The Arduous Winds of Economic Reform

In an in-depth year end study, Charles Park looks at North Korea's Prospects for becoming a Strong and Prosperous Nation
January 7th, 2013
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In an extensive year-end research piece, Charles K. Park (North Korea Economic Development Group) looks back at Kim Jong Un’s first year of power to assess the state of North Korea’s economy, the level of reforms that have taken place, and the prospects for improvements in 2013 and beyond. 

Contents

  • The Winds of Change
  • The Impossible Reform
  • Collapse by Reform
  • The Arduous Winds of Reform
  • A Strong and Prosperous Nation Through Creative Destruction
  • Regime Adaptation: Rewriting the Logic of the Personality Cult

The Winds of Change

Back in August 2012, DailyNK featured a political cartoon by Gregory Pence which ponders, “Is The Wind of Change Coming?” It depicts Kim Jong Un in a series of three slides: the first shows just his chest wearing a gold medal, the second shows him chest up, wearing a Mickey Mouse hat, the final slide shows him standing on the first-place podium, in seeming victory. But the cartoon shows that victory may be short lived, for his podium is crumbling.

Source image: DailyNK.com

The accompanying editorial is thought provoking:

The media around the world is awash in speculation about possible reform in North Korea under the youthful rule of a Kim Il Sung look-a-like called Kim Jong Un. This new Kim has spurred on the speculation with a whole raft of cosmetic PR moves since he came to power, from the presence of Disney characters, short skirts and electric violins on stage in Pyongyang, to inviting Kim Jong Il’s former personal chef back to the North Korean capital after a ten year hiatus and playing with junior British embassy staff on a rollercoaster at a newly completed amusement park… Yet none of these modernizing moves has led to real change on the ground, and there is much skepticism as to whether such change is even possible, much less likely. Two big questions remain unanswered: Is the wind of change coming? And if it is, exactly what kind of wind?

If you are a North Korea watcher, you are obliged to have an opinion. Following the death of Kim Jong Il a year ago, we witnessed a dynastic transfer of power to his third son, a Swiss educated Kim Jong Un, who is by some reports still less than 30 years of age. At Kim Il Sung’s Centennial Birthday Anniversary in April 2012, the young leader declared that from hence, the DPRK’s priority will be on the prosperity of the people so they “don’t have to tighten their belts again.” Under his father Kim Jong Il’s Military First Songun Policy an estimated hundreds of thousands to possibly millions of people died of hunger. The young Kim further proposed “a new economic management system in our own style.” Hearing this, many asked, “Is North Korea in a process of reform?”

Indeed, numerous reports indicate the winds of change could be blowing. Through activist news channels like DailyNK, RFA (Radio Free Korea), and dissident organizations, who have cell phone and other contacts within North Korea, we get fairly up to date news on what’s happening on the ground. While fragmented and parochial, the news can be confirmed with other contacts, as DailyNK does, or triangulated with Chinese analysts or others who also have inside contacts. Along with propaganda, even the official news organizations, such as the KCNA, Rodong Shinmun and Uriminjokkiri report on significant personnel changes, events, and speeches. Further, there is still a steady stream of North Korean and Chinese traders that cross the border, as well as NGOs and foreign business people. And though it has declined significantly due to government efforts, illegal migrants still cross the North Korean border for political and economic reasons.

Collectively, the changes appear to be afoot. These changes have the potential to reshape economic organization, leadership make up, national priorities, incentive structures of cooperatives and factories, public distribution system, and perhaps even North Korean socialism itself. Is it really the winds of reform? A good case for reform can be made by a preponderance of evidence. First consider the winds of change in Kim Jong Un’s reworking of the economic policy making framework:

* Kim Jong Un elevates the Cabinet to be the premier economic policy organ, decreeing, “all problems arising from economic issues are to be focused on the Cabinet.”

* Kim Jong Un presents a different almost anti-socialist image: He gives frequent speeches, makes frequent trips, visits amusement parks and swimming pools, micromanages their development and upkeep, and debuts a Christian Dior handbag toting wife, Ri Sol Ju.

* Kim Jong Un or at least his government is seen to be permitting, cajoling, and promoting local decision making.

* Kim Jong Un unfurls the new 6.28 Measures, reminiscent of the 7.1 Measures of 2002 and similar to China’s earliest reforms of the late 1970s.

* Kim Jong Un brings back several key figures from the 7.1 2002 reform period: Chon Sung Hun, Park Bong Ju, Ro Do Chul and Kwak Pom Ki. A Korea Herald report surmises, “With the grand comeback, the four officials are expected to steer economic policymaking in line with Kim’s fresh guidelines unveiled on June 28.”

The winds of change blows on the diplomatic front as well:

* Kim Yong Nam, President of the Supreme People’s Assembly, visits Singapore, Indonesia, and Vietnam where he inquires about their developmental experiences.

* Jang Song Taek visits Dalian, China with a large 50 person entourage, gets the Chinese to re-commitment to jointly develop the Hwanggeumpyong and Rason SEZs, and also tours China’s Northeastern industrial region.

* DPRK inks a deal to jointly develop the Shinuiju SEZ with a Hong Kong based private venture capital firm, Dajunghwa International Group (English version of the article here).

* Russia writes off $10 billion in outstanding DPRK loans, ninety percent of which will be forgiven and $1 billion will be used to help develop energy, education, and health projects.

* Japan and North Korea restart bilateral talks on past abductions and even holds a wrestling match held between athletes from the DPRK University of Physical Education and the Nippon Sport Science University.

Indications signal that North Korea is also trying to learn from abroad and prepare for capitalism:

* A Kim Il Sung University journal article calls for a need for advertising law.

* North Korea’s economic policy journal Kyeongje Yeongu article “Forms and Kinds of International Loans” assesses the international financial market.

* Rodong Shinmun article elevates “businessmen” who donate money to Kim Il Sung who uses it to build a “palace” for children.

* Another Rodong article promotes the role of “entrepreneurs” in nation building in retelling a story about Kim Il Sung’s wife Kim Jong Suk.

* Australian astronomer Professor John Hearnshaw  gives a lecture at the Kim Il Sung University.

* A second batch of North Korean scholars visits the Canadian University of British Columbia to learn about capitalism.

* A group of North Korean economists and business representatives meets with Swedish banking and business officials and tours a number of state agencies.

In fact, there are some indications that the current winds of change under Kim Jong Un actually started blowing under his father Kim Jong Il. The late leader revived his brother-in-law Jang Seong Taek to assist with succession planning. Cheong Seong Chang, an analyst with South Korea’s Sejong Institute, says, “[I]n 2009 during the Kim Jong Il-Kim Jong Un ‘joint reign period’ the state unfurled the North Korean economic policy, and since then has been gradually moving toward reform and opening.”

In other words, the winds of change may have started blowing with Kim Jong Il and Kim Jong Un’s efforts could be seen as a continuation of his father’s initiatives. Despite the 2005 pull back of the 7.1 Measures and 2009 currency redenomination fiasco, Kim Jong Il, who arguably had many bourgeoisie tastes, could be argued to have been very interested in developing the North Korean economy. Consider these efforts under him:

* Kim Jong Il visited China many times and marveled at Shanghai which was an inspiration for today’s SEZs of Shinuiju, Hwanggeumpyeong-Wiwhado, Rason, and possibly Chongjin too.

* Kim Jong Il engaged South Korea’s Sunshine Policy, created the Kaesong Industrial Complex, and opened the Mt. Geumgang Resort.

* Kim Jong Il inked a deal for a Russian pipeline through North Korea to South Korea.

