They paint a vivid picture of an economy in a halting transition:
* For better or for worse, loan sharks who trade in currency and their connections to the regime have become an important part of the new economy.
* How businessmen make donations to regime projects to buy indulgences — letters of appreciation — from the regime, and use them as amulets against its enforcers of dependency.
* The decay of the Public Distribution System (PDS) continues to progress. Teachers has been among the most favored recipients of state rations until recently. Now, they moonlight as traders in the jangmadang to get by. Who in North Korea still lives on the PDS? From what I’ve read recently, it seems to be going the way of the pay phone, even in Pyongyang.
* There is also a fascinating report about the Ryugyong Corporation, which controls North Korea’s illicit drug business at all levels of vertical integration. The report paints a surprisingly nuanced view of how Kim Jong Il would control these illicit activities overseas. There was more negotiation and less outright coercion than I would have thought, and the report seems credible and well-sourced, although the estimate of “tens of thousands” of dollars a year seems implausibly low.
If I’m sitting in Pyongyang right now — and also, if I’m a malignant narcissist with a bloated army — I’m thinking the people who voted this way must be punished. One sense of ill foreboding has been replaced by another.
So is it time for me to update my masthead image yet? Things have hardly changed in nearly 20 years. Aside from the fact that there are more lights on some parts of the Sea of Japan than on land in North Korea, it struck me that those fishermen in Chongjin sure do venture far out to sea at night. It must take days to get there. And even then, the lights on their boats are dimmer than those on the South Korean boats.
As a vibrant market economy arises from an underdeveloped one, it does not lift all boats as a rising tide would. Some get very rich fast, and some stay very poor. Such periods of rapid development are politically risky times, as uneducated masses are drawn away from their hardscrabble farm lives and packed into factory dormitories, slums, and shanty towns in the cities. Those places become hothouses of envy and radicalism that can bring down the political systems in which wealth and poverty coexist uneasily. It’s no coincidence that Marxist ideas rose as societies industrialized, and waned as most of the world entered a post-industrial phase. Marxism is an ideology built around an emotion — envy. To survive the political turbulence of industrialization, a strong state must have the means and the will to suppress lawlessness, but it must also inspire enough faith in The System that the masses harbor real hope that their lives will continue to improve under it.
On the surface, the coexistence of wealth and poverty in North Korea can resemble what we see in developing societies. But in what sense can it be said that North Korea, a place where the government wraps an iron fist around most commerce and predetermines the potential of its citizens before they’re even born, is “developing?” Are we really seeing the rise of a capitalist class in Pyongyang, or is the same old elite-class hoarding just becoming more ostentatious? The great irony of North Korea is that its most destabilizing force today is the same kind of class envy that propelled most of the Marxist revolutions of the last century. Two excellent news stories this week contrast the superficial trappings of wealth in Pyongyang with an exacerbation of poverty and continued starvation everywhere else. While the elite in Pyongyang have never had it so good, children continue to starve and die in the markets of other North Korean cities.
Food prices have spiked, the result of drought and North Korea’s defiant launching of a rocket in April that shut down new offers of food aid from the United States. Development organizations also blame speculators who have hoarded staples in anticipation of reforms that have yet to materialize. The price of rice has doubled since early summer, and chronic shortages of fuel, electricity and raw materials continue to idle most factories, leaving millions unemployed.
“People were hopeful that Kim Jong-un would make our lives better, but so far they are disappointed,” said a 50-year-old named Mrs. Park, who like Mrs. Kim spoke on the condition that only her last name be used, fearing retribution when she returned home.
A member of the ruling Workers’ Party from a major city, Mrs. Park said that to feed her family, she sells cornmeal cakes from a market stall, but she complained of sluggish sales and famished children who snatch her wares from beneath a protective swatch of fabric. More than once this year, she said she walked by the lifeless bodies of those who were too weak to steal.
This is some of the best journalism the Times has produced about North Korea in my memory. I hope we’ll see more of Mr. Jacobs’s work. Another giant, Barbara Demick, writes:
Women wearing fancy shoes, miniskirts and trousers, fashions popularized by the chic wife of North Korea’s not-yet 30-year-old leader. Brand new high-rise apartment buildings, which she’s heard have washing machines and refrigerators. People walking down the street yammering into cellphones stuck to their ears.
