The North Korean Economy: Between Crisis and Catastrophe

American Enterprise Institute Book forum

A couple of weeks ago, I had the opportunity to attend a book forum at the American Enterprise Institute on Nicholas Eberstadt’s new book, The North Korean Economy: Between Crisis and Catastrophe.  It was very informative to hear three different perspectives on the direction of North Korea’s economic reform.

Panelists included:

Nicholas Eberstadt, AEI
Andrei Lankov, Kookmin University
Deok-Ryong Yoon, Korea Institute for International Economic Policy

In summary, Mr. Eberstadt and Mr. Lankov are pessimistic about the North Korean leadership’s desire to enact reforms–knowing that information leakages will undermine their political authority.  As Mr. Lankov pointed out, the North Korean nomenklatura are all children and grandchildren of the founders of the country who are highly vested in the current system.  They have no way out politically, and as such, cannot reform.

They argue that the economic reforms enacted in 2002 were primarily efforts to reassert control over the de facto institutions that had emerged in the collapse of the state-run Public Distribition System, not primarily intended to revive the economy.  Lankov does admit, however, that North Korea is more open and market-oriented than it has ever been, and  Mr. Yoon was by far the most optomistic on the prospects of North Korean reform.

Personally, I think it makes sense to think about North Korean politics as one would in any other country–as composed of political factions that each seek their own goals.  Although the range of policy options is limited by current political realities, there are North Koreans who are interested in reform and opening up–even if only to earn more money.  In this light, even if the new market institutions recognized in the 2002 reforms were acknowledged only grudgingly, they were still acknowledged, and their legal-social-economic positions in society are now de jure, not just de facto.  The North Korean leadership might be opposed to wholesale reform, but that is economically and strategically different than a controlled opening up on an ad hoc basis–which is what I believe we are currently seeing. Anyway, dont take my word for it, check out the full commentary posted below the fold:

Nicholas Eberstadt:  Ladies and gentlemen, I guess we will begin.  Thank you all for coming here today.  I’m Nick Eberstadt and today we will be doing a book launch for this book here, The North Korean Economy: Between Crisis and Catastrophe.  I have accumulated a number of obligations over the course of the work on this book and I would like to mention just a couple of thanks to begin with.  I would like, first, to thank my research assistants and interns who helped me over what is now decades in working on this book.  Our latest cohort of Team Eberstadt, as we sometimes call it – it is like Team America except a little bit more sedate – who are here with us.  TJ Trum and Meg Davy, I would like to thank you for all of your help on this project.

No less importantly, I would like to thank the good offices of the Korea Foundation for their generous support for the research that has helped to facilitate this book.  The Korea Foundation strives to encourage international understanding of the Korean Peninsula.  I suppose it remains to be seen whether this book contributes to that ultimate goal of the foundation, but Mr. Park Kyoung-Chul is here from the Foundation.  I would like to thank you and your good offices for all the help.  And not least, I would like to thank our distinguished discussants who have so kindly agreed to comment at this session, Professor Yoon Deok-Ryong and Professor Andrei Lankov.

Deok is an old partner in crime of mine and one of the people in the world who, I think, can genuinely call himself a specialist on the North Korean economy.  Andrei is one of those unusual souls who actually qualifies as an expert on North Korea.  And I think this is going to make for a delightful discussion, at least for me, because we do not always agree on things.  Life would be very boring, indeed, if people always agreed, but we find ourselves, when we disagree, disagreeing in a most interesting manner, a congenial manner.  And I find that I always learn something from that sort of conversation.

Let me now just say a few words about this book before inviting our discussants to make some remarks.  This book traces the economic performance and describes the political economy of a most unusual country during a most unusual time.  The country in question is the Democratic People’s Republic of Korea, also known as the DPRK or North Korea.  The period under consideration is the first decade-and-a-half following the end of the Cold War, or to be a little bit more clinically precise, following the collapse of the USSR and the concomitant dissolution of the Soviet Bloc’s arrangements for aid and subsidized trade for fraternal states.

The DPRK was not a Soviet ally.  Pyongyang’s policy for maximizing its autonomy in those Cold War days was to maneuver Moscow against Beijing.  But by the start of the 1990’s, North Korea had become dangerously dependent on Soviet largesse, such as it was.  The sudden unexpected and total elimination of that support served as the triggering event for the dramas and tragedies that followed.  From the partition of the peninsula in the 1940’s to this very day, strategy and economic policy in divided Korea have been informed and, indeed, defined by the race between the two contending Korean states, the DPRK and the ROK, also known as Republic of Korea or South Korea.

For decades the DPRK seemed to be ahead in that race.  As late as the early 1970s, per capita output was believed by Washington and Seoul to be higher in the North than in the South.  By the start of the 1990’s, however, a generation of sustained rapid growth in South Korea had left the North Korean economy lagging ever more obviously in an increasingly unequal competition.  With the demise of the USSR, the race between South and North entered into an entirely new phase, one almost painful for outsiders to behold.  With the Soviet collapse, the economic trajectories of the two Koreas were no longer simply divergent.  Their paths were now set in almost diametrically opposite directions.

Whereas the South Korean economy continued to enjoy dynamic growth, to be sure, with erratic results but impressively high average tempo, North Korea’s economy was cast into a steep and terrifying decline.  The post-Cold War performance of the North Korean economy has been nothing short of disastrous.  No statistical measure encapsulates that performance so vividly as this single fact:  In the 1990’s, the DPRK became the first urbanized and literate society in human history to suffer famine during peace time.  Think of that.  Although the magnitude of that famine cannot yet be specified with any precision for reasons we can discuss, it seems all but certain that the toll ran into the hundreds of thousands and it may have run into the millions.

Yet even as the DPRK was descending into mass famine, Pyongyang was striving to distinguish itself through achievements in the field of mass destruction weaponry.  In 1998 Pyongyang launched a multi-stage ballistic rocket over Japan, the Taepodong, thereby entering that select club of modern states that demonstrated long-range missile capabilities.  In 2005, Pyongyang declared that it possessed nukes and indicated that it would not relinquish them “under any circumstances.”  And of course, as we know, since that time the DPRK has attempted a nuclear test last year.

Thus, at the dawn of the 21st century North Korea qualified as a singularly troubled and troubling country, one that ranked not only among the declining number of contemporary societies seemingly poised permanently on the brink of famine but, also, in the handful of countries whose governments claim to possess nuclear weapons and long-range missiles.  Perverse as this North Korean paradox may appear, it is by no means adventitious.  To the contrary, it is the entirely logical consequence of deliberate governmental policies and actions faithfully reflecting leadership priorities and the carefully considered strategies that devolve from them.

In theory, the task of relieving the desperate privation of the stricken North Korean populace should be almost trivially simple: all that would be required of the masters of this closed and repressed economy would be ceasing the manifold costly distortions they currently insist upon enforcing, so that DPRK policy might move along a more pragmatic and a less positively destructive path.  But DPRK policy makers have vetoed this option again and again.  According to repeated pronouncements of their state media, they regard the sorts of measures routinely adopted these days in other countries to enhance national economic prospects as inimical to their own prospects for regime survival.

