North Korean Economy Watch

World Peace Herald
Lee Jong-Heon
11/17/2006

North Korean leader Kim Jong Il has recently recognized the academic works of dozens of local scholars by presenting them with wrist watches as part of his “gift politics.” But this policy may not last much longer when the international community implements the U.N. sanctions resolution slapped on North Korea following its nuclear test last month.

According to the (North) Korean Central News Agency, a total of 26 professors and officials at the country’s prestigious Kim Il Sung University were awarded the watches inscribed with the captions, “Gift of Great Leader Kim Il Sung,” in reference to the country’s founding leader and father of the current leader Kim Jong Il.

The award was part of Kim’s unique ruling technique of using gifts to keep a key group of supporters in his hands.

Under the “gift politics,” Kim has provided wrist watches and other luxury goods to his aides and ruling elite members to reward their unconditional loyalty toward him. Most of the luxury items were made outside of North Korea, in places such as Japan or Switzerland, according to North Korean defectors and intelligence sources.

Gifts for loyalists also include cars, pianos, camcorders and leather love seats, among others.

But the North Korean leader may no longer use the “gift politics” because U.N. members have moved to impose bans on shipments of luxury goods — including cars and wrist watches — in a bid to obstruct the personal consumptions of Kim Jong Il and his ruling elite.

The U.N. Security Council unanimously adopted Resolution 1718 after the North’s nuclear test last month, calling for all U.N. members to impose wide-ranging sanctions on the communist country, including a ban on exports of luxury goods as well as large conventional weapons and weapons of mass destruction.

In line with the U.N. resolution, Japan’s Cabinet this week approved bans on exports of 24 kinds of luxury goods to North Korea, including cars, wrist watches, alcohol, cigarettes, jewelry, perfume and caviar.

The list also includes beef, tuna fillet, cosmetics, leather bags, fur products, crystal glass, motorcycles, yachts, cameras, musical instruments, fountain pens and works of art antiquities. The total export value of the 24 items was about $9.2 million in 2005.

Korea Times:
Kim Sue-young
10/26/2006

South Korean broadcasting stations have paid North Korea up to $1 million since 2003 in return for permission to produce programs in the North, a lawmaker said yesterday.

Citing a report of the Ministry of Unification, Rep. Kwon Young-se of the main opposition Grand National Party (GNP) said that local broadcasters have been engaged in a price competition, as they pay a large amount of money to the North.

“A total of 10 inter-Korean broadcasting cooperation projects have been approved since 2003,” the lawmaker said. “The Korean Broadcasting System (KBS) and Seoul Broadcasting System (SBS) paid Pyongyang $1 million for the production of a singing contest program in July 2003 and a performance by pop singer Cho Yong-pil in May last year, respectively.”

Those companies have also paid between $500,000 and $800,000 for other television programs on North Korean food or the remains of the Koguryo Kingdom (37 B.C.-A.D. 668), Kwon said.

A ranking official of the Korean People Artist Federation said last September that three major television broadcasters _ KBS, SBS, and Munhwa Broadcasting Corporation (MBC) _ raised the level of the financial support, according to Kwon.

“Minor cable channels that cannot afford to pay the large amount of money don’t even contact North Korea,” the official was quoted as saying. “The government should regulate the soaring prices.”

The lawmaker also quoted an official of the Korea Development Institute complaining of Seoul’s difficulty negotiating with Pyongyang because of the large sum of money.

“Broadcasters gave North Korea a lot of money to attract events for their programs, which made North Korea indifferent to economic cooperation projects,” Kwon said.

From the Korea Times:
10/23/2006

Every autumn the North Korean newspapers shower their readers with pictures and lengthy reports about the unbelievable happiness felt by North Korean farmers.
November is the time when the annual food distribution is made in the agricultural cooperatives, and farmers are reportedly overwhelmed with joy about the great harvest. As the Great Leader himself once pointed out, every year in the North was to see a bumper harvest, and nothing else could possibly be reported.

The world of most North Korean farmers is limited to their cooperative farm (hyoptong nongjang in Korean). Koreans are not allowed to change their place of residence at will, and until the social disruption of the mid-1990s even brief trips outside one’s native country were rare since such trips required police permission.

Men spend 7-10 years in the army, but if they returned back to their native village after military service, they usually stayed there for the rest of their lives.

Collective farms were first introduced to the North in the 1950s, and by 1958 membership was obligatory for all peasants.

In joining the collective farms, the farmers had to give up their land, orchards, essential agricultural tools, cattle and the like. They were allowed to have tiny kitchen gardens, to grow a couple of fruit trees and to keep chicken. In regard to larger animals, like pigs or sheep or dogs (kept for food, of course), the policy has changed a number of times.

In theory, the collective’s property belongs to its members, but this fiction never misled anybody. In everything but name, the collective farm is a state-run and governmentowned institution.

Its major task is to meet government- defined production quotas and provide the state with foodstuffs. The farm is managed by people appointed by the authorities. It is supervised by the local (county-level) ‘Farming Management Committee’ which, in turn, is subordinated to the similar committee at the provincial level.

The entire structure is supervised by the National Agricultural Committee which in 1998 was renamed the ‘Ministry of Agriculture.’

In addition to the collective farms, the North has very similar institutions called ‘state-run farms.’ There are some fine distinctions in management style, but from a common farmer’s prospective, the difference between these two types of farms is negligible.

In the past decade a number of collective farms were transformed into state farms (this process mirrored the developments in the USSR in the 1970s).