All things that, for now, at least, seem beyond the reach of the 52-year-old Kim, who, although she counts herself among the privileged as a resident of the North Korean capital, can barely afford to eat rice.
“Of course, they’re showing off with their cellphones. Who wouldn’t?” she snapped.
“There is more construction, more people building things, more to buy in Pyongyang. But day to day, our life is actually harder,” said Kim, who like many North Koreans working outside the country uses a pseudonym.
“Maybe 1 out of 10,000 North Koreans can afford to eat white rice every day like the people in China,” said a 58-year-old man from Suncheon, 30 miles north of Pyongyang, who has been working in a brick factory in China.
At North Korea’s state-owned factories, wages are so low (often less than $1 per month) that people will pay for the privilege of not showing up to work. They use their time instead to collect firewood or edible greens or to trade something on the market.
As for the vaunted North Korean military, rank-and-file soldiers have so little to eat that their parents have to send money and food for them to survive. Cornfields have to be guarded 24 hours a day to prevent thievery, with many of the culprits being hungry soldiers. [L.A. Times, Barbara Demick]
Separately, otherreports are claiming that North Korea’s food situation is as bad as it’s been at any time since the Great Famine. I’m a committed agnostic about any statement that claims to represent the true food situation in North Korea, given the restrictions on access to reliable data and the substantial variations that probably exist from region to region. It’s clear, however, that North Koreans don’t think their lives have improved during the centenary of Kim Il Sung’s birth or since the coronation of Kim Jong Un. The perception of declining living standards is bad news for any ruling regime, but it’s fatal when it’s so easily contrasted to the rising and conspicuous wealth of a privileged few. As a consequence, class envy in North Korea is almost certainly both deep and wide, and it’s turning North Korea into a Brechtian dystopia where the masses live by the laws of Erst kommt das Fressen and Der Mensch lebt durch den Kopf.
Hat tips to several readers.
UPDATE: But then, the Kim Dynasty has become less Marxist with each generation, and more an expression of Emmanuel Goldstein’s oligarchical collectivism (I’m not the first one to be astonished by how much Goldstein’s criticism of Oceania sounds exactly like North Korea, but don’t take my word for it). That’s why it shouldn’t surprise us that even the statues portraits of Marx and Lenin have been removed from Kim Il Sung Square.
We don’t know how extensive North Korea’s agricultural reforms are meant to be, but we do know that North Korea wants us to think that it’s instituting big reforms in its agricultural sector, because it took the AP’s Jean Lee on a show tour of a collective where the “farmers” were primed to tell her it was so. Is it too cynical of me to tend to disbelieve any fact that North Korea wants me to believe is true? Props to Lee for her hard work at getting this sentence past her “colleagues” at KCNA:
North Korea has a per capita GDP of $1,800 per year, according to the U.S. State Department, far below that of its neighbors in Northeast Asia, and its rocky, mountainous terrain and history of natural disasters has long challenged the Kim regime to provide enough food.
Yes, that is all! Nineteen consecutive years of drought-slash-flood that for some reason target all parts of North Korea, exclusively, but which never seem to impede the flow of rice or Omega watches to Pyongyang! I love officially approved news, don’t you?
Meanwhile, we are reminded again why we ought to be skeptical of all that optimistic speculation, like this example from The New York Times. And then, a day later, Yonhap reports, “North Korea’s rubber-stamp parliament closed its session Tuesday, the country’s state media announced without making reference to economic reforms widely expected to come from the unexpected meeting of legislators.” So there’s that. Not that there’s a particularly strong causal link between legislation and policy in North Korea, but given how rare it is for North Korea to put on this puppet show twice in a year, does the absence of any major legislative initiatives suggest that some of the strings have become tangled?
Meanwhile, on the more tangible side of North Korean economic policy, fewer things have changed than some would have us think:
After nearly two years of interrogations while imprisoned in the inhumane Yodok camp, also called simply “No. 15,” Jang became aware he was there because he had earned so much foreign currency, the defector recalled in a meeting in Seoul of North Korean survivors of the country’s political prison camps.
