Mixed prospects for economic reform under Kim Jong-un regime

July 26th, 2012

Institute for Far Eastern Studies (IFES)
2012-7-19

There is increasing speculation that the new Kim Jong Un regime is pushing toward economic reform. This may be due to Kim’s young age, as he is considered to be more open to change than his father.

According to an unnamed South Korean official, there is a growing prospect that North Korea will soon release a new economic reform measure. More and more testimonies from North Korean defectors suggest that since Kim Jong Il’s death, reform measures are slowly taking place. But it is unclear when such new economic reform measure will occur.

North Korea’s behavior also implies that certain economic reform may occur. The spokesperson for the DPRK’s foreign ministry made a statement last month to the KCNA, “The dear respected Kim Jong Un has already set forth a goal of Korean-style development and strategies and tactics for enabling the Korean people to live well with nothing to desire more in the world. He is now wisely leading the general advance of the Korean people for economic construction and improving the standard of people’s living.” This indirectly suggests that the Kim Jong Un regime will put forth a new economic measure.

On the other hand, the content and timing of such still remains uncertain. According to the NK Intellectuals Solidarity, the Central Committee of Workers’ Party decided on a policy to introduce a new economic management system on August 1, one that would be centered around the cabinet.

However, the South Korea-based online newspaper Daily NK released an article on July 10 quoting its source from North Pyongan Province that a new “June 28 Measure” was released internally. This measure is reportedly a type of “our-way” new economic management system, to be enforced from October 1.

What path North Korea will take with the new economic reform is unknown. However, the reform will comprise various economic sectors including agriculture, commerce, production and distribution. Details of the reform are unavailable.

The NK Intellectuals Solidarity predicted that new measures will be centered around the legalization of permitting private investment and commercial activities in service and trade sectors and private contract system for agriculture.

In contrast, Daily NK expects the core of the new economic measure will involve downsizing of cooperative farms (from 10-to-25 people in size to 4-to-6 people) and permit farming in unused lands; enforce government procurement system based on market price and strengthening self-supporting accounting system for companies.

The Choson Sinbo, a Japan-based pro-North Korean newspaper ran an editorial on July 11 that North Korea’s economic revival strategy is to follow the global trend but doing it “our-way.” The news also added that North Korea has already entered the path toward economic restoration and praised Kim Jong Un’s “our-style development goal and strategy” to improve the lives of the people while following the current trend of knowledge-based economy.

The news explicated that emphasis on “following the global trend” did not mean following and copying other nations but aimed for the nation to develop and rise on its own to reach the most advanced level of society. In addition, it is considered a refute against South Korea’s over interpretation about the possibility for opening and reform in North Korea during the Kim Jong Un era.

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Rason architecture development concept being implemented

July 25th, 2012

On 2010-11-5, the Choson Ilbo published a report on a North Korean video which portrayed an urban/architectural vision for the future of Rajin (Rason). I have uploaded this video to YouTube:

A better-quality version of the video can be found on Youku (PR of China) here.

For those of you who don’t want to watch the video again, here are the relevant images:

 

The video begins with a quote by Kim Il-sung who insists that the DPRK needs to make Rason better than Singapore after-which it elucidates the viewer as to how this task will be accomplished.  Part one of the video focuses on the reconstruction of downtown Rajin, where a broad new north-south boulevard lined with new housing and facilities is set to become the new city center.

When I first saw this video I interpreted it as more “wishful thinking” on the part of North Korea’s urban planners than a manifestation of actual policy proposals. According to new[ish] satellite imagery on Google Earth, however, it appears that the North Koreans are actually going for it:

 

The image on the left is an old one archived on my computer so I unfortunately don’t know the date. The image on the right is from Google Earth and was taken on 2011-6-19.  The recenlty released Google Earth image actually predates the release of the North Korean video–so this is what the city looked like when the video was made public. Unfortunately I have not yet seen any new tourism photos from this area to determine if construction has continued to the present day.

Many houses have been demolished to make way for the new road, and I am not sure to where the dislocated families have been moved. If progress continues, however, many more Rajin residents can expect to see their homes demolished to make way for new high-rise apartments. To see a good example of the urban transition, look at what happened in Ryongchon.

