North Korea's new policy: catch two birds with one stone

Bottom-up economic reform being experimented for survival

By Kim Jae-kyoung

SINGAPORE ― North Korea is relying on a two-pronged strategy for survival ― nuclear brinkmanship on the one hand and an effort to reform the private economy on the other.

Pongyang's endless pursuit of a nuclear arsenal has emerged as a destabilizing factor for the command economy, scaring away foreign investment and thus forcing North Korean leader Kim Jong-un to introduce some changes internally to keep his country's economy afloat.

"A lot is changing in North Korea. I would not yet say they are reforming in a directed and purposeful manner, following in China's footsteps," William Brown, an economics professor at Georgetown University's School of Foreign Service, said in an interview.

"However, there is little doubt that the economy itself is being reformed by the strong market forces and pressures surrounding it, both internally and from abroad. I like to say bottom up rather than top down reform," he said. He teaches courses on the Chinese, and North and South Korean economies.

Of late, there are key changes on North Korea's economic front signaling that the reclusive country is looking toward a more open economy. Pyongyang allows government officials to learn market economic theory, while carrying out valuations of land across the country.

According to Choson Exchange, a non-government organization based in Singapore, the number of North Korean government officials who have learned the dynamics of the market economy has been increasing steadily.

Founded in 2007, Choson Exchange is a Singaporean organization that teaches North Koreans all about the market economy ― economic policies, entrepreneurship, venture capital, real estate development, banking, and business and legal skills.

Singapore has built diplomatic relations with both South and North Korea, and is one of the biggest trading partners for North Korea in Southeast Asia.

Learning market economy

Since 2000, Choson, which derives its name from the Korean word for North Korea, has trained a total of 1,282 North Koreans ― 1,209 in North Korea and 73 in Southeast Asian countries, including Singapore, Malaysia and Vietnam.

The number was 485 in 2015, up from 400 in 2014 and 267 in 2013. Only 40 joined the program in 2010 when the programs were first introduced.

The absolute number is small, but the pace of growth is fast enough to signal a change in North Korea's economic policy.

"With money circulating in various ways that people and enterprises are not used to seeing, they increasingly need capitalist services such as those provided by Choson Exchange to figure out what to do," Brown said.

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"Choson Exchange is tiny and doesn't affect the whole economy but is an example of borrowing and investing activity that must be going on informally all over the country."

Participants in the Choson's programs, selected by the Pyongyang regime, are mostly mid-level managers or officials from state-run organizations and ministries. Most programs are decided in consultation with Pyongyang.

"We conduct workshops in and outside of North Korea, overseas internships and business mentoring," a source from Choson Exchange said asking not to be named.

"North Koreans are keen on learning such issues as entrepreneurship, venture capital and banking. Our goal is to help them understand economics, business and law."

Other meaningful changes are land valuations and allowing shops at subway stations.

According to informed sources, Pyongyang has started valuations of land across the country and selling some apartment units to individuals. They also allowed a stand selling miscellaneous items to North Koreans at a subway station.

"Pyongyang has allowed more individuals to run businesses to secure more sources of income for its regime. They let people run businesses and receive commissions from them, meaning that the underground private economy is growing," a Singaporean businessman knowledgeable of North Korea said on condition of anonymity.

Brown pointed out that the most lucrative assets most state enterprises have is real estate and apartments so these seem to be generating a lot of activity.

"Probably Chinese Koreans, who see some good deals in North Korean cities and can come up with tens of thousands of dollars, buy them," he said. "The military chimes in by using its construction brigades to build and sell the apartments."

Brown is a retired U.S. government economist having served in several U.S. departments and agencies and in the U.S. Embassy in Seoul.

Pyongyang's strategy may fail

Experts said that what's happening in North Korea should not be taken as a signal that the reclusive state is pursuing a market opening, particularly a China-style one.

"The kind of economic renovation the North Korean regime is doing is not going to lead to an open market or fundamental economic restructuring," Katharine H. S. Moon, a senior fellow at the Center for East Asia Policy Studies at the Brookings Institution, said in an interview.

"They are interested in learning modern skills, but the goal is to sustain the regime politically. Economic development ― that is the term they prefer, not reform ― is to serve the maintenance of the regime," she added.

Moon, who also serves as chairwoman of the SK-Korea Foundation in Korea Studies, said that North Korea's approach is different from China's opening in many aspects.

"China had a nuclear weapons capacity prior to economic modernization, so it could really focus on economic development," she said.

"In North Korea's case, they are trying to build a nuclear program and experiment with economic renovation at the same time. In my view, they cannot achieve both simultaneously."

In his New Year message, North Korean leader Kim Jong-un vowed to revitalize the economy and pledged to put more resources toward creating a strong economy. Over the past few years, Pyongyang announced around 20 economic zones to attract foreign investment.