Jang said hundreds of other hard-working foreign-currency earners were sent to the political prison for the same reason.
While North Korean authorities assigned an annual foreign currency target of more than US$1 million to each foreign income unit, completing the assignment drew suspicion from the government because they assumed that achieving the ambitious goal must involve irregularities, Jang explained in a package of written recollections released at the meeting. [Korea Times]
Lest you wonder if I’m the only one asking for stronger evidence to support this wildly optimistic speculation, there more here, from Luke Herman.
Over at Destination Pyongyang, Chris Green offers some useful cautions to those who have allowed themselves to become unduly aroused at the prospect of reform in North Korea based on “evidence” that is either superficial, questionable, irrelevant, or some combination of these things. Green questions “hyperbolic” reports that North Korea will abandon its central rationing system — a system that is more responsible for North Korea’s famine and hunger than any other single factor — because that would mean ceding a key means of controlling its subjects. He also cites evidence that North Korea is, while denying any intention of reforming, also showing some leg to hopeful observers abroad to attract foreign aid.
It’s Stephan Haggard, however, who does the best job of putting all of this into perspective in a few short paragraphs, when he says:
Let’s calibrate expectations. First, to our knowledge there is no document that actually spells out—in print—the reform measures that are getting so much Western attention. Everything we are speculating about is based on reporting from a small handful of second-hand Korean sources. This is significant not only because the reform rumors may simply be false, but because the leadership has not committed publicly to the measures that are getting so much attention.
Second, however, this is understandable because no leader of North Korea is going to stand up and embrace market-oriented polices and protection of private property rights per se. Any reform (or “improvements” [??]) must be embedded in an ideological justification that ties it to the existing regime and its historical antecedents in the Great and Dear Leaders. The document “Let Us Effect Kim Jong Il’s Patriotism and Step Up the Building of a Prosperous Country”—released to the public on July 26—is not available in English yet, although the KCNA devoted no fewer than four separate stories to it on August 3. But it is laden with efforts to tie vaguely-worded economic objectives to patriotism and Kim Jong Un’s family lineage; this is the sort of ideological engineering we would expect.
Third, it is also important to recognize that no reform in such a system is going to overthrow the state-socialist system or be big-bang in form. Given the nervousness and ambivalence of the leadership toward the market—some of it well-founded–policy changes are going to be piecemeal, experimental and modest. Moreover, their objective is going to be strengthen—not weaken—the state socialist system. “Reform” could even make things worse; think the 2009 currency conversion.
Finally, there has been a lot of loose talk suggesting that “reform” implies some sort of political change. To the contrary, economic reforms or improvements are designed to consolidate power and forestall political change, not lead it. One need look no farther than the DPRK’s northern neighbor to understand that dynamic.
My point here isn’t that North Korea’s rulers will always resist all changes to the system. They probably know better than anyone that current trends aren’t sustainable forever, no matter how many checks China writes. Commentators like to mock predictions of regime collapse in North Korea, but in fact, North Korea has been in a state of steady economic, political, physical, and social disintegration since 1993, and while domestic terror can delay the inevitable, it can’t prevent it. Only North Koreans know for certain, but I suspect that outside Pyongyang, the people are deeply discontented, and all that still glues the regime’s rule together is the lack of any alternative, which still can’t quite arise because of the people’s isolation, fear, and exhaustion, and probably some residual awe and nationalism. An internal challenge — which at this point, would have to come from within the military — could inflame North Korea and morph in a Syrian-style civil war as quickly as clandestine communications allow the news to spread. Ironically, the only thing that could really gird it among the disillusioned masses now is the threat of some external force. That’s about all the regime’s propaganda really has left.
My point is, however, that any changes in North Korea in the short term will be modest and cosmetic, designed to preserve the regime’s control and its essentially repressive and threatening character. The junta will seek to eliminate marginal inefficiencies, wrest control of currency-earning enterprises from disfavored factions, and attract external aid through cryptic inducements and diplomatic scams. North Korea’s rulers — whose record of “reform” is largely one of retrogradeincompetence — will not direct significant economic reforms until they find themselves under far more immediate and severe economic and political duress than they’re feeling today. For now, there is only sketchy evidence to suggest that this is the case, and only in isolated places beyond Pyongyang’s well-guarded gates. North Korea still seems to be getting plenty of support from China, and I doubt that North Korea would be threatening to tie a toe tag on the 2005 Joint Statement (long a dead letter in any event) if it didn’t have some confidence about its short-term survival.
