the reports at
present remain unconfirmed.
Second, North
Korean's best land is still state-owned, and the
state-run "cooperative" farming sector still
produces most of the country's food. While
privatizing the land is ideologically impossible,
it is possible for the reforming state to create
incentives for farmers to work harder.
The
introduction of a flat, in-kind tax on grain
designed to feed the elite and the army would
incentivize farmers who are currently given just a
fixed ration while the rest of the harvest is
confiscated by the state. Kim Jong-eun seems to
understand this fact, and reports of experiments
along above-mentioned lines have come to light.
Under such a scheme, food prices will likely fall,
aid dependency will decline and diets of the
average North Korean will improve.
The
above-mentioned reforms are necessary, but not
sufficient. At present, North Korean
entrepreneurs, both illegal and semi-legal, see
the state's officialdom as a nest of parasitic
bureaucrats who prey upon the market. If reforms
are to succeed, the state must reinvent itself as
the guarantor of the market. Small garment makers,
cookie makers and the like must be made to see
that the real threat comes not from their own
state, which is their noble protector, but the
South Korean state.
Samsung, LG and
Hyundai are known worldwide for their quality
products. However, in the reforming North Korea
these businesses must be demonized as a horde of
locusts who will, given unification, annihilate
the "new economic mechanism" (fledgling market
economy) and its patriotic "warriors"
(entrepreneurs) if given a chance.
There
will some truth in this propaganda. Indeed, if
unification by absorption is to happen, market
vendors will be wiped out by Family Mart and Home
Plus, while, say, car workshops and small
import-export companies will be eradicated by
Hyundai and Kia.
The North Korean state
probably should therefore learn how to project
itself as at once a champion of unification but
also a protector of the North Korean people
against greedy South Korean business interests. In
other words, it should present South-led
unification as leading to economic bondage and the
destruction of North Korea's indigenous "socialist
entrepreneurial class". In so doing, the allure of
South Korean prosperity which collapsionists see
as ultimately irresistible can be watered down.
Coupled to all of the above-mentioned
measures is perhaps the single most important one
of all. The Chinese must be invited (read:
compelled) to invest huge sums of money into the
North on a regular basis. Chinese investors must
be encouraged to work with the existing
entrepreneurial class, while the formerly
industrial working class must be put to work in
revamped factories to produce goods for export
into China and beyond.
The process of
turning North Korea into a developed country will
take 30 years at least, but with Chinese material
and technical support, combined with the above
measures, it may be possible with the Ancien
Regime still in power in Pyongyang. Concurrently,
Kim Jong-eun will need to introduce many of the
above-mentioned reforms - such as land reform - in
order to build faith with the Chinese, who have
been lied to on more than one occasion by North
Korean diplomats and who look at North Korea with
a great suspicion.
Chinese investment can
initially be funneled through the Rason area,
which hosts a Special Economic Zone (SEZ), as well
as through the proposed project near Sinuiju. But
ultimately, pools of relative prosperity and
growth concentrated in these two areas (and
Kaesong) will not be enough. The Chinese will have
to be "invited" into the "heartland", and in the
process infrastructural as well as industrial
modernization will become necessary.
Ironically, if the above is what
transpires, the North Korean state may (and from
Kim Jong-eun's perspective: should) remain on very
bad terms with South Korea. The human rights
abuses will not disappear and could well become
worse or at least more obvious. Internal
propaganda will rely even more on the beast of
South Korea as an enemy of the people.
A
thawing of the currently frozen relationship with
the South would be dangerous. If the North Korean
leaders make peace with the South, they will
remove their own raison d'etre. They will make
themselves look impotent and undercut their own
propaganda picture of the South. At the same time,
they will also remove any stumbling block to a
South-led unification, so voices calling for
unification in the North may rise, precipitously,
leading to regime/state collapse.
Therefore if the measures outlined are
followed, inter-Korean relations will remain
frosty for years if not decades to come. And the
potential of for permanent division, where the
North becomes a truly separate country even after
it has developed and democratized could be very
real.
In the meantime though, if North
Korea were to succeed with economic reforms, then
its people would continue to live under a highly
repressive, one-man dictatorship. Suddenly
unification looks very attractive after all.
Peter Ward is a student of
Korean History at Korea University. He has been a
keen observer of North Korea for many years and
his articles have been published at Daily NK,
Ceasefire Magazine and on The Three Wise Monkeys
blog.
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