In Pyongyang’s official diagnosis, the downfall of Soviet and Eastern European socialism was the consequence of what is called ideological and cultural infiltration, an insidious infection transmitted by economic and non-economic contact with the outside world.  In Pyongyang’s telling, such infiltration undermined the authority of the dictatorship of the proletariat and eventually brought state-destroying concessions from all the Warsaw Pact governments.  As one official North Korean formulation memorably put it back in 1998 just days after Kim Jong-Il’s formal public accession to DPRK’s highest office of state, “we must heighten vigilance against the imperialists’ moves to induce us to reform and to opening to the outside world. Reform and opening on their lips are a honey-coated poison. Clear is our stand towards reform and opening.  Now we have nothing to reform and open.  By reform and opening, the imperialists mean to revive capitalism.”

In light of such directives, any economic experimentation in the DPRK – and there has been economic experimentation in the DPRK as, I think, we shall probably discuss – in recent years could only proceed under strict and, indeed, forbidding parameters.

But if the North Korean government is unwilling to acquiesce in regular commercial intercourse in the world economy, how can the regime expect to finance its own survival?  Pyongyang’s own answers to such questions are indicated by two overarching political slogans that have been unfurled in the Kim Jong-Il era – the imperatives of building a powerful and prosperous state, which is the English language translation of Kangsong Taeguk, and military-first politics, which is a translation of Songun Chongchi.

A month after the ceremony in which the Dear Leader formally acceded to power, in which the banner of powerful and prosperous state was first publicly waved, North Korean media spelled out the precise meaning of the slogan, explaining “defense capabilities are a military guarantee for national and political independence and a self-reliant economy.”  And further, “that the nation can become prosperous only when the barrel of the gun is strong.”  Only when the barrel of the gun is strong.

More recently, official pronouncements about military-first politics elucidated Pyongyang’s view of exactly how military might conduces to national wealth, and I’m going to quote a sentence or two here:  “A country’s development and the importance of the military are linked as one.  Once we lay foundations for a powerful, self-sustaining national defense industry, we will be able to rejuvenate all economic fields to include light industry and agriculture and enhance the quality of people’s lives.”

One might well wonder how could any country’s defense sector expect to become self-sustaining?  How does a defense sector become self-sustaining, much less a vehicle for financing the development of other economic sectors such as the North Korean notion of military-first politics would have it?  That scenario is conceivable if a country’s military expenditures were deployed in such a manner as to generate tangible economic dividends; to earn net profits, in other words.  In practice, this could really only mean extracting resources from elsewhere; which is to say, extracting resources from other countries.

Though the DPRK economy is moribund and its people are afflicted by terrible suffering, Pyongyang’s rulers have absolutely no intention of allowing their national situation to be defined as a humanitarian problem.  As they no doubt realize very well, the fate of those national directorates associated with the modern era’s humanitarian emergencies is seldom enviable.  Rather, North Korea’s leadership sees its fortunes directly tied to its efforts to define the DPRK as a security problem for the international community.

In the view of North Korea’s policy makers, international protection payments as we might call them are now the key to DPRK survival.  Stated plainly, North Korea’s post-Cold War survival strategy is a policy of international military extortion.  Loathe to embrace the sorts of measures that would predictably revive their stricken economy for fear that such ordinary and unexceptional steps would actually spell doom for their system, North Korea’s rulers have concluded, instead, that it is safer to finance the survival of their state through the international export of strategic insecurity and military menace.

Consequently, North Korean leadership must, today, as a matter of course, generate sufficiently grave international tensions and present sufficiently credible security threats to wrest a flow of essentially coerced transfers from threatened neighbors and other international targets, sufficient in volume to assure the integrity and continuation of what Pyongyang describes as our “own style of socialism,” which is the English language translation of Urisik Sahoejuui.  In a very real sense, the North Korean economy has been carefully and intentionally positioned in this way, in a realm between crisis and catastrophe.

Judged by its own lights, Pyongyang’s predatory post-Cold War economic strategy may actually be working.  Those who command the North Korean state may even deem it a ringing success.  After all, the DPRK, unlike so many other communist regimes, has neither vanished from the face of the earth nor compromised its claim to unlimited domestic authority through system-altering economic reforms.  We may talk a little bit about economic changes and reforms in our period later on.

The terrible famine of the 1990’s, the food crisis that, when addressed, might have portended an ultimate breakdown of the DPRK’s economic structure and the political control apparatus that support it, that has for now subsided, albeit, conditionally.  The North Korean state has managed to unburden itself of the various international obligations and declarations that had heretofore seemingly constrained its prerogatives to amass an arsenal of nuclear weapons and, improbable as it may sound, has come to engage South Korea and the great powers of the Pacific – by which, I mean China, Japan, Russia and the US – in denuclearization talks from a position of tactical advantage with supposed non-proliferation deliberations occurring on a schedule and according to an agenda very much – very largely of Pyongyang’s own choosing, as we have seen over the past weeks and months.

And as the perceived killing potential of the North Korean state has waxed, so has the aggregate level of net foreign resources transmitted to the DPRK through non-commercial channels such as aid payments from concerned neighbor states or state-sponsored criminal activities, including drug smuggling and counterfeiting.  As I attempt to document in these pages, North Korea’s balance of trade deficit has soared during the era of Kangsong Taeguk and military-first politics.  And for the unusual political system DPRK leadership commands, those deficits are viewed not as an indicator of economic weakness but rather as a proxy for political health and political strength, which is important to appreciate, I think.

By any criteria other than the North Korean high commands’ own solipsistic calculus, however, the DPRK stratagem of survival through terror is a political economy of bankruptcy, not least for the hapless and captive DPRK populace.  Though the international military extortion program that Pyongyang has been perfecting over the past decade-and-a-half may afford the country’s leadership a chance for regime survival or at least regime prolongation, it offers their subjects only continuing penury and privation.

As I attempt to argue and demonstrate in these pages, North Korea’s current political economy does not offer any appreciable hope of broad-based productivity increases for this astonishingly distorted and sadly debilitated economy.  Without broad-based improvement in productivity, however, any appreciable, sustained, self-reliant improvement in living standards will be all but impossible.  Absent productivity improvements, the lot of North Korean consumer will depend today and over the foreseeable future upon prospects for subventions from abroad and the whims of Pyongyang’s rulers in allocating those subventions to them.  Under such circumstances, advances in living conditions are likely to be grudging and tentative at best, and they will remain merely provisional, standing to be erased or even reversed with brutal alacrity as current events dictate.

Absent fundamental change in the DPRK’s political economy, moreover, living standards in the DPRK are currently set even under the most optimistic of prognoses to fall ever further behind those of the rest of the Northeast Asian neighborhood and, eventually, behind those of all of the rest of East Asia;  a sorry outlook, indeed, I would say, for a place that was as, one may recall, one of the more industrialized and dynamic spots on the map in the continent of Asia not so very long ago within living memory.