Of course, there’s always the possibility of a mutiny or a coup by some disgruntled general, but it’s impossible to assess the likelihood of such a development. That possibility has lurked, unconsummated, for a long time now.
In the medium term, however, the sort of distress that would force significant economic (and then, political) change is starting to look more and more likely. Why? For the same reasons that toppled Communist regimes from Kabul to Berlin in the five-year period starting in 1989, and transformed almost every other nominally Communist regime that still stood at the end of that period — the loss of great-power sponsorship. Almost alone, North Korea barely survived that period by finding itself a new sugar daddy. But within the next two years, and probably much sooner, China will begin to feel the full economic and political impact of the bursting of its real estate bubble. Next will come a threat to its banks, many of them laden with bad state-directed debts. Already, we’re seeing the first small signs of capital flight. Today, China’s behavior resembles the manic cycle of like a 19 year-old meth addict whose high has just peaked. China’s crash will be a very bad thing for the U.S. economy, too, of course, and it will be a time of extreme geopolitical danger.
The bright side to that dark cloud is that China will be seeking a lot of economic indulgences — on trade, exchange rates, intellectual property, market accessibility, and interest rates — from its most important trading partner, which will put us in a relatively stronger position to ask for other things in return. If we’re foresighted enough, the end of China’s sponsorship of North Korea will be one of those demands. Even if we’re not, China might independently decide that North Korea is an expense it can’t afford. That will force North Korea to make significant concessions to its neighbors, to its own people, to a new economic reality, and to us. But once that juggernaut starts rolling downhill, there will be no controlling its speed or direction.
Update: I also recommend this guest post by Gene Choi at Witness to Transformation. Again, the change at all levels of society comes from the bottom up, not from the top down.
So now that the Free-Trade Agreement between the U.S. and South Korea is officially in effect, the supposedly conservative South Korean government is pulling a bait-and-switch, reviving the demand of its leftist predecessor to include products made by the virtual slave laborers in Kaesong, North Korea in the deal:
South Korea is pushing to include the Gaeseong industrial zone in North Korea in its free-trade deals with the U.S. and Europe, a step that would deepen cross- border ties after the North’s leadership transition.
“Unification is already taking place in Gaeseong, with daily encounters and shared interests,” said Yoo Dong Ok, the chairman of Daewha Fuel Pump Industries and a spokesman for South Korean companies operating in the manufacturing enclave. Shipments from the factories, mostly textiles and car parts, would quickly surge 15 percent if they win free-trade status, Yoo estimated in a March 20 interview.
Yoo and the government in Seoul want the fruits of North Korean workers’ labors on the shelves of stores in Chicago and Berlin, even as they condemn the regime of new leader Kim Jong Un for a planned rocket launch. [Bloomberg]
Yeah, you say, but who exactly in the South Korean government is actually saying this?
Trade Minister Bark Tae Ho said on March 14 that he will try to persuade the U.S. and European Union to recognize products made in Gaeseong as South Korean.
The perverse result of this would be that North Korea has an FTA with the United States and Japan does not. What a splendid way to celebrate the one-year anniversary of North Korea sinking a South Korean warship, even as the North prepares to test a missile satellite. Some very smart people told us that this would never happen. I don’t doubt that the Korea Lobby’s many foot soldiers in this town encouraged them in believing that. From the beginning of Lee Myung Bak’s presidency until now, every South Korean diplomat you saw, heard from, had lunch with, or who introduced so-and-so at this-or-that think tank was an FTA monomaniac. They were like annoying insurance salesmen or subway evangelists who always found ways to steer every conversation (however clumsily) toward trying to pitch their product — in this case, the FTA. Which, without its North Korean entanglements, would be a good thing for both countries.