Along the south end of the new road, we can see proposed construction projects in various stages of implementation–from “completed” to “unstarted”:

The Rajin Noodle Restaurant has long been completed.  A new project to the north-east of the restaurant has been launched.  I am not sure, but I believe it is either a new library or health complex. South of that is a construction site that has not yet been launched.  The video also shows a large new stadium scheduled to replace Rajin’s humbe sports field and gymnasium.  This work does not appear to have begun either.

If any readers can understand the video and pass along any helpful information I would appreciate it.

UPDATE 1: Calvin Chua of Choson Exchange writes in with the following commentary:

In general, these are three main characteristics of their urban plan which I gather from the video.

1) Functional Zoning
Like any typical urban master plan, Rason is divided into various zones: commercial, leisure, residential, distributed according to its geographical characteristics of hilly regions and the sea.

2) Emphasis of Axis and Roundabouts
There is a great emphasis on the long axial roads meeting at roundabouts which are filled with monuments and civic buildings. I believe this is largely influenced by their urban plan for Pyongyang which is planned according to early 20th century socialist urban model. In principle, it is should be efficient for vehicular movement and transportation of goods.

3) Relationship with Mountain and Sea and the 3D Effect Narrative
The urban plan is also built upon a visual narrative of the harmony between the mountain and the sea where the buildings are designed and placed strategically to provide a 3-dimensional effect‘입체감’ (a term that is constantly repeated throughout the video).

Aesthetics aside, Rason’s urban plan seems to be quite basic, it lacks the dynamism of other new SEZs, research parks that are currently being developed. Increasingly, cities are becoming more complex and developing the software infrastructure (data cables, monitoring systems, green technologies, etc) are becoming as equally important as developing the physical infrastructure (buildings and roads). New business parks like Songdo in Incheon are fully wired up jointly by IBM and Cisco. Urban planning and management has become a thriving business for tech companies like Siemens to construction conglomerates like Bechtel which offer one-stop solutions from financing to construction and layout grids for the city.

While Rason is far less sophisticated than Songdo, but in order to be a well-functioning SEZ, it needs to consider and provide better urban management systems beyond physical infrastructure. Rason would need to consider the project on a longer term basis since the urban infrastructure provided today will have economic ramifications in future. For example, to rewire or install new technological infrastructure in future would cost much more than planning for future expansion. Perhaps, it will be interesting to uncover their plans for these ‘soft’ infrastructures together with the organisations (multidisciplinary conglomerates) that would invest in them.

However, luck isn’t on Rason’s side, its development might be hindered by its geographical constraints. It is locked within hilly ridges and to pipe cable infrastructure to it might be costly and it also prevents future expansion of the city. As such, there are many hurdles for Rason to cross before becoming a well-functioning city.

UPDATE 2 (2012-10-18): Calvin Chua offers more data in this post on the Choson Exchange web site.

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DPRK and ROK held secret talks over rare earths

July 24th, 2012

According to the Donga Ilbo:

South Korea held two rounds of secret talks with North Korea at an inter-Korean industrial complex in Kaesong at Pyongyang`s request late last year on joint development of rare earth metals in the North. Called the “vitamins of high-tech industries,” rare earth metals are minerals necessary for making smartphones, notebook computers and hybrid vehicles.

The North’s proposal to hold the meetings was made after the South stopped almost all inter-Korean economic cooperation in May 2010, soon after a South Korean naval vessel was sunk by a North Korean torpedo. Whether this will lead to the resumption of inter-Korean economic cooperation remains to be seen.

The Korea Resources Corp., a South Korean state-run resources developer, said Sunday that it held working-level talks with officials of the North’s National Economic Cooperation Federation at the Kaesong Industrial Complex in September and December last year.

In the second contact, the federation handed over four rare earth samples to the South Korean side. An analysis showed that the samples were a type of rare earth metals used to manufacture LCD panels and optical lenses.

A South Korean official who participated in the talks said, “The North strongly proposed that the two Koreas jointly develop coal mines as well as rare earth metals.”

The resources corporation tried to brief North Korea on the results of the sample analysis. No further talks have been held since, however, due to changes in Pyongyang’s political situation following the death of leader Kim Jong Il on Dec. 17 last year.