What lies in store for the DPRK and its people?  When Chapter One was first drafted back in 1993 it was apparent that the regime had foresworn economic reforms worthy of the name and was reconciled to enduring economic decline while capitalizing on the international security promise it managed to manufacture.  In that respect, not so much has changed over the last decade and more.

Yet other things have changed, including the DPRK’s economic capabilities; many of these changes are for the worse.  Information is potential wealth in the modern world.  Yet as I try to argue in Chapter Two, the DPRK under its policy of suffocating state secrecy and information control, has crippled and blinded the national statistical apparatus of the country, an apparatus that might otherwise have helped point the way towards a more productive and successful economic future.

The economic disasters that awaited North Korea after the Soviet collapse would therefore have to be understood in terms of the long legacy of policies that had already all but consigned the DPRK to economic failure.  Under the slogan self-reliance, as I tried to show in Chapter Three, Pyongyang’s abiding allergy to the purchase of foreign capital goods, of machinery and equipment from abroad, led a largely urbanized nation to invest in a high-cost, low-productivity industrial infrastructure, a fragile and perilous construct that self-evidently could not withstand the shocks it faced after the end of the Soviet block.

And Pyongyang adhered to its longstanding program of self-reliance in selective and curious ways.  Among these, the apparent stricture, which I discussed in Chapter Four, that the country would spend no more on agricultural products from abroad than foreigners were paying for food stuffs that were grown in the DPRK.  For a northeast Asian country with a relatively large population, a relatively cold climate and a relatively limited season for crop growing, this posture all but sentences the populace to an eventual food emergency; and, as we know, that food emergency arrived.

Having won its economic race against the North more or less nolo contendere, South Korean governmental circles now focus upon the challenges of an eventual North-South economic reintegration.  As Chapter Five in this book indicates, these challenges are considerable and they are growing precisely in the measure that economic performance in North and South are characterized by a yawning and still-widening gap.

Current South Korean policy militates for inter-Korean reconciliation through trade and economic cooperation, but as I try to argue in Chapter Six, North Korean stricture still largely limit that cooperation to one-sided subsidies from South Korean taxpayers to officially designated North Korean recipients.  There are some interesting changes in the Kaesong Industrial Complex going on which we may also discuss, but I think this generalization that I have just offered you still largely holds.

Is the North Korean economy recovering and advancing today after its parlous travails of the 1990’s?  Perceived wisdom among foreign North Korea watchers might lean in this direction.  But as is argued in Chapter Seven in this book, the distinction between value-added and external value-added and external subsidy is essential in understanding the performance of the contemporary DPRK economy.  And it seems to me that there is scant evidence today that the DPRK economy has turned the corner to self-sustaining economic growth.

Economic reform, of course, is the perennial mantra for the North Korean people’s foreign well-wishers and not without reason.  Chapter Eight attempts to look at the outlines of any movement towards economic reform in the DPRK that might be worthy of the name.  It suggests that no such movement has as yet been deeply rooted, deeply evident, though we can, of course, discuss that argument as well.  The North Korean economy today is so seemingly dysfunctional and unproductive in relation to its available human resources that practically any change in policy would be a change for the better.

Chapter Nine in this book argues that even what I call ordinary Stalinism could be expected to improve the performance and outlook for the DPRK economy, which is to say that a shift away from military-first politics might lead to substantial jumps in per capita income, to say nothing about international aid even if this were under an otherwise unreconstructed socialist regime.  Yet the central fact – and to some of us, including myself, a central surprise – about the DPRK is that Pyongyang has maintained its style of governance over the past decade-and-a half despite such hostile odds.

The final chapter in this book, Chapter Ten, attempts to explain how this could have happened.  Suffice it to say that the notion that the outside world might organize an economic rescue package for the DPRK, that notion might have seemed highly fanciful a decade ago.  Yet this is exactly what transpired.  Many billions of dollars of foreign resources have been transmitted to the North Korean state over the past decade.  Those moneys have not only financed the continuation of the Kim Jong-Il regime; they have also sheltered his economy against pressures for domestic and international reform.

As it currently operates, the North Korean economic system can only be sustained through continuing subsidies from abroad. More than they might care to realize, then, the future of the DPRK lies in the hands of those neighboring states whose official aid and sustenance is helping that dangerous and dysfunctional regime survive.  Let me stop here and let me invite our discussants to offer some remarks.  I’m going to sit down.

Andrei Lankov:  So, I think the book we are talking about, it shows something which is quite interesting.  Because indeed, I can only agree with the remarks of Dr. Eberstadt that it is a very unusual state in a very unusual time.  It is one of the most militarized economies of the world.  It used to be probably more Stalinist than Stalin’s Russia itself and it is a very specific place.

To start with, not much is known about North Korean economy and it is clear why.  One of the chapters has called our style – how is it called?  Statistics our style, our style of statistics – sorry, my English – which basically means no statistics at all.  Sometimes it is surprising but I read this with great interest.  Well, sometimes it comes out of something absolutely unexpected, so like, the only year for which we have international trade statistics published by North Korea is 1985.  Well, [indiscernible] actually I had to think for a while, then I realized why it was exactly 1985, or something like two published collections of data published by the Central Statistical Office in Pyongyang.

And so on and so on.  It is a highly secretive society.  It is an economically remarkably inefficient society.  However, I would like to turn attention to one fact.  North Korean leaders right now have good reasons to see themselves as winners, because there we have to understand their goal. Of course, they do not mind to have economic development, but for them the major goal is the regime survival and they have been not just good at that; they have been exceptionally good that.

Back in the ‘70s, they do international laughing stock.  Growing in the Soviet Union of the ‘70s, I knew how unpopular they do in the Soviet Union, everywhere, from the Kremlin to the most famous Moscow kitchen [sounds like] of the Russian dissenters.  They were really the laughing stock.  And what has happened to the progressive, young reform-minded people like Janos Kadar in Hungary?  Where is he?  Where is Honecker?  Where are all these kinds of civilized communists?

And where is Kim Il-Sung?  He is dead but his son is sitting in his palace, sipping cognac and enjoying fast cars.  And people who once threw their lot with Kim Il-Sung back in the ‘40s, they are dead but they lived until old ripe age, enjoying power and comfort, and their children and grandchildren are running the country which is very much something we often underestimated.  It is a country with very low social mobility; it is essentially an aristocratic government.  A vast part of the current government are children and grandchildren of the former leaders.  Well, they have winners.  They have won.

And when they say that basically the major message which we can find everywhere is they should reform themselves, the answer is they do not want to reform themselves; and not because they are fools, not because they are paranoid.  Unfortunately, I believe – I know that not everybody agrees with this opinion but personally I believe that their fear of reform is not a sign of paranoia.  It is a result of very smart, clever and realistic appraisal of their actual situation.  Unfortunately, I am afraid that dreams about a reformed North Korea, dreams which are so much influential now in Seoul, essentially, entire South Korean policies based on assumption that on the favorable conditions, North Koreans will start reforming their country.  I’m afraid that it is wishful thinking.