And if a conservative South Korean government is pushing the expansion of the FTA into Kaesong now, what do you suppose a leftist South Korean government would do? It’s not the first time I’ve seen the Korea Lobby (and its State Department enablers) pull something this unprincipled and cynical, and it’s why I’ve learned that you just can’t trust them.
The Donga Ilbo publishes a very interesting study finding that North Korea’s economy has contracted recent years, mostly due to the loss of South Korean aid and the effect of sanctions:
South Korean assistance to the North surged to raise the indicator to a high of 236.9 in 2007, a huge leap from the baseline score of 100 in 1995. The communist country`s trade volume also jumped 43.4 percent due to the expansion of trade with China. The North`s economy began to shrink from 2008, when the South halted aid. Notably, the indicator fell to as low as 86.5 in 2009 to tie the record-low set in 2000. Due to deterioration of inter-Korean relations, the volume of South Korean government assistance to the North tumbled over the period to 36.2 in 2009, down 84.7 percent from that in 2007. A decline in external trade except with China due to tougher international sanctions against Pyongyang also hastened the deterioration of the North Korean economy. Due to the participation by Singapore, one of the North`s top five trading partners, in the sanctions, the combined volume of the North`s trade fell about 10.7 percent, resulting in the indicator falling from 186.3 in 2008 to 166.3 in 2009. [Donga Ilbo]
The chief lesson I take from this is that a well-orchestrated campaign of international sanctions can still damage North Korea’s official economy enough to cause long-term decline, even despite China’s efforts to circumvent it. Although all statistical analysis of the North Korean economy is inherently suspect, note that this study relies heavily on an analysis of government-to-government aid and official trade statistics, meaning that the majority of this impact is presumably felt by North Korea’s palace economy. Downstream, that also affects some of North Korea’s population, but only that shrinking minority that still relies on salaries and benefits from the regime, rather than the black market.
The effect of those sanctions probably still isn’t enough to achieve one of its intended effects — to force the regime to actually dismantle its nuclear programs or allow meaningful verification — although I suspect that for a brief moment in 2006, it might have been. That time, North Korea was saved from both extinction and negotiated disarmament by Chris Hill, Condi Rice, and George W. Bush. This time, China has to do and pay more to offset not only the effect of sanctions, but the loss of South Korean aid and another, perhaps even more important factor — the self-inflicted wound of North Korea’s currency “reform,” a/k/a The Great Confiscation of 2009. It would be interesting to see any decent translation of this study, but especially one that has data to measure the effects of that fiasco.
As if on cue, Marcus Noland provides additional evidence of the continuing effects of the Great Confiscation. The Great Confiscation, of course, was intended to drive most of the commerce of ordinary North Koreans back under the regime’s economic control. The G.C. certainly did terrible damage to the black market system temporarily, but it didn’t extinguish markets, and it has also had severe and adverse effects on the official economy, too. The loss of confidence in, and inflation of, the North Korean currency has persisted, has recently been exacerbated by the succession of Kim Jong Eun, and has driven money out of the North Korean banking system and into people’s mattresses, or into the alternative black-market financial system. To restore confidence in the currency, Noland suggests, Kim Jong Eun may be taking a tip from the economic policies of Ron Paul by minting gold coins (I’m glad that I haven’t lost my ability to savor ironies like this). However, the minting of gold coins in North Korea is neither a new development nor, most likely, a hint of that North Korea is going on the gold standard. See my comment to Noland’s post for an explanation.
You may remember that several years ago, a liquor distributor in the United States tried to introduce North Korean soju into the U.S. market. That effort failed long before President Obama reimposed trade sanctions on North Korea, partially because of the importer’s legal troubles, but probably also because the stuff supposedly tasted awful.
Apparently, North Korean consumers share that assessment, because the same brand of South Korean soju that once kept me fully occupied as a prosecutor and defense counsel is a hit on the North Korean black market:
A source in Onsong reported July 6th that the South Korean Cham-isul (trans: True Dew) brand of soju has appeared in North Korean markets and has been an instant hit with local consumers. Reports of South Korean made noodles or choco pies on sale in North Korean markets are well established but this is the first news that South Korean soju has also become available. Cham-isul soju has been sold there since May.
