hankyoreh

By John Feffer, co-director of Foreign Policy In Focus　

By all usual standards of measurement, the regime in North Korea seems quite secure. The worst consequences of the famine and industrial collapse of the 1990s have abated. Although far from robust, the North Korean economy has marginally improved, having expanded by 1.3 percent in 2012 after a .8 percent increase in 2011. Politically, Kim Jong Eun appears to have consolidated his power with relative ease. He is not as beloved as his grandfather, but he is also not as disliked as his father. He has shaken up the upper tier of the military, most likely to ensure its loyalty.

The one major development that has slowly begun to transform North Korea is the influence of money. The nouveau riche has begun to change the face of Pyongyang as they frequent new restaurants and take advantage of new services. Corruption has gone from occasional to obligatory. And remittances from North Koreans who have left the country are playing an ever-important role. These remittances have even begun to change the very structure of the country’s previously rigid criminal justice system. Entire families are no longer routinely consigned to labor camps after the emigration of one member, which we know because they are now receiving money from abroad. And bribes can keep individual lawbreakers from entering the penal justice system.

North Korea has pointedly not followed the Chinese example of “market Leninism.” The economy remains state-controlled with only a minor role accorded to the market. Still, the government has largely accepted consumer markets. It certainly approves of “contained markets” such as free-trade zones and industrial zones like Kaesong, and it plans to dramatically increase the number of these special economic zones. Moreover, Pyongyang has embraced the teaching of accounting, management, and other educational necessities, but only for a small portion of the population through institutions and organizations such as the Pyongyang University of Science and Technology, Choson Exchange, and several foreign study programs, not to mention the efforts of several German foundations.

In other words, capital – and not just money – has become an important feature for the outliers: entrepreneurs from the bottom up who are taking economic risks and the elite from the top who are taking political risks. The government could institute a bank reform or a market sweep that could wipe out the small capital accumulated by the entrepreneur. Or the political winds could change suddenly, and the members of the elite who have focused on international banking could find themselves politically reclassified.

The influence of money and markets has increased in North Korea. But capital – its acquisition and the knowledge of how to traffic in it – remains marginal. The entrepreneurial class is small, the banking system is limited, and North Korea is not part of the international financial system.

That ultimately is the question that the Kim Jong Eun regime must decide. Will North Korea remain economically quite weak, which will potentially translate into political weakness, or will it preside over the transformation of the economy as the influence of money gradually becomes the influence of capital? What makes this a particularly vexing question, of course, is that the answer does not depend simply on the shape of domestic reform.

North Korea’s current economic policy – the very tightly controlled introduction of capitalist structures and laws from above and the acceptance of the greater influence of money from below – depends a great deal on North Korea’s relationships with China, South Korea, and the United States.

The Kim Jong Eun era has seen some rapid oscillations in foreign policy. Inter-Korean relations have gone from near-war to the resumption of economic cooperation at the Kaesong industrial complex. Relations between Pyongyang and Beijing have seemed to waver between cold amity and hot tensions. The U.S.-North Korean relationship seemed on the verge of a breakthrough with the Leap Day Agreement of 2012, very early in Kim Jong Eun’s tenure, only to deteriorate into the state of hostility that prevails today.

It is tempting to interpret these swings in foreign policy orientation as the outer representation of a heated debate inside the ruling circles in Pyongyang, a debate that remains entirely opaque to outside observers. In other words, it wasn’t so much that the new leader wanted to test various foreign policy propositions. Rather, different approaches were vying for primacy within the circle immediately around the young leader. It is very difficult to know if this is true.

Another interpretation is that the North Korean elite is simply uncertain about how to achieve its major objective: obtaining the necessary capital to implement its own brand of economic reform. Every option contains within it a deeply problematic counter-tendency. Economic agreements with Seoul expose North Korean workers to the undue influence of the South and reinforce the message that the North is economically inferior to its southern competitor. Economic agreements with the United States (and the international financial community) – which remain hypothetical at the moment – require compromise on a nuclear program that remains North Korea’s major deterrent force. And ongoing economic agreements with China only deepen a dependency that has eroded the legitimacy of the North’s primary ideology of self-reliance and turned the northern part of the country in particular into a semi-colony from which China siphons raw materials. Like any proper imperial force, China invests in the infrastructure necessary to facilitate extraction – but this is a bitter pill for the North Korean regime to swallow.

Other sources of capital are equally problematic. Rapprochement with Japan requires satisfying the demands by Tokyo on the abductee issue. Individual entrepreneurs see North Korea as an opportunity, such as the Egyptian mogul Naguib Sawiris, who has poured millions into telecommunications in the North. But such deep-pocket, risk-taking entrepreneurs are thin on the ground. Selling missiles and other weapons once netted North Korea considerable hard currency, but the sanctions regime has made such exports much rarer.

Given the difficulty of achieving what is likely to be a major objective of North Korea, it’s no wonder that the government runs hot and cold in its foreign policy toward allies and adversaries alike. It constantly seeks the impossible: attracting capital without any of the negative side effects.

No country, with the possible exceptions of the United States and the oil-rich Gulf nations, engages with the international economic system on its own terms. North Korea perhaps believes that some magical mixture of nuclear weapons, juche ideology, and the almost supernatural attributes of the Kim family dynasty will allow North Korea to secure capital without full-blown capitalism. It’s not likely to happen. So far, at least, Pyongyang is not willing to risk short-term instability to gain the longer-term survival of the country. Collapse is not in the offing. But neither is prosperity. North Korea is caught in the middle, with no major changes on the horizon.

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