And I’m afraid also that North Koreans are right in their fear of reform, that it is not irrational because what is the major problem is Chinese-style market reforms.  Just to [indiscernible] such reforms will necessitate a certain measure of information exchange.  And in China it was not a major venture because there is no such a thing as Southern China.  Taiwan is small – seventeen million people.  In Vietnam it was not a danger because South Vietnam went out of existence in 1975.  There is South Korea, which is twice as large as North Korea in terms of population, and per capita GNP in South Korea depends on how you count they will be, well, how many?  Forty times?  Thirty times?  Something like, we’ll say, twenty times; let us say thirty times higher.  Thirty times.

The difference between two Germanys was two or three times, and it is here thirty times; it is huge.  And once North Korean people, the most common North Koreans learn about South Korean prosperity, the attraction will be great and it is not prosperity of another country.  They have been taught that it is the same country, the same nation.  Why should they follow their government, which has been so clearly responsible, which has been going the wrong way for such a long time?  Good question.

And the second part of reforms is, first of all, reforms will mean more information coming into the country.  Another part of the reform package, Chinese-style, is relaxation of the control over the population.  Maybe to the average American, China does not look exactly like a free country, but for the average North Korean it is a paradise of political freedom as well.  Why?  Because you can go to other places without asking for police permit; just visit.  You can go to another country without asking for police permit.  Actually, you go to party meetings if you are a party member in China, well, twice a month; in North Korea, a couple of hours everyday, everybody.

So free country.  And is it compatible actually, our two hours of indoctrination sessions on the average day?  Will private companies be happy about it?  And will they reward people for their zeal in memorizing the New Year speech of the Dear Leader?  Not exactly.  It means there will be some opportunities.  They will be less fearful of the government and there will be some opportunities for independent networks, and usually non-political, to emerge.  And if there are such networks, it is only a question of time before there will be a collapse of the system.

I’m afraid that Kim Jong-Il is absolutely correct when he said Soviet Union was killed by reforms.  Unfortunately, it was really the case.  And things are made more complicated in North Korea because in the Soviet Union, something Kim Jong-Il did not notice, the Soviet elite of the late ‘80s was actually willing to defect.

I was living through this era and was much involved with all this kind of pro-democracy activism in the ‘80s.  I am from the Soviet Union as you probably see from my strange English, and so I think that one of the major turning points was around 1989, late ’89, when in the Soviet Union they formed party bureaucrats.  Some of them studying from [indiscernible] decided that it would make sense to join the Pro-Democracy Movement, that it will make sense to transform themselves from the party-appointed administrators and managers into capitalists, into businessmen, into entrepreneurs of the new [sounds like] type.  As a result, the current Russian elite, the current Chinese elite, the elite in most – not all, but most East European countries consist of the same people who used to run these countries under Communism.  They are opportunistic; there are dishonest, yes.  But they saw an opportunity and they used it.

The problem is that the North Korean elite believe that if the system collapses, they will go down with the system because, again, because there is South Korea; it is another part of the issue.  So first of all they are afraid that if they start reform, people there will become restless and demand political changes because of the attraction of South Korea.  And they are also afraid that if such things happen, they will have no place in a new system.

It is very much different from what we have seen in the Soviet Union, in East Europe, in China, where most people eventually decided that it is better to be a capitalist than a state-appointed manager.  Indeed, it is much better; income is much higher; you can leave your factory to your children, and it is much, much better indeed.  So this is a problem.  These people believe they are cornered.  And once again, it is not paranoia, unfortunately; they are really cornered.

And on top of that, you should remember that this is a very brutal government, anything between 100,000 to 200,000 people in prison camps as political criminals right now.  It is one of the world’s highest, probably the world’s highest level.  So, what is happening?  These people believe in their interest.  They are fighting for their survival.  They are fighting for the future of their children and they are ready to sacrifice as many common North Koreans as necessary just to stay in power.  It is what they are doing.  [Indiscernible] demonstrated it.

But they are not irrational.  They are brutal; they simply do not give a damn about survival of the population, but they are not irrational.  They know what they are doing.  They know what they are doing.  And this is a problem.  And, frankly, unfortunately, most of their fears are well-founded.  We cannot say that we can just educate them about glory of Chinese-style reform.  They know it anyway but they do not need reforms if they go to the lamp posts.  They do not need them.  And even if they go to prison, they do not need such reforms.  So they believe that their only solution is in spite of disastrous situations, sit tight, avoid reforms and to feed themselves by squeezing money from the outside world.

As a matter of fact, they are doing – even in the best of the best of the times the Soviet and Chinese subsidies played a major role in their survival.  Now, they have managed to position themselves in a way so South Koreans and Chinese are again paying for their survival and Americans will probably soon join this payment.  And it is a funny thing.  I have no time to go in detail.  I believe that is basically good.  But they are brilliant guys, actually.  They managed to position themselves in such a way so everybody is indeed paying them a tribute.  And they do not have – they play the game without any aces, basically without anything, and they are winning.

What I have said, the truth will be understood as the kind of how this isolationist approach.  Unfortunately, I believe that it is really a lesser evil to keep paying them ransom.  They are great.  They are really great; very rational, highly efficient bunch of killers.  You can admire it like you would admire tigers and lions especially if you happen not to be a rabbit.  Well, thank you.

Yoon Deok-Ryong:  Good afternoon.  It is my great honor to be a discussant at this book launch event.  I am here with somewhat mixed feelings.  On the one hand, I have the pleasure to congratulate Nick on his new book and on the other hand, I envy him as a scholar working the same research field.  North Korean economy has been my research topic for the past twenty years.  I have planned many times to write a comprehensive book on North Korean economy but I have failed.  But he has written so many books and if we count just the books on this book cover, it is the sixth book.

Actually I have my sabbatical year here in Washington D.C.  It just started this month and I have a plan to write a book on North Korean economy but right after my arrival, I got his invitation to participate in this book launch event and it was a little embarrassing for me and I felt ashamed of my laziness.  But I decided once again to write a book while I’m here.  But now I’m concerned how I can make my book different and probably if you have better idea, please let me know.  Anyway, I hope I can make this kind of book launch event in one year. And now let me turn to the book itself.

His book has ten chapters as he explains, including the acknowledgements and preface.  And the preface delivers a good overview on this book.  And among ten chapters, some chapters were revised versions of his papers presented in the conferences and some are new.  And he has ordered the chapters so that the book can help readers understand North Korean Economy a little bit well.

In this book, he deals with the question again:  Can the DPRK survive?  As Nick himself mentioned in this book, he was associated with the so-called collapsist school of thought.  And he accepted that.  He has written an essay even titled “The Coming Collapse of North Korea” already in 1990.  But North Korea is still surviving.  And probably that is the reason why he should write this book again.  He revisits this question, and tries to explain why North Korea could survive and is surviving still now much longer that his expectation.

