North Korean Economy Watch

Asia Times
Aidan Foster-Carter
March 15, 2005

It’s a cliche to complain how little we really know about North Korea. Hard facts, and especially figures, are indeed hard – as in hard to come by.

In some fields this is perfectly true. The military, obviously. Does North Korean leader Kim Jong-il have the bomb or bombs? How many? Where is he hiding them? All countries keep that kind of information secret.

But no other nation in the world fails to publish any regular statistics about its economy. This 40-year silence should temper hype about market reforms. Without numbers, neither local enterprises nor external donors or (they wish) investors can do more than gamble in the dark. They really do need to know. Providing accurate numbers is a basic prerequisite of being a modern state.

Yet North Korea possesses a Central Bureau of Statistics (CBS), and it is not idle. No doubt the Dear Leader demands economic data – for his eyes only. But in some fields, the CBS does publish its work. One example was North Korea’s 1993 census, its first ever.

More recently the CBS has worked with international aid agencies to collect information that the latter need in a key area: hunger and its human consequences. The latest fruits of such cooperation have just been published in the “DPRK 2004 Nutrition Assessment Survey”, a joint product of the Central Bureau of Statistics and North Korea’s Institute of Child Nutrition (ICN), with financial and technical help from United Nations Children’s Fund (UNICEF) and the United Nations World Food Program (WFP). The two chief consultants were from Australia and Vietnam, so this was a regional Asian effort. It follows earlier surveys carried out at two-year intervals, in 1998, 2000 and 2002.

It was the WFP that released this report, at a press conference in Beijing on March 7. It is in fact dated November 2004; the survey itself was carried out in October. The delay wasn’t explained. Perhaps the lag was attributable to translation time and to make sure it was fit for publication generally.

I’m often critical of North Korea, so all the more reason to give credit when it’s due. This is an impressive, highly professional report comprising 104 pages, five chapters, 46 tables, 24 figures. The sample was 4,800 children, ages up to six, and 2,109 mothers of children under two, drawn evenly from seven of North Korea’s nine provinces plus the capital, Pyongyang.

Having taught social science research methods in a former life, I get a kick out of reading about random and cluster sampling (sad, I know). Then I pinch myself. This is North Korea. An official document! All these numbers! And on a potentially very sensitive subject, too.

For what this survey measures, with grim precision, is what years of hunger have done to the bodies of small children – and I do mean small – and their mothers in North Korea.

To be technical, there are three main criteria:

*Underweight (for age) is self-explanatory;
*Stunting, low height for age, signals chronic malnutrition;
*Wasting, worst of all, is low weight relative to height, indicating acute malnutrition. Each of these categories is sub-divided into mild and severe cases. For the mothers, a fourth measure was used: MUAC (mid-upper arm circumference). Less than 22.5 centimeters means they aren’t eating enough.

So how are Juche’s (juche is the policy of self-reliance) children faring? The WFP’s press release tried to look on the bright side. Since the last survey in 2002, the proportion of young children chronically malnourished (stunted) is down from 42% to 37%. Acute malnutrition (wasting) eased from 9% to 7%. But those underweight rose from 21% to 23% – though for children under the age of two, those most at risk, this fell from 25% to 21%. One in five children had diarrhea, and one in eight showed symptoms of acute respiratory infection. But mothers have made no progress: a third were anemic and malnourished, the same figure as two years ago. Vitamin A deficiency is common.

Much depends on where people are living. Things are less bad in Pyongyang and in the southwestern Hwanghae farming region than in bleak northeasterly Hamgyong and Ryanggang provinces. Ryanggangites get to eat meat, fish or eggs just once every three weeks on average. Chagang in the far mid-north is bleaker still, but North Korea doesn’t allow access to this area – probably because of military bases located there. Thus, no survey was conducted in Chagang, which means no food aid either; the WFP is strict about that – surveys first.

Even at the national level, the few slight improvements offer scant comfort. The more than one-third (37%) of North Korean’s under six who are stunted – and especially the one in eight (12%) who are severely stunted – will grow up stunted and stay that way. Even once Korea is reunified politically, they will stand out physically: dwarfed by their Southern peers.

Seoul, meanwhile, has different – nay, opposite – child health issues. With uncanny timing, the very same day as the WFP released its survey on the North, education officials in the Southern capital reported that one in 10 schoolchildren in Seoul is overweight. Obesity rates are growing fast, too. As the old adage has it, the rich slim while the poor starve.

Back in the North, the WFP doesn’t appear to be leaving any time soon. Richard Ragan, head of the program’s Pyongyang office – and an American, to boot – said he hopes the agency will shut up shop one day, once the government and the private sector can stand on their own feet.

But for now, one anniversary a proud North Korea won’t be celebrating, is that this year marks a whole decade since it first, reluctantly, asked the WFP and other agencies for help coping with flood and famine. While the worst of the famine has eased, food self-sufficiency – in a country so mountainous that this is a ludicrous goal anyway – looks as remote as ever.

So still, in 2005, the WFP has extended the begging bowl for Kim Jong-il – whose own priorities evidently lie elsewhere. Ever prickly Pyongyang has bitten the kind hand trying to feed it, forbidding UN agencies to launch their usual formal consolidated aid appeal this year. Nonetheless the WFP is seeking $202 million with which to buy 504,000 tonnes of food, mainly grains.

And no wonder. In January North Korea cut its Public Distribution System (PDS) rations to starvation level: 250 grams of cereal per person per day, the lowest in five years. Such cutbacks don’t usually happen until March, when last year’s crop typically runs out. This is all the more odd, since 2004’s autumn harvest is thought to have been the best in years.

Luckily, the WFP currently has enough stocks – as it did not, in the recent past – to feed all of its target group: a staggering 6.5 million North Koreans, or nearly one-third of the entire population. The main categories within this group are 2.7 million children from birth to the age of 10 and 2.15 million people in food or work programs. Other beneficiaries include 900,000 elderly, 300,000 pregnant women and nursing mothers, and 350,000 in low-income households. The latter are a new category: victims of the post-2002 reforms that have seen inequalities widen, even as the state retreats ever further from providing any help to the millions of citizens whom its disastrous past and half-baked present policies have starved and stunted.

That’s my take, not the WFP’s. Diplomacy precludes any such critique from a UN body. Yet the raw data, the results – written indelibly on the bodies of innocent children, marked for life – are there for all to see. It’s ironic, but the same regime that branded this suffering on its people is at least now registering and owning up to the outcome: collating and publishing these damning data, putting its name to the survey, and signing off on it. That’s a start.

Where his statisticians boldly go, will the Dear Leader follow? It’s so simple. Ditch nukes; watch aid explode instead. Let the children eat, and grow. If not, what future is there?

Asia Times
Andrei Lankov
12/4/2004

A creeping revolution, both social and economic, is under way in North Korea and it seems there’s no turning back. For decades, the country served as the closest possible approximation of an ideal Stalinist state. But the changes in its economy that have taken place after 1990 have transformed the country completely and, perhaps, irreversibly.

For decades, Pyongyang propaganda presented North Korea as an embodiment of economic self-sufficiency, completely independent from any other country. This image sold well, especially in the more credulous part of the Third World and among the ever-credulous leftist academics. The secret of its supposed self-sufficiency was simple: the country received large amounts of direct and indirect aid from the Soviet Union and China, but never admitted this in public. Though frequently annoyed by such “ingratitude”, neither Moscow nor Beijing made much noise since both communist giants wanted to maintain, at least superficially, friendly relations with their small, capricious ally.

But collapse of the Soviet Union made clear that claims of self-sufficiency were unfounded. From 1991, the North Korean economy went into free fall. Throughout 1991-99, the gross national product (GNP) of the Democratic People’s Republic of Korea (DPRK) nearly halved. The situation became unbearable in 1996, when the country was struck by a famine that took, by the best available estimates, about 600,000 lives. The famine could have been prevented by a Chinese-style agricultural reform, but this option was politically impossible: such a reform would undermine the government’s ability to control the populace.