Still, the corporation said it maintains a “hotline” with its North Korean counterpart and plans to develop resources in the North. CEO Kim Shin-jong briefed South Korean President Lee Myung-bak on the results of the sample analysis in February. He said, “The president encouraged us to carry on after we reported that North Korean rare earth metals are economically promising.”

The South Korean resources development industry estimates that North Korea has 42 types of minerals, including rare earth metals at nearly 700 mines under development. Their value is estimated at nearly 6,984 trillion won (6,133 billion U.S. dollars). In particular, the industry says that while China has made rare earth metals a strategic resource, the North has up to 20 million tons of rare earth deposits. China’s rare deposits are estimated at 55 million tons, accounting for about half of the world’s total.

A South Korean official involved in economic projects in the North said, “We cannot rule out the possibility that inter-Korean economic cooperation projects will be resumed, as (the North`s No. 2 man) Jang Sung Taek and (military bigwig) Choe Ryong Hae, who are known as pragmatists, have rapidly emerged as powerful men,” adding, “Resource development is what the North needs the most and the South can approach this without political burden.”

The Wall Street Journal’s Korea Real Time adds additional details:

North Korea makes occasional claims to have large deposits of rare earths, a potential source of hard currency for the impoverished nation. There are no reliable data on North Korea’s rare earth deposits.

China controls about 95% of the world’s rare-earth production. Rare-earth minerals are used in products ranging from consumer electronics to batteries to defense systems.

Kores invested 6.25 billion won ($5.5 million) in 2003 to jointly develop a graphite mine in North Korea. The project has capacity to produce as much as 3,000 tons of graphite annually and the deal allows Kores to take half of the annual produce for 20 years, according to the official. So far, Kores has collected 850 tons of graphite.

Economic ties between North and South Korea remain almost completely suspended following two attacks on South Korea in 2010 by the North that killed 50 people.

Additional information below:
1. The graphite mine mentioned above is called the Janchon Graphite Mine.  You can learn more about it here.

2. More on rare earths in the DPRK can be found here.

Read the full stories here:
Koreas held 2 secret talks on rare earth metals last year
Donga Ilbo
2012-7-23

South, North Korea Discussed Rare Earth Mining
Wall Street Journal’s Korea Real Time
2012-7-24

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Bank of Korea publishes 2011 DPRK economic estimates

July 23rd, 2012

A couple of weeks ago, the South Korean Central Bank, the Bank of Korea, published its estimate of the size and composition of the North Korean economy in 2011. You can read the finings (PDF) here. I have posted this and many other estimates of the North Korean economy on my “DPRK economic statistics page“.

Here is coverage of the report in Bloomberg/Business Week:

Gross domestic product in the communist nation increased 0.8 percent in 2011 after a 0.5 percent decline in 2010, according to an estimate published by the Bank of Korea in Seoul. The nation’s economy has contracted during four of the last six years, the bank’s data show.

“The manufacturing sector declined, but the agricultural industry enjoyed better weather and more use of fertilizer,” the Bank of Korea said in an e-mailed statement.

North Korea is projected to keep growing under the new leader as its economic ties with China and Russia develop.

“Mineral exports to China and dollars brought in by North Korean workers sent to China and Russia would have driven the country’s GDP growth,” said Koh Yu Hwan, a professor of North Korean studies at Dongguk University in Seoul. “North Korea is expected to be economically stronger under Kim Jong Un as it continues to increase transactions with its allies.”

Kim Jong Un has waged a nationwide campaign to “bring about a turn in agriculture” and increase crop yields, according to a June 7 report carried by the official Korean Central News Agency. North Korea’s agriculture and fisheries sector expanded 5.3 percent in 2011 while manufacturing fell 3 percent, according to the BOK report.

North Korea’s nominal GDP totaled 32 trillion won ($28 billion) in 2011, compared with South Korea’s 1,237 trillion won, the BOK said. North Korea’s per capita income was 1.33 million won while South Korea’s was 25 million won, according to its estimates.

After adjusting for inflation, North Korea’s economy remained smaller at the end of 2011 than it had been in 2008, according to the Bank of Korea.