Currently, there are some 3,300 collective farms in the North, as well as some 200 state farms. The average collective farm comprises 500-800 households, but the actual size varies depending on the area.

Typically, the farm headquarters is located in a larger village, surrounded by a number of smaller settlements. Each collective farm has its own health center, library and other welfare institutions.

According to the system which was established in the late 1950s and which existed without much change until the recent economic crash, the farmers worked in units known as ‘productive groups,’ each group being responsible for a particular area or project.

All members had every tenth day off _ no Sundays. All harvest had to be given to the state. In exchange, in autumn a part of it was distributed back to the farmers with much celebration and pomp. Usually, an ablebodied adult would receive some 250-300 kilograms of cereals plus some other items of food.

For children or older people the norms were proportionally less. However, the distribution was conditional on meeting government quotas. If quotas were not met, then rations were cut.

Unlike many (indeed, most) communist countries, the North never tolerated even small-scale private farming. The kitchen plots were very small and, in some periods, non-existent. Markets were forbidden, or at the least discouraged.

Obviously, this was done to deprive the farmers of any alternative to working hard in the state’s plots. This policy was augmented by draconian punishments meted out to those foolish enough to attempt to retain any of the ‘state produce’ for themselves.

Economically, the collective farms have never been efficient, but for three decades they managed to provide the country with the necessary minimum of food.

The economic disaster of the mid-1990s changed that. In some cases it led to a quiet piecemeal dismantling of the collective farms, never to be admitted by the authorities.

USA Today
Barbara Slavin
10/22/2006

At a kindergarten in Hyangsan, a small city near North Korea’s capital, dozens of colorfully dressed children put on a calisthenics display this month for visitors from the U.N. World Food Program.

The children, full of corn porridge and high-protein biscuits provided daily by the aid agency, jumped, stretched briskly and looked healthy, said Jean-Pierre DeMargerie, the top program official in North Korea. Kids in the front rows looked especially good, he said. “Those 20-30 yards back were not as well groomed or dressed.”

“It’s always difficult to get a clear picture,” DeMargerie said. “The North Koreans don’t like to expose those that might be sick or weak. You build your assumptions on a relatively small sample.”

North Korea, one of the world’s most isolated nations, is a hard society to fathom even for the few foreigners who visit regularly. Whether it is on the verge of economic collapse or resilient in the face of decades of adversity and deprivation remains a matter of conjecture.

Little can be seen clearly

The shroud that keeps North Korea hidden makes it virtually impossible to judge whether the limited sanctions the United Nations imposed in retaliation for an apparent nuclear weapons test Oct. 9 will have any effect on the regime of Kim Jong Il.

The Bush administration hopes the sanctions and international rebuke, particularly from China, North Korea’s main source of trade and investment, will prompt Kim to halt his nuclear program and resume negotiations on a diplomatic solution. “I think (the North Koreans) were surprised by a 15-0” vote on sanctions by the U.N. Security Council, Secretary of State Condoleezza Rice said Saturday. “We’ll see whether or not they are prepared.”

DeMargerie and a half-dozen others who visited North Korea recently say it is better off than a few years ago and may be able to withstand sanctions.

The sanctions could reduce the amount of hard currency North Korea receives, but market reforms in place since 2002 and stockpiling of excess cash, food aid and fuel may give Kim a cushion to defy the U.N.

In 2005, North Korea “received a surplus of a half-million to 600,000 tons of grain” from China and South Korea, said Kenneth Quinones, a former U.S. intelligence expert on North Korea who teaches at Akita International University in Japan. “It looks like most of that went into storage.” North Korea also had a decent harvest this year after two consecutive bumper crops, he said.

Marcus Noland, a Korea specialist at the Institute for International Economics in Washington, said millions of dollars in Chinese investment went into North Korea during the first half of 2006, more than the country could absorb.

Signs of progress are evident to Steve Linton, 56, who has made more than 50 trips to North Korea in the last 15 years. The son and grandson of Christian missionaries, Linton heads the Eugene Bell Foundation, which has delivered medical equipment to about 70 hospitals throughout the country.

“It used to be that people were visibly thinner in the spring,” when food from the previous year’s harvest had run out and new crops were about to be planted, said Linton, who last visited North Korea in May. Now, he said, “that distinction has pretty much disappeared.”

Linton has noticed that North Koreans are better dressed and that there are more bicycles in a country where a decade ago, nearly everyone traveled on foot. “It’s not lightning speed, but it’s gradual change,” he said.

Emerging markets

Pyongyang, a gloomy capital of bland concrete high-rises and little commerce a decade ago, has a few dozen shops and many sidewalk stalls selling ice cream, cookies, flowers, even videocassettes, said Simon Cockerell, manager for Beijing-based Koryo Tours, which organizes trips to North Korea.

Cockerell said there are four or five billboards for cars, the first commercial advertising in the country. Electricity blackouts, once common, are rare in the capital, he said.

Other indicators of an economic cushion include:

•A resumption of a state-run rationing system that hands out about half a pound of grain daily to city residents, who make up 70% of North Korea’s 22 million people. DeMargerie said North Korean officials told his organization that rationing, which collapsed during a famine in the 1990s, resumed last year. It provides corn or rice to make porridge, a mainstay of the North Korean diet.

•Diversification of oil suppliers. China provides about 80% of North Korean fuel, and Iran and Indonesia supply most of the rest, Quinones said. That gives supply alternatives should China carry out threats to restrict deliveries. Noland said North Korea also may have stockpiled diesel fuel that South Korea provided in 2004.