* Kim Jong Il chose his third son Kim Jong Un, educated in Switzerland, to succeed him.

* Kim Jong Il ordered “provincial Party cadres to take time to research Vietnamese reform and opening.”

* Kim Jong Il revised six laws relating to foreign investment: Foreign Invested Bank Act, Foreign Invested Enterprise Bankruptcy Act, Foreign Invested Enterprise Registration Act, Foreign Invested Accounts Management Act, Foreign Invested Enterprise Accountancy Act and Foreign Invested Enterprise Labor Act.

* Kim Jong Il sent 200 North Korean bureaucrats to China to learn about their market reform experience touring universities and municipalities.

We can continue to list many other signs of change under Kim Jong Il and Kim Jong un. In particular we can expand on the 6.28 Measures which is wide ranging and in some ways surpasses the 7.1 Measures. However, even this short list suggests a preponderance of evidence. The winds of change does seem to be blowing. Collectively, they do look like the winds of reform. Or do they?

The Impossible Reform

It is true, change, let alone reform, in DPRK may not come easily. Determining if reform is in fact afoot seems as difficult. Despite the preponderance of evidence, certainty is lacking. There is wide disagreement in the North Korea watching community. Some see clear signs of reform, others do not. Depending on who you talk to, you get a different answer. Evans J.R. Revere of the Brookings Institute hits the nail on the head when he says, “It speaks volumes about our understanding of North Korea that experts are divided about what last week’s developments mean [the sacking of Vice Marshall Ri Yong Ho in the summer of 2012]. The many contradictory analyses… suggest that the ‘Rashomon effect’ is at work, with veteran experts producing substantially different but equally plausible explanations of what is afoot in North Korea.”

 

Director Akira Kurosawa’s Rashomon recounts four different interpretations of anincident by four different people. Likewise, mostly due to the opacity of DPRK, it is possible to get four different answers from four different North Korea watchers on the interpretation of North Korean official actions.

The Korean War is forgotten in the US, a footnote in South Korea, but a way of life in North Korea. Constantly on war footing, North Korea is a country where you can’t travel freely and where leaders don’t give press conferences. They welcome you for the hard currency in an increasing number of tour options, but will not sit down with you for a relaxed conversation. If  you engage in an unsanctioned small talk with a North Korean on a tour, your counterpart risks arrest. It is illegal for tourists to take pictures at unsanctioned venues, subjects, or sights. As a matter of national security, the North Korean government works hard to shut off all unsanctioned communications between the outside world and its people. In short, North Korea is a fortress state in siege, partly self imposed and partly externally imposed. Due to this opacity, when analysts opine about North Korea, they are truly putting in their two cents. Even the most seasoned veteran North Korea watchers often get it wrong. The analyses and reports, in this case, are all tentative until documentary evidence is able to confirm them which might not come about for some time. Uncertainty may be the only certainty.

But on August 8, 2012, a Radio Free Asia (RFA) reporter Moon Seong Hwi triumphantly declared the arrival of North Korean reform. In an article entitled, “North Korea Declares Abandonment of Socialist Planned Economy,” the reporter wrote:

North Korea formally adopts a New Economic Management System. It has come to be known that centralized planning and public distribution system has been declared abandoned. The North Korean economic reform, that which has only been talked about has finally shown itself.” (Author’s translation)

The news was based on the plan to sharply curtail the Public Distribution System (PDS) as part of the 6.28 Measures. The PDS would be retained only for government, military, and other key personnel. It would be cut back for most others including agricultural cooperatives and many factories. The news of reform became widely propagated overnight as in this article. Just as fast, however, dismissals from throughout the North Korea watching community literally beat the wind out of it. Especially strong responses came from analysts associated with state funded and private conservative “think tanks” and former officials of the governments of South Korea and the US.

* One of the first to cast doubt, an unnamed South Korean Unification Ministry official argues, “Were they to officially abolish the distribution system, the bedrock of a socialist planned economy, North Korea would be rejecting its own self.”

* Another Unification Ministry official opines, “The economic improvement plans are aimed at consolidating the current regime.”

* Kwon Young Kyong, an analyst with Institute for Unification Education, a South Korean government affiliated “think tank” states, “It’s very hard to imagine Kim Jong Un, who has said that ‘we must take Kimilsungism-Kimjongilism as the revolution’s sole guiding ideology,’ becoming a reformer” (same article as above).

* Bruce Klingner, a former CIA official (Deputy Division Chief for Korea and Branch Chief for Korea) and analyst at the conservative US “think tank,” The Heritage Foundation states, “Is the new North Korean leader willing to significantly alter his country’s policies, including implementing widespread economic reform? Perhaps. Anything is possible and someday pigs may indeed fly.” (See also here.)

* Victor Cha, the former White House National Security Council Director of Asian Affairs under President George W. Bush writes in the Foreign Policy magazine, “Similar predictions were made in 1994… Needless to say, the reforms never happened.”

* Daniel Pinkston, with the US government and corporate funded Center for Strategic and International Studies (CSIS) writes, “The prospects for change, reform and decentrali[z]ation are very remote until power is passed from the Kim family.”

The same information was reported by other news outlets like DailyNK without the same reaction. The difference was that the RFA article dared to declare the end of socialism and announce a new era of reform in North Korea.

To summarize, what these and other analysts are saying is that North Korea cannot change or reform. Generally, they point to the impossibility of reform in North Korea. The logic of the ideologies of socialism and “Kimilsongism-Kimjongilism” makes it impossible. Kim Jong Un cannot reform because it would undermine the security apparatus carefully crafted by his father and grandfather. Rather, talk of reform from North Korea is all part of a cynical gimmick to obtain foreign assistance. Those who see reform in North Korea are being fooled. We’ve seen it before. Nothing will come of it. At most, they represent attempts to resolve short term problems with the socialist economy. When the situation improves, they will pull the plug, just like they pulled the plug in 2005 and 2009. Actually, reform is not possible until power is passed from the Kim Dynasty. Reform will not come until the regime collapses.

If the RFA news was an affirmation of an emergent reform, these views were rebuttals to the contrary. If one was saying “yes” to reform, the others were saying “nay.” What explains the gap in this understanding? The opacity of the closed North Korean society is part of the answer. But it alone inadequately explains why it is difficult to agree that reform is afoot. Perhaps the reason for the differing opinions regarding reform in North Korea does not have much to do with the on the ground changes taking place in the DPRK. Signs that indicate reform or at least change is afoot are abundant. The difficulty of recognizing the signs for what they are may have to do with the politics, particularly the politics of division.

Since the end of WWII, the politics of division has defined how Koreans on each side of the DMZ view each other and how foreign allies and neighbors view them. The politics of division is currently  anchored onto the nuclear weapons issue and expectations of the DPRK regime collapse. In recent years, a US led international sanctions regime has been imposed on DPRK to punish it for walking out of the NPT (Non-Proliferation Treaty) and for conducting a series of nuclear weapons and missile tests. This is on top of US embargo going back to the time before the Korean War. Along with those sanctions, the definition of reform itself may have been sanctioned so that it is dissociated from the on the ground happenings by the filter of the politics of division. Perhaps economic reform is not possible because it is not an option? Perhaps collapse and eventual reunification under the ROK is preferable than a viable DPRK? (See for example, “The North Korean Endgame” by Nicholas Eberstadt, an analyst at another conservative American “think tank,” the American Enterprise Institute.)

