Korea: Is It 1989 Yet?


August 14, 2012: For over a decade China has pledged to help North Korea expand its economy using Chinese investment. But Chinese businesses are reluctant to invest in North Korea. Economic zones set up near the Chinese border have attracted little Chinese investment. Chinese businessmen are put off by incidents of corruption in North Korea, with foreign investors frequently the victims. Unless China can guarantee protection from corrupt North Korean officials, the investments are not going to be made. Senior North Korean officials (including the power-behind-the-throne, the husband of leader King Jong Uns older sister) are meeting in China to try and sort out these problems.

The key crisis in North Korea is more people hustling after a shrinking pie. The introduction of some market economy (mainly in the form of legal markets) in the last decade has made more goods available, to those who could afford them. Thousands of new "middle class" entrepreneurs have been created. This was the first time, since 1945, you had non-criminal North Koreans with wealth who did not work for the government. You also had more corruption, as there were always government officials willing to get things done (including things they were supposed to get done) for an additional fee. Now there were more people with more money willing to pay larger bribes to officials willing to take greater risks. While many North Korea officials saw these new entrepreneurs as a threat to the power of the police state, the real threat came from the growing corruption and unreliability of the security services up north. Then there is the real aristocracy of North Korea, the few percent of the population, in the form of families that have run the place since the late 1940s. This group has gotten sloppy, as usually happens after a few generations, and is losing its grip. The police state in North Korea has always made it a prison even for the people running the place. The sharper ones have escaped to China, Russia, or the West but that is very difficult to do. The rulers are trapped, along with their increasingly unruly subjects. It's not a question of "who guards the guards" but rather "how effective are the guards" if there should be a major uprising. North Korean leaders are still terrified about what happened to the seemingly unshakeable communist dictatorships in Eastern Europe in 1989. Romania, the most repressive police state in the region and the one most similar to North Korea, also collapsed that year. The senior leadership of Romania suffered heavy casualties when the security services turned on them, rather than try to suppress the popular uprising.

Northern entrepreneurs who suffered heavy losses during the currency reform three years ago have recovered. Most of the entrepreneurs who were wiped out by the currency change scrambled to rebuild their enterprises or got out of the country. For a while the northern government became even more unresponsive to the new "free market" class. But in the last year the beleaguered bureaucrats have learned to accept and get along with the entrepreneurs. This has led to more private investment in housing. Like all planned economies, there has long been a huge housing shortage in North Korea, but entrepreneurs who have amassed sufficient capital, and enough clout with government officials to get building materials and land, are putting up apartment houses and selling the apartments (often to corrupt, but now wealthy, officials).

One thing North Korea has going for it is the continued hatred of Japan in South Korea. Despite enormous economic and cultural ties, a recent South Korean opinion poll showed that Japan was the least favorite country to 44 percent of South Koreans (compared to 19 percent disliking China, 11.7 percent North Korea, and 4.8 percent the United States). America was the most favorite foreign country (for 21.5 percent of South Koreans) and no neighboring nation made it into the top five. Memories die hard in this part of the world. For centuries Korea has been invaded or otherwise abused by China and Japan. While North Korea may be a threat, they are a Korean threat and that tones down the hostility. China and Japan, however, are still the heavies, no matter how many decades of peace there have been and how much trade goes on.

August 13, 2012: Vietnam is sending 5,000 tons of rice to help the victims of the recent floods in North Korea. Currently rice is selling for about $600 a ton, thus the value of the Vietnamese gift is about $3.3 million (including transportation and such). The floods, which began a month ago after the monsoon rains arrived, killed over 200 people and left over 200,000 homeless. Some 65,000 hectares (162,000 acres) of farmland was heavily damaged along with 5,000 homes, 300 other buildings, and 60 factories destroyed. Several percent of the North Korean population was injured in one way or another by the floods. A normal country would have reserve resources to deal with this sort of thing. But North Korea is so poor that it has no reserves of food or other supplies to help much. The flood victims are in pretty bad shape. The UN and Red Cross have some relief supplies in North Korea and have distributed much of it (about $350,000 worth). The rest of the world is reluctant to send aid because so often in the past the aid has been diverted from the needy to government officials. It's another way that corruption kills.

August 6, 2012: In the north the government shut down the Taepung International Investment Group. This operation was set up by the North Korean military three years ago as part of a government-wide effort to encourage foreign investment. The officers assigned to Taepung International failed to attract much investment, despite initial claims that over $100 billion worth would be brought in. The current government in North Korea sees Taepung International as another example of the military trying to expand into non-military areas and increase the power of the military in North Korea. This sort of thing is now being curbed.





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