The control on daily lives was lost anyway. What we have seen in North Korea over the past 10 years can be best described as collapse of what used to be rigid Stalinism from below. In the Soviet Union of the late 1950s and in China of the late 1970s, Stalinism-Maoism was dismantled from above, through a chain of deliberate reforms planned and implemented by the government. In North Korea the same thing happened, but the system disintegrated from below, despite weak and ineffectual attempts to keep it intact.

In the 1960s, North Korea was unique in being the only nation in the world where markets were outlawed. The retail trade in a strict sense almost ceased to exist since virtually everything, from socks to apples, was distributed through an elaborate public distribution system with money payments being rather symbolic. The rations depended on a person’s position in the intricate social hierarchy, which eventually became semi-hereditary. In Kim Il-sung’s North Korea, there was almost nothing that could be sold on market since production outside the state economy was almost non-existent.

Unlike governments of other communist countries, until the late 1980s the North Korean government did not even allow its farmers to cultivate kitchen gardens – the individual plot was limited to merely 20-30 square meters, hardly enough to grow enough chili pepper. This was done on purpose. In many other communist countries, farmers had bigger plots and made their living from them, ignoring their work obligations to the state-run cooperative farms. Without their own plots, farmers would work more for the state – or so believed the North Korean government. In the utopia constructed by Kim Il-sung, every single man or woman was supposed to work for the state, and was rewarded for his and her efforts with officially approved rations and salaries.

In 1969, Kim himself admitted that the anti-market policy had been a failure. Thus private markets were gradually legalized, but remained small and strictly controlled. However, as late as late 1980s, markets were still considered inappropriate for a “socialist paradise”. They were something to be ashamed of, so they were pushed to the margins of the city. Until the early 1990s, most markets were in places more or less hidden from view, inside residential blocks and behind high concrete walls. In Pyongyang, the main city market was set up under a huge viaduct at the easternmost part of the North Korean capital, as far from the city center as possible.

However, the economic disaster of 1991-95, and especially the subsequent famine, changed the situation. Markets began to spread across the country with amazing speed. From 1995-97, nearly all plants and factories ceased to operate. The rations were not issued anymore: in most areas people still received ration coupons but these could not be exchanged for food or other rationed goods. Only in Pyongyang and some other politically important areas did food continue to be distributed. But even there, the norms were dramatically watered down. In such a situation, the ability and willingness to engage in some private business became the major guarantee of physical survival.

The government also relaxed the restrictions on domestic travel. Since around 1960, every North Korean who ventured outside his native county was required to have a special “travel permit” (an exception was made for one-day travel to neighboring counties). However, in the mid-1990s, the authorities began to turn a blind eye to unauthorized travel. It is not clear whether it was a deliberate relaxation or just inability to enforce regulations when the state bureaucracy was demoralized. After all, a bribe of some US$5 would buy such a permit from a police officer.

The tidal wave of small trade flooded the country, which once came very close to creating a non-money-based economy. People left their native places in huge numbers. Many sought places where food was more available while others enthusiastically took up the barter trade, including smuggling of goods to and from China. Women were especially prominent in the new small businesses. Many North Korean women were housewives or held less-demanding jobs than men. Their husbands continued to go to their factories, which had come to a standstill. The males received rationing coupons that were hardly worth the paper on which they were printed. But North Korean men still saw the situation as temporary and were afraid to lose the trappings of a proper state-sponsored job that for decades had been a condition for survival in their society. While men were waiting for resumption of “normal life”, whiling away their time in idle plants, the women embarked on frenetic business activity. Soon some of these women began to make sums that far exceeded their husbands’ wages.

The booming markets are not the only place for retail trade. A new service industry has risen from the ashes: private canteens, food stalls and inns operate near the markets. Even prostitution, completely eradicated around 1950, made a powerful comeback as desperate women were eager to sell sexual services to the newly rich merchants. Since no banking institution would serve private commercial operations, illegal money lenders appeared. In the late 1990s they would charge their borrowers monthly interests of 30-40%. This reflected very high risks: these lenders had virtually no protection against the state, criminals and, above all, bad debtors.

In North Korea, which for decades was so different, this meant a revolution. The new situation undermined the government’s ability to control the populace. People involved in the new market activities are independent from (or inured to) subtle government pressures that had ensured compliance for decades. One cannot promote or demote a vendor, transfer him or her to a better or worse job, nor determine his or her type of residence (though admittedly, most people still live in the houses they received when the old system was still operating).

The growth of new markets also undermined some pillars of old North Korean hierarchy. Of course, many people who became affluent in the new system came from the old hierarchy – as was the case in most post-communist countries. Officials or managers of state-run enterprises found manifold ways to make an extra won. These managers often sold their factories’ products on the market. But many hitherto discriminated-against groups managed to rise to prominence during this decade. The access to foreign currency was very important, and in North Korea there were three major groups who had access to some investment capital: the Japanese-Koreans, Chinese-Koreans and Korean-Chinese.

The Japanese-Koreans moved into the country in the 1960s (there were some 95,000 of them – with family members, children and grandchildren, their current number can be estimated at 200,000-250,000). These people have relatives in Japan who are willing to send them money. Traditionally, the authorities looked at Japanese-Koreans with suspicion. At the same time, since money transfers from Japan have been a major source of hard currency for Pyongyang, their activities were often tolerated. This particular group even enjoyed some special rights, being privileged and discriminated against at the same time. When the old system of state control and distribution collapsed, Japanese-Koreans began to invest their money into a multitude of trade adventures. It did not hurt that many of them still had the first-hand experience of living in a capitalist society.

Another group were people with relatives in China. The economic growth of China meant that the relatives could also help their poor relatives in North Korea. In most cases, this was not in the form of money transfers, but assistance in business and trade. The local ethnic Chinese were in an even better position to exploit the new opportunities. For decades, they have constituted the only group of the country’s inhabitants who could travel overseas as private citizens more or less at their will. Even in earlier times, the ethnic Chinese used this unique position to earn extra money by small-scale and part-time smuggling. In the 1990s, they switched to large operations. There is an irony in the sudden economic advance of these groups. For decades, their overseas connections have made them suspect and led to systematic discrimination against them. In the 1990s, however, the same connections became the source of their prosperity.

Until recently, the government did not try to lead, but simply followed the events. The much-trumpeted reforms of 2002 by and large were hardly anything more than the admission of the situation that had been existing for a few years by then. The official abolition (or near-abolition) of the public distribution system did not count for much, since this system ceased to operate outside Pyongyang around 1995.

But the North Korean economy has indeed come a long way from its Stalinist ways. Now the government has neither money nor support nor the political will to revive the Stalinist-style central economy. There is no way back, only forward. Stalinism is dead. Welcome to capitalism, comrades!

Atlantic Monthly
B. R. Myers
9/1/2004

You’ve just finished your life’s work, a bold new history of the Watergate burglary in which you manage to prove that the White House was out of the loop, but the ink is hardly dry when an eighteen-minute tape surfaces in a Yorba Linda thrift shop, and soon the whole country is listening to Nixon gangsta-rap about how he personally jimmied the door open. It’s every revisionist’s nightmare, but Bruce Cumings, a history professor at the University of Chicago, has come closest to living it. In a book concluded in 1990 he argued that the Korean War started as “a local affair,” and that the conventional notion of a Soviet-sponsored invasion of the South was just so much Cold War paranoia. In 1991 Russian authorities started declassifying the Soviet archives, which soon revealed that Kim Il Sung had sent dozens of telegrams begging Stalin for a green light to invade, and that the two met in Moscow repeatedly to plan the event. Initially hailed as “magisterial,” The Origins of the Korean War soon gathered up its robes and retired to chambers. The book was such a valuable source of information on Korea in the 1940s, however, that many hoped the author would find a way to fix things and put it back into print.