To emphasize the impossibility of change, the naysayers emphasize the draconian security apparatus, lack of progress on nuclear weapons issue, increased security along the border, and the sad human rights record. They also emphasize superficial changes like Disney characters, mini-skirts, and visits to amusement parks, claiming these do not constitute reform. They underplay the 6.28 measures and its multiple dimensions, discounting them as propaganda. They say that policies like the 6.28 Measures have all been tried before and are mere gimmicks to get foreign aid. Rather, for them, the only kind of reform is one where DPRK renounces nuclear weapons, rejoins the NPT, institutes broad political liberalization, or if not and maybe preferably, collapses. Reform here does not mean economic but political change; no political change, no reform. Thus again, economic reform is not possible. It is telling that against the backdrop of a rising consensus on change, US Secretary of State Hillary Clinton at the Vladivostok APEC forum in September stated that Washington would not accept economic reform in lieu of denuclearization.

To be sure, this is fair game. After all, no one has stopped to ask what “reform” means. What are the objective criteria by which we shall say a reform is underway? What specific areas should there be change to what measurable degree before we call a confluence of policy changes, reform? Changes in government? Leadership? De-nuclearization? Enlargement of the markets and market freedoms? Greater integration of market forces in public organs? Localizaton of economic decision making? It appears there are little agreements, little benchmarks, and little objective analytical framework for assessing and determining what constitutes “reform.” Unfortunately, this is an inexact science or “social science” with an exact theory yet to be developed. In consequence, the definition is inevitably vulnerable to political manipulations, permitting analysts to pick and choose their own definitions according to their politics. It is especially fair game when technically, there is still a war on, a fact rarely mentioned by these naysayers.

Paradoxically, the North Korean government, seizing on their own definition of reform, appears to be in agreement with the naysayers: They themselves have declared that reform is an impossibility. Faced with a growing chorus of reform speculation outside North Korea and perhaps to moderate internal expectations too, an editorial in the KCNA (Korea Central News Agency) went out of its way to deny reform. Demonstrating as usual that the Pyongyang is adept at politically inspired definitional manipulation as say Washington D.C., the article claims that the policy changes are mere “improvements,” telling outside observers to stop “dreaming” of reform. Indeed, when a representative of the North Korean Committee for the Peaceful Reunification of Korea says, “This is the height of ignorance…. [T]o expect policy change and reform and opening from the DPRK is nothing but a foolish and silly dream, just like wanting the sun to rise in the west,” he echoes the poetry of the ex-CIA officer Klingner’s impossible image of “pigs flying.”  The agreement between this North Korean official  and the ex-CIA officer is remarkable and for an observer, very entertaining – there is hope for cooperation and dialogue? The KCNA report continues, “[T]he ‘new economic management system’ does not mean ‘reform and opening’ as suggested by the imperialist powers; rather, it means ‘our style [of] socialist economic policy’” (see Rodong Shinmun and KCNA).

As for DPRK, it is understandable why they would deny reform. The North Korean government statements are meant to emphasize that the political system is to remain intact. Even if they recognize the need for change or economic reform, they are unwilling to announce to the world that it is reform and they want to be clear that it’s not going to be political reform. The reason, as often pointed out by Professor Andrei Lankov of Kookmin University, has to do with regime security. On the one hand, people, particularly those in North Korea, might demand political changes which endanger regime security. Or there might be a conservative backlash against reform. Thus DPRK government is telling foreigners to back off on talking too much about reform and telling the domestic audience that any changes are supposed to be interpreted as tactical and consistent with the original Revolution. The government is merely managing expectations.

Collapse by Reform

Regardless of politics, or because of it, there are those who argue that North Korea can’t reform due to certain internal contradictions inherent in the reform process. The naysayers say that due to the inevitable risk of collapse, DPRK won’t pursue reform even if it wanted to. The general premise is that the country is a closed society and people are only fed propaganda. Information is sealed off from the outside world. People are told that they live in the most prosperous country and that South Korea is an economic basket case, a country of beggars. The logic of reform requires the opening to outside information and investments. The  people learn the hard truths which are the reverse of propaganda. Realizing this, they are suppose to automatically overthrow their government, force its collapse, and reunify with South Korea.

Photo caption: The DPRK SPA (Supreme People’s Assembly) met for a rare 2nd time in a year on September 25, 2012. Much anticipated policy announcements concerning the new economic measures did not appear. (Image source: KCNA)

What about China and Vietnam? Weren’t they able to undertake economic reforms largely without collapse or undergoing political change? The advocates of collapse by reform say that this was only possible because there was no other China or other Vietnam ala South Korea to which their people could compare or turn to. That is, North Korea is barred from reforming and muddling through like the Chinese and Vietnamese because of the existence a ready alternative to the south. Why go through the trouble of reform, the reasoning seems to go, when what you want already exists across the border?

There are two variants of this basic theme. One variant of this focuses primarily on the economic lies the North Korean government tells its people.  They are indoctrinated from birth to think that their country is the strongest and most prosperous country in the world. For example, Professor Andrei Lankov says, “Officially, they can’t make an open commitment to a reform…. To admit that reforms are necessary would be to acknowledge the mistakes of the past.”

The other variant suggests that the people were not only lied to about the economic conditions but as well about the human rights violations and atrocities of the  government against the people. For example, Professor Leonid Petrov of the University of Sydney says, “So many lies and horrible crimes have been perpetrated during the 65 years of tyranny that the youngest of the Kims cannot open up the country without betraying his predecessors or jeopardizing the foundations of his own rule….”

The way they describe it, it seems that fortress DPRK is actually a house of cards, ready to crumble down at the slightest change in wind direction. The winds of change can’t be blowing because if it blows too strong, it precipitates regime collapse – the house of cards tumble down.

But something is not right here.

True enough, if DPRK makes sincere efforts to open up, it will have its Tiananmen moments as South Korea did under its dictators. It may be true that a significant proportion of the population, perhaps many residing in privileged Pyongyang, buys into the propaganda. Perhaps others inside and outside Pyongyang just don’t know better beyond their misery. In the absence of alternative news and information, people can only believe the propaganda.

But the argument of collapse by regime hinges too much on the assumption that North Korea’s information border is hermetically sealed and that the indoctrination is complete. It rests too much on the assumption that North Koreans believe all the propaganda as if they are all simpletons. And it rests too much on the assumption that the North Korean state will be sufficiently weak and the people sufficiently strong enough at the early phases of any reform to effect regime collapse.

However, for almost a generation now, since the famines of the 1990s and maybe even as early as the late 1980s, DPRK has neither been a completely closed society nor a paradise. It is doubtful North Koreans are still ignorant of their wealthier cousins in the south. It is doubtful they don’t know the human rights violations of their government. Further, it is doubtful the state is so weak and the people can muster enough force to topple it, or whether they will even decide that that is the right thing to do. Let’s consider the counter arguments against collapse by reform.

First, the famines of the 1990s saw the breakdown of the Public Distribution System and likely much of the main street public security system (those directed at monitoring everyday life). With the end of the Cold War, Russian and Chinese subsidies dried up and along with it, the Eastern Bloc trade. The nuclear weapons issue and associated sanctions further worsened the circumstances in North Korea. The US and others did not expect Kim Jong Il to last long. Faced with an existential crisis, the Kim Jong Il government instituted the Songun Military First policy and pursued nuclear weapons at all costs (though achieving nuclear weapons were first envisioned by Kim Il Sung). If you recall, the US under Bill Clinton partly reneged on the Agreed Framework and George W. Bush labeled North Korea, along with Iraq,  an Axis of Evil state before invading Iraq. Most economic resources were transferred to the military and much of the working economy was taken over by the same. To sustain itself, the military also expropriated the meager food resources from the people.