“North Koreans have a tremendous curiosity about South Korean soju,” the source went on, “and everyone wants to get hold of a bottle and give it a try. It’s on sale for 3,000\. That’s around ten times the cost of North Korean soju.” At an exchange rate of 1SK\ to 3NK\, each bottle is the equivalent of 1,000SK\. [....]
“The Cham-isul soju available in the markets has been brought across the border by traders and smugglers. North Korean consumers are getting more and more used to South Korean goods, from electrical goods to food products,” concluded the source. [Open News]
Anyone who has ever been to Korea knows that soju is powerful stuff. Authoritative historical archives tell us that as recently as 1959, sailors were known to swill it until they hallucinated winking, doe-eyed island beauties and ran their ships aground:
Maybe I’m making too much of trivialities like soju, ramyon noodles, and ChocoPies, but I like the way our two soju stories illustrate the right way and the wrong way to “engage” with North Korea. When engagement is negotiated by diplomats, Kim Jong Il dictates the terms so that he earns hard currency to buy God-only-knows-what, and keep all but a few hand-picked, loyal North Koreans shielded from the outside world. It’s enough to make you think the North Koreans have better diplomats than we do. This story shows us a much more effective way — using the market to reach North Korea’s people instead of trying to negotiate our way through its government.
Also pictured: Soju
Take engagement away from the diplomats and leave it to the marketplace — which really means the North Korean people themselves — and wondrous things happen. Not only do people drink better liquor, but people, goods, services, money, and culture cross borders; state-imposed isolation melts away; the truth enters forbidden places; and repressed societies and economies start to awaken. You can even detect a people’s latent and subversive yearning for reunification expressed, something that Kim Jong Il seems desperate to extinguish:
One such North Hamkyung Province source reported on the 13th, “National Security Agency people responsible for the jangmadang [markets] and members of the Worker’s and Peasant’s Red Guard appear every day to examine all goods such as clothes and daily necessities one by one, insisting that they are “˜rooting out capitalist elements.’ All the products labeled “˜South Korea’ are confiscated without compensation. “Even (fake South Korean) products made in China are taken away if they have South Chosun words on them,” the source went on. “Shampoo, toothpaste and other daily necessities are all targets.
Since the start of the 2000s, South Korean products have been entering North Korea thanks to smugglers and traders, and have sold well in the jangmadang at above average prices thanks in large part to their high quality. Smugglers also prefer South Korean products to those made in China because they are more profitable, making them willing to risk punishment to bring such products in. [....]
The North Korean authorities have tended to call this a “˜capitalist wind’ and often range their official crackdowns against it, but this has hitherto only drawn interest toward the forbidden fruit. What is more, the security service agents and soldiers who are supposed to be cracking down on it are prepared to accept bribes to turn a blind eye, and in many cases have shown sympathy for the activities of traders and smugglers.[Daily NK]
In the markets, the hungry can find all sorts of nourishment, including the physical kind. Markets were probably a major factor in ending the Great Famine as North Koreans learned new ways to get food that the state would not provide. They showed such potential to ameliorate North Korea’s perennial food crisis that today, up to 80% of North Koreans depend on them for their food supply. It’s telling that North Korea managed to survive the regime’s 2005 closure of most of the World Food Program’s operations there without mass famine, but has suffered a more significant deterioration in its food crisis since the regime began trying to shut down the country’s markets in mid-2009. This peaked with the Great Confiscation in December, which devastated the rising market economy that was bringing food and other goods from outside the country. North Korea’s domestic food production last year wasn’t worse than in previous years, but the markets — and the traders who fill them — have recovered unevenly from this regime-made disaster, with markets in the border regions recovering faster than those in the interior. The regime hasn’t quit trying to crack down, but can’t fill the void in the food supply, so every time its crackdowns cause hunger and discontent, it’s forced to back off.
Those whose position is most fragile complain the most, the source went on, saying that such people point out, “The state cannot produce and it cannot give the people distribution, so why are they even stopping us from surviving? Some people have even said wryly, “˜So, this is the strong and prosperous state’.