Instead Cumings went on to write an account of postwar Korea that instances the North’s “miracle rice,” “autarkic” economy, and prescient energy policy (an “unqualified success”) to refute what he calls the “basket-case” view of the country. With even worse timing than its predecessor, Korea’s Place in the Sun (1997) went on sale just as the world was learning of a devastating famine wrought by Pyongyang’s misrule. The author must have wondered if he was snakebit. But now we have a new book, in which Cumings likens North Korea to Thomas More’s Utopia, and this time the wrongheadedness seems downright willful; it’s as if he were so tired of being made to look silly by forces beyond his control that he decided to do the job himself. At one point in North Korea: Another Country (2004) we are even informed that the regime’s gulags aren’t as bad as they’re made out to be, because Kim Jong Il is thoughtful enough to lock up whole families at a time.

The mixture of naiveté and callousness will remind readers of the Moscow travelogues of the 1930s, but Cumings is more a hater of U.S. foreign policy than a wide-eyed supporter of totalitarianism. The book’s apparent message is that North Korea’s present condition can justify neither our last “police action” on the peninsula nor any new one that may be in the offing. It is perhaps a point worth arguing, particularly in view of the mess in Iraq, but Cumings is too emotional to get the job done. His compulsion to prove conservative opinion wrong on every point inspires him to say things unworthy of any serious historian—that there was no crime in North Korea for decades, for example—and to waste space refuting long-forgotten canards and misconceptions. Half a page is given over to deriding American reporters who once mistook Kim Il Sung’s neck growth for a brain tumor—talk about a dead issue.

Cumings is even harder to take when he’s in a good mood. By the time he has noted a vague resemblance between Kim Jong Il and Paul Anka, sniggered about “horny” Korean housewives, and mocked both a tour guide’s English and an African man’s surname (“I dissolved in hysterics”), most readers, with no photograph of the author to go on, will find themselves mentally exchanging his professorial tweeds for a very loud leisure suit. Most offensive of all is the book’s message that we shouldn’t be too hard on the dictatorship in Pyongyang, because human rights aren’t as important to Koreans as to the rest of us.

Does this system promote human freedom? Not from any liberal’s standpoint. But from a Korean standpoint, where freedom is also defined as an independent stance against foreign predators—freedom for the Korean nation—here, the vitriolic judgments do not flow so easily. This is a cardinal virtue among a people that has preserved its integrity and continuity in the same place since the early Christian era … After all, there is one undeniable freedom in North Korea, and that is the freedom to be Korean.

It seems to have slipped the professor’s notice that many countries manage to stay independent without dragging children off to gulags, and that North Korea is a place where a lot of characteristically Korean behavior—speaking bluntly, for example—is punishable by execution. The only significant part of the culture that can be freely indulged under Kim is its ethnocentric streak, which is what Cumings all but reduces it to; confusing cause and effect, he sees propaganda as the reflection of the popular soul instead of (to use Stalin’s metaphor) the engineer of it. The Korean people have always been more outward-looking than their insecure leaders, and for centuries this was especially true of those in the northern part of the peninsula. Even in the months after our disgraceful bombing campaign during the war—a campaign that Cumings rightly calls a holocaust—diplomats in Pyongyang noted no signs of indiscriminate xenophobia.

This was soon to change. Throughout the 1950s the regime resorted to crude racism in its anti-American propaganda, often treating inset eyes, big noses, and other Caucasian features as the manifestation of villainy. To the consternation of the diplomatic community, little effort was made to enlighten people about the existence of friendly big-noses, even though—as this spring’s Cold War International History Project bulletin makes clear—North Korea’s cities were rebuilt and its people fed and cared for with enormous amounts of assistance from Eastern Europe. “They expect foreign countries,” one Hungarian diplomat noted, “to give them everything.” Reading the CWIHP bulletin has the odd effect of making one realize what a relatively sensible bunch of people the Soviets were. In the mid-1950s they opposed Kim Il Sung’s brutal collectivization of agriculture; Kim brushed off their advice, only to demand food aid when a murderous famine ensued.

The more the regime evinced its incompetence by relying on foreigners, the more it needed to restrict the people’s contact with them. By the 1960s the party line had taken a turn that reminded a Soviet diplomat of Nazi Germany, as citizens who married Europeans were banished to the provinces for “crimes against the Korean race.” A diplomatic report translated in the CWIHP bulletin shows how the masses finally got into the spirit of things. In March of 1965 the Cuban ambassador was driving his family and some Cuban doctors around Pyongyang when they stopped to take pictures. Hundreds of adults and children quickly swarmed the diplomatic limousine, pounding it with their fists, tearing the flag off, and ordering the occupants to get out. Their rage and insults, directed mainly at the ambassador “as a black man,” abated only when a security force arrived to beat back the mob with rifle butts. (Not for nothing did Eldridge Cleaver say that the North Korean police made him miss the Oakland police.)

“The level of training of the masses is extremely low,” a party official later admitted to the ambassador. “They cannot differentiate between friends and foes.” In other words, everything was going as planned. The regime went on to blur the distinction further by excising all mention of outside assistance from the history books, even as it continued to squeeze billions of dollars from its cash-strapped allies. For decades a foreign proletariat toiling in dingy factories from Vladivostok to Karl-Marx-Stadt helped bankroll Pyongyang’s transformation into a proud monument to ethnic self-reliance, so that someday a Bruce Cumings could boast that it is anything but the ugly Communist capital one might expect. Well into the 1980s Kim was telling leaders of aid-donating states that he was having trouble meeting the basic needs of his people. If South Korea’s dictatorships were America’s running dogs, then North Korea was the Eastern bloc’s house cat: intractable, convinced of its superiority, and to some observers a more independent creature, but never much good at feeding itself—even after the can openers started falling silent in 1989.

The question of where Europe ends and Asia begins has troubled many people over the years, but here’s a rule of thumb: if someone can pose as an expert on the country in question without knowledge of the relevant language, it’s part of Asia. Europeans hoping to lay claim to North Korea should therefore brace themselves, because Bradley Martin’s publisher is touting Under the Loving Care of the Fatherly Leader (2004) as the definitive work on its subject, though it belongs squarely in the “a puzzled look crossed the faces of my guide and interpreter” tradition of monoglot scholarship. Although hardly definitive, it is still an excellent book, well researched and lucidly written. It is especially refreshing to find someone showing serious interest in North Korean propaganda instead of merely hooting at it.

The problem is that the official translations on which Martin was forced to rely do not always reflect the original. Kim Il Sung’s title Eobeoi Suryeong means not “Fatherly Leader”—a common rendering that encourages Martin to exaggerate the influence of Confucianism on the personality cult—but “Parent Leader,” the most feminine title the regime could get away with. As the country’s visual arts make clear, Kim was more a mother to his people than a stern Confucian patriarch: he is still shown as soft-cheeked and solicitous, holding weeping adults to his expansive bosom, bending down to tie a young soldier’s bootlaces, or letting giddy children clamber over him. The tradition continues under Kim Jong Il, who has been called “more of a mother than all the mothers in the world.” His military-first policy may come with the title of general, but reports of his endless tour of army bases focus squarely on his fussy concern for the troops’ health and comfort. The international ridicule of his appearance is thus as unfair as it is tedious. Anyone who has seen a crowd of Korean mothers waiting outside an examination hall will have no difficulty recognizing Kim’s drab parka and drooping shoulders, or the long-suffering face under the pillow-swept perm: this is a mother with no time to think of herself. When it comes to the Workers’ Party, the symbolism is even more explicit, as in this recent propaganda poem:

Ah, Korean Workers’ Party, at whose
breast only
My life begins and ends
Be I buried in the ground or strewn
to the wind
I remain your son, and again return to
your breast!
Entrusting my body to your
affectionate gaze,
Your loving outstretched hand,
I cry out forever in the voice of a child,
Mother! I can’t live without Mother!

It’s easy to imagine what Carl Jung would have made of all this, and he would have been right. Whereas Father Stalin set out to instill revolutionary consciousness into the masses (to make them grow up, in other words), North Korea’s Mother Regime appeals to the emotions of a systematically infantilized people. Although the propaganda may seem absurd at a remove, it speaks more forcefully to the psyche than anything European communism could come up with. As a result, North Korea’s political culture has weathered the economic collapse so well that even refugees remain loyal to the memory of Kim Il Sung.