As a result, combined with the dysfunctions of a command agricultural production, natural disasters, economic mismanagement, and a hostile international environment and an unfinished war, many North Koreans starved to death in what has been called the Arduous March. During the period, live or die, people abandoned factories and cooperative farms. They cultivated private lots. They started mom and pop businesses and traded in the markets. People streamed across the border into China to find food and work. Some brought back goods to sell and trade in  spontaneously organized markets. A class of North Korean and ethnic Korean-Chinese merchants (from the Chinese side) developed to trade goods between North Korea and China, bypassing the government’s broken Public Distribution System.

Something unique happened in the process. The many reports from DailyNK’s inside sources indicate that traders brought back more than basic necessities; they brought back South Korean music CDs, DVD dramas and movies, and electronic gadgets. The CDs, DVDs, and now USBs communicate a different world than suggested by propaganda, one with a great deal of material wealth. Over time, the clothes North Koreans wear have changed. Changed too are hair styles, eyelids (cosmetic surgery double-eyelids), music, and language. Teenagers intersperse their talk with South Korean slangs. In all this, it would have been impossible to ignore the relative prosperity of China and through China’s, the reality of the prosperity in South Korea.

Secondly, it is hard to believe that North Korean people are unaware of the strong tactics and gross human rights violations of their government. Revisit the life under the circumstances of the 1990s famine, life under sanctions, and life under the Military First Songun policy. The reason the government did not collapse has to do with the extensive security apparatus still remaining. The DPRK has a multi-layered security apparatus, which includes elite forces, the songbun political caste system, local informants, and an indigenous ideology. Further, it has an extensive network of labor camps and prisons where up to three generations can be put away to die. During Kim Jong Il’s rule, the prison population swelled. It is unlikely that most North Koreans don’t know someone who was made to disappear, don’t know about one-way tickets to the labor camps, and don’t know about the occasional public executions.

The flipside of control by ideological exhortation and indoctrination, after all, is control by force and the totalitarian state. Indoctrination yes. But where it fails, there are prisons and executions. More than ignorance keeping government in power, it is the relative strength of the state vs. the population. DPRK is not a house built on cards, it is a mountain fortress fortified with multiple stone bulwarks. The situation will sustain for some time to come, even through a prolonged period of reform, economic development, or liberalization. As the South Korean example demonstrates, political liberalization is a gradual process. As the Chinese example demonstrates, strong states can have much political resilience despite economic liberalization.

In addition, problematic historical pasts often do not represent impassable obstacles to the future. There are very few countries in the world, if any that have no problems historically. Even the US has multiple historical legacies and many current human rights concerns yet to be fully resolved. We live with that legacy with occasional discussions, recognitions, remembrances, revisions, ambiguity, and ambivalence. We talk about those concerns in our periodic political debates and elections. The same could be expected of North Korean history. History is very important. But for the people, it isn’t more important than the future.

What about the supposed elites frightened by the thought of reform, secure in their present privileges? To be sure there will be some who fear the uncertainties of reform as suggested by Andrei Lankov. But the power differential between Kim’s inner ruling circle and the privileged class is still vast. It was so vast that only hereditary succession was possible in the last two instances of leadership change. Besides, the elites may not be monolithic – meaning that there could be a diversity of interests among elites. And due to the breakdown of the Public Distribution system, even elites went hungry and had to find ways to supplement their income with the result that they also participated in the free markets.

Actually, those in government or the military are in the best position to benefit from the growth of the market (see also here). They thus may have great financial stakes in the burgeoning market based economy and will have great interest in any future reform. Without reform, their private business activities which may also interlace with their official functions would remain highly restricted, costly, and risky. Thus, many elites are unlikely to topple their government due to change but rather embrace change and look for more. This could be a push factor for future reforms. The changes we may be seeing in the DPRK today may be an attempt to catch up to elite expectations by the core leadership.

And just because South Korea exists across the border, it does not mean that that people can break down the DMZ and stream across. The DMZ may be the most heavily mined strip of real estate on the planet. Mindful of the costs of the German example, it  now appears to be South Korea’s official policy to pursue gradual unification. They will not encourage the North Koreans to overthrow their government. If there is a coup or collapse, they will not automatically dismantle the borders. The DMZ will remain in the short run, even if there were regime collapse and South Korea has to take over the management of the North.

Furthermore, US hardliners seem to ignore the fact that North Korea can’t collapse because they have a “get out of jail card” in Beijing. The US has multiple bases in South Korea. A sudden North Korean collapse and reunification by default with South Korea would mean that US bases might possibly spring up just across the Tumen River along the Chinese border. The US dagger on the mainland that South Korea represents then makes physical contact with China’s industrial northeast. Thus the PRC can’t permit North Korea to collapse. If collapse is imminent, China may do everything in its powers to replace it with a friendly government. Even if DPRK collapses, the PRC may not tolerate ROK-US forces crossing the DMZ to secure  North Korea. As a result, despite the UN and US sanctions inflicted on North Korea and the about face of South Korea under President Lee Myung Bak, Chinese trade and investment has kept North Korea propped up. Instead of conditions worsening under the sanctions, reports indicate improvement of conditions, at least in Pyongyang and the major cities, thanks in large part to Chinese trade and investment, and North Korea’s ability to export labor, mostly to China. The PRC won’t permit the DPRK to fail.

At the heels of China is Putin’s Russia. Russia is also likely to be unwilling to let DPRK collapse. After a hiatus since the Soviet breakup, Russia appears to have gained renewed interest in North Korea under a more confident Putin. Russia just wrote-off $10 billion in loans to DPRK and is enjoying a revival of trade relations. Though starting from a low position compared to China, trade between Russia and DPRK increased 50% in the first half of 2012 compared to the previous year. In both the lumber camps of Siberia and Eurasian cities, North Korean laborers also toil to send hard currency back to their country. Whilst the human rights issue is one of the bludgeon of the US against North Korea, such is not the case with the Russians or the Chinese. As with the US elsewhere human rights issues take the second seat to security concerns.

Finally, with the election of South Korea’s new President-elect Park Geunhye, President Lee Myung Bak’s policy is likely to be partially reversed with likely increased economic relations between DPRK and ROK, and thus further ensuring DPRK regime survival.

At this point, Kim Jong Un’s transition and DPRK’s future appears to be assured. Collapse by reform is unlikely. The regime should be somewhat durable against reform measures for some time. The bigger stumbling blocks may be the lack of a peace treaty with the US-ROK alliance and the inability of the DPRK to enact truly meaningful reform

The Arduous Winds of Reform

If anybody has reason to be skeptical about the prospects for economic reform in North Korea, it’s not the foreign hard liners: It’s the North Korean people. If anyone has seen it before, they have. More than any government reform, it is they who built the present market economy of North Korea from the period of the 1990s Arduous March when the Public Distribution System collapsed. Subsequent government policies were either belated recognitions of this marketization from the bottom (ala Marcus Noland and Stephan’s “marketization from below”) like the 7.1 Measures of 2002 or attempts to curtail their growth as in the government induced pull back in 2005 and again in the 2009 government currency redenomination fiasco. So you can’t blame the North Korean people for their skepticism and ambivalence as indicated by the high rates of inflation of 2012 and often expressed doubts in many reports by DailyNK and RFA (e.g., see here). Since the mid-1990s, they have seen it all. When they express doubt that the winds of change are the winds of reform, they might be right.

A market economy is driven by the efficient flow of people, materials, and information. In 2012, both China and North Korea cracked down on their border. China erected fences. North Korea replaced the guards and cracked down further on Chinese cell phone use. In turn, the DPRK has exported thousands of workers to China who are closely monitored and are likely paid only a portion of their wages. (Image source: The Telegraph)

Indeed just as there is a preponderance of evidence for reform in the past year, one could just as well find a preponderance of evidence for lack of one. In fact it sometimes appears that North Korea is actually engaged in a reform in reverse. Even as they proclaim a new economic system in their own style, they continue to engage in policies contradictory to the development of a market based economy. Perhaps this is what it really means to have an “economic management system in their own style?”

