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Resolution 2270, which the U.N. Security Council adopted on March 2, introduced many restrictions on the export of North Korean coal. Admittedly, the resolution is also equipped with several remarkably large loopholes that mean that exports can continue come what may. It is nonetheless interesting that this news produced much in the way of noise about the threat it poses to top policy makers in Pyongyang and the tonju (literally "lords of money").
The latter group is not supposed to exist in North Korea, but it does, and is remarkably powerful. These "lords of money" are actually rich entrepreneurs and investors who are running large private businesses. The operational capital of these people nowadays is counted in the hundreds of thousands of dollars.
Many may be surprised by this because the world media tend to repeat the outdated description of North Korea being the last redoubt of "Stalinism." Indeed, in a Stalinist country, private businesses (let alone large private businesses) are not supposed to exist. But the "lords of money" are rich, and play a major role in exporting coal and other minerals.
The tonju still cannot operate openly because the North Korean legal system, created in the 1950s and 1960s, leaves practically no space for private economic activity. When it comes to small-scale operations (like, say, running a food stall at a market), North Korean entrepreneurs do not worry too much about paperwork ― a few bribes usually ensure that the business is not seriously threatened. However, if a private business gets bigger, other, more elaborate schemes are necessary for survival.
Fortunately, many North Korean officials are not averse to turning a blind eye ― such activities help local and regional economies, while also providing a healthy revenue stream. They syphon off some of the revenue for themselves and pay their superiors a healthy amount too ― they also understand that this situation, far from perfect, is necessary to ensure that people live and work. Mid and low-level functionaries are thus quite happy to participate in schemes that allow rich North Korean individuals to invest in de facto private enterprises operating under the cover of the state.
On paper, a significant part of North Korea's core exports are done by Foreign Trade Companies (FTCs). FTCs have been established by a wide variety of government agencies including those in the military, intelligence and party. FTCs operate enterprises including coal mines ― that produce exportable items.
However, it is now an open secret that many such coal mines are actually run by the above mentioned tonju. They make deals with FTC management, effectively becoming franchise holders of the FTC brand. A lot of money is paid to gain direct control of a mine (usually one that was abandoned in the 1990s). The lord then hires personnel, including skilled geologists and engineers, and buys the necessary equipment to restart operations. Equipment is purchased with cash from non-operational mines, or imported from China. After preparations have been made, extraction can begin.
Coal produced from such mines is exported to China ― very frequently through networks and connections of the lords themselves. After all expenses are paid, the remaining profits are usually split in three (unequal) parts with the exact proportions varying from case to case. Part of the money goes to the FTC, and onward to the central state budget. Another part is retained by the FTC's managers, while the rest is kept by the lord himself to invest as he (usually not a she, although sometimes) sees fit.
The income from such schemes is often counted in the tens of thousands of dollars a month ― a small fortune by any standards, but positively obscene by North Korean standards.
Such co-operation between private capital and state agencies is quite typical in present-day North Korea. The schemes are widely used and virtually nobody sees them as problematic. At the same time, the old regulations remain on the books and are officially enforced. Thus, if a private entrepreneur becomes unruly and forgets his "proper station," his superiors can easily have the lord sent to prison forever or shot. It is not difficult ― pretty much everything he (very seldom she) does goes against the letter of North Korean law.
The mighty "lords of money" have another reason to worry about their future, however ― international sanctions. According to recent reports, the North Korean government has tried to assure them that China will not take the bans seriously for too long. This might indeed be the case; at least this is what North Korea's new rich are hoping for.
Professor Andrei Lankov was born in St. Petersburg, Russia, and teaches at Bookman University in Seoul. Reach him at anlankov@yahoo.com.