The Yangs, for example, are former Party members who recently defected to the South with their two boys. As part of a campaign to prevent the formation of a refugee ghetto in Seoul, the family was resettled in Mungyeong, a charmless sprawl of apartment blocks and love hotels a few hours to the southeast. I visited them there in May. As we sat on the floor of their tiny living room, I told them how a young refugee once shrank from my approach because—as she later explained—I looked like the stick-nosed Yankee effigies she used to run knives into after school. “Yes, you do have …” the mother shouted over the general laughter, but she caught herself in time. Turning to the older boy, who is sixteen, I asked what wisdom he could remember from the Parent Leader. “Man is the master of his own destiny,” he said shyly, his voice trailing off. What about his parents? “We didn’t memorize sentences,” the mother said, embarrassed, so I asked her to explain Kim Il Sung’s ideology of Juche for me in her own words. “The main thing is, man is the master of his destiny,” she said briskly. “And?” I asked. Silence. “Well,” I said, “if people are the masters of their destiny, why do they need a leader?” The younger boy came to his mother’s aid: “It was something about flowers needing the sun to grow.” Everyone frowned at my pen scratching away; they were letting the Parent Leader down. “It wasn’t so much what Kim Il Sung said,” the father blurted out at last.

This is of course true. Expanses of tautological prose have been ghostwritten to fatten the spines of the two Kims’ collected works, but few people ever read them. North Korea is a unique socialist country in that its ruling ideology is conveyed through what is written about its leaders, not by them, and the message could hardly be simpler: Foreigners bad, Koreans good, Leader best. “The most important thing to us was that Kim Il Sung suffered for the people; he fought for us,” the boys’ mother said. With a start I realized that this elegant fortyish woman, who now sells American cosmetics for a living, had tears in her eyes. “The Leader would sit on the ground with farmers, just like we’re sitting here now. And if he shook someone’s hand, that person would be happy forever. Of course, Kim Jong Il is not like that.” Conversation turned to the railway explosion in the North at the end of April, and to the regime’s immediate focus on the material damage. “It’s because Kim Jong Il never suffered,” the father said bitterly. “What does he know about the common people?”

It would appear that Kim knows just enough. The border with China remains so porous that even children often sneak back and forth, and yet no more than three or four percent of the population has chosen to flee for good. The regime obviously did the smart thing by publicly acknowledging the food shortage and then blaming it on American sanctions, instead of pretending there was no food shortage at all, as Stalin used to do. The Dear Leader has also deftly exploited the tradition according to which Koreans care for their parents in old age: the masses are told that it is their job to feed him, not the other way around, and his famed diet of “whatever the troops are eating” is routinely invoked to shame everyone into working harder. Never has a dictator been such an object of pity to his people, or such a powerful source of guilt. In 2003 North Korean cheerleaders, living it up on a rare visit to a sports event in the South, responded to a rain-soaked picture of Kim by bursting into a hysterical lament that baffled their hosts.

To concede the effectiveness of the personality cult is not to agree with Selig S. Harrison’s startling assertion, in Korean Endgame (2002), that Koreans have a “built-in readiness … to accept as truth what is dispensed from higher authority.” No regime ever needed to subject its citizens to a lifetime of brainwashing in order to make them follow their natural inclinations. What must be acknowledged is that Kim Jong Il has evinced a genius for propaganda ever since managing the efflorescence of his father’s cult in the 1960s. Even so, he cannot cover his lack of charisma completely; it’s as if Hitler died and left the Third Reich to Goebbels.

Kim must also be aware that the infantilization of the people has come at a price. Away from Pyongyang’s carefully monitored tourist sites, North Korea is a much more raucous place than any dictator could be comfortable with. “One surprising thing,” Michael Breen writes in Kim Jong Il: North Korea’s Dear Leader (2004), “surprising because you expect robots, is … how frequently fights break out.” According to refugees, even women fight out their differences, and young female teachers are said to hit children the hardest. This lack of restraint is a problem for many North Koreans trying to adjust to life in the South. Social workers complain that the refugees pick fights with strangers, and storm off jobs on the first day. “I’d have thought they’d be better at controlling themselves, coming from a socialist system,” is a common lament.

In short, the conventional Western view of North Korea’s official culture as a stodgy combination of Confucianism and Stalinism—two ideologies that prize intellectual self-discipline above all else—could not be further from the truth. Fortuitously enough, this view has so far encouraged Americans to stay cool in the face of Kim Jong Il’s missile-rattling. But misperceptions of hostile regimes are inherently dangerous, especially when Uncle Sam is doing the misperceiving, and this one has as much potential to excite tensions as to reduce them. On August 18, 1976, a detail of U.S. and South Korean soldiers at the DMZ were pruning a tree when People’s Army soldiers demanded that they stop. The Americans refused, prompting the North Koreans to wrest away their tools. In the ensuing clash two American officers were killed. Unable to conceive that Communist troops could act out of spontaneous rage, Washington assumed that Kim Il Sung had ordered the incident. Troops were set on high alert, and nuclear-capable B-52s dispatched to skirt North Korean airspace. Luckily for everyone, the Parent Leader issued an apology for his children on August 21. As the Americans saw it, of course, Kim had “backed down.”

Perhaps the most unsettling thing about the nuclear accord brokered by Jimmy Carter in 1994 is the decade of crowing it set off in North Korea. A high-school textbook remembers, “The Great Leader dragged the Americans, who had fallen into a state of extreme terror and unease, to the negotiating table … All problems discussed during the talks between America and Korea were resolved to Korea’s advantage, and the intense nuclear standoff ended in our victory.” This is evidently sincerely believed; if it weren’t, the North Koreans would not still be so enamored of Carter and Robert Gallucci, the chief U.S. negotiator back then. Both men—and this must thrill them no end—are praised in propaganda literature as fervent admirers of Kim Il Sung.

It is reassuring, then, to read in Harrison’s book that the agreement actually represented a victory of high-ranking North Korean “doves” over their hardline colleagues. I just wish he had explained why even the most hawkish propagandists remember it so fondly. What bothers me more is the author’s insistence on interpreting the two Kims’ every act as part of a rational pursuit of national security. We are told, for example, that the deployment of atomic weapons in South Korea in 1958 frightened Pyongyang into starting its own nuclear program. As the CWIHP bulletin makes clear, however, Eastern European diplomats in the early 1960s were aghast at the North Koreans’ assertions that a nuclear confrontation was nothing to be afraid of, and that the time had come for another invasion of the South. It is by no means certain that this sort of adventurist thinking has been abandoned. In a propaganda novel set in 1993, Kim Jong Il and his generals regard a likely American air strike on the Yongbyeon nuclear facility as the perfect opportunity for a “sacred war” (seongjeon) of reunification. Harrison ignores such things, which may well be better than overreacting to them; but to approach North Korea as if it were the détente-era Soviet Union is asking for trouble. When he gets his next update on the hawk-dove struggle from officials in Pyongyang, a city where most foreigners count themselves lucky to learn their tour guide’s name, he should perhaps keep in mind that North Korea has always viewed the existence of similar factions in Washington as the manifestation of a ludicrous disunity. No one under Kim Jong Il would describe his government in such terms to a Yankee visitor unless the goal were to extract more concessions from the outside world.

Considering that for decades the North Koreans refused to listen to their own allies, it seems naive for the author of Korean Endgame to assume that what Washington does “will largely determine what the North … will do.” The Juche regime has received substantial U.S. aid since the famine, but the dominant slogans of anti-American prop-aganda remain “A hundred thousand times revenge” and “A jackal can never become a lamb.” In other words, even as the regime tells the outside world it wants nothing but better relations with Washington, it tells its own people that better relations are neither desirable nor conceivable. In January of 2003 Pyongyang issued a taunting poster of a missile attack on the Capitol.Later that year, with the six-party talks in progress, an old tale of murderous missionaries was reprinted in four North Korean magazines, complete with racist caricatures.

Still, the thrust of Harrison’s book is valid.