Noland, who spent several weeks in China last summer along the 880-mile border with North Korea, said economic progress is notable for one group of new entrepreneurs: managers of shuttered state-owned factories who are trading coke, coal and iron ore for cheap Chinese consumer goods and food, which they then sell to fellow North Koreans.

“A lot of small-scale activity in North Korea is done by state-owned enterprises,” Noland said. “They have transformed themselves into retailers. I call it the ‘Wal-Martization’ of the North Korean economy.”

Troubles remain

On the negative side, trade with China, which totaled more than $1.5 billion last year, is down about 30% this year because of the difficulty of transferring funds to North Korean bank accounts, said Nam Sung Wook, head of North Korean Studies at Korea University in Seoul. The problem stems from U.S. action last year to freeze North Korean accounts in a bank in the Chinese enclave of Macau linked to counterfeiting and money laundering.

“There is some confusion among traders in Dandong,” a Chinese city across the Yalu River from North Korea that has become a center of cross-border commerce, Nam said. He forecasts negative growth for the North Korean economy this year after 2.2% growth last year. Even so, new sanctions “will not collapse the North Korean economy,” he said.

Those likely to suffer most are salaried urban professionals, said Nam, who visited Pyongyang in July. He said he heard grumbling from technocrats and professors, whose average monthly pay comes out to about $33 at the official exchange rate but only $5 on the black market.

North Korea also has massive infrastructure needs that make it difficult to sustain economic gains. DeMargerie said only 20%-25% of households have access to clean running water, and the sanitation system is becoming a serious health hazard.

Still, Noland predicted, “They can make it through the winter. They are hunkering down and believe they can survive until the world accepts them as a nuclear power.”

Rice conceded that sanctions are no certain solution. “I think we’ll be at this for a while,” she said. “I can’t tell you how long.”

From counterpunch.org:
10/14/2006
Gary Leupp

All three countries labeled “the Axis of Evil” by President Bush in 2002 are presently religious states. Iran is of course a Shiite theocracy, while the government of formerly secularist Iraq—to the extent it has a government at all—is dominated by Shiite fundamentalists. North Korea has long practiced its state religion, Kim Il-songism.

According to North Korean scriptures, when the Great Leader Kim Il-song died in 1994, thousands of cranes descended from Heaven to fetch him, and his portrait appeared high in the firmament. Immediately villages and towns throughout the nation began to construct Towers of Eternal Life, the main one rising 93 meters over Kim’s mausoleum in Pyongyang. The Great Leader’s son, the Dear Leader Kim Jong-il, took power, declining to assume the title of President. The Constitution of the Democratic People’s Republic of Korea restricts that title forever to the Great Leader, whom the Dear Leader has proclaimed, “will always be with us.” The Dear Leader himself was born on Mt. Paektu, the highest mountain in Korea and Manchuria long revered by Koreans as sacred and the birthplace of their nation, in 1942. (Unbelievers say he was born in 1941 in Vyatskoye, in Siberia, in the Soviet Union.) His birth in a humble log cabin brought joy to the cosmos: a double rainbow appeared over the peak, a new star rose in the heavens, and a swallow descended to herald his birth. (Thus he is called, among other monikers, the Heaven-Descended General.) When he was 32 years old, the Workers’ Party of Korea and the people of Korea unanimously elected him their leader. When he visited Panmunjom, a fog descended to protect him from South Korean snipers, but when he was out of danger, the mist dramatically listed and glorious sunlight shone all around him. . . You get the idea.

Now, how did it come about that a socialist republic established by a Marxist-Leninist party in 1948 came under the spell of this state religion and its peculiar mythology? Some might say that Marxism-Leninism is itself a religion, but they misapply the term. “Religion” proper doesn’t refer to just any ideology or thought system, but only to those that posit supernatural phenomena such as life after death, miracles and the existence of deities. Marxism as a variant of philosophical materialism explicitly rejects such phenomena. Some socialist societies have surely produced personality cults, distorted or fabricated histories, dogmatism and fanaticism. And of course when a leader dies, the party has said, “He will always be with us” in a metaphorical sense. The Soviets early on adopted the custom of embalming revolutionary leaders, and the Chinese, Vietnamese and Koreans have followed suite. But what we see in the DPRK is more than a personality cult. It seems to me more akin to the State Shinto imposed on the Korean peninsula by the Japanese imperialists after 1905.

State Shinto, itself developed after 1868 in specific emulation of European state churches, emphasized the divine origins of the Japanese emperors, descended in an unbroken family line from the establishment of the Empire by Jinmu, great-great-grandson of the Sun Goddess Amaterasu. State Shinto emphasized the kokutai or “national essence,” the unbreakable unity of the Japanese islands (born from the bodies of the kami or gods), the Japanese people, their divine emperor, and all the kami with the Sun Goddess at their head. It was a vague concept that boiled down to obedience to state authority and to that solar disk national flag. (We find this sun worship meme in Kim Il-songism too. The DPRK Constitution states, “The great leader Comrade Kim Il Sung is the sun of the nation and the lodestar of the reunification of the fatherland.” A monumental artwork called “the Figure of the Sun” erected to mark the 100-day memorial service for Kim in 1994, adorns a hill overlooking Pyongyang.)

The Meiji-era reformers who created Japan’s state religion were well-educated men who probably didn’t believe the mythology literally, but thought it would allow for the effective control of the indoctrinated masses. It did in fact work fairly well, up until Japan’s crushing defeat in 1945. The U.S. Occupation then abolished it (leaving “folk Shinto” as opposed to State Shinto alone), and forced Emperor Hirohito to publicly renounce any claim to divinity. He could have been tried for war crimes; the Allies could have ended the myth-shrouded monarchy right then. But the U.S. Occupation authorities found the residual aura of sanctity surrounding the office useful. Hirohito was, to Gen. Douglas MacArthur, the “queen bee” whose cooperation would ensure mass compliance with Occupation objectives. The emperor remains a sacerdotal figure, the High Priest of the Shinto faith, enthroned in a religious ceremony, offering prayers on behalf of the nation to the gods.