Then he analyzes the present status of North Korean economy and reform measures and he tries to evaluate the possibility of North Korea’s continuous survival.  And, probably, as you can expect, the result of his diagnosis seems to be gloomy.  North Korea has got already their sentence or their certificate.  It does not make serious efforts to survive and does not follow the general prescription.  It tries just to survive on aid from outside even by threatening or illegal activities.  Therefore, Nick is still very suspicious about North Korea’s continuous survival.

So far, I agree with him.  And he argues that the Inter-Korean Economic Cooperation also would not deliver North Korea because of the security concern of North Korea. Nick just sees the North Korea’s reform measures are not serious enough.  And Nick hangs out some important indicators to find out whether the reforming of North Korea is true or real or not.  But Nick is kind enough not to forget to give a hint to the North on how to survive.  A bold switchover in the DPRK’s security policy may become a way for survival, and he explains why it may become a solution with persuasive theory.

And so far, I agree with him, but I’m not so sure whether North Korea can follow his prescription.  He has a very normative position and he is very strict, principle-oriented, and he hangs out the traditional, classical theories.  And it is very hard for North Korea to follow.

[Audio glitch 44:11 to 44:33]

But anyway, with this book, Nick has completed his theory on how to understand North Korea’s survival.  And I think it is a remarkable contribution to the researchers and policy makers concerned with North Korean issues.  And I’m sure this book will be very useful for everyone who is interested in North Korea to understand North Korea’s economy as well as the society.  I have some more paragraphs to praise him with diplomatic compliments and so on, but I think we are friends and not so needed for him because this big population is already the evidence of his popularity and the evidence of his capacity.

And without my manuscript, I would like to make a few comments on his comment.  I have asked him how he got the information on North Korea just before this session.  And he explained to me that he has got the information from North Korean defectors and there are so many North Korean defectors nowadays; maybe it is approximately 3,000 persons in South Korea.  And nowadays, around – over 1,000 North Korean defectors are coming into South Korea, and we are expecting it will reach 1,500 this year or so.  But it was just – the total North Korean defectors were – in 1996 the total North Korean defectors were just around 600 and the total North Korean defectors since the Korean War until then.

But nowadays, the North Korean defectors are really increasing.  And I have taught those North Korean defectors since 1996 until 2004.  I met over 1,000 North Korean defectors and I taught them South Korean economy.  And at first, I received – I was told to teach them South Korean economic policy in comparison to North Korean economic policy.  But the group was so diverse, from teenagers to 78 year-olds – old age people.  And if I explain South Korean economic policy, they went to sleep.  Because of that, I have changed my lecture content, even though I have the same title.  And then I have tried to explain how they can make money in South Korea, how they can survive in South Korea, and how they can get some necessary goods and information without paying.  And nobody has slept.  And I have introduced some good saving programs and a training course for investment in stock market and so on. And then after the class everybody runs after me and asks me for my telephone number.  And they wanted to have consulting.

Why I’m explaining this is that I would like to explain that the mindset of North Koreans are already reformed even though the institutional change in North Korea is not enough.  And it is very low-level, but the mindset of the people is already changed and already reformed.  And, usually, I visit North Korea at least once a year as a member of a monitoring team of NGO groups; then we can choose where I would like to visit and so on.  And then I can acknowledge – I can recognize the difference ear to ear; and the people have changed.  Just the government is still the same.

But the government officials have changed, but they do not say about their changes but I could recognize it because of that.  Even though North Korean government would try to stay or to remain as it was, but I think that it would not be possible.  I’m saying that just to complement his comment and complement Nick’s book.  Thank you.

Nicholas Eberstadt:  Thank you very much.  If I might, I would like to offer a couple of responses to both of your comments and observations, and also to use my prerogative to ask the first question because there is an inside-the-baseball question about North Korean reform that I wanted asked.  But first off, you sell yourself very short.  You have – many people here who know you are a leading authority on North Korean economic reforms.  I cite you often – your different studies in here.  When you have your book come out, we will have a big party on that.

Andrei, you mentioned in passing the word “tribute,” the North Korean attitude.  I did not linger on that, but I think you have struck a nerve in understanding the official view, the North Korean view of their international economic relations.  And it is not entirely a North Korean viewpoint.  One will recall that in the 1940s and the 1950s up to the end of the Sing Man Rhee era, it was the South Korean government that was criticized as being the aid-seeking mendicant mentality, I believe, was the phrase; down-the-rat-hole pouring, aid-agglomerating entity on the Korean peninsula.  What was critical in the South Korean case was that when the threat of reduced foreign aid became credible in the – after the military revolution and with the Kennedy administration coming to office in Washington, there was a catalytic effect in the political economy of South Korea.

The South Korean economic policy transmuted from being one of aid-seeking to one export orientation.  The export orientation was the critical step that led to so many other things with the dynamic industrialization of the ROK.  It is hard for me to imagine – and I admit that I have a limited imagination, but it is hard for me to imagine a similar catalytic effect happening to the DPRK as we know it today, partly because of the ideological or metaphysical view of the leadership towards seeking aid from abroad.

Part of the North Korean leadership’s view of aid, I think, is indicated by one of the terms that the North Korean leadership uses to criticize people that it dislikes.  It calls them, in English, “flunkeyists” from their adherence of “flunkeyism,” and that is an English language translation of the phrase sate joo [phonetic].  Now, this may seem to be very abstruse, but the criticism by official circles in Pyongyang is that flunkeyists are people who serve the great – who serve the great power.  And this is in effect a historical argument about a former doctrine of policy in the Korean peninsula of paying tribute to the central power in the old East Asian order to China.  In the North Korean official thinking, this is an abomination.  And the reason I suspect that this is an abomination is because the center to which tribute is supposed to be paid is not towards China or towards serving the great power, but towards Pyongyang because it is the repository [sounds like] of power for the state that will lead the destiny of the Korean people to an independent socialist state under the tender loving mercy of the Kim family.

Let me ask this inside-baseball question because I do not know the answer to it, but it seems to me that this may have something to do with the prospect for a genuine economic reform under the current government of DPRK.  And the question has to do with the strange set of developments in North Korea in the year 2002.  After a change in economic policy, there was a brief episode involving a Chinese national named Mr. Yang Bin.  And for a brief period of time in September, I think, of 2002, Mr. Yang Bin, a Chinese national, seemed to be appointed the overlord of a new administrative region next to the Chinese border in Sinuiju, which seemed to be promised as a sort of export zone or special economic zone.  He was quickly arrested by Chinese authorities and to the best of my knowledge is still enjoying free food and board in China.

My question is this:  My presumption was that DPRK’s state doctrine is so very focused to form the nation, the ethnicity, and the race, the control of the Korean peninsula by Korean nationals including ethnics, that it seemed peculiar to me for Kim Jong-Il to designate someone who is not an ethnic Korean to be a political administrator of a portion of his country.  It seems to me that if –- in one of Kim Jong-Il’s famous publications, Socialism as Science, he criticizes the Soviet Union for having made one concession, and then one concession leads to a hundred concessions, and a hundred concessions lead to the end of socialism.

