One of the oft-repeated statements North Korea watchers have grown accustomed to hearing is that “sanctions will soon start to bite.”

These words have been heard countless times since the first – rather toothless – round of UN measures in 2006, and so far they have been consistently proven wrong: the period when North Korea has faced the strongest UN sanctions has also been the time when its economy has grown faster than at any point in the last 40 years.

However, Resolution 2375, passed in September, might be a game changer. What the resolution says is not that important: we have seen how earlier resolutions have failed to deliver any impact.

What might make things different now is the position of Beijing, whose quiet sabotage has rendered previous sanctions toothless. Now, for a number of reasons, China has decided to get tough on North Korea, so we should expect that Resolution 2375 will be implemented in full – for some time, at least.

HITTING THE NEW MIDDLE CLASS

However, a look at Resolution 2375 suggests that, if implemented consistently and in full, it has a potential to deliver a serious blow not only to the North Korean economy but also to emerging market forces within DPRK society.

Among its likely victims are the social groups which are leaders of North Korea’s quiet and underappreciated social transformation.

What is new about Resolution 2375? Among other measures, it includes bans on the imports of North Korean seafood and mineral products (including coal), as well as a ban on textile exports. It also introduces a partial ban on the use of North Korean migrant workers.

The likely victims are social groups which are leaders of North Korea’s quiet and underappreciated social transformation

These new targets have one thing in common: they are largely produced by nascent private businesses inside North Korea. The implementation of Resolution 2375 will deliver a serious blow to the emerging market economy, as well as to the more dynamic and flexible state-owned enterprises.

Among the people who are going to be hit hardest are also North Koreans employed by the new private and semi-private enterprises – that is, the most entrepreneurial, hard-working, and socially independent part of the population.

Let’s start with the fishing industry. Judging by the research myself and Peter Ward have been doing, state-owned enterprises ceased to play any significant role in these businesses long ago.

The first privately-owned fishing boats began to ply the seas around the Korean peninsula in the late 1980s, that is, in the final days of Kim Il Sung’s rule when the country economy was still a textbook example of Leninist central planning.

By the mid-1990s, however, state-owned fishing companies ceased to operate almost entirely, and much of the fishing came to be done by private operators.

They registered their boats as the property of state-owned foreign trade companies or other government enterprises, but this process was nothing but a useful fiction.

China has decided to get tough on North Korea, so we should expect that Resolution 2375 will be implemented in full

Their relationship with the state is largely limited to paying in-kind tax, which usually amounts to roughly one-third of their actual income. Their catch is then overwhelmingly sold to China through a network of brokers and go-betweens.

SMALL BUSINESSES

A somewhat similar situation exists in the textile and light industry.

From the late 1990s, North Koreans began to produce garments and footwear for their own consumption at small private workshops, and from the early 2000s, a number of newly-rich North Korean investors discovered that they could make good money by investing in semi-defunct state-owned factories and then selling the textiles, footwear, and garments to China.

Many Chinese companies also began to outsource to North Korea around the same time, attracted by the cheapness of North Korean labor – now North Korean wages are roughly 15-20% of those in China.

The owners and managers of such companies frequently used their family ties with the North Koreans (most of the Chinese managers and entrepreneurs were ethnic Koreans). These connections and the insider knowledge provided by relatives allowed them to establish light industry enterprises in North Korea.

Usually, they operated in areas close to the Chinese border, where a significant part of the population had family ties with China, and where logistical problems are less challenging.

Many people suspect that trade in minerals must be state-controlled in a society like North Korea, but this is not always the case.

From the days of the Arduous March, that is, from the late 1990s, a number of the newly rich North Korean entrepreneurs have been investing in small mines – usually mines producing coal or gold.

Normally, an investor made a deal with a foreign trade company, and, as is customary in North Korea, used this official cover to launch what essentially was a private business. The foreign trade company usually had a waku, an export license, and used it to sell coal or gold.

In some cases, gold mine operators were willing to take significant risks and arrange semi-legal sales of gold dust to Chinese partners. Low-quality coal, however, was sold domestically.

State-owned enterprises ceased to play any significant role in these businesses long ago.

MIGRANT LABOR RESTRICTIONS

Finally, one should mention the restrictions on the use of North Korean workers introduced by Resolution 2375. Contrary to the oft-repeated cliché of “modern-day slave labor,” North Koreans go to great lengths to be selected to work overseas.

While conditions at construction sites and seafood-processing plants are awful by the standards of the developed world, they are still better than conditions in the average factory inside North Korea.

Workers’ wages, even after a large part is deducted by state officials, are far better than the pay they can realistically receive at even the best domestic enterprise.

This means that work overseas is hugely attractive: one has to have good connections, skills, and the ability to pay a bribe in order to be selected for such a trip. It means that people working overseas (80-100,000 at any given moment) also tend to be a determined and entrepreneurial bunch.

The consistent implementation of the Resolution 2375 is likely to hit the industries where the private capital is most prominent. Thousands of boat owners will see their businesses go bankrupt, since without sales to China most of their operations are unsustainable.

Small and mid-size private coal and gold mines will likely go out of business, too, as well as a number of garment factories.

In essence, Resolution 2375 is going to deliver a massive blow to the emerging North Korean capitalism, since it targets, essentially, the three industries where it has most substantially developed.

Of course, the impact will be felt not only by entrepreneurs but by their workers, who will become unemployed in the next few months. North Korea has no social security, so malnourishment will become a real concern for many.

The same is applicable to the workers who are sent back from overseas, who will have no chance to go back to what are, in reality, dream jobs.  

People working overseas also tend to be a determined and entrepreneurial bunch

If one includes family members in the calculation, we are talking the hundreds of thousands, if not millions, of people. These people, as we have mentioned before, tend to be the most independent-minded of all North Koreans and they also tend to be critical of the Kim regime and its ossified ideology and red tape.

On the one hand, these people may become restive and begin challenging the authorities. Compared to workers in the state sector or the countless women employed in the retail and service industries, these people are more likely to take action, including of a revolutionary nature.

One sometimes wonders whether this is the real goal of those who supported the new sanctions.

However, one should not bet that sanctions will bring about a North Korean revolution – even if one believes that such a revolution, violent, bloody, and wrought with geopolitical dangers, is essentially a good thing (a dubious idea).

It seems more likely that the government will prevail, that resistance will remain localized or invisible, and most of these people will suffer in silence.

It remains to be seen whether the Resolution 2375 is going to deliver a blow to the regime, but one can be certain it will seriously undermine the nascent North Korean private sector – making the lives of North Korea’s best workers far more difficult.

Edited by Oliver Hotham