Here is more from Strategy Page:

The North Korean economy is undergoing changes. In fact, last year there was actually some growth, with GDP increasing .8 percent, versus a .5 percent decline in 2010. The North Korea GDP (about $28 billion, compared to $1,100 billion for South Korea). Thus even with a larger population, the average South Korean has 20 times more income as their northern counterparts. Moreover, income distribution is quite different in the north, where about two-thirds of the population is very poor and very hungry. The other third contains the well-fed ruling elite (whose lavish country estates can be seen via commercial satellite photos) and their supporters (secret police, military officers, bureaucrats) plus the semi-legal merchant class that has been allowed to develop over the last six years to avoid total economic collapse.
The economic decline in 2010, was the result of agricultural (floods) and industrial (massive power shortages) failure. But China came to the rescue by offering to set up mining operations in North Korea and buy billions of dollars-worth of minerals each year. China rebuilt railroads to handle the increased traffic from the remote North Korean mines. In addition, China offered legal jobs for North Koreans in China. The only catch was that the North Korean government took most of the pay. Similar deals have long been used with Russia but China offered far more jobs under more comfortable conditions. Competition for these jobs is fierce in North Korea and the government selects those deemed least likely to run away.

Last year North Korea bought more fertilizer for farmers and the weather was pretty good. That, plus the growing income from Chinese run mines and North Korean workers in China made up for the continuing declines in manufacturing. A good year on the farm is a big deal in North Korea, where farming and fishing are 23 percent of the economy (compared to under three percent in the south). But this year all of Korea is suffering from a record-breaking drought. This is hurting the north a lot more than the south. Although the monsoon (jangma) rains recenly arrived, a month late, the damage was already done in the north. Three months of very hot and very dry weather has seriously damaged crops. The rains will save some of them but at least a fifth of this year’s crops will be lost.

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Pyongyang’s internal announcements on economic policy

July 23rd, 2012

Before you start reading below, I want to let readers know about a DPRK-specific term: “3rd broadcast”. The “3rd broadcast” is a fixed-wire audio transmission that goes directly into the homes of residents in Pyongyang apartment buildings. In these homes, a speaker is mounted to the wall which broadcasts the information much like a radio would–except the signals are coming from a cable, not radio waves.  Because the signal it is not broadcast over radio, it is difficult to know what is being told to the captive audience of Pyongyang residents. This broadcast equipment was featured in the film A State of Mind where the narrator commented “it can be turned down, but it cannot be turned off”.

According to the Daily NK:

North Korea has begun to focus on promoting the appropriateness of the ‘6.28 Policy’, North Korea’s first attempt at economic change since Kim Jong Eun came to power. This is being done via the 3rd Broadcast, and the reports are even utilizing the controversial term “economic reform.”

“They have been talking on the 3rd Broadcast since the beginning of last week about how ‘respected comrade Kim Jong Eun has selected economic reform measures so as to bring our economy up to world class status and greatly improve the people’s lives’,” a source from Chongjin revealed to Daily NK today.

The source explained the 3rd Broadcast content as “sketching out the nature of the reform policy and saying that we must accept and pursue Kim Jong Eun’s economic policy plan.”

However, given a history of disappointment, the North Korean people remain skeptical about the policy, the source said.

“Given the barrage of economic reform propaganda we get every single morning, it does seem as though something will happen, but right now it is nothing more than a political sermon; people say that they can only know when actual policies emerge,” the source said.

However, he went on, “It is clearly a change compared to the decades when people couldn’t even speak a word about reform and opening”.

Daily NK previously reported on the presentation of the ‘6.28 Policy’ in citizens’ meetings and that Kim Jong Suk County in Yangkang Province is one of three areas being used to test elements of the policy in advance of full rollout in October.

Previous posts on the 6.28 policy here.

Read the full story here:
3rd Broadcast Promoting Economic Change
Daily NK
Choi Song Min
2012-7-23

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North Koreans study China’s Huaxi Village

July 20th, 2012

They should be studying Xiaogang Village! But instead they are studying Huaxi Village. Why? According to the Joong Ang Ilbo:

For the past six months, seven working-level North Korean officials have been staying at the Longxi International Hotel, located in a 72-story skyscraper in Huaxi Village, in China’s Jiangsu Province, a local government official told the JoongAng Ilbo in a telephone interview.