Growing up under Japanese occupation, Kim Il-song could have observed the usages of a state religion in the service of a hereditary monarchy linked to Heaven. Maybe these observations subconsciously affected the evolution of his thinking. Once in power in North Korea, from 1945, he increasingly built a personality cult, initially modeled after Stalin’s but by the 1970s plainly monarchical in nature. It integrated Confucian values of filial piety and obedience, and glorified the entire family of the Great Leader, including especially the crown prince Jong-il.

Tens of thousands of “research rooms” have been constructed throughout the country, which persons are required to visit at regular intervals, bowing to the portraits of the two Kims the way that all Japanese (and colonized Koreans and Taiwanese) used to have to bow to the Japanese emperor’s portrait.

As Hwang Jang Yop, once International Secretary of the Korean Workers’ Party, has written, “Kim Jong Il went to great lengths to create the Kim Il Sung personality cult, and Kim Il Sung led the efforts to turn Kim Jong Il into a god.” (It is perhaps not surprising that the Great Leader warmly welcomed the Rev. Billy Graham to Pyongyang in 1992 and 1994, where he preached his brand of Christianity in Protestant and Catholic churches and at Kim Il-song University. Kim was no doubt appreciative of the power of religion, having created his own.)

The Chinese communists (when they were communists) referred poetically to “heaven,” as in the 1970s expression “There is great disorder under heaven, the situation is excellent.” Chinese Confucianism and Daoism both allude to Heaven (Tian) in the sense of a moral cosmic order that confers its mandate on successive dynasties of Chinese rulers. The word occurs in Chinese literature in so many contexts that it’s natural for Chinese Marxists to use it metaphorically. But Kim Il-song chose “believing in the people as in heaven” as his motto, implying perhaps that one should believe in both; and wrote a poem on the occasion of his beloved son’s 50th birthday: “Heaven and earth shake with the resounding cheers of all the people united in praising him.” He really seems to have wanted the people to believe in a celestial realm conferring its mandate on his dynasty.

In a Tungusic myth, the ancient Korean nation of Choson was founded by the son of a bear who had been transformed into a woman by Hwanung, ruler of a divine city on Mt. Paektu, and a tiger. I’ve read that this myth has been reworked to suggest to North Korean school children that the Kims came down from heaven to the top of the sacred mountain, where they were transformed into human beings. (There may be some shared memes with Shinto here. In the Japanese myth, the grandson of the Sun Goddess descends to earth, to a mountain peak in Kyushu, marries the daughter of an earthly deity, loses his immortality, and begets two sons one of whom sires the first emperor, Jinmu, by a sea princess who turns out to be a dragon. The Japanese imperial family also came down from heaven, and became human.) Heaven clearly plays a role in Kim Il-songism as it did in State Shinto.

Where does Marxism-Leninism fit in here? According to one report, while there are portraits of the Great and Dear Leaders all over Pyongyang, “there are only two public pictures in Pyongyang of people who do not belong to the Kim family–in the main square are two smallish images, one of Marx and one of Lenin.”

That suggests at least some small formal deference to the communist pioneers. But the Dear Leader stated in a major speech in 1990:

“We could not literally accept the Marxist theory which had been advanced on the premises of the socio-historic conditions of the developed European capitalist countries, or the Leninist theory presented in the situation of Russia where capitalism was developed to the second grade. We had had to find a solution to every problem arising in the revolution from the standpoint of Juche.”

This is the supposedly brilliant idea of “self-reliance” or as the Great Leader put it, the principle that “man is the master of everything and decides everything.” (The “standpoint” of course sounds rather trite and vague at worst, while not overtly religious. But born out of Kim’s brain supposedly when he was only 18 years old, it is the faith of the masses and the ideological basis for the state—rather like kokutai in prewar and wartime Japan.) The DPRK’s new (1998) Constitution omits any reference to Marxism-Leninism whatsoever. Rather the document “embodies Comrade Kim Il-song’s Juche state construction ideology.”

Still, those portraits of Marx and Lenin are there in Pyongyang. DPRK propaganda continues to describe the late Kim as “a thoroughgoing Marxist-Leninist.” Juche is described as a “creative application of Marxism-Leninism.” The Korean Workers’ Party continues to cultivate ties with more traditional, perhaps more “legitimate,” Marxist-Leninist parties including the (Maoist) Communist Party of the Philippines.

Some material by Marx, Engels and Lenin circulates in North Korea, and the Marxist dictum, “Religion is the opium of the masses” is universally known. But according to a Russian study in 1995, “the works by Marx, Engels, and Lenin are not only excluded from the standard [school] curriculum, but are generally forbidden for lay readers. Almost all the classical works of Marxism-Leninism, as well as foreign works on the Marxist (that is, other than [Juche]) philosophy are kept in special depositories, along with other kinds of subversive literature. Such works are accessible only to specialists with special permits.” (One thinks of the Catholic Church in the Middle Ages restricting Bible reading to the trusted clergy, and discouraging it among the masses.)