Consider the evidence against reform:

* The free movement of people and goods domestically and internationally is important to market driven economic development, but it remains highly restricted. Even before the 6.28 Measures were announced, there were reports of renewed crackdown on the North Korean-Chinese border. DPRK replaced the guard detail. The Chinese stepped up their detentions and deportations of migrants and defectors, persecuted South Korean NGOs who help defectors on the underground network, and electrified certain portions of the border. As a result, the number of defectors sharply declined. Most likely both informal smuggler activity and informal migrant worker traffic also declined.

* DPRK stepped up controlled migration, particularly in the form of labor exports to work camps and factories in China and Russia, and restaurants elsewhere. There is nothing wrong with travel abroad for work, but once in foreign lands, these workers live in isolated facilities and are closely monitored. Wages are reportedly partly garnered until end of each month or at the end of the tour and paid with significant portions deducted by the state. It might be the case that as in Kaesong, the state keeps the hard earned foreign currency and pays the workers in kind and in DPRK currency.

* For the bulk of the North Korean population, Pyongyang remains as distant from the rest of DPRK as is the fabled city of Oz to the rest of Kansas. People’s ability to move between villages, cities, and provinces remain limited, requiring permits, passes, and bribes. The Korean Workers’ Party still has authority over work assignments. And nothing appears to have been said in the past year by DPRK about the political apartheid songbun system nor about their barbaric three-generation political prison system.

* Fee flow of information is vital to market driven economic development. Information permits people to upgrade their productivity, plan their marketing, and make proper investment decisions. One of the purpose behind the crackdown on the border is to discourage the import and dissemination of South Korean cultural products like songs, dramas, and movies via CDs, DVDs, and USBs; all of these had partly resulted in economic boosting changes in life styles. Reports by DailyNK and RFA indicate that special investigative squads like the “Gruppa 109″ are conducting searches and interrogations in an effort to discourage their consumption (see for example here).

* There is a crackdown on cross-border cell phone use. RFA reports that North Koreans caught using Chinese cell phones along the border face seven years in jail. For communicating with someone in South Korea, the charge is reportedly espionage. Cell phones were valuable means of not only communicating with loved ones but also obtaining foreign currency (e.g., through remissions from defectors to their families) and conducting cross border business.

* Official news in North Korea like KCNA and Rodong remains almost solely devoted to propaganda and lack much factual economic news or otherwise. The government still doesn’t give interviews and foreign journalists are highly restricted.

* The world wide web is serving as the information store of civilization and purveyor of quick news. Thus, freeing up the country’s access to the world wide web would be a tremendous boon to the people’s access to the latest (and the worst) economic information. But for a country of about 25 million, only a few dozen top officials have access. Reportedly, there is only one IP address for the entire Pyongyang University of Science and Technology. There is one cyber cafe and only one internet service provider that provide access not to the WWW but an intranet that is firewalled from the rest of the world. On top of the wish list of foreigners in the Special Economic Zones like Kaesong is unfettered internet access and international cell phone communication, without which foreign participation and the value of SEZs may continue to be limited.

* Private property is one of the bulwarks of a market oriented economy. The ability to call something one’s own and the ability to keep the products of one’s labor and the profits of one’s investments are great incentives to work harder and invest more. But while there is much anticipation surrounding the 6.28 Measures, the government is also cracking down on privately tended plots of land. DailyNK reports, “The North Korean authorities are attempting to bring privately farmed land in and around existing cooperative farms back under the control of the state.” Many refugee defectors and analysts agree that the agricultural measures may not succeed due to attacks on private lots and insufficient privatization of cooperatives.

* Officials appear to be discouraging private non-farm activities. The DailyNK reports, “[T]he authorities are seeking to curtail the practice of paying bribes to obtain medical certificates that permit an individual to excuse themselves from labor on farms or in factories.” This sort of free time along with the August 3rd Measure was often used to obtain the time to pursue private farming or business ventures like the informal trade with China (including the black market) to supplement meager state pay and rations.

* The bulk of the economy remains state dominated and in state control with the markets still marginal. For example, nothing in the 6.28 Measures reported so far specifies whether cooperatives are permitted to compete each other into extinction or grow according to their abilities. Personnel assignments and changes are reportedly still to be handled by the Korean Workers’ Party.  Issues of monopolies and competition are not addressed and neither is the promotion of entrepreneurship, though some reports indicate certain small service businesses will be recognized and permitted.

* Military participation in the economy appears to remain strong, most notably evidenced by the many construction projects undertaken and completed by the military as shown on many KCNA reports.

* Trading in Chinese sourced goods and surplus domestic produce in the markets play an essential role in providing for the daily necessities in North Korea. Instead of expanding the markets, the DPRK continues to put up new obstacles. In the past, age limit was imposed. One recent change reported by inside sources is to institute stall-sharing arrangements.

* There is a lack of established and competitive supplier markets which the government seems to be either monopolizing or leaving to the black markets.

* Foreign direct investment is also almost entirely state driven and dominated. The case of Xiyang demonstrates the inefficiency of current arrangements. When push comes to shove, foreign firms may end up with lower bargaining powers when the state firm has the full backing of the state, the police, and the military. It may not be farfetched to imagine that if not careful, this could create a crisis if the foreign firm should bring the full backing of the foreign state and military at their service. Due to a lack of contract law and independent adjudicating institutions, foreign companies may not expect to capture the full benefit of their investments as envisioned in the original contracts. They may not expect the North Koreans to honor the contracts or be assured of a meaningful recourse should their North Korean partners make unreasonable demands beyond the scope of the contracts. In order to overcome this exposure to risk by foreign firms, the DPRK must guarantee higher returns to the foreign firms than otherwise necessary on top of the premium they have to pay anyway due to the security issues surrounding the peninsula.

* Today the market economy is global. It is not only a source for markets but also essential for the import of the latest technologies, managerial know-how, and capital. However, DPRK’s international security environment is still not conducive to wide ranging economic cooperation. Near the 60th anniversary of the Armistice, a peace treaty is still missing. The nuclear weapons and long range rocket issues remain unresolved. US and UN sanctions remain in place, though South Korea’s president elect Park Geunhye appears ready to loosen some economic cooperation. US and ROK continue their provocative military exercises. And NK continues to spew irresponsible rhetoric threatening to turn Seoul into a “sea of fire” and name calling leading ROK leaders and their American ally.

* The life blood of modern market economy is capital and the veins and vessels of the economy is a viable monetary system. In the past year, there has been no word from Pyongyang about reviving the domestic currency. After the currency fiasco of 2009, the Chinese and US currencies gained prominence. Today, most market exchanges are reportedly conducted in these currencies, including transfers of real property (e.g., apartments and homes). Having a national economy dependent on foreign currency is a very un-juche-esque outcome. A monetary policy tool chest is just as important as the fiscal policy tool chest for developing and managing the market based national economy. Literally, with the stroke of the pen, DPRK denied itself great advantages that flow from having your own currency – such as the ability to pursue monetary policy, manage public debt, manage inflation, and create public wealth virtually out of thin air on the back of an expanding economy.