The goal of the United States should be to disengage its forces gradually … over a period not longer than ten years, whether or not this can be done as part of a negotiated arms-control process … The stage would then be cleared, as it were, with the initiative left to Seoul and Pyongyang. Washington would have its hopes and its advice but would recede into an unaccustomed posture of detachment, ready to let the two actors make their own mistakes.

This is excellent counsel. Far from being a stabilizing factor on the peninsula, the U.S. presence serves only to rally the North Koreans around their military-first government. As Harrison makes clear, this is no time to get sentimental about our old ally. Seoul asks that U.S. troops stay, but at the same time it poses as a neutral mediator of the resulting tensions, often playing down the nuclear threat just as Pyongyang seems bent on playing it up; a disastrous miscommunication among the three parties seems all but preordained. It is a shame that Harrison does not place greater stress on the need to extricate our troops even if the arms-control process fails, because it’s hard to see how it can succeed. Kim Jong Il refused to let South Korean doctors tend to blinded children after the North’s railway explosion last spring; such a pathologically secretive man must be expected to balk at an early stage in the verification of nuclear dismantlement, no matter what agreement he has signed. Washington will then renege on its part of the bargain, prompting Seoul to voice regret over American “intransigence.” This, in turn, will embolden the North to demand a re-negotiation of the point in question, and we will all be right back where we started, albeit with even more nukes to worry about.

In the meantime, anything can happen. Having predicted the speedy downfall of the regime back in 1994, Pyongyang-watchers now predict that it will be around forever, but North Korea is already well into a precarious post-totalitarian phase. Thousands of citizens in border regions chat with refugees by smuggled cell phone, and millions more enjoy illegal access to television broadcasts from outside the country. The majority of the population has bought and sold things at open-air markets, and many young people in rural areas have simply stopped attending school and political meetings. The personality cult will find it hard to adjust to this kind of change without routine recourse to anti-American alarmism, and if there are no grounds for confrontation, Kim Jong Il can be expected to create them. All the more reason, then, for America to heed Harrison’s advice and pull out. But will we do so? Our patriotic dash into the Iraqi quagmire hardly inspires confidence that we wouldn’t follow our own Dear Leader into a new conflict in North Korea, especially since the WMD really do look like a “slam dunk” this time.

The only comfort to be had from the new batch of Korea books is provided by Breen’s biography of Kim Jong Il, which details a hedonistic streak as wide as the DMZ. Apparently the dictator lives in a huge palace stocked with Paradis cognac, and every summer a fresh “Joy Brigade” of high school beauties gets to admire the ceiling. Breen waxes indignant about this, but would he rather Kim were sharing a tent with a mountain goat and a well-thumbed Koran? We can all breathe a little easier knowing that our most formidable adversary wants his virgins in the here and now.

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents  
 
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform  

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants 
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.

The Economist
3/11/2004

So far as a visitor can tell in this secretive land, North Korea’s economic reforms are starting to bite. But real progress will require better relations with the outside

COMMUNIST North Korea has started to experiment with economic reform, and opened its door a crack to the outside world. Though its culture of secrecy and suspicion stubbornly persists, it was deemed acceptable for your correspondent to visit Pyongyang’s Tongil market last week. Here, stalls are bursting with plump vegetables and groaning with stacks of fresh meat. You can even buy imported pineapples and bananas from enthusiastic private traders.

But how about a photograph? Most foreigners think of North Korea as a famished nation, and the authorities are evidently keen these days to tell the world about the great strides their economy has made since reforms were introduced in July 2002. Logic might seem to suggest that a snap showing the palpable result of the reforms would be acceptable too. But it is not. The officials were friendly but firm: no pictures of fat carrots.

The July 2002 reforms were ground-breaking for North Korea: the first real step away from central planning since the dawn of communism there in 1945. The government announced that subsidies to state-owned enterprises were to be withdrawn, workers would be paid according to how much they produced, farmers’ markets, hitherto tolerated, would become legal and state enterprises would be allowed to sell manufactured products in markets. Most of these enterprises, unless they produced “strategic items”, were to get real autonomy from state control.

Almost two years on, how to assess the success or failure of these reforms? That climate of secrecy makes it deeply frustrating. Even the simplest of statistics is unavailable. Li Gi Song, a senior economist at Pyongyang’s Academy of Sciences, says he does not know the rate of inflation. Or maybe he is not telling. After all, he says, “We can’t publish all the figures because we don’t want to appear bare before the United States. If we are bare then they will attack us, like Afghanistan or Iraq.” So what follows can be little more than a series of impressions.

The indications are that the reforms are having a big impact. For a start, North Korea has recently acquired its first advertisement (pictured above)—for foreign cars, assembled locally by a South Korean majority-owned company. Or, to be more basic, take the price of rice, North Korea’s staple. Before the reforms, the state bought rice from state farms and co-operatives at 82 chon per kilo (100 chon make one won, worth less than a cent at the official exchange rate). It then resold it to the public through the country’s rationing system at eight chon. Now, explains Mr Li, the state buys at 42 won and resells at 46 won.

North Korea’s rationing system is called the Public Distribution System (PDS). Every month people are entitled to buy a certain amount of rice or other available staples at the protected price. Thus most North Koreans get 300g (9oz) of rice a day, at 46 won a kilo. According to the UN’s World Food Programme (WFP), that is not nearly enough. Anything extra has to be bought in the market.

In theory, even in the market the price of staples is limited. Last week, the maximum permitted rice price was marked on a board at the entrance to Tongil as 240 won per kilo. In fact, it was selling for 250. WFP officials say that in January it was selling for 145 won, which points to significant inflation, for rice at least. This is not necessarily a bad thing, since it means that the price is coming into line with the market.

The won’s international value is also adjusting. Since December 2002, the euro has been North Korea’s official currency for all foreign transactions. In North Korean banks, one euro buys 171 won. In fact, this rate is purely nominal. A semi-official rate now exists and the price of imports in shops is calculated using this.

Last October, according to foreign diplomats, a euro bought 1,030 won at the semi-official rate. Last week it was 1,400. A black market also exists, in which the euro is reported to be fetching 1,600 won—which implies that the won is approaching its market level. It also means, however, that imported goods have seen a big price-hike. For domestically-produced goods, like rice, prices may well go on rising for a good while longer.

What about earnings? Before the 2002 reforms, most salaries lay in the range of 150-200 won per month. Rent and utilities, though, were virtually free, as were (and are) education and health care. Food, via the PDS, was virtually given away. Now, pay is supposed to be linked to output, though becoming more productive is not easy for desk-bound civil servants or workers in factories that have no power, raw materials or markets.

Rents and utilities have gone up, though not by crippling amounts. A two-bedroom flat in Pyongyang including electricity, water and heat costs just 150 won a month—that is, about a tenth of a euro.

Earnings have gone up much more: a waitress in a Pyongyang restaurant earns about 2,200 won a month. A mid-ranking government official earns 2,700. A worker at a state farm earns in the region of 1,700, a kindergarten teacher the same, and a pensioner gets between 700 and 1,500. A seamstress in a successful factory with export contracts can earn as much as 5,000 won a month. Since that seamstress’s pay equates to barely three euros a month, wages still have a long way to adjust.

The prices of food and other necessities, to say nothing of luxuries, has gone up much more than rent has. According to the WFP, some 70% of the households it has interviewed are dependent on their 300 gram PDS ration, and the WFP itself is targeting 6.5m vulnerable people out of a total population of some 23m. Not all suffer equally: civil servants in Pyongyang get double food rations from the PDS.

There are some encouraging stories. In Pukchang, a small industrial town 70km (40 miles) north-east of Pyongyang, Concern, an Irish aid group, has been replacing ancient, leaking and broken-down water pipes and pumps, and modernising the purification system. This has pushed the amount of clean water available per person per day from 80 to 300 litres. Kim Chae Sun is a manager at the filtration plant, which is now more efficient. Before July 2002 she earned 80 won a month. Afterwards she earned 3,000 won. Now she earns 3,500.

