North Korea

Courtesy of The Economist, an interesting look at North Korea:

WITH her turquoise top, Dayglo trainers and Hello Kitty mobile phone, Jeon Geum Ju fits right in among the young latte-sippers in a Starbucks in downtown Seoul. Her dark eyes sparkle as she talks—and she talks a lot. The only time that the 26-year-old hesitates, and tugs at her hair awkwardly, is when she is asked about Kim Jong Un, the young leader of North Korea who took over her country in 2011, a year after she fled to South Korea. She was, she says, so brainwashed from a very early age that she still cannot bring herself to criticise him.

Ms Jeon is no apologist for the regime. Though her escape from North Korea was not caused by the starvation and abject cruelty that force others to leave, it was, she says, still a flight from oppression. What she craved was the freedom to wear flared jeans and jewellery and to let her hair, which most North Korean women keep in a bun, grow long and wavy. She even fantasised about driving a red sports car, with dark glasses on.



She nurtured such dreams in her bedroom, watching illegal South Korean and American TV dramas smuggled in from China and shared among her friends on memory sticks which they plugged into black-market computers, some made by South Korea’s Samsung. She even flaunted her tastes in public. That was until the fashion police—no figure of speech in North Korea—arrested her for wearing a winter hat with “New York” on it. She was screamed at as “bourgeois trash” and released only when her mother, then a black-market trader, handed over two dozen packets of cigarettes as a bribe.

Such materialist tastes, however incongruous in a country where more than a quarter of young children are chronically malnourished, appear to reflect a changing reality in North Korea. While the Kim family dynasty, now in its third generation, seems almost immutable, the country that it rules over has altered dramatically. Instead of relying on state patronage for survival, people now hustle to make ends meet, and many of those who succeed use corruption, black markets, influence-peddling, inside information, criminality: in short, all the dark arts of an unregulated, out-of-control private economy.

Until recently, the outside world has known little about North Korean society. But during the past decade information has flowed—albeit illegally—both into and out of North Korea (see chart 1). Last year an American government-backed report by InterMedia, a consultancy, welcomed the deluge pouring into the North through digital media and old-style broadcasting such as Voice of America and the Korean Broadcasting System. “North Koreans can get more outside information…than ever before,” it said, “and they are less fearful of sharing that information.”


This has had two effects. First, people inside North Korea with access to outside influences can now compare their impoverished lives with others’ elsewhere. That has helped trigger a craving for the material trappings of the modern world, and the flow of such contraband goods from China to the North Korean border, orchestrated or waved on by corrupt officials. It has, says Andrei Lankov, a Russian expert on North Korea at Kookmin University in Seoul, become a society where money now talks even more loudly than your relationship to the regime. “It’s a completely different society than it was 15 years ago. This has not happened because of government policy. It’s a change from below.”

Second, new information flows have given outsiders an insight into the changes taking place in North Korean society. This year, for the first time, Google and some dedicated North Korea-watchers have mapped the interior of the country, locating everything from underground railway stations to labour camps. That information will not be available to North Koreans, almost all of whom are barred from using the internet. But for outsiders it helps unravel the all-enwrapping shroud of secrecy.


Meanwhile economists have studied defectors, making remarkable discoveries about the huge role private income now plays in people’s lives, and the changing sexual dynamics as women who run the black markets become the main breadwinners. Defector-led news sources, such as the Seoul-based DailyNK, amplify the information flow. They have built up contacts with clandestine sources inside North Korea, who use illegal mobile phones to provide news ranging from gossip about Mr Kim’s new wife to evidence of galloping inflation and currency turmoil (see chart 2). What has emerged is a picture of a two-speed society. Pyongyang has surged ahead of the rest of the country, the kleptocrats have grown stronger, and canny traders have joined a fledgling class of nouveaux riches.

These changes have been easy to miss with so much attention falling on the Kim family, particularly in the past year. The ascendancy of Kim Jong Un after his father’s death in December 2011 brought hopes that he might be a great reformer. His more boisterous style of leadership, supplemented by a fashionable wife and a taste for visits to fairgrounds, suggested that he might be closer to the people. His speeches were peppered with references to people’s livelihoods, rather than the “military-first” obsession of his father. Domestically, the greatest coup of his first year in office was the launch of a satellite into orbit in December, despite protests from around the world that he was experimenting with missile technology.