According to the Yangkang Province source, “One woman selling bathroom goods started having many people looking for South Chosun products around, and then immediately an NSA agent confiscated everything. Passing traders got pretty angry when they saw that, saying, “˜It’s not a case of waiting for the strong and prosperous state, it is a case of waiting for the day when those guys will die.’” [Daily NK]
If the regime can fill the void, it cracks down on markets. One relief group — which purports to feed the North Korean people without going through the regime — even suggests that’s why the regime is asking for aid now. That’s another argument against giving food aid unless we’re sure we can keep the regime from stealing it. At times, I have to wonder if the regime is constitutionally opposed to just buying food, even when doing so would seem to be in its interest (though so might keeping people hungry). Although it’s not clear that this rising people’s economy is closely linked to the official economy, the official economy has suffered, too, though probably for different reasons. One observer recently calculated that it has contracted by a stunning 18% since 2007. Part of this is probably due to the loss of South Korean aid money, but sanctions probably also played some role.
In short, markets can change North Korea in ways that state-to-state engagement policies like Sunshine couldn’t. They’re not changing North Korea because the state is willing to accept reform or openness, but because the state has largely lost its capacity to control it. If so, then the way to change North Korea isn’t to provide its regime economic support, it’s to do whatever we can to sap its capacity to control its borders. One way to do this is to facilitate cross-border trade by assisting, training, and equipping journalists, defectors, dissidents, and plain-old smugglers, but another way runs completely against the failed conventional wisdom about engagement. If the regime is desperate to close its borders and crack down on markets, then it follows that the more limited the regime’s resources, the more difficulty it will have cracking down on markets and the faster North Korean society will change. So if targeted sanctions deprive the regime of money to spend on border guards, police, customs officers, and cell phone trackers, they could be a greater agent of social change and economic development than economic cooperation with Kim Jong Il’s regime. That’s admittedly an unconventional view of engagement, but for all the time, money and lives that have been sacrificed for this conventional approach, where is the evidence that it has changed North Korea for the better?
Second, some South Koreans — including some who could end up governing South Korea after the 2013 elections — would be happy to help their North Korean business partners obfuscate the origins of their wares as “Made in Korea.” And if Kaesong-made material is cut and sewn in the South, the truth of the matter may not be entirely clear. A close reading of the country-of-origin rules for textiles, for example, makes plain that there are plenty of ways to get around the rules without resorting to outright fraud. Klingner cites an executive order that’s supposed to prohibit this, yes, but who would effectively police the prohibition?
Finally, who is to say that a second-term President Obama or a future President Chung will remain faithful to the positions their governments take today, after Congress gives them what they want?
For any of those reasons, Kaesong products invite mislabeling. Who can say with confidence that either the U.S. or South Korean governments can ensure us that Kaesong’s leakage into the U.S. market won’t be significant? It matters for some important reasons. Because the workers at Kaesong are afforded all of the labor rights of draft animals, imports from Kaesong would violate both international labor standards and the Tariff Act of 1930. Nor should the United States wish to join South Korea in dumping cash into Kim Jong Il’s coffers, thus violating the letter and spirit of U.N. resolutions that were designed, in large part, to protect South Korea’s security. Indeed, South Korea’s own conduct with respect to Kaesong puts it in a poor position to criticize China’s financial support for Kim Jong Il.
In principle, the FTA is a good thing for both Korea and the United States both economically and diplomatically. I also like the idea of supporting President Lee for behaving like a statesman and an adult. Anyone who is even minimally observant of U.S.-South Korean relations can see the South’s utter monomania about getting the FTA passed. I can see why South Korea would like to see the FTA passed in time for it to impact the South Korean economy in time for the 2013 elections. So why does South Korea still wear the Kaesong albatross? Kaesong inexplicably continues to grow, but the only one turning a profit is Kim Jong Il, thanks to continued subsidies from the South Korean government. Kaesong certainly hasn’t delivered on its promises of reforming North Korea or reducing tensions. On the other hand, the risk of Kaesong’s toxic plume seeping into the stream of FTA commerce hands a legitimate issue to FTA opponents, some of whom would rather talk about Kaesong’s utter lack of labor rights and the very real possibility that it’s funding Kim Jong Il’s WMD programs than their own parochial protectionist motives (here, I distinguish Rep. Brad Sherman, who has long been genuinely concerned about North Korean proliferation).