As Mrs Kim speaks, three giant chimneys belch smoke from the power station that dominates the town. All workers have been told they can earn more if they work harder, but certain groups have been told they will get even more money than everyone else. In energy-starved North Korea these include miners and power workers. Mrs Kim says her husband, who works in the power plant, earns an average of 12,000 won a month. Her rent has gone up from eight to 102 won a month, and in a year, she thinks, she will be able to buy a television or a fridge.

A lot of people, in fact, are buying televisions. The women who sell the sets from crowded Tongil market-stalls get them from trading companies which they pay after making a sale. The company price for an average set is 72,000 won, the profit just 1,000 won. After they have paid for their pitch, the traders can expect an income of 10,000-12,000 won a month.

Mystery sales
Which makes for a puzzle. Who can afford a good month’s salary for a locally made jacket in Tongil, costing 4,500 won? How come so many people are buying televisions, which cost more than two years of a civil-servant’s pay? How come the number of cars on the streets of the capital has shot up in the past year? Pyongyang still has vastly less traffic than any other capital city on earth, but there are far more cars around than a year ago. Restaurants, of which there are many, serve good food—but a meal costs the equivalent of at least a white-collar worker’s monthly salary. Many of these restaurants are packed.

Foreign money is part of it. Diplomats and aid workers say many new enterprises seem to have opened over the last year. Nominally they are state-owned, but sometimes they have a foreign partner, often an ethnic Korean from Japan. The majority are in the import-export business. Some have invested in restaurants and hotels and some in light industry. Thanks to the 2002 reforms, these firms have a degree of autonomy they could not have dreamed of before. An unknown number of people also receive money from family abroad, but there are still no North Korean-owned private companies.

Farmers are among the other winners: they can sell any surpluses on the open market. But two out of three North Koreans live in towns and cities, and only 18% of the country is suitable for agriculture. The losers include civil servants, especially those outside Pyongyang who do not get double food rations and have no way to increase their productivity.

Factory workers have it the hardest. A large proportion of industry is obsolete. Though Pyongyang has electricity most of the day, much of the rest of the country does not. Despite wild talk of a high-tech revolution, the country is not connected to the internet, though some high-ups do have access to e-mail service. In the east of the country lies a vast rustbelt of collapsing manufacturing plants.

Huge but unknown numbers of workers have been moved into farming, even though every scrap of available land is already being cultivated. The extra workers are needed because there is virtually no power for threshing and harvesting and no diesel for farm vehicles. This requires more work to be done by hand. Ox-carts are a common sight.

The innocent suffer
Markets are everywhere. But this does not mean that there is enough food everywhere. In Pyongyang, where there are better-off people to pay for it, there is an ever-increasing supply. Outside the capital, shortages are widespread.

No one knows how many died during the famine years of 1995-99; estimates range from 200,000 to 3m. In Pukchang, officials say that 5% of children are still weak and malnourished. In Hoichang, east of Pyongyang, schools and institutions tell the WFP that about 10% of children are malnourished. Masood Hyder, the senior UN official in North Korea, says that vulnerable households now spend up to 80% of their income on food.

And yet some things are improving. Two surveys carried out in 1998 and 2002 by the North Korean government together with the WFP and Unicef showed a dramatic improvement in children’s health between those years. The proportion of children who fail to reach their proper height because of malnutrition fell from 62% to 39%, and the figures are thought to be still better now. However, Unicef says that though children may no longer die of hunger, they are still dying from diarrhoea and respiratory diseases—which are often a side-effect of malnutrition.

To a westerner’s eye, a class of 11-year-olds in Hoichang is a shocking sight. At first, your correspondent thought they were seven; the worst-affected look to be only five. Ri Gwan Sun, their teacher, says that apart from being stunted some of them still suffer from the long-term effects of malnutrition. They struggle to keep up in sports and are prone to flu and pneumonia. They are also slower learners.

Pierrette Vu Thi of Unicef says that North Korea’s poor international image makes it hard for her agency, the WFP and others to raise all the money they need. The country is in a chronic state of emergency, she says, and to get it back on its feet it would need a reconstruction effort on the scale of Afghanistan and Iraq.

Such bleak talk is echoed by Eigil Sorensen of the World Health Organisation. He says that health services are extremely limited outside the capital. Medicines and equipment are in short supply, large numbers of hospitals no longer have running water or heating and the country has no capacity to handle a major health crisis.

None of this is likely to change very fast. With no end yet to the nuclear stand-off between North Korea and the United States, American and Japanese sanctions will remain in place. And nukes are only part of it. Last week the American State Department said it was likely that North Korea produced and sold heroin and other narcotics abroad as a matter of state policy. North Koreans who have fled claim that up to 200,000 compatriots are in labour camps. North Korea denies it all.

Reform, such as it is, has plainly made life easier for many. But rescuing the North would take large amounts of foreign money, as well as measures more far-reaching than have yet been attempted. At present, there is no way for the government to get what it needs from international financial institutions like the World Bank. Such aid as comes will be strictly humanitarian, and investment in so opaque a country will never be more than tentative. Domestic reform on its own cannot fix an economy wrecked by decades of mismanagement and the collapse of communism almost everywhere else.

Financial Times
September 4, 2003
Page 4
by Andrew Ward 

Kim Jong Il yesterday staged a rare cabinet reshuffle, replacing several top officials with younger men in an apparent attempt to strengthen his power base. 

Mr. Kim face a twin threat to his Stalinist regime from looming economic collapse and increasing pressure from a US government angered by the state’s development of nuclear weapons. 

Mr. Kim replaced his prime minister, two of his three deputy premiers and five ministers in what South Korean reporters said was the most far-reaching government shake-up for five years. 

Analysts in the south speculate Mr. Kim was replacing ageing officials associated with Kim Il Sung his late father and former leader.  In their place, had come younger officials more loyal to the current leader. 

Diplomats and intelligence officials, who admit their assessments about the reclusive regime are little better than guess work, hoped the promotion of younger officials would clear the way for political and economic reforms resisted by the old guard. 

Economic reforms introduced last year – wages and prices were raised to meet market values – fuelled hopes that North Korea might open up, but there have been few further signs of change. 

Some of those replaced held important economic planning posts, perhaps reflecting Mr. Kim’s concern about the parlous state of the country’s economy. 

South Korea‘s Yonhap news agency said 52% of North Korea’s new power elite was aged under 55.  However there was no sign of a shift away from Mr. Kim’s “army first policy” of concentrating power and resources with North Korea’s 1.1 million-strong army. 

Most top military leaders kept their jobs – including Mr. Kim himself, who was re-elected Chairman of the National Defense Commission, the country’s most powerful body – and the legislature approved measures to strengthen the “nuclear deterrent force”. 

Pak Pong Ju, former minister for the chemical industry, was elected prime minister, replacing Hong Song Nam, according to North Korean media monitored by Yonhap. 

“The cabinet will work out a scientific and bold economic strategy and operational plan as required by the new century and dynamically implement them to build a strong national economic power suited to the great prosperous powerful nation,” Mr. Pak said.

From the BBC:

North Korea’s economy has been in the doldrums for more than a decade. Perhaps as many as a million people perished in a famine during the 1990s, and the food situation inside the country remains precarious today.

There are two hypotheses about why a country facing such problems has pursued nuclear weapons.

1. Its nuclear programme is merely a bargaining chip to be traded away to extract political and economic concessions from the US – a kind of atomic “trick or treat”.

2.  The North Koreans regard nuclear weapons as an end in themselves – a military deterrent and the ultimate guarantor of the regime’s survival.

North Korea’s foreign ministry said as much on 18 April when it declared, “The Iraqi war teaches a lesson that in order to prevent war and defend the security of a country and the sovereignty of a nation, it is necessary to have a powerful deterrent force only.”

Yet even from this perspective, there is an intriguing economic angle.

If a nuclear North Korea were to foreswear aggression toward South Korea, then its huge conventional forces would be redundant.

Its million-man army, an albatross around the economy’s neck, could be demobilised.