I imagine some with those special permits are able to read Marx’s famous 1844 essay in which the “opium of the masses” phrase occurs:

“Religious distress is at the same time the expression of real distress and the protest against real distress. Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of a spiritless situation. It is the opium of the people. The abolition of religion as the illusory happiness of the people is required for their real happiness. The demand to give up the illusion about its condition is the demand to give up a condition which needs illusions.”

Maybe the rare North Korean student of Marxism, acquiring some real understanding of the Marxist view of religion, can see all around him or her conditions which require mass illusions and delusions in order to continue. There are some signs of resistance here and there to the Kim cult, which would seem to be a good thing.

Having said that (and always trying to think dialectically), I don’t believe that life in the DPRK is quite the hell—another religious concept—that the mainstream media would have us believe it is. One should try to look at things in perspective. We hear much of the terrible famine that lasted from about 1995 to 2001, killing hundreds of thousands if not millions. But North Korea was not always a disaster. As of 1980, infant mortality in the north was lower than in the south, life expectancy was higher, and per capita energy usage was actually double that in the south (Boston Globe, Dec. 31, 2003). Even after the famine and accompanying problems, a visitor to Pyongyang in 2002 declared:

“Housing in Pyongyang is of surprising quality. In the past 30 years–and mostly in the past 20–hundreds of huge apartment houses have been built. Pyongyang is a city of high-rises, with probably the highest average building height of any city in the world. Although the quality is below that of the West, it is far above that found in the former Soviet Union. Buildings are finished and painted and there is at least a pretense of maintenance; even older buildings do not look neglected. Nothing looks as though it is on the verge of falling down. . .

“Although a bit dreary, the shops in Pyongyang are far from empty. Each apartment building has some sort of shop on the main floor, and food shops can usually be found within one or two buildings from any given home. Apart from these basic, Soviet-style shops, there are a few department stores carrying a wide range of goods. . . “While not snappy dressers, North Koreans are certainly clean and tidy, and exceptionally well dressed. . . There is no shortage of clothing, and clothing stores and fabric shops are open daily.”

There’s apparently one hotel disco and some karaoke bars in Pyongyang. No doubt Kim Il-songism can provide some with the “illusory happiness” about which Marx wrote, and it is possible that genuine popular feelings as well as feelings orchestrated from above have contributed to the production of the North Korean faith. The DPRK might not be all distress and oppression. But neither is it a socialist society in any sense Marx or Lenin would have recognized, to say nothing of a classless, communist society. It is among other things a religious society in a world where nations led by religious nuts are facing off, some seemingly hell-bent on producing a prophesized apocalypse. I find no cause for either comfort or particular alarm in the Dear Leader’s October 9 nuclear blast; if it deters a U.S. attack it’s achieved its purpose, and however bizarre Jong-il may be he’s probably not crazy enough to provoke his nation’s destruction by an attack on the U.S. or Japan. I’m more concerned that Bush will do something stupid in response to the test.

In any case, the confrontation here isn’t between “freedom” and “one of the world’s last communist regimes,” nor even between fundamentalist Christian Bush and Kim Il-songist Kim Jong-il. It’s between a weird hermetic regime under threat and determined to survive in its small space, using a cult to control its people, and a weird much more dangerous regime under the delusion that God wants it to smite His enemies and to control the whole world. Both are in the business of peddling “illusions of happiness.” Neither is much concerned about the “real happiness” of people. Both ought to be changed—by those they oppress, demanding an end to conditions requiring illusions.

Gary Leupp is Professor of History at Tufts University, and Adjunct Professor of Comparative Religion.

NPR
Morning Edition
10/13/2006

When North Korea recently opened the door to foreign investment, cartoonist Guy Delisle became one of the few Westerners to witness current conditions in the capital city of Pyongyang. Delisle found himself in the city on a work visa for a French film animation company.

Delisle could only explore Pyongyang and its countryside if he was accompanied by his translator and a guide. Among the statues, portraits and propaganda of leaders Kim Il-Sung and his son Kim Jong-Il, Delisle observed the culture and lives of the few North Koreans he encountered. His musings on life in the regime form the basis of the graphic novel: Pyongyang: A Journey to North Korea.

Steve Inskeep speaks with Delisle about his work, his choice of coloring in his novel and what he really thinks is going on inside the heads of North Korean citizens.

There are two great audio clips, so click here to hear them.

Paul Tija
GPI Consultancy
October 10, 2006

IN PDF: IT_in_NKorea.pdf

Surprising business opportunities in Pyongyang

Dutch companies are increasingly conducting Information Technology projects in low-cost countries. Also known as offshore sourcing, this way of working means that labor-intensive activities, such as the programming of computer software, are being done abroad. Asia is the most popular software destination, and Indian IT firms are involved in large projects for Dutch enterprises such as ANB Amro Bank, KLM, Philips or Heineken. More recently, we notice a growth in the software collaboration with China.

As a Dutch IT consultant, I am specialized in offshore software development projects, and I regularly travel to India and China. Recently, I was invited for a study tour to an Asian country which I had never visited before: North Korea. I had my doubts whether to accept this invitation. After all, when we read about North Korea, it is mostly not about its software capabilities. The current focus of the press is on its nuclear activities and it is a country where the Cold War has not even ended, so I was not sure if such a visit would be useful. And finally, such a trip to a farshore country would at least take a week.