I would have thought that allowing a non-Korean to run part of North Korea would be the one concession that would lead to other things.  Why did North Korean policy agree to a non-North Korean even temporarily to be the –- to have political power in Kim Jong-Il’s DPRK?  Do either of you have any thoughts about that?  I have never been able to understand that.

Deok-Ryong Yoon:  It is – we have discussed this same person in the Korean expert school in South Korea.  And at that time of Yang Bin’s capture by the Chinese police, by accident, I was in China and I visited Yang Bin’s [indiscernible] country, and I visited Sinuiju [indiscernible] Dandong.  Dandong is a part site of Sinuiju.  And at that time, the South Korean experts group have agreed that Sinuiju is already a — if we use a terminology of North Korean government, Sinuiju is already contaminated by the capitalism and it is not a genuine North Korean city.  And Yang Bin is [indiscernible] real estate development.  And Kim Jong-Il knew him personally, and Yang Bin has demonstrated his success story to him and so on.  And because of that, Kim Jong-Il has taken him as the Sinuiju’s ruler.

Andrei Lankov:  And generally speaking, Sinuiju was a bit funny because it was a lot of very bizarre ideas.  Reportedly, they were planning to move the entire population of the city, which is –- [indiscernible] how much — it was slightly below a half-million, I believe; 400,000.  [Cross-talking].  It is about.  And so the plan was to move all these people out, and to replace them, this politically reliable [indiscernible].  And they were talking about –- actually, they passed a special law about Sinuiju, which made it a kind of state within the state.  They were talking about foreigners becoming judges in Sinuiju and so on.

So it was a very strange set of decisions, but, obviously, it was sort of understood that [indiscernible] becomes a special zone; it would not be North Korea at all.  It would be a kind of control from above by the kind of a real state within the state.  So they did not mind to have a foreigner who made huge amount of money of real estate and, according to rumors, something less legal, like gambling and — why not, why not, why not?  But it was very adventurous and a bit funny because for me the entire story once again indicate that these people have occasionally [sounds like] very strange ideas about the outside world.  Even the leaders who have good understanding of many things, they sometimes –- they are very naïve, very adventurous.  Sometimes it looks like they learned International Economics 101 from Hollywood movies.

Nicholas Eberstadt:  We can open up the floor for discussion now.  We have two very strict rules.  Rule number 1, please identify yourself.  Rule number 2, please end your question with a question mark.  Rule number 3 -– 2 ½, please wait for the microphone.

Male Voice:  Oh, sure.

Mike Choi:  Thank you.  I’m Mike Choi with the U.S. Department of Commerce.  A defector friend of mine, North Korean defector friend, told me that he believes the mid-level officials in North Korea would be more amenable to reform and if – it is only the ruling elite that makes it impossible for North Korea to reform.  So if they were removed, North Korea’s mid-level officials would be easily able to transform North Korea.  But I’m wondering in terms of nuts and bolts, does North Korea have the bureaucratic framework that could transition North Korea into a viable economy?  Please forgive me, but also assuming that the current ruling elite will not feed their authority willingly, is there any possibility of a non-violent transition into a more healthy – like in our terms, more healthy economic and political system?  Because if not, it seems to me seems to be the only realistic option for the US and its allies.  Thank you.

Nicholas Eberstadt:  I’ll try to tackle one part of that question, and maybe our panelists can wrestle with other parts.  The question of how well-prepared current people in the middle ranks of the existing nomenklatura or what ever one wishes to call that might be, is one sees remarkable inconsistencies or lack of homogenization, at least from the outside.  I’ll give you an example, at least one example, of this sort of paradox.  This is maybe a little bit above the mid-level, but it is not of the very, very top.

One of our mutual friends, Brad Babson, who was at the World Bank for many years and is still associated with the bank in another capacity, visited the DPRK in the late 1990s to give sort of series of Introductory World Bank 101 lectures to counterparts to explain how IBRD works, what it would mean to join the IBRD.  Of course, one of the first questions Brad was asked was, “What happens if we do not pay the money back?”  But that is another story.

When Brad was beginning one of his lectures at the Central Bank of the DPRK one of the directors of the bank interrupted him politely and said, “Could you please stop for a moment and explain to me what you mean by macroeconomics and microeconomics?”  So that is one observation point, admittedly, from some years ago but that is one observation point.  At much the same time, according to the Financial Times, reports from around that era, the DPRK collected a considerable sum of money from London from the reinsurance market because the rice crop in the DPRK in the late 1990s had been insured; the DPRK had bought insurance against the failure of the rice crop.  And according to the Financial Times, I think there was a payment of –- I forget; it was $100 million or £100 million pounds, but it was a considerable sum of money.  So at similar levels, one sees, on the one hand, a rather sophisticated approach to international markets, and, on the other hand, a self-evidently rather more innocent or innocent view of international economics.

And one wonders about whether those works of inconsistency is also apparent lower down towards mid-level of the system.  It is true that the DPRK has been engaging in more technical cooperation and technical assistance with other countries internationally.  But you probably know the exact numbers.  We are not talking about large numbers of people who are being trained internationally.  There is room for improvement, I would say.

Deok-Ryong Yoon:   I do not know what I should tell you because I have –- you know, I met many of the North Korean officials there.  And if I will say it here, the reality — or if I reveal the reality there probably so – I do not know whether there was some [indiscernible] here – it can be a problem for them, because I cannot tell what they have said.  But most of the North Korean government officials have changed and approximately just 10 percent of them are not changed; or 10 percent of them know the reality but they are enjoying their status in their society.  Because of that, they do not like to have changes, the real changes.  How can we change the people on that part?  Probably we can provide incentive to accept changes.

Andrei Lankov:  [Indiscernible] I would like to – I completely agree with what Professor Yoon said.  I [indiscernible] this North Korea for over twenty-five years.  And it has changed tremendously over the last ten years or so.  It is a completely different society.  All-Stalinist society is dead.  Policy might be the same, but if you look at the mindset and the lifestyle of the average North Korean now, maybe it is not really the case in Pyongyang and in a few privileged cities, but outside Pyongyang, it is a completely new life.  It is a capitalist [indiscernible] if you like.  It is a black market base –- not really black market; it is legal, so market-based capitalism –- but a closed-[indiscernible] capitalism.

However, the problem is I would probably disagree with Professor Yoon on one remark.  This 10 percent and, like you termed, top 10 percent of their official [indiscernible] they cannot [indiscernible] because they have set [sounds like] to reform themselves because for them it will mean loss of control over the situation.  And, frankly, I do not believe that a reform that they have said.  A reformed North Korea can co-exist with a “reform to reform” in North Korea can co-exist with successful, democratic and rich South Korea for any length of time.  So these people will pushed aside and they are afraid that they will lose everything so they– it is not because they are silly; it is not because — what is the incentive?  What can be given to them?  A promise of that they will just be appointed heads of Chaebol?  Frankly, I would not mind such a deal but it is absolutely an absolute fantasy.