Partying in Pyongyang

The change of mood is said to be palpable in the capital. “Pyongyang is more relaxed. It is still extremely repressive socially, but people are taking their cue from the new leadership,” says a diplomat who lives there. On New Year’s Day senior diplomats were invited to a party hosted by Mr Kim that included the scientists behind the rocket launch. Many ambassadors were delighted to shake the hand of the despot-in-chief for the first time—though there was chagrin that the former Swiss-school pupil did not speak English. “Not even ‘Happy new year’,” one guest noted.

The mood has soured since. Mr Kim’s new-year speech called for an end to confrontation between North and South. Yet as soon as the UN Security Council issued new sanctions against the regime as a result of the rocket launch, the response was apoplectic, warning of more tests and threatening to attack America. The son’s regime, it turns out, is no less capricious than his father’s was.

The changes beneath him, however, seem likely to continue. They are easiest to spot in Pyongyang, where the proliferation of new city lights is exclusively fed by the Huichon hydroelectric power station. The lights conspicuously stay on at night in some of the new high-rise apartment buildings; the plushest ones at Mansudae, 45 storeys high, flash in several colours. (Inside, though, residents are said to keep buckets of water in reserve for when the taps run dry.)

More cars run on better-paved roads. Rüdiger Frank, a German economist and regular visitor to North Korea, wrote recently that two-storey establishments with a shop on the ground floor and restaurant and sauna above have mushroomed. “Prices are horrendous; three kilograms [6.6lb] of apples cost as much as one (official) month’s wages. But the fact that even things like bananas are being sold is remarkable. The problem does not seem to be access any more…[just] having the right amount of the right currency.”

One of those currencies is good information. There are said to be 2m PCs, 1.5m mobile phones, not counting the illegal Chinese ones, and a home-produced tablet computer. Behind closed doors, these have fostered new signs of change, such as the adoption among the elite of South Korean clothes, mannerisms and even accents. In his recent book, “Only Beautiful, Please”, John Everard, Britain’s ambassador to Pyongyang from 2006 to 2008, recounts a story of one mother, answering a phone call from one of her child’s friends, joking: “It’s Seoul on the line for you.”

Yet there is also a dash of Potemkin about Pyongyang. Behind the high-rises lie unpaved roads. Stephan Haggard and Marcus Noland, of the Washington-based Peterson Institute for International Economics, have referred to the “Pyongyang illusion”. They believe the authorities may not just want to improve the capital, but also to forestall an uprising among urbanites. And resources may be sucked from the rest of the country to pay for it.

A widening gap also yawns between Pyongyang and the rest of the country. UN agencies reported a slight improvement in overall nutrition levels last year, but revealed a stark contrast between the level of stunting, or chronic malnutrition, among under-fives. The shares range from below 20% in the capital to almost 40% in Ryanggang province, part of North Korea’s most impoverished rural north.

Genies into bottles

Mr Frank, the German economist, notes that there is nothing unusual about growing gaps between the capital city and elsewhere. The regime may have decided, he says, to develop one city as best as they can, “rather than spreading their scarce resources across the country with a watering can and achieving no visible results.”

Yet it is also possible that the brighter lights, firework displays and spruced up parks in Pyongyang are a cynical attempt to give unhappy citizens in the provinces somewhere else to yearn to live besides Seoul. It seems to be no coincidence that as the skyline of Pyongyang becomes more alluring, a severe crackdown is in force on TV dramas from South Korea and on escapes to South Korea via China: the numbers fleeing dropped by 44% last year, to 1,509. It is as if the regime is trying to stuff the genie back into the bottle—but too late. “The country is beset with macroeconomic instability, deepening inequality, rising corruption and a political leadership that appears to lack the vision or capacity to respond,” Mr Noland wrote last year.

He talks of a “supply line” that now runs up the west of the country to Chinese towns like Dandong near the north-western border, along which raw materials flow in exchange for illicitly procured consumer goods that flow back the other way, paid for in hard currency. He says there is anecdotal evidence that senior officials are involved in these trades. For instance, a senior food-distribution official may have the best information on the rising price of grain, which means he will try to increase imports. His wife may well be the main grain-wholesaler in the black market.