Nevertheless, I decided to visit this country. This decision was mainly based on what I had seen in China. I had already traveled to China five times this year, and the fast growth of China as a major IT destination was very clear to me. China is now the production factory of the world, but China’s software industry has emerged to become a global player in just 5 years. Several of the largest Indian IT service providers, including TCS, Infosys, Wipro and Satyam, have established their offices in China, taking advantage of the growing popularity of this country. However, I also noticed that some Chinese companies themselves are outsourcing IT work to neighboring North Korea. And since my profession is being an offshore consultant, I have no choice but to investigate these new trends in country selection, so I accepted the invitation to visit Pyongyang, the capital of North Korea. I happened to be the first Dutch consultant to research the North Korean IT-sector ever, and the one-week tour turned out to be extremely interesting. Quite surprisingly, the country offers interesting business opportunities for European companies.

Korea Computer Center
My study tour was organized by KCC (Korea Computer Center), the largest IT-company in the country. Established in 1990, it is state-owned and has more than one thousand employees. It is headquartered in Pyongyang and has regional branches in eleven cities. My accommodation has been arranged at the KCC campus, which comprises of several office buildings. It also has iown hostel, with a swimming pool, for foreign guests. These guests are mainly Asian (during my stay, there were Chinese delegations), so I had to get used to having rice for breakfast. In the evenings, the restaurant doubled as a karaoke bar, and some of the waitresses appeared to be talented singers. The campus is located in a rather attractive green area, and the butterflies flying around were the largest I had ever seen. It also has sporting grounds, and basketball was during my one-week visit the most popular game among KCC staff. An internal competition takes place during lunch hours.

Korea Computer Center is organized in different specialized business units. Before their representatives started with presentations, I received a tour through the premises. As is the case in India and China, the programmers at KCC also work in cubicles. KCC develops various software products, of which some are especially designed for the local market. Examples are a Korean version of Linux and translation software between Korean, Japanese, Chinese and English. They also produce software for Korean character and handwriting recognition and voice recognition. Other products are made for export, and North Korean games to be used on mobile phones are already quite popular in Japan. There are also games for PC’s, Nintendo and Playstation; their computer version of Go, an Asian chess game, has won the world championship for Go games for several years. The games department has a display showing all the trophies which were won during international competitions.

For several years, KCC is active as an offshore services provider and it works for clients in China, South Korea and Japan. For these markets, North Korea is a nearshore destination, and quite a few North Korean IT-staff do speak Chinese or Japanese. KCC also has branch offices in various Chinese cities, including Beijing and Dalian. It works for both foreign software product companies and end user firms, such as banks. For these clients, different types of applications have been developed, for example in the field of finance, security or Human Resources. Europe is a relatively new market for the North Koreans, and some of their products have been showed for the first time at the large international IT-exhibition CeBIT, in 2006 in Hannover, Germany.

The level of IT-expertise was high, with attention to quality through the use of ISO9001, CMMI and Six Sigma. KCC develops embedded software for the newest generation of digital television, for multimedia-players and for PDA’s (Personal Digital Assistants). Surprisingly, it also produces the software for the mobile phones of South Korean Samsung. I was shown innovative software which could recognize music by humming a few sounds. In less than a second, the melody was recognized from a database of more than 500 songs. Also applications for home use were developed, such as accessing the Internet by using a mobile phone to adjust the air conditioning. KCC also Photo: KCC campus in Pyongyang made software to recognize faces on photographs and video films. They gave me demonstrations of video-conferencing systems, and applications for distance learning. There was a separate medical department, which made software to be used by hospitals and doctors, such as systems to check the condition of heart and blood vessels.

Supply of IT-labor In countries such as The Netherlands, the enrollment in courses in Information Technology is not popular anymore among the youth, and a shortage of software engineers is expected. This situation is different in many offshore countries, where a career in IT is very ‘cool’. Also in North Korea, large numbers of students have an interest to study IT. I visited in Pyongyang the large Kim Chaek University of Technology, where there are much more applications, than available places. Although my visit took place during the summer holiday, there were still students around at the faculty of Informatics. In order to gain experience, they were conducting projects for foreign companies. I spoke with students who were programming computer games or were developing software for PDA’s. A large pool of technically qualified workforce is now available in North Korea. Some of the staff is taking courses abroad and foreign teachers (e.g. from India) are regularly invited to teach classes in Pyongyang.

Business Process Outsourcing
Some companies in Pyongyang are involved in activities in the field of BPO (Business Process Outsourcing), an areas which includes various kinds of administrative work. Because of the available knowledge of the Japanese language, the North Koreans are offering back-office services to western companies engaged in doing business with Japan.

In order to get an understanding of this type of work, I visited Dakor, which was established 10 years ago in cooperation with a Swiss firm. This joint venture is located at the opposite side of Pyongyang, across the Taedong river. It works for European research companies, and it receives from them scanned survey forms electronically on a daily basis. It processes these papers and returns the results within 48 hours to their clients. The company is also conducting data-entry work for international organizations such as the United Nations and the International Red Cross. Their data, which is stored on paper only, is being made available for use online. Dakor is also offering additional services, such as producing 2D and 3D designs for architectural firms, and it is also programming websites.

Animation
North Korea is already famous as a production location for high quality cartoons and animation. Staff of the American Walt Disney Corporation described the country as one of the most talented centers of animation in the world. The specialized state corporation SEK Studio has more than 1500 employees, and works for several European producers of children films. New companies are being founded as well, and I visited Tin Ming Alan CG Studio. This firm was set up in early 2006, and is located in a new office building in the outskirts of Pyongyang. Its main focus is in Computer Graphics and in 2D and 3D animation it uses the latest hardware and software, including Maja. Some of the staff of Tin Ming Alan speak Chinese and the company has a marketing office in China. They are hired by Chinese advertisement companies to make the animation for TV-commercials. It also works on animation to be included in computer games.  Several employees of this young company come from other animation studios and have more than ten years of experience in this field.