Nicholas Eberstadt:  We have a few questions here.  Yes, Eric McVardon?

Eric McVardon:  Eric McVardon of the Institute of Foreign Policy Analysis.  In light of what I have heard said about reform and, Nick, what you have said about North Korea’s view of aid, I wonder if you would comment on North Korea’s — Pyongyang’s view of ties with the U.S. and U.S. investment and so forth.  I guess I have a lingering thought, and I do not know whether this is accurate or not, that there is some thirst for that.  Or at least there had been some expressions of desire along those lines.  Would you comment on that?

Nicholas Eberstadt:  Eric, I’ll comment first.  I know that our panelists will have some remarks to add.  My perception is that the objective of normalizing ties with the US is a very high objective and has been a very high objective for a very long period of time for DPRK leadership for various reasons, one obvious reason being that ever since the end of the Soviet Union, the two-actor foreign aid game, the Moscow-Beijing foreign aid game that Pyongyang had previously played has become a little bit more difficult.  It has been flying on one wing or one and a half wings, if you want to say that Seoul has been the stand-in for Moscow or the United States as the replacement in this game.

But in a more fundamental way, there are really compelling advantages for the DPRK in having the relationship that it envisions with the United States.  And I think I do not have to be terribly imaginative to suggest what the North Korean government wants in that relationship.  As I recall in October of the year 2000, the Vice Chairman of the DPRK National Defense Commission, Jo Myong Nok, visited Washington and he met with President Clinton and Madeline Albright.  And a dinner was held for him at the State Department in his honor.  And in his toast at that dinner – I would not get it perfectly, but I’ll get the wording pretty close – he said that he had been instructed Chairman Kim Jong-Il to tell people in Washington that “our two countries could move from confrontation to cooperation and from hostility to friendship as soon as Washington provided security assurances for the territorial integrity and the national sovereignty of the DPRK.”

Now, unless that sounds like complete diplomatic palaver, let’s stop for a moment and wonder what does a North Korean representative mean by the territorial integrity of the DPRK.  Do you want to start by looking at the charter of the Workers’ Party?  Or do you want to start by looking at the Constitution?  It is pretty big mouthful.

Deok-Ryong Yoon:  I agree with him.  What North Korea wants is the security guarantee and the guarantee of economic rehabilitation or economic development.  And they know the -probably in the Korean Economic Cooperation has given them a kind of stimulus.  Even though they have found out a new source of survival, but South Korea cannot provide above the limit and they know it is controlled by the international society.  And South Korea should keep the rule, and they see the United States has a key role in giving them the international resources.  And because of that they wanted to have normalization with the United States.

And another point is, as Nick has written in his book, ROK’s aid is honey-coated or poisoned but because of the two guarantees for security and economic rehabilitation can be – made by the United States.  And that is the reason why they are trying to normalize that diplomatic relation with the United States.  And I think they are so serious.  And the traditional position of North Korea was that – the traditional position of North Korea was communication with the United States and blocking what South Korea’s so-called Poong mi poong nam [phonetic] is the traditional diplomatic palace of North Korea.

Andrei Lankov:  Yes, yes, of course.  It is a mixture, I say.  And they understand that it will be very nice to have American aid on top of the South Korean aid than Chinese [sounds like] aid they are getting; they do not mind.  But they are obviously afraid of exchanges.  They are obviously afraid of the impact it might have on their own society.  Apart from exchanges, which have dangers, there is another part.  The idea of the United States as a living hell, a place populated [indiscernible] I do not much exaggerate it.  So exactly how America is.  This has been presented for many decades.  If there are any kind of normal peaceful exchanges, the knowledge of these exchanges itself might become sort of dangerous.

But I think that on balance they do strongly prefer to have exchanges because they believe they can basically educate their people and invent a few funny stories of what is happening about, what is happening – as long as they are getting additional income.  And they are quite good at getting money from outside – well, so they would prefer.  And I think it is up to the United States to make sure that – well, I would say North Korean threats will not be unfounded because it will [indiscernible] to influence on the internal developments.

Nicholas Eberstadt:  We have time for a few more questions.  We have got one, two, three questions.  Maybe we can harvest those questions altogether and then we can conclude by responding to them.  Please–-

Curtis Melvin:  Hi.  My name Curtis Melvin.  I’m with the Mercatus Center at George Mason University and editor of NK Econ Watch; it is a North Korean Economy blog.  All of you expressed skepticism about the DPRK’s desire for wholesale reform.  But I was wondering if you would agree that there is at least some retail ground-level reform that they are signing off on even grudgingly because it seems to me that the country is more open now that it has been at any time in the past.  And so there is something to be said about acknowledging that and, obviously, money talks because they are letting it happen.  So I was wondering if you have comments on retail.

Nicholas Eberstadt:  I think we have two more questions over here.  Mr. Nam and Mr. Warren?

Sin-U Nam:  This is Sin-U Nam.  I’m an architect in New Jersey, but also work as the vice chairman of the board of North Korea Freedom Coalition.  And next week will be North Korean Freedom Week.  And Nick passed out this note, “Who’s Afraid of North Korean Regime Collapse?”  It is on Tuesday.  The events will be from Monday through Saturday.  And I brought flyers as a –- this is a -– with your permission, Nick, I want to pass the flyers around, the North Korean Genocide Exhibit flyer.  Nick said I have to end with a question; so I have about a thousand of questions but I will start with one.  I’m not an economist.  I’m an architect; I design buildings.  But this is not a question.  I do not think that there is any economy in North Korea whatsoever.  That is my premise [sounds like].  My question to you is South Korea has been collaborating with North Korea and that they have been supporting and sending cash, food, medicine, everything to Kim Jong-Il, and that’s from the South.

From China side, China claims or everybody agrees China has been supporting the regime in North Korea sending food and oil.  What I hear from South Korean comrades, my friends, China is taking what is left in North Korea, all the resources in North Korea – mining rights, leases and harbors [sounds like], all those things.  How much do you think China owns North Korea quantitatively right now?  That is my question.

The other thing is this South Korean regime, whenever I say something against Kim Jong-Il, they claim — and they have been repeating over and over like a parakeet; they say, “Re-unification course [sounds like] will be cheaper than confrontation course [sounds like] — military action, military strike, and the so-called reunification course.”  How much do you think – not to be exact – how much do you think they poured into Kim Jong-Il’s pocket since [indiscernible] Kim came into power — Kim Jong-Il and Roh Moo-hyun these past nine years?  Two questions.

Joshua Stanton:  I’ll be very concise.  I’m Joshua Stanton, also a blogger at One Free Korea.  I would like if you gentlemen could, please give us your best breakdown of the money that goes into the Kumgang Mountain project and the Kaesong Industrial Park.  How much goes to the workers?  How much goes to the regime?  What is the money used for?  And what are the implications under UN Security Council Resolution 1718, which requires that outside providers of cash ensure that the money not be used for prohibitive purposes?  Thank you.