When there have been crackdowns on the markets, as during a disastrous currency experiment in 2009, Mr Noland reckons large chunks of the economy may have seized up because of shortages of basics, such as cement. This may have taught the authorities to turn a blind eye to the illegal activities. Even remittances from defectors in South Korea seem to be tolerated, provided officials get a cut. A system loosely akin to Islamic hawala has developed, in which money flows between banks in South Korea and China and brokers deliver the cash equivalent to family members in North Korea. Sokeel Park of Liberty in North Korea, a group which works with defectors, says this is how some people acquire cash to escape.

Enterprise, North Korean-style

It is not just the elite who have benefited from what Messrs Haggard and Noland call “entrepreneurial coping behaviour”. Lee Seongmin, a 27-year-old defector in Seoul, had no such privileges when, at the age of 12, he started to sneak into China to find food as famine ravaged North Korea. At 17, however, he was caught, imprisoned and severely beaten. When he came out he decided to take a more enterprising route, befriending border guards and acquiring an illegal mobile phone from his sister in China. He started importing car parts, using his phone to call China for deliveries. The soldiers at the border would pull the merchandise across the Yalu river with ropes, he says, and he would pay them off. He would then use his job working for a state distribution company to truck the parts around the country. He made so much money that he had to bury it under his kitchen floor, and often regrets his impulsive decision to defect.

These illegal markets, Mr Lee says, have produced a class of new rich who sometimes flaunt their wealth—and pay off the authorities if they become too suspicious about it. Those with hard currency also instantly became relatively richer after the 2009 currency experiments, which had the effect of severely devaluing the North Korean won.

Since then, conspicuous consumption appears to have increased. Mr Lankov writes of rich people going to expensive sushi bars and buying illegal property, TVs and refrigerators. Their main complaint is the unreliable electricity supply. Perhaps the biggest luxury is a dedicated line to the local power substation, paid for by bribing a corrupt official or military commander.

These entrepreneurs may eventually pose a threat to the regime, though they also have a stake in preserving the status quo if it enables them to make money. The test may come if a serious attempt is made to seize their wealth. Alternatively, the increasingly visible gap between rich and poor may breed resentment. Ms Jeon says she was sickened to see one class of justice for the rich and another for the poor. One of her mother’s impoverished acquaintances was sentenced to death for helping two girls leave the country; the woman’s children were summoned to witness the firing squad without realising their mother was the victim. Ms Jeon surmises that if the woman had had more money or better contacts, she might have been spared.

North Korea has long been a grotesquely unjust society. But since a famine in the late 1990s killed up to 1m people, and led to the breakdown of the system through which food was distributed around the country, experts say the state’s control over people’s lives has waned. “North Korean society has become defined by one’s relationship to money, not by one’s relationship to the bureaucracy or one’s inherited caste status,” Mr Lankov writes.

As yet there are no visible signs of protest. There appear to be no covert human-rights groups, despite the estimated 200,000 political prisoners who fester in concentration camps, and no subversive intellectuals, as in the former Soviet Union. Ms Jeon says that it never once occurred to her to risk talking about regime change. Korean experts say the lack of resistance is not only the result of brainwashing. It is because North Korea’s tradition of oppression dates back to far before the Kims: for most of the first half of the 20th century its citizens were bossed around by the Japanese, and before that by a rigid monarchy. They know of little better.

There are, however, tentative signs of openness to the outside world. Groups like Choson Exchange, based in Singapore, and the Pyongyang Project, a Canadian-American NGO, have set up workshops with North Korean civil servants to discuss previously touchy subjects such as banking and finance. At times, the North Koreans’ ambitions seem unrealistic: in 2010 one group was asked to lecture on how to establish exchange-traded funds and private equity, in a country without deposit-taking banks. But contact is as important as content, says one of the groups’ leaders.

Pressure is also growing for other forms of engagement—especially ways around North Korea’s information blockade. Some North Korea-watchers welcomed the visit by Eric Schmidt, executive chairman of Google, to the country in January as a step forward. The BBC World Service, too, is being urged to develop a Korean-language channel. In such endeavours, experts say, information on other ways of life is more valuable than political indoctrination. Mr Lee, the defector, believes that information should be as high a priority as food aid. “It is only when people can tell the difference between truth and lies that their curiosity is stimulated,” he says. Curiosity may be what this obsessively secret regime most has to fear.


This entry was posted on Tuesday, February 19th, 2013 at 2:43 pm and is filed under North Korea.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.