The North Korean IT sector seems to be dynamic, where new firms are being established, and where business units of larger organizations are being spun-off into new ventures. I visited the Gwang Myong IT Center, which is a spin-off from Korea Computer Center. It is specialized in network software and security, and it produces anti-virus, data encryption, data recovery, and fingerprint software. This firmis internationally active as well; it has an office in China and among its clients are financial institutions in Japan.

Issues of country selection
My study tour revealed that North Korea has specific advantages. The local tariffs are lower than in India or China, thus giving western firms the option of considerable cost reductions. The commitment of North Korean IT-firms is also high, and the country is therefore also an offshore option for especially smaller or medium sized western software companies. Outsourcing work to North Korea could also be used to foster innovation (e.g. developing better products or new applications). This country can be used for research as well (from Linux to parallel processing).  Based from my interaction with Korean managers and software engineers, I do not believe that the cultural differences are larger than with China or India. My communication with them, both formal and informal, was pleasant. Communicating with North Koreans is clearly less difficult than with Japanese.

The North Korean companies have experiences with a wide range of development platforms. They work with Assembler, Cobol, C, Visual Studio .Net, Visual C/C++, Visual Basic, Java, JBuilder, Powerbuilder, Delphi, Flash, XML, Ajax, PHP, Perl, Oracle, SQL Server, MySQL, etc. They can do development work for administrative applications, but also technical software, such as embedded software or PLC’s. North Korea is very advanced in areas such as animation and games, and I have seen a range of titles, including table tennis, chess, golf, or beach volley. The design of many of their applications was modern and according to the western taste.

Over the recent years, North Korea is opening up for foreign business. This process makes offshore sourcing easier, and even investing in an own software subsidiary or joint venture can be considered. This does not mean that North Korea is potential software destination for every user of offshore services. The country is a subject of international political tensions. In addition, a number of circumstances require specific attention, such as the command of the English Language.  As is the case with China, the North Korean IT staff are able to read english bu thtey do not speak it very well.  Another issue is the relative isolation of the country, and in order to arrange an invitation, a visa is required.  The limited number of direct flights is another disadvantage; one can only travel directly from Beijing or Moscow.  If projects will require a lot of communication or knowledge transfer, it might be recommended to do some parts of the work in China, by the Chinese branches of the North Korean companies. Executing a small pilot project is the best way to investigate the opportunities in more detail.

Conclusion
North Korea has a large number of skilled IT professionals, and it has a high level of IT expertise in various areas.  The country is evolving into a nearshore software destination for a growing number of clients from Japan, China and South Korea. An interesting example of their success is the work they are doing for South Korean giant Samsung, in the field of embedded software for mobile phones.

North Korean IT-companies are now also targeting the European market, and the low tariffs and the available skills are major advantages.  Smaller and medium sized software companies can consider this country as a potential offshore destination, and should research the opportunities for collaboration or investment in more detail. Taking part in a study tour, as I have done, is an excellent way to get more insight in the actual business opportunities of a country – not only in the case of North Korea but for all nearshore and farshore destinations.

Paul Tija is the founder of GPI Consultancy, an independent Dutch Consultancy firm in the in the field of offshore IT sourcing. E-mail: info@gpic.nl
GPI Consultancy, Postbus 26151, 3002 ED Rotterdam
Tel: +31-10-4254172 E-mail: info@gpic.nl http://www.gpic.nl

From Reuters:
Two Koreas to compete as one by 2014 Games
10/2/2006

North and South Korea are expected to compete as a joint team by the 2014 Winter Olympics, a top official of the South Korean city that is bidding for the games said on Monday.

The two Koreas have long tried to put together a unified team for the Olympics and have been in talks to form one for the 2008 Summer Games in Beijing, but those discussions have been marred by political and other problems.

“We are planning on having a joint team by the time of the 2014 Games,” said Bahng Jae-heung, secretary-general of the Pyeongchang bid committee.

“At this time, we are taking it for granted that there will be a joint team,” he told Reuters in the Pyeongchang mountain resort.

In September, the International Olympic Committee brought officials from the team Koreas together in Switzerland to help get their talks back on track for forming a joint team.

North Korea had suspended several cooperation projects with the South, including discussions on a joint Olympic team, in anger over Seoul’s decision to suspend regular food aid after the North defied international warnings and test-fired seven missiles in July.

Bahng said the Pyeongchang bid committee does not expect to co-host events with the North if the rustic mountain town about 200 km (120 miles) east of Seoul wins the Games because of Olympic rules and the distance to the North.

North and South Korea agreed to send a combined team to the Beijing games in November 2005, but have since failed to overcome differences about how it should be selected.

Pyongyang wants equal representation of athletes from the North and South, while Seoul says selection should be on merit to create the most competitive team possible.

South Korea has a larger population and better funded sport associations than its northern neighbour.

Still technically at war after their 1950-53 conflict ended without a peace treaty, North and South Korea first considered competing as a joint team at the 1964 Olympics in Tokyo, but years of acrimony and military tensions have prevented the idea from coming to pass.

North and South Korea have marched together at past Olympics, including this year’s Winter Games in Turin, but competed as separate teams.

Joong Ang Daily:
9/26/2006
Lee Ho-jeong

Kim Moon-soo, Gyeonggi province governor, said yesterday that the provincial government is working on two projects in cooperation with North Korea.

Mr. Kim spoke at a press conference in Seoul entitled “Gyeonggi province opens the future of Korea.”