Nicholas Eberstadt:  I think we have one more question with Mr. Warren.

Rob Warren:  Rob Warren.  Nick, I, of course, have not had a chance to read your book, but I looked over the last chapter and you point out, as you do in the title of the book, that you see North Korea ricocheting between crisis and catastrophe.  Could you spell that out a little more?  What do you see?  Obviously, you see survival as the ultimate goal, but do you see down the road a collapse?  Or how do they continue this ricochet?

Nicholas Eberstadt:  Maybe I’ll take a crack at some of those questions then ask you gentlemen to conclude for us.  Several questions regarded — concerned retail or other aspects of reform in North Korea, and, certainly, there are economic changes and changes in economic policy that are underway in DPRK.  We can observe some of these changes.

The July 2002 changes or big macro-economic changes — not necessarily what we would call reforms, but they could be precursors for further reform.  We also see, I think, first glimmerings of a possible change in business thinking in DPRK by some of the new practices in the Kaesong Industrial Complex.  I do not know how far I would represent those.  Others who know more about these might have more to say, but they are certainly interesting and different from anything we have seen before.

Have we gotten to the point where the DPRK government accepts the premise as a general premise, that it is okay for foreign partners to make a profit, and that this is not a national disgrace and a lack of patriotism on the DPRK side to take the last penny off the table?  I do not know.  But that Rubicon would be a very important one to cross; I think that would be a very important signal for prospects for reform.

With respect to North-South economic interactions, it is, frankly, very difficult for outsiders like me to learn about the nature of North-South economic relations for one obvious but very distressing reason -– distressing the researchers.   And that is that the South Korean government maintains that North-South transactions are domestic trade and domestic interactions and, therefore, that these transactions do not have to meet the same standards of transparency that would be ordinarily expected of an OECD member, which is what South Korea, of course, is; it has been a member of the OECD for more than a decade.  For this reason, North-South trade figures have a level of impenetrability that is completely different from South Korea’s international trade figures, which are a marvel of the modern world in their detail and specificity.

By the same token, South Korea’s aid payments to North Korea have none of the transparency that one sees from the South Korean government’s reports to the Development Assistance Committee, the DAC, and the OECD.  As far as I know, the payments made to Kim Jong-Il for the 2000 summit still have not shown up in South Korea’s accounts on inter-Korean cooperation.

As for the question of the UN Security Council Resolution, there are a lot of things that do not seem to comport with that, aren’t there?  Bank accounts from Macau — how does the United States release funding from Macau for charitable and good works in North Korea, or, maybe, not even charitable and good works in North Korea?  It is very hard to understand how a lot of things get squared with the Security Council Resolution.

And, finally, for the question of reform and collapse, there are lots of different ways that a socialist government can collapse, and the transitions that we saw in the Warsaw Pact were not economic collapse.  They were changes in regime configuration and changes that had to do with political support, in some cases had to do with coups, springing people up and [indiscernible] them.  Much of what I have tried to write about was about the prospects for what I called an economic collapse in the DPRK.

This is — although the system has changed and may be more open than in the past, it is really impossible for someone like me to have any sense about the political stability of the upper reaches of the nomenklatura or the elite.  If there is a movement to depose Kim Jong-Il, we would not be the first to hear about it.  We will read about it after it has happened, or Kim Jong-Il will learn about it and the people will disappear.  We have the observer problem there.  What I have tried to write about is the possibility of risks of economic collapse, which is to say, the breakdown in the division of labor which supports the political system.  We will not know until years later, perhaps, when we have archives and things like that how close the DPRK came to economic collapse in the 1990s and the depth of that terrible famine.

But the possibility of an economic collapse still seems to me to be a very real one for the DPRK.  It can be forestalled by foreign aid or by outside funds.  The DPRK government has not fundamentally answered that question yet, and that is why I say it is in this no-man’s land, Rob, between crisis and catastrophe.  Let me ask our other panelists to address the issues they wish to.

Andrei Lankov:  First of all, I’m an avid reader of your blog and [indiscernible] yes.  And I get mad [sounds like] to some people in one of my blogs, in Russian, unfortunately; so [indiscernible].  But, well, about the question of retail changes, as I have said, in terms of distribution, actual distribution system — in terms of actual retail, changes have been very serious because [indiscernible] recent [sounds like] attempts to revive the PDS, Public Distribution System, over the last 1-1/2 years for over a decade.  Only some highly-privileged groups of population, I guess, maybe a quarter of population at most, slightly less, they are receiving anything from the Public Distribution.  All other people are just buying; it was a normal market economy.   And in 2002, I believe the support [sounds like] reforms of 2002 are grossly overestimated.  Its significance — and it’s not only — we had a conference recently, a few days ago at Yale University and we discussed it and they were much pleased to hear the same statement I often say so, but I was much pleased to hear how Marcus Nolan [phonetic] said exactly the same thing on [indiscernible] basis of his talks to the defectors.

And basically, it was a belated admission of changes [indiscernible] that time had happened already.  It is very different with, say, China, but the government was ahead [sounds like].  The government basically said “Well, from now on it’s okay to make dumplings.”  Next day, everybody — well, not everybody; some people began to make dumplings. In one year, the government decided that it is safe and profitable and they were getting taxes.  And they say, “Well, from now on sweet and sour meat will be okay.”  And people began to do it.

In North Korea it was different.  People began to do dumplings, and they began to make dumplings.  They began to make sweet sour and sour meat.  Government tried to put them in prison, made a lot of sales [sounds like], and soon people discovered that it is easy to bribe policeman, and, eventually, government gave up and agreed to do these reforms.  I’m not talking about business management [indiscernible] business management as reforms of 2002 did bring some minor changes, but admission of market was belated.

However, what is a very disturbing signal, over the last month or maybe two years, North Koreans using the aid coming from China and South Korea are trying to roll the situation back, exactly because I believe –- because they believe that the current development sooner or later will bring about the collapse of this system because I’m also a member of the collapsist school.  I simply do not believe in peaceful, gradual transformation of the system, but, unfortunately or fortunately, I do not know.  I do not know when collapse will happen.  It might happen many, many years down the track, and frankly, it seems as long as Kim Jong-Il is alive, nothing serious will happen; of course, nobody knows what it looks like.

Deok-Ryong Yoon:  Just a short comment.  It refers to the inter-Korean domestic trade relation.  There is detailed statistics in the website of the Ministry of Unification in Korea, but it delivers just the official trade relation.  And it does not contain all the economic activities of the individuals [indiscernible] visit North Korea.  I’m trying to “contaminate” [sic] North Korean officials.  When I say goodbye — Oh, I’m saying too much.  Then I give an official $100 bill so and hand them.  They are saying, “What is this?” And then I’ll say, “It is just a small amount to buy some —


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