In fact, before the nuclear crisis erupted last October, North Korea floated trial balloons regarding the possibility of such a demobilisation.

But if the North’s army is to be demobilised, those troops have to have jobs to go to.

Last July, the government announced a package of policy changes designed to revitalise the economy.

These included marketisation, the promotion of special economic zones, and a diplomatic opening toward Japan, which the North hoped would pay billions of dollars in post-colonial claims and aid.

However, the rapprochement with Tokyo has stalled, and the expected capital infusion has not materialised.

The consensus of outside observers is that, so far, the reforms have largely failed to deliver.

Indeed, some of the policy changes, such as the creation of massive inflation and the demand that North Koreans surrender their holdings of dollars, could be interpreted as an attempt to re-assert state influence rather than reform the system.

Last month, Pyongyang introduced a new financial instrument it called a bond, though it is more like a lottery ticket. A mass campaign encouraging citizens to purchase these bonds suggests that politics, not personal finance, is the main selling point.

To make matters worse, the oil flow through a pipeline from China on which North Korea depends was interrupted earlier this month for several days.

The official explanation was that mechanical failure, not diplomatic arm-twisting, was the cause.

In sum, the economic situation remains dire.

However, both China and South Korea have indicated that while they want to see a negotiated resolution [to the nuclear issue], they are unwilling to embargo North Korea in the way the US envisions.

This reluctance to sanction Pyongyang undercuts the credibility of the US threat to isolate North Korea.

The Bush administration’s own rhetoric also calls into question its willingness to promote North Korea’s constructive integration into the global community.  

Marcus Noland is a senior fellow at the Institute for International Economics, and author of Avoiding the Apocalypse: The Future of the Two Koreas.

New York Times
March 11, 2003
James Brooke

Even as it rattles its nuclear sabers, North Korea is toying with a version of market reforms to patch its ravaged economy. But eight months after changes like price incentives began, the economy retains an unmistakable Alice in Wonderland quality.

North Korea’s deep ambivalence about business could be seen on a recent Saturday in this mountain resort district, opening day of the Magnolia Blossom. Security police officers paced outside the freshly painted restaurant, hands clasped behind their backs, glaring at customers inside. In the dining room, waitresses bent over ever smaller shards of a broken water bottle. The maître d’, on loan from South Korea and looking lonesome in his black tie, was not authorized to tell North Korean workers to sweep up the glass.

Then the North Korean manager started to argue with an assistant over how much to charge for lunch — $9 or $100.

”I hear there are restaurants in Cheju that charge $100 for a meal,” the assistant volunteered, referring to a desirable southern vacation island.

An American diner, halfway through his bowl of spicy Pyongyang noodles, suggested calculating a price based on profits.

”Our purpose is not to make a profit,” Kim Chol, the 45-year-old manager, lectured patiently. ”It is for the everlasting honor of our beloved leader, Kim Jong Il, that we are interested in serving proper meals to South Korean tourists, even to foreign tourists.”

Asked the prices of ingredients for the meals, Mr. Kim said he did not know. He orders the food he needs. It comes.

While North Korea may be feared for its 11,000 artillery pieces pointed at South Korea, its 100 missiles pointed at Japan, and the nuclear weapons program that so angers Washington, this militarized nation remains an economic weakling with a gross domestic product that is 4 percent that of South Korea.

In this parklike border region not far from the 38th Parallel, where the Hyundai Asan Corporation of South Korea started sending tourist buses across the demilitarized zone in mid-February, two restaurants opened here this winter to cater to South Koreans paying with hard currency. But the primary incentives are not tips, which are banned in North Korea, but pleasing the little man with a high forehead whose visage appears on buttons worn by all restaurant employees — Kim Jong Il.

Last July, in a break with half a century of economic policy, Mr. Kim’s government increased wages as much as 20-to-30-fold. Soon after, food rationing was partly abandoned and prices were raised 20-to-40-fold on staples like rice, corn and pork.

The result, defectors and economists say, has been hyperinflation — at least in the small sector of the economy that runs on money.

”North Korea is short of food, clothes and consumer goods, but they cannot afford to import these materials from China and other countries,” Nam Sung Wook, a South Korean economist who is an expert on North Korea, said on a visit here.

With far too many North Korean won chasing far too few goods, the North Korean won now trades privately around 700 to the dollar. Last summer, in an effort to close the gap with the black market rate, the country devalued the won to a rate of 151 to the dollar from 2.16 to the dollar. As the won became increasingly worthless, the government ordered in the fall that all dollars be swapped for euros, a quixotic decree that was ignored in this resort region.

Last summer, climbing on a high-inflation treadmill reminiscent of some South American economies a decade ago, the government printed a new top-denomination bill, the 1,000-won note, nominally worth a little more than $6. Then in October, it added a 10,000-won note.

With the summer’s financial decrees, the government hoped to close the gap between prices here and much of the rest of the world. Under this plan, the reasoning went, the outside world would then step in with foreign aid and investment.

But North Korea quickly alienated almost all its aid donors. Hopes to win $1 billion a year in World War II reparations from Japan unraveled in September when officials balked at Japanese demands for the return of all Japanese kidnapped by North Korean agents. Relations with China reached a low point in October when Chinese authorities arrested the new head of a North Korean free trade zone, charging him later with ”economic crimes.”

Then came news of North Korea’s nuclear development. Nicholas Eberstadt, a Korea specialist at the American Enterprise Institute, said by telephone from Washington, ”The North Korean government tried to do a forced-march economic opening under the presumption they would get foreign aid and that no one would catch them on their nuclear program.”

Aid, which plays a crucial role in the economy, dried up, and the home-grown incentives stalled: the United Nations has forecast that harvests will not respond measurably this year to the new price incentives. With most potential farmland under production, any big lift for crops would have to come from more electricity for irrigation and more imported fertilizer.

When China made its first moves to free prices, in 1979, it acted cautiously and gradually, cushioned by a society that was 80 percent rural. In contrast, North Korean officials are imposing a food-price shock on a population that increasingly seeks the advantages of life in towns and cities.

”North Korea is living on the edge,” Kathi Zellweger said from Hong Kong, where she manages the North Korea aid program for the Roman Catholic charity Caritas. Fresh from a trip to North Korea in mid-February, she said, ”Kids who to me looked 9 to 10 years old were really 14 and 15.”

Along an urban coastal strip 50 miles north of here, visitors say it is easy to see why many outsiders dismiss North Korea as an economic disaster.

”You see mile after mile of derelict factories, you see smokestacks and very little smoke,” Gerald Bourke, a spokesman for the World Food Program, said from Beijing after a tour of North Korea’s eastern coast late in January. ”The factories are rusting, they are decaying. It goes on and on. There is nothing happening. It is quite eerie.”

Although North Korea is highly secretive about statistics, many economists in the South estimate that the North’s economy contracted by about a third in the 1990’s.

Ms. Zellweger, a frequent visitor to North Korea, said the economic changes have prompted cautious sprouts of private business.

”It was very visible that more people were outside — selling, bartering, running little bicycle repair shops, selling gas for cigarette lighters,” she said of eastern cities. ”People now have more money.”

But just as the only Internet cafe in North Korea is operated by a South Korean entrepreneur, the signs of economic life in North Korea come largely from investments by South Koreans.

At the Hyundai resort here, visited by about 120,000 people last year, ground is to be broken this spring on two golf courses, a ski lift and the renovation of two hotels. And in a country where it is easy to score firsts, Hyundai plans to build North Korea’s first bungee jump.

”One golf course will be by the mountains, the other by the sea,” said Yook Jae Hee, the resort’s general manager. ”We can use North Korean workers. They are very cheap.”

Expecting a flood of tourists using a new civilian road across the demilitarized zone, Kim Chong Seong has brought 50 car campers here. Without permission to roam the countryside, South Korean tourists are to use them as fixed mobile homes.

”North Koreans need to be taught competition, but they are not ready for capitalism,” said Mr. Kim, whose father’s company, Hyo Won Moolsan, pioneered South Korea’s trade with North Korea. ”North Koreans have no idea of price or design.”