* The DPRK leadership has not sent a clear signal that it really wants all out economic reform, let alone economic development. Kim Jong Un, who has visited a lot more amusement parks, fitness centers, and military installations than cooperatives or factories, is not Deng Xiaoping. Arguably, through a few quotable speeches, he has only paid lip service to market oriented reforms and market driven economic development. Nothing he has said is as radical as Deng’s “To be rich is glorious.” The Supreme People’s Assembly (SPA) met in September 25 with great anticipation of the formalization of the 6.28 Measures or even as far as the creation of a government bureau dedicated to economic reform. But the SPA failed to pass or endorse anything except to extend the school year and create a two track high school system. When October came, there was suddenly silence about 6.28 Measures and economic reform except something said about bad harvests delaying their implementation until 2013.

One might explain these contradictory policies by saying that the authorities may be trying to increase the chances of success of some economic reform measures. The government may be trying to keep the economy under control and develop it in “their own” way – trying to achieve a controlled landing instead of crash landing. However, it is doubtful that these contradictory policies are part of such a complex coordinated process. As indicated above, DPRK’s reputation for economic management is abysmal due in part to it not being a priority. In comparison to the short period in which West Germany engulfed East Germany, in which the Chinese economy rose rapidly during the post-Mao generation, and in which the Vietnamese Doi Moi economy picked up steam in the last decade, the DPRK has forgone much economic development in favor of regime survival since the end of the Cold War. If there is reform, for the people, it is an extended and arduous one. It is an elusive one. It may be impossible.

A Strong and Prosperous Nation Through Creative Destruction

In market driven economic development, public institutions such as government agencies and laws provide the proper regulatory framework, or infrastructure if you will, to nurture business growth, promote competition and innovation, recognize and protect private property, fairly adjudicate contract disputes, and sometimes provide leadership and support to fledging industries or to a flagging economy. Despite the claims of the prevailing neoliberal ideology, markets actually do not operate in a vacuum unencumbered of the state and other institutions of society. There is no such thing as unregulated free markets. That is because the modern markets cannot exist without the state to develop, maintain, and protect the regulatory infrastructure upon which they exist. Markets can exist in primitive societies, but not to the scale and productivity of modern markets enabled by this state regulatory framework. In short, modern markets are a human construction best left to the state to manage on behalf of common interests (international markets are regulated by international and bilateral treaties and agreement).

Photo caption: Free markets that stand alone unregulated does not exist, particularly in modern economies. Where free markets do exist, they exist within the boundaries defined by the regulatory and institutional framework of a given society. (Image source: Wikipedia.org)

In late developing economies, states usually do more. They engage in policies to promote proactive and reactive innovation, growth, and development. They have the ability to shape how the markets work as in advanced countries but more importantly, they have the responsibility to shape how it evolves. Proactively, they play a big role in encouraging the formation of entrepreneurial ventures, promoting local businesses and industrial sectors deemed to be nationally strategic, protecting them from international competition, nourishing their growth (with subsidies, training, and other assistance), teach them how to compete, and finally slowly prod them to compete with the best of the international corporations on their own. Developing countries also participate a great deal in the economy through state owned enterprises that provide services and goods vital to national and public interests but for which domestic producers are yet unable or unwilling to provide. The best state owned enterprises compete with the best international corporations. By stages, the state plays a large part in re-engineering the domestic market from one of infant industry promotion into sophisticated world class competitors. Domestic firms are proactively given a leg up in their growth phase but then as they near maturity, resources and protections are taken away to induce them to reactively compete unsupported with the best the world as to offer and thereby bring competitive (as opposed to comparative) advantage to the nation.

Photo caption: Economic growth is generally logarithmic but occasionally stochastic. Due to this nature, the gap in performance between more productive economies vs. less, increases over time. This has long term consequences for the sustainability of governments whose economies and institutions are less competitive. (Data source: OECD)

While a strong state relies on a dynamic market for resources and vital technology, the strong dynamic market is reliant on a strong state with robust institutions to frame its activities. While the modern state and markets are separate, they are thus codependent. By contrast, in North Korea, there is very little divide between the state and the markets. In the socialist DPRK, it could be argued that the state is the monopolist, sole entrepreneur, and as such intolerant of private or independent competition. That is, instead of being the neutral promoter, arbiter, and manager of the market or instead of focusing on the framework for nourishing the market, the state appears to dominate the markets – giving itself sole licenses, subsidies, and market protections. If a multinational (MNC) forms a joint venture with a North Korean enterprise, that enterprise is not an independent entity like the MNC but in effect a bureau of the government of the DPRK. As well, the state enterprises and cooperatives are in effect largely divisions of the monolithic conglomerate, with the Kims as paramount CEO.

There is no separation of markets and the state so vital to the functioning of the modern market economy (this is increasing also the problem in developed economies like the US where concentrated wealth and industry combined with loose campaign finance and lobbying rules permit the most privileged market players to reshape the state regulatory framework to their advantage, thus warping market efficiency). To the extent private markets do exist, the state looks at it with suspicion and hostility. So aside from the black markets and the jangmadangs where private businesses operate in the peripheries and the shadows of the official economy, markets and competition is highly constrained. Given state suspicion and hostility while competition may be intense in some ways in the black markets and jangmadangs, the competition and market growth are also greatly muffled, with market participants cautious of upsetting the state. Lacking a strong and robust market driven sector, the North Korean economy forgoes and will continue to forgo the most important strengths of market economies: This is the discipline competitive markets enforce on its members who have the freedom to excel as well as to fail. Long term, this competitive process yields the great benefits of efficiency and technological innovation which Joseph Schumpeter called “creative destruction,” far superior than what any socialist or monolithic economy like the DPRK of today and the USSR and PRC of the past can deliver. Whilst, the economies of USSR, PRC, and the DPRK excelled in the early years of their rule under proactive policies of socialist planning, elimination of market competition meant that reactive innovation did not ensue so that over time, they failed to keep up with the innovations and advances taking place in the market economies of the west. Technological and scientific knowledge builds upon itself so that initial advantages become greater over time with the effect that the socialist economies fell further and further behind over the span of a few decades in the 20th century. The USSR and PRC corrected themselves by reintroducing markets. The DPRK hasn’t yet embraced markets like these two larger countries.

The political economy of DPRK is akin to the “natural state” (see Douglass C. North, John Joseph Wallis, and Barry R. Weingast), an artifact of feudal human history such as during the age of kings where personal relations are paramount in economic and political governance. The primary driver of the political economy is the monopolization of political and economic resources between and among a small group of elites that make up the ruling coalition, led by the top elites at the core and the patron elites in the periphery. The coalition has exclusive membership with limited entry. It also has exclusive coercive power over the resources of the country including those outside the coalition. The latter group is without economic or political powers and accorded limited if impossible opportunities. The situation is often transmitted inter-generationally. As well, the DPRK political economy is also akin to the “extractive state” (see “Why Nations Fail” by Daron Acemoglu and James Robinson), where elites similarly monopolize everything and extract resources from the population while the rest of the society remains marginalized politically and economically. Both political and economic freedoms are highly constrained for the have-nots. Social mobility here is also severely restricted. So are markets and economic competition.  As a result, conditions do not exist to promote technological innovation and economic growth. Without creative destruction, the economy stagnates and falls behind more agile economies over time.