According to the Gyeonggi governor, the first project is called, “Gyeonggi-Pyongyang Rice Farming Project.” The site of the project is Danggok near Pyongyang, North Korea.

The project helps North Korean farmers advance their farming technology in crop harvesting by providing tractors and other advanced farming tools. In addition, the project provides humanitarian assistance such as health care and day care centers.

The second project is enhancing cooperation in the field of film animation.

“North Korean’s animation skills rank among the world’s best, but they lack infrastructure and technology,” Mr. Kim said. In the project, North Korean animators are teamed with South Korean animation film production companies to produce an animated film.

Mr. Kim said the cooperative effort will also contribute to improving humanitarian problems in North Korea.

The governor also said Gyeonggi province is taking steps to increase foreign investment in the region.

“My predecessor, Sohn Hak-kyu, has done a wonderful job drawing foreign investment that helps to illuminate Gyeonggi province,” Mr. Kim said.

The governor said that to draw more foreign investment, the provincial government has to strengthen incentives. For example, public servants who bring in foreign investment will receive a bonus of 200 million won ($211,860). And if a foreign private business is brought in, the bonus is 300 million won.

In addition, Mr. Kim said the Gyeonggi government will reduce the regulations and simplify rules.

The governor has appointed a Samsung Electronics official as the provincial government’s counselor on foreign investment and established a private counseling committee consisting of 20 private entrepreneurs.

The governor also stressed that the free trade agreement now being negotiated between Korea and the United States will be a huge help for foreign investment.

Korea Times:
Andrei Lankov
9/25/2006

For a Stalinist country, North Korea was unique in its permissive approach to hard currency transactions. Most Communist states followed the Soviet example and strictly forbade all private trading in currency. There were foreign currency shops in the Soviet Union, but only the lucky holders of foreign passports could go there.

Until the late 1980s, all Soviet citizens returning from overseas were required to submit their currency to the state-run banks within 72 hours of crossing the border. In exchange, they were given special coupons that could be used as money in special shops stuffed with quality goods. They couldn’t be used in “real” currency shops, which targeted foreigners and where the merchandise was even better. By keeping more than just a few one-dollar bills at home, a Soviet citizen committed a crime.

Professional foreign currency speculators existed, but their business was extremely risky.

According to Soviet law, they could face the death penalty for their activities, and some of them were actually shot in otherwise liberal 1960s. Thus, everybody who wanted to buy or sell currency had to be very careful.

But this was not the case in North Korea. From the late 1970s currency shops operated freely in Pyongyang and other major cities, open to any North Korean who had dollars or yen.

No questions were asked by the guards. Unlike their Soviet counterparts, the shops sold not only durables, but also daily necessities and food stuffs. Currency exchange outside the banks was illegal, but it was considered a relatively minor crime.

This approach, unusually permissive for a very repressive and restrictive regime, reflected one North Korean peculiarity.

The presence of some 95,000 ethnic Koreans who were lured into moving to the North from Japan during the 1990s. The government discovered that these people could attract remittances from Japan, so a network of the state-run currency shops emerged to suck the yen into the state’s coffers.

Prices in the shops were roughly twice the international average, with the difference going to the state.

But in the early 1990s another type of dollar-based economy emerged. From 1990 the value of the North Korean won was in steady decline. The public distribution system was falling apart, and many people turned to foreign currency as the major means of protecting their savings from both inflation and the ever present danger of a confiscatory money reform. Thus, in the early 1990s a dollar-based economy emerged.

The exchange rate began to climb. The official rate was 2.2 won per dollar. Like most other Communist states, North Korea grossly overvalued its currency to squeeze more money from foreign visitors. But nobody was trading the won at such grotesquely high rate. By the time the great famine struck the country in the late 1990s, the actual exchange rate was approximately 220 won, a hundred times the official average.

Market traders and emerging entrepreneurs of all kinds ceased to use the North Korean won for any large-scale transactions.

The dollar also became the major medium of saving. Due to the lack of data and peculiarities of the Communist economy, it is difficult to give precise figures, but the annual inflation rate over the last few years has exceeded 100 percent.

The major turning point was reached in 2002, when the government introduced economic reforms. Actually, they were formally known as “special measures.”

The word “reform” had to be avoided in the official parlance since it hinted that something in the North Korean perfect society needed adjustment, and that could not possibly be true.

The new official rate of exchange was 165 won per dollar.

This was already well below the true market rate but still constituted an overnight 7,500 percent depreciation of the national currency. This is probably not a world record, but it’s still an impressive figure.

Simultaneously, the government raised prices in state shops and won-denominated salaries. This was done in an uneven fashion. Some groups gained far more than others, with the military security personnel and academic staff being the most prominent winners.

This meant the release of huge amount of cash, which flooded the economy and sped up inflation. In 2005 the exchange rate soon approached the level of 2200 won to 2300 won per dollar.

It has been discussed whether such hyper-inflation was provoked deliberately, as a result of some calculations, or came about through planners’ mistakes. I am inclined to believe the second option.

North Korean officials are exceptionally naive when it comes to the basics of the market economy. I would not be surprised if we eventually learn that in 2002 they hoped that the prices would stand still once they had been increased to market levels.

All this is often described as the dollarization of North Korean economy. However, in late 2002 the North Koreans declared that they would switch to euros as the major currency unit in their dealings with the outside world. Since then, all North Korean shops exhibit prices in euros, not dollars.

However, this act did not change actual habits much. Transactions are still usually based on the good old greenback.

Those groups who had access to the currency tended to fare much better than others. Some of those groups were once underprivileged, and the great nationwide disaster of the 1990s actually improved their social standing.