They’re allegedly trying to learn the secrets of Huaxi Village, known as China’s richest village but one that is still dedicated to socialism.

Huaxi Village is one of the richest places in China and a symbol of a model mixing socialism and capitalism. All the residents are shareholders of the local conglomerate and earn dividends at the end of every year according to its profitability.

“Roughly 20 North Koreans recently toured Huaxi Village,” a local resident told the JoongAng Ilbo. “The seven working-level North Korean officials have been staying in the village for six months learning how to manage a modern-style hotel.” Intriguingly, all seven are women.

The 328-meter (1,076-foot)-high Longxi International Hotel was completed last October and cost 3 billion yuan ($471 million). The five-star hotel has 800 rooms, including suites that go for 99,999 yuan per night.

“Officials from North Korea’s Foreign Ministry and the North Korean Embassy in Beijing also visited the village,” the resident said. “I’m not quite sure whether the women workers are from the ruling Workers’ Party, but they are mostly in their 20s.

“They have a great interest in learning about the dramatic growth of the village,” he continued. “They reportedly receive some kind of wages [from North Korea].”

Starting in 1978, the village’s residents actively participated in the reforms led by Deng Xiaoping. Wu Ren Bao, 84-year-old local secretary of the village, said in an interview with the JoongAng Ilbo in October 2011, “We accepted whatever was needed to make people rich and develop the village.”

Read the full story here:
Title
Joong Ang Ilbo
Chang Se-jeong, Jeong Yong-soo
2012-7-20

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China-DPRK trade increasing

July 20th, 2012

According to the Daily NK:

According to data released by a South Korean government-run think tank today, trade between North Korea and China during the first five months of this year increased 27.9% ($2.5 billion USD) over the same period last year.

The Korea Development Institute believes that imports into the North totaled $1.46 billion for the period, whereas exports to China increased 29% to total $1.05 billion, leaving North Korea with a $410 million trade deficit.

Much of the growth in North Korean exports lies in coal; anthracite, a compact mineral coal, now accounts for more than 58% of the country’s total exports, not to mention half of all Chinese imports during the period. China largely provided North Korea with energy products and machinery.

Excluding trade with South Korea, China accounted for 89.1% of North Korea’s total trade volume, the report reveals. Again, this is a dramatic increase over last year’s figure of 52.6%, showing Pyongyang’s growing reliance on trade with its only major ally.

Read the full story here:
Sino-NK Trade Trends Up Once More
Daily NK
Clara Fontana
2012-7-20

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Pyongyang University of Science and Technology (PUST) update

July 20th, 2012

According to the Asahi Shimbun:

Currently 300 undergraduate and 70 graduate students are enrolled in the PUST’s three departments: electronic and computer engineering; international finance and management; and agriculture and life sciences. Thirty computers, with access to the Internet, are available for graduate students. At least some of those computers seem to be made by Chinese subsidiaries of South Korean electronics giants Samsung Electronics Co. and LG Electronics Inc., he said.

The goal of the university is to nurture personnel capable of working in the international community.

About 50 professors from Europe, the United States, Australia and elsewhere give lectures in English, with the content of the courses left to their discretion, Park said, and lectures on economics include finance, investment, insurance, equity and trade in Europe and the United States.

The students at PUST are selected from among those who have studied at least two years at the country’s top universities, including Kim Il Sung University and Kim Chaek University of Technology. Students live in a dormitory, and tuition and living expenses are free. Each student is given a monthly allowance of $10 (790 yen) in card form, which they can use to purchase daily commodities and school supplies at a campus store.

When a large number of the country’s students were recruited for construction work and other projects in preparation for the 100th anniversary in April of the birth of North Korea’s founder, Kim Il Sung, PUST students received special exemptions.

In September the university plans to send the first three students to study at a British university.

The story also reports “a business school in Pyongyang founded by a Swiss investor is proving popular among bureaucrats and corporate workers,” but I heard as recently as last week that this endeavor has not been operational for a few years.

Read previous articles on PUST here.

Read the full story here:
N. Korea opening up to education on capitalism
Asahi Shimbun
Akira Nakano
2012-7-20

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Coercion, control, surveillance, and punishment: An examination of the North Korean police state

July 19th, 2012

Today The Committee for Human Rights in North Korea (HRNK) is releasing “Coercion, Control, Surveillance, and Punishment: An Examination of the North Korean Police State” (PDF) by Ken Gause.