The blueprint and the roadmap out of the wilderness is fairly clear. South Korea, Taiwan, Singapore, Japan, and the UK and USA too went through similar industrialization and marketization processes. In fact, most modern advanced market economies followed similar paths toward industrialization and market driven economic development though developed countries (particularly the US) then promote neoliberalism from their current advantages (see Bad Samaritans by the Cambridge heterodox economist, Ha Joon Chang). But the undertaking, if it is to be done within a generation or so, takes a great deal of discipline, patience, dexterity, knowledge, and investment. While the blueprint and roadmap is clear, the actual path is not fixed in stone, road conditions differ, and the weather can be fickle. That is why late developing societies often favor or give rise to authoritarian states; expertise, capabilities, and resources are scarce while the specific route is not set in stone. Ideologies, personalities, and cliques are often promoted to justify such centralization of power. While you have to be careful about the resource curse (a situation where the ruling clique robs a country of resource wealth in partnership with foreign corporations while doing nothing to benefit the people), if the state is sufficiently disciplined and capable, rapid development can be obtained while demand for pluralism is addressed at later stages of development.

Somehow Pyongyang has to follow suit. DPRK already has a strong state that is highly disciplined and in certain respects highly capable. DPRK must transition its cooperative and state enterprises into independent world class competitors either as state owned but independent firms liable to fail or succeed or as wholly owned private firms. In some cases, state ownership may be sustained but most may be spun off as private cooperatives or wholly owned private enterprises that can further develop to compete internationally. DPRK needs to create the institutional and regulatory framework to permit  firms to obtain substantial growth and become effective competitors in the world economy. In short, a dynamic, innovative, and competitive market economy is the surest way to a strong and prosperous state, not going after one white elephant project after another.

New gleaming apartment blocks or fitness centers, a simplified local computer operating system, a Disney show, an auto assembly plant, and even a satellite launch – they are nice trophies copied from abroad and good learning experiences, but to really go beyond current knowledge beyond the best internationally, you need truly competitive industries and a regulatory framework that is able to bring about creative destruction one generation after another in one industrial sector after another and yet still have the macro-economy remain robust and open. To do this you need an economy with capabilities disseminated throughout the society, not just concentrated among an elite core or an oligarchy. You need the economic and cultural environment that both nourishes capabilities and promotes fierce competition. You need an open system that provides great opportunities domestically and that scours the globe for best practices, makes them yours, and eventually develop and export your own. This is the shape and form of a real economic reform. Once again, there is not much evidence to suggest that planners in Pyongyang are seriously thinking along this line. What is holding them back?

Regime Adaptation: Rewriting the Logic of the Personality Cult

The hard liners and the most cynical observers may be correct after all: There is something about the DPRK regime that inhibits it from liberalizing the economy. But it may not be what many think it is. In the end, what is inhibiting reform is not the threat of revealed facts concerning the prosperity of the outside world, the secrets surrounding the existence of political prisons or human rights abuses, the existence of ROK south of the border, or even North Korean socialism. It is the incompatibility of the North Korean personality cult with modern advanced market economics that is the greatest obstacle. The Kim family has exhorted socialism, juche self-determinism, and the cult of the heroic family on the one hand, while they have used the tools of the totalitarian state to occupy the mental and physical lives of the people. The personality cult is above the law and demands undivided loyalty. It is a law onto itself, contrary to certain legal and institutional preconditions for the growth of large complex markets which prefer competition under clearly defined rules. The personality cult also does not tolerate social experimentation – it does not tolerate competing ideas or even seemingly inane expressions of self interest which are inherent components of market processes. Thus, without reworking the logic of the personality cult, a North Korean market economy may not become a reality.

Many analysts agree that there is no doubt that North Korea has to enact certain political and legal institutional reforms if it is to acquire a genuine market driven economic development. Darren C. Zook, of University of California at Berkeley, in a paper entitled Reforming North Korea: Law, Politics, and the Market Economy writes:

It is argued here that no program of political or economic reform can succeed without a simultaneous restructuring of the North Korean legal system, and that current initiatives toward legal reform in North Korea, in their domestic and international context, are insufficiently integrated to support a successful and sustainable political or economic transition. In other words, legal reform, far more than political or economic reform, may be the most important factor in ensuring North Korea’s domestic stability and international reintegration.

Because of the inability of the DPRK regime to do so, economic reform process going back to Kim Jong Il has not been linear or steady, but consisting of fits and starts, pull backs, and belated accommodations to extreme international and domestic realities. Brian Myers, an associate professor and chair of the international studies department at Dongseo University in Busan observes:

For fifteen years now the regime has been trying desperately to reconcile economic change with political changelessness. And the virtual impossibility of that task means we will continue seeing people get purged and reinstated, policies stopping and starting.

Thus, despite the anticipation for economic reform measures surrounding the young Kim Jong Un, the possibility exists that nothing of significance may come of it. The changes that do become realized may be only slight and superficial, just sufficient to satisfy popular expectations and foreign demands. He may liberalize and reform the economy, in only so far as to secure resources to ensure the survival of the regime. Under the current logic of the personality cult, genuine market oriented reforms are indeed impossible. Considering the hardship faced by the North Korean people in the past two decades and the opportunity costs  will continue to be devastating. For the continued viability of the DPRK and Kim Jong Un’s legacy, business as usual would be great mistake.

Photo caption: Opportunity cost is difficult to measure. One method is to measures proxies like the difference in the amount of night time light emitted by ROK vs. DPRK. The case of East Asian countries, however, show that economies can catch up relatively quickly, once the leadership is committed to market oriented development. (Image source: NASA)

As the case of China and Vietnam shows, economic reforms and development do not have to come at the expense of a strong government or socialistic principles. These two countries represent cases where they have or are making positive transitions to market oriented economies with strong governments in place while retaining many socialistic policies. Socialism does not necessarily have to be incompatible with capitalism, market economics, or with democratic principles for that matter. The US for example has a robust socialist sector which we don’t call “socialism” but the “public sector” due to the word “socialist” being politically taboo for its association with totalitarian and dictatorial states. Actually, a robust public or socialist sector is a required part of most advanced market economies because while the markets are terrific in doing many things, they cannot effectively fulfill all of the society’s priorities. The public-socialist sector is more pronounced in most economically advanced liberal market democracies, particularly among western and northern Europe states. Indeed, the framework under which markets are regulated and which is defined by the overall composition of the economy itself is really a socialistic enterprise, the domain of commons. Further, markets populated by private actors not only depend on state infrastructure to exist, as well they require certain welfare and regulatory policies to ameliorate complications that disrupt the proper functioning of the markets like extreme income and wealth concentrations, extreme industry concentrations, pollution, resource depletion, natural disasters, externalities, economic cycles, bad faith, moral hazards, etc. Modern “capitalist” economies rebalance the markets often through the socialistic regulatory and welfare policies and institutions. All modern market economies are thus mixed capitalist-socialist economies.

The socialistic aspects of the modern advanced market economies include urban planning, infrastructure investments, rules and regulations concerning business conduct, law and order, defense, justice, welfare, etc. – all those aspects necessary for the improvement and promotion of the commons which include the markets. Private participants operate within the framework thus established. (Image source: Songdo SEZ Master Plan, South Korea)

As well, personality cults per se really should not have to be incompatible with market economies. After all, capitalist China has  Mao Zedong and Doi Moi Vietnam has Ho Chi Minh. And too Capitalist economies are awash in religions, cults, monarchies, celebrity personalities, and iconic leaders. But the personality cult of Kim Il Sung is different. The Kim Il Sung cult is much stronger and more thoroughly ingrained in the society than that of Mao Zedong and Ho Chi Minh. In the case of Vietnam, Ho Chi Minh did not develop the kind of elevated and lethal personality cult that Kim Il Sung did. Mao Zedong had a strong personality cult like Kim Il Sung in the early years but was largely discredited by the devastations brought by the Great Leap Forward and the Cultural Revolution.