(Typical of the North’s capricious view of contracts, it suspended Hyundai’s bus tours for the month of March to do ”road work.” Analysts say it may be a way of putting pressure on Hyundai to increase payments.)

Hyundai, which has yet to make money on its four-year-old tourism operation here, has contracts for six other big projects in North Korea, including building dams, an airport, power plants, a communications network and an industrial park.

On Feb. 16, its group chairman, Chung Mong Hun, admitted at a news conference that he had secretly sent $500 million to North Korea. Critics say the payments helped the company win the North Korean construction contracts.

After two decades of speculation by some that North Korea would follow the liberalizing path of China, many South Koreans are skeptical that the Communist government will ever produce attractive investment conditions.

”We are interested in one day opening restaurants in Pyongyang,” Kwon Won Sik, president of the Lotte Hotels and Resorts chain, said during a pause in a mountain hike here. Referring to North Korea’s levy of $100 a tourist, paid by Hyundai, he added, ”North Korea is really taking advantage financially.”

Despite incentives by the Seoul government for companies to invest and trade with North Korea, interest from outside has trailed off. Investors cite erratic supplies of electricity, the cavalier attitudes toward contracts, a small domestic market and bureaucratic paralysis.

The number of new projects approved by the South Korean government fell to 3 last year, from 13 in 1998. Of 52 Southern companies allowed to invest in the North, half have dropped out of the program.

South Korea’s new president, Roh Moo Hyun, has promised to extend to the North a generous economic investment program of ”peace and prosperity.” Trans-Korean gas lines and railroads are planned, projects that could provide revenue to the impoverished North.

Chung Dong Young, an envoy of Mr. Roh, said in January at the World Economic Forum in Switzerland: ”If North Korea gives up its nuclear programs and addresses other security concerns, it will be able to receive rewards both economic and diplomatic, that will surpass its own expectations. We are considering a bold North Korea reconstruction plan to move toward the Korean Peninsula Economic Community. ”

Washington Post
John Pomfret
1/27/2003, Page AOl

Nuclear Crisis May Have Roots in Economic Failure

Six months after North Korea announced unprecedented wage and price increases to jump-start its miserable economy, runaway inflation is emptying millions of pocketbooks and bottlenecks in production are causing widespread shortages, according to Chinese and North and South Korean sources.

The black market price of rice, the staple of the Korean diet, has jumped more than 50 percent over the past three months in most parts of the country while tripling in others, according to North Koreans, Chinese businessmen and Western aid agency workers. Some factories in poorer parts of the country, such as the heavily industrialized east coast, have stopped paying workers the higher salaries that were a cornerstone of the reforms, recent North Korean arrivals to China said. Others have taken to paying workers with coupons that can be exchanged for goods, they said, but there are no goods in the stores to buy.

“Theft new economic policy has failed,” said Oh Seung Yul, an economist at the government-funded Korea Institute for National Unification in Seoul. “The hopes that were raised in July are today pretty much dashed.”

The apparent failure of North Korea’s attempt to promote economic activity and improve living standards constitutes an important backdrop for its recent threats to resume a nuclear weapons program, according to the sources.

On one hand, Oh and others said, North Korea’s isolated government needed a scapegoat. On the other, according to Chinese sources close to the secretive government of Kim Jong Ii, Pyongyang has determined that it risks economic collapse without security guarantees and access to international lending institutions such as the World Bank and International Monetary Fund, to which the United States holds the keys. So Kim manufactured a crisis to win concessions, they said.

“Now the economic situation is more precarious than before the reforms. They can’t do this halfway,” said Cui Yingjiu, a Chinese Korean economist and adviser to the North Korean government. “They risk social chaos and economic collapse.”

The crisis has been exacerbated by a drop in the humanitarian aid that had kept North Korea on life support since 1995. Because of a shortage of donations, the World Food Program has cut back the number of North Koreans it is assisting this year from 6.4 million to 3.5 million of the country’s estimated 22.6 million inhabitants. In September, the elderly and primary school-age children on the west coast were cut off. In October, kindergarten-age children, pregnant women and nursing mothers there lost out. In November, nurseries were scratched from the list.

“It’s a tough call deciding who has to be deprived,’ said Gerald Bourke, an official with the World Food Program in Beijing. Bourke said the recent “very rapid inflation” of rice prices is “putting food way beyond the pale for a lot of people.”

The World Food Program has 25,000 tons of food in North Korea and pledges of 75,000 additional tons, he said. It needs 511,000 tons this year.

North Koreans traveling over the border to Yanji, about 700 miles northeast of Beijing, said an initial wave of hope triggered by the changes announced in July is gone in almost all parts of the country except the capital, Pyongyang.

Lee Xiangyu, a North Korean refugee in China, was arrested by Chinese border police and returned to North Korea last summer, when the changes began. After a short stint in jail, the 19-year-old returned to her home town, Musan, along the border with China. By October, she said, the lumberyard where her father worked had stopped paying him and other workers the huge raises they had received as part of the effort to promote some aspects of a free-market economy.

But prices continued to rise. “There was no money in my house, and now the prices are so high,” she said. Lee sneaked back into China in December. “It’s not like it was in 1997 when people were starving to death,” she said, speaking of the famine that cost hundreds of thousands of lives. “But it’s worse in a way. Because everybody had hope for a little while and now they are desperate again.”

North Korea’s announcement of economic reforms was front-page news, in part because the measures fit into a series of other moves that led some observers to conclude Kim was ready to lead his country out of isolation. The steps included expression of regret following a clash between North and South Korean naval forces in June, the suggestion that North Korea would hand over Japanese Red Army members wanted in Japan for hijacking a Japanese airliner in 1970, an informal meeting in July between North Korean Foreign Minister Paek Nam Sun and Secretary of State Cohn L. Powell, transportation links between North and South Korea, a summit between Kim and Japanese Prime Minister Junichiro Koizumi and talk of establishing as many as five special zones for foreign investment.

The economic changes included raising prices and wages, devaluing the North Korean won against the dollar and cutting state subsidies for failing businesses. Wages were increased between 900 percent and 1,500 percent. Prices, which are in theory set by the state, went up as well. Rice went up 4,000 percent, corn 3,700, pork 700, diesel fliel 3,700, electricity 5,900, apartment rent 2,400 and subway tickets 900.

The government announced that factories with bloated workforces could effectively lay off unnecessary workers so they could concentrate on making things again — a step North Korean industry had not taken since economic troubles began in 1995.

The main motivation for increasing the price of rice was to prompt farmers to plant more food. But Cui, who attended a conference on North Korea’s economic changes last fall in Pyongyang, said farmers were not happy.

“Grain prices went up, but so did prices for inputs like fertilizers and seeds,” he said. ‘So all gains were canceled out.”

Another issue, Cui said, is electricity. North Korea has good hydropower resources, but as farmers become interested in planting more crops, they will want to use water in reservoirs for irrigation, not for power generation. “There are a whole series of these conundrums and Catch 22s,” Cui said.

He said North Korean factories have yet to begin producing goods people want to buy. That is why trucks rolling into China from the Dandong border crossing, 350 miles southwest of Yanji, now carry clothes, television sets, shampoo and other consumer goods.

The changes befliddled Western and Chinese economists from the beginning. Chinese experts noted that when China undertook its first major economic reform in 1979, it increased the price of grain by only 25 percent. Second, they said, when China began this process, 80 percent of its population lived in rural areas, so there was a huge pooi of potential beneficiaries from the liberalized agricultural policies. But North Korea is highly industrialized: Two-thirds of its people live in cities.

Marcus Noland, at the Institute for International Economics in Washington, speculated that the changes were either a desperate attempt to jump-start a half-dead economy or a backhanded attack against North Korea’s nascent private economy. Increasing prices would reduce the value of currency held outside the state system, breaking the back of private entrepreneurs.

But then again, he said in a recent paper, “the possibility that economic decisions are being made by people who do not grasp the implications of their actions should not be dismissed toohastily.”

Correspondents Doug Struck and Peter £ Goodman in Seoul contributed to this report