Here is the table of contents:

Part I: The Internal Security Agencies
–State Security Department (SSD)
–Ministry of People’s Security (MPS)
–Military Security Command (MSC)
–Neighborhood Watch Units (In-min-ban)
–Ad Hoc Social Monitoring Organizations
Part II: What the Internal Security Agencies Do
–Surveillance of North Korea’s Citizens
–Investigation and Detention
–The Role of Internal Security Agencies in Trials
–The Role of the Internal Security Agencies in Prisons
Part III: History of the Internal Security Apparatus
–Formative Years (1945 and 1950)
–Purging the Enemies of the State (1950s and 1960s)
–Kimilsungism and the Monolithic Guidance System (1970–1980)
–Kim Jong-il as Heir Apparent (1980–1994)
–Intrigue Following Kim Il-sung’s Death (1994–1998)
–Kim Jong-il Regime
–Laying the Groundwork for Kim Jong-un’s Succession
–Kim Jong-un Regime
Conclusion
–Appendix I: Biographies of Key Internal Security Officials
–Appendix II: An Example of a North Korean Ministry of People’s Security Decree.180
–Appendix III: An Example of a North Korean Arrest Warrant

Additional Information:
1. Here is coverage in Yonhap

2. Here is coverage in the AFP

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Lankov on bribery

July 13th, 2012

Below I have posted some excerpts from a recent Andrei Lankov article on bribery in the DPRK along with the economic bullet points:

Bribery has little to do with ethics or honesty but relative costs and benefits:

The incorruptibility of the old bureaucracy has a rather simple and rational explanation: Most of the time, it did not pay to be a corrupt official under Kim Il-sung. Money was of surprisingly little use in the 1960s and 1970s, when pretty much everything was rationed and distributed by the state according to predetermined quotas and norms.

In those days officials lived significantly better than the average North Korean, no doubt. But they were affluent not because they had significantly more money (the wage differential between a top official and a humble worker was remarkably low), but rather because they had access to higher-quality goods and services that were not available to the common people. One of my North Korean interlocutors said: “Back in the 1980s, I did not care about money. Nobody did, since money did not buy much in those days.” In those days, in the 1970s or 1980s, one had to be an official to drink beer every week, to smoke cigarettes with filters, or feast on pork a few times a month. But officials did not buy these goods at market; rather they received them from the state as part of their special (very special) rations.

In this situation, it did not make sense for an official to accept bribes as a reward for overlooking some misbehavior or violations of some rules. Money would not be particularly useful and at the same time there was a significant risk of being caught. If caught, an unlucky official would at best lose his or her job and at worst even freedom, and no amount of money would compensate for this disaster.

In highly regulated economies, bribery and growth are positively correlated:

We are conditioned to see official corruption as an evil, but in present-day North Korea, corruption might be a life-saver. The average North Korean gets most of his or her income (about 75%, if recent estimates are to be believed) from private economic activities – these include private agriculture, trade and small-scale household production, and myriad other things. Nonetheless, nearly all of these activities remain technically illegal. Unlike China, North Korea has never undertaken serious economic reform, so private economic activities are still considered crimes, even though they have long become, in practice, a universal norm (and without such activities many would be unable to stay alive).

The only reason these activities are able to exist is corruption. Without widespread corruption, many more North Koreans would probably have perished in the great famine because there would have been no way to have private agriculture, and it would have been nearly impossible for private traders to move food across the country, delivering it to areas where the food situation was especially dire. After all, trade in grain and long-distance travel for commercial purposes are both technically crimes. No markets would be possible had the local bureaucracy been serious about enforcing a multitude of bans and restrictions on commercial activities.

Although corruption will lead to low levels of growth, it will impede overall development in the long-term:

Even when the Kim family regime meets its eventual demise, when a new North Korea emerges, the culture of corruption may remain as part of its heritage. And perhaps eventually it will become a serious burden to a resurgent North Korean economy.

Regarding this last point, see this post.

Read the full story here:
North Korea’s culture of bribery
Asia Times
Andrei Lankov
2012-7-13

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