Is this such a hard choice for the South Korean government? It wouldn’t be if the U.S. told South Korea that it can have free trade with North Korea or the United States, but not both. That’s exactly the deal that President Obama should make with Congress, and then offer to President Lee.
The Chosun Ilbo reports that as the North Korean diaspora swells, those who have escaped are forming stronger financial links with their hungry families in the homeland. And this has some people concerned:
North Korean defectors settled in South Korea are sending some US$10 million a year to their families back home, it was reported on Sunday. The amount is expected to grow as there are more than 20,000 North Korean defectors in the South and the number is increasing, a government intelligence official said. Now the government is investigating what the effects of these growing remittances may be.
After noting the potential positive effects of capitalism spreading in the North, the article finds that this threatens to punch a gaping hole in international sanctions against Kim Jong Il’s regime.
At the same time there are concerns that the increased money wired by defectors back to the North could undermine international sanctions against the communist country. North Korea earned around $300 million a year by selling seafood and sand to South Korea, but all trade was suspended after the sinking of the Navy corvette Cheonan last year. And tours to North Korea’s scenic Mt. Kumgang resort, which generated $500 million in revenues over 10 years, were halted in July 2008.
A South Korean government source said, “We cannot rule out that money is being wired to North Korea by pro-North factions in the South who are aware that it is difficult to crack down on money transfers.”
Some 3,000 to 5,000 of 20,000 defectors settled in South Korea are sending W1-5 million (US$1=W1,117) each to their families back home through middlemen every year, the government and defectors’ organizations believe. The North could import about 18,500 tons of Thai rice ($540 per ton) or some 43,000 tons of corn ($230 per ton) for $10 million.
I appreciate that the Chosun adds that necessary context, to which I’ll add some more: the Kaesong Industrial Park is still “pumping $50 million per month into the collapsed North Korean economy.” That’s $600 million a year, every penny of which goes directly to the regime. Maybe I missed where the Chosun Ilbo and the Administration it supports have called for Kaesong to be closed.
If there are concerns, then, about undermining sanctions — not to mention South Korea’s own credibility in calling on other nations to enforce sanctions — that’s where the concern should begin, not crumbs for hungry kids. Why, after all, would Kim Jong Il bother to tap into small-time illegal remittances when he’s raking in $600 million a year, directly from South Korean taxpayers? If South Korea is worried about complying with the spirit and letter of UNSCR 1874, let it close Kaesong. Unless it has reason to suspect that the remittances are being diverted away from starving family members — like with, say, much of our international food aid — it should keep its hand off what North Korean refugees send home.
Also interesting is who isn’t participating in this debate — that is, all of the people who were telling us during the Sunshine years that pouring aid into Kim Jong Il’s bank accounts would change North Korea. Subsequent events have resolved that question. But now we have a kind of engagement that really is transforming North Korea, because it largely circumvents Kim Jong Il and reaches the North Korean people. In that light, shouldn’t South Korea latch onto remittances to help break the economic dependency of the people on the regime, break down the socialist economy, and allow for the financing of alternative institutions and organizations? Remittances could play as important a role in the subversion of the regime as DVD’s, radios, or cell phones. The supply chains for North Korea’s markets are providing most of the other electronic instruments of subversion that are breaking North Korea’s information blockade. This is to say nothing of the humanitarian impact.
If South Korea wants to change North Korea — in exactly the way we were once told that the Sunshine Policy would — it would do everything it could to encourage these remittances. First, it could legalize money transfers to North Korea, provided they’re done through licensed transfer brokers. Licensing would be done at the advisement of the National Intelligence Service, which would help establish a registry of “reliable” money smugglers. Second, it could set up a simple insurance system to protect remitters against financial losses (you know, like it did for Kaesong). Third, it could regulate and monitor transfers to ferret out those that were in fact regime subterfuges, and to ensure (to the extent possible) that the money was sent to recipients who were in legitimate financial need. Establishing cell phone links to North Korea could eventually prove helpful to this verification. In the meantime, if you’re looking for economic inducements to transform North Korea, then find a way around Kim Jong Il. The money smugglers are showing us the way.