But there are two reasons by Kim Il Sung developed a much stronger and thoroughly ingrained personality cult than Mao Zedong or Ho Chi Minh:

The first is that while Mao Zedong offered a Marxist criticism of Confucianism, Kim Il Sung embraced Confucianism and established a feudal monarchy of sorts complete with intergenerational transfers of power. As a method of political control, he instituted a political class system called songbun which in effect duplicated the class structure of feudal Korea. The political elites in Pyongyang (present day yangban) enjoy great privileges at the expense of the rest of the population. North Korea’s political apartheid system, like in feudal Korea, discriminates against three generations of political outcasts and pegs opportunities and official positions to family blood ties. As in feudal Korea, ideological purity is emphasized and there is little toleration for competing ideologies, religions, or extraneous ideas. Commerce is looked upon with suspicion and highly restricted, limited domestically and internationally. And as in Confucian China and Korea, xenophobic ethnocentrism is elevated as a moral force. Even among elites, political hierarchy and unequal status is pervasive with the right of individuals almost non-existent for the sake of the nation, which under the personality cult has come to be identified with Kim Il Sung.

The second reason that the Kim Il Sung cult is so much stronger and ingrained than the cults of Mao Zedong and Ho Chi Minh is the unfinished Korean War and lingering division. The Chinese and Vietnamese liberation wars had definite endings while North Korea is still technically at war. The former wars ended in the unification in the respective countries while the Korean peninsula remains divided (True, Taiwan remained independent but the Chinese mainland was unified). The past 60 years of armistice has not been entirely peaceful. There were occasional skirmishes and some killings in and around the DMZ and the NLL (Northern Limit Line). The US and ROK hold annual massive military exercises at DPRK’s border. Because technically the war is still on, because of continuing hostility between the sides, and because of the way domestic actors have reacted to it, the Kim personality cult became fused with nationalism and national survival over the decades. Thus, while the Great Leap Forward and the Cultural Revolution undermined Mao Zedong’s cult, North Korea’s Arduous March appears not to have damaged the Kim Il Sung cult to the same extent ensuring that Kim Jong Un’s succession is fairly smooth. Indeed to their population, the DPRK government appears to have successfully put the blame on the US-ROK alliance and their sanctions. US-ROK hostility works to strengthen the personality cult and as many analysts often point out, the regime may even provoke hostility to promote its legitimacy. Thus, both the US-ROK alliance and the DPRK regime depend on the politics of division and calls for unification to legitimate themselves with the result that the actual division of the peninsula is perpetuated and the actual unification is delayed.

Massive US-ROK military exercises are held annually ostensibly directed at North Korea. (Image source: AP)

If Kim Jong Un wishes to sustain his father’s and grandfather’s legacies and promote economic growth long term, he has to come to grips with this issue of coexistence of the personality cult with the future North Korean market economy. If Kim Jong Un is serious about obtaining a self-sustaining market oriented economic development and hold on to power as well, he needs to focus on institutional reforms including refashioning the personality cult to suit market dynamics. This cannot be stressed enough. The most crucial challenge for the prospect for market oriented economic development in North Korea then may be the place of the Kim personality cult in a modern market economy. Though a significant challenge, that is the only way for Kim Jong Un to achieve a strong and prosperous nation and avoid collapse, a revolution, or obsolescence.

This iconic picture of the Arduous March is widely found on the internet. Western hard liners argue that these children are not only the victims natural disasters but also partly of state choice, putting responsibility squarely on the government and use this to demonize Kim Jong Il and DPRK. They don’t mention that these children are also war victims as much as victims of mismanagement as DPRK is still technically at war with the US-ROK alliance. The food situation is reportedly much improved today but North Korea still receives foreign assistance.

If the political system is not to be replaced, it must undergo certain reforms that expand legal rights vital to the functioning of the market economy. This may mean that the personality cult must become in part parliamentized, modified or relieved of its totalitarian aspects. DPRK must expand the space in which citizens can pursue private interest, cultural and economic, within the boundaries of the society’s regulatory framework. This might ensure that historically, the Kim Dynasty does not end up like Czar Nicholas of Russia but end up like the Tudors of England or even the emperor of Japan, still highly revered and symbolic for all their achievements but no longer monopolizing the politics, economics, and everyday lives of the people.

If political reforms must necessarily wait, a middle road would be to transition into a developmental authoritarian state with some basic institutional reforms directed at the economy similar to China’s experiment today and South Korea’s past. First, they could create government bureaus dedicated to policy making, regulatory control, standards and benchmarking, information acquisition and dissemination (scientific and economic), trade and industry, banking and finance, trade promotion abroad, etc. This would send a clear message both at home and abroad that the country is serious about economic reform. Second, DPRK could create uniform commercial codes, develop an independent and transparent judiciary, standardize the interpretation and adjudication of laws, recognize and protect private gains, and treat state, elite, and private interests equally under some commercial codes on economic matters. Third, DPRK could pursue a peaceful solution to its security needs preferably with a peace treaty, improve human rights (eliminating songbun and political prisons), and resolve the nuclear weapons issue.

But aside from possibly limiting the economic involvement of the military, little meaningful institutional changes have appeared. Outside the country, views vacillate between the two extremes of regime continuity or regime collapse; they ignore the third possibility: regime adaptation. Inside the country, due to a lack of peace treaty and a hyper militarized state, imagination and courage to pursue a third way may be lacking. Thus uncertainty which is accompanied with real costs is rampant. Fear and uncertainty of the future highly discounts any initiatives, limit progress, and increase the chance that the government will retreat back to the status quo to resume its slow decay or continue its lingering stagnation. Then the 6.28 Measures will go by the way of the 7.1. Will 2016 be the year DPRK once again pulls back?

Eventually, the North Korean government and the people may indeed muddle through (see Marcus Noland’s “Why North Korea Will Muddle Through”) or muddle along. Unwilling and unable to embrace real change muddling along may be the best they can do in the face of international sanctions, US embargo,  US-ROK hostility, and limited local capabilities while being supported by the Chinese, the Russians, and to a limited extent, ROK too. In the best case scenario, they may hit the ground running like a novice bicyclist – wobbling and veering in the beginning before getting used to it. In this way, a full-fledged reform that includes some political liberalization may result in time. Before you know it, we may realize that DPRK is an entirely different sort of country than the one left by Kim Jong Il. A few years from now, if they do not coward back or collapse, we may see a new DPRK, a post-totalitarian state, an authoritarian developmental state like China, Vietnam, and South Korea’s past – but one in their own style – one with Kim Jong Un as their charismatic semi-cultish leader but a country now more open to foreign ideas, religions, and philosophies as well as domestic criticism and incremental change. And eventually the US-ROK alliance may recognize its right to exist, conclude a peace treaty, and provide security guarantees in exchange for a nuclear freeze, laying the ground work for later rapid economic growth.

Alternatively, it is possible that Kim Jong Un may fall off the crumbling podium, unable to evolve and adapt the personality cult to new economic realities. With meek reform measures, the  domestic market economy may max out at a certain point. This may be sufficient to permit a coalition to form out of the new commercial elites of North Korea made up of those in the military and the Korean Workers’ Party with deep stakes in the growing markets and state enterprises. They may promise the North Korean people to do the job Kim Jong Un could not: Create a strong and prosperous nation, but one that is more liberal and open and at peace.

Copyright 2013 Charles Park, All Rights Reserved
[email protected]

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About the Author

Charles K. Park

Charles K. Park has a Bachelors degree in Political Economy of Industrial Societies (PEIS) from UC Berkeley and a Masters in Pacific and International Affairs (MPIA) degree from UC San Diego. He has also done some graduate work in Business Organization and Strategy at the University of Connecticut. On his spare time he maintains the Facebook page: North Korea Economic Development. [email protected]

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