Under the Loving Care of the Fatherly Leader

by Martin, Bradley K.

  But the foundation chief still found the country unable “to move beyond an ‘informal economy’ on the macro level.” Missing, he said, was “the structural reform needed to promote legitimate international trade. … While some would argue that attempts to set up special economic zones and adjustments in currency represent a genuine willingness to embrace economic reform, these policies aimed at promoting economic growth have yet to make a meaningful impact on everyday life.”7

  Nevertheless, anecdotal evidence continued to pile up, suggesting a breakthrough that had ended the regime’s stubborn resistance to major change. At the very least, North Korea was displaying that sense of bustle that I had found so lacking by comparison with China in earlier decades. A Russian scholar visited North Korea in July 2003 and found brighter lights in Pyongyang, where the electrical system had been repaired and was being modernized with Swedish assistance. Cellular phones were in wide use in the capital, which had begun to experience the predictable safety problems caused by people chattering away while driving or cycling. Bicycles in large numbers were a relatively new feature of the urban landscape; I had seen few on my visits starting in 1979. Strikingly, “people were using the word ‘reform’ without any reluctance,” the Russian said. Because of the older generation’s suspicion of a buzzword connected closely to the collapse of Soviet and Eastern European communism, North Koreans until the previous year had stuck to the euphemism “national measures.” Touring outside Pyongyang, the Russian saw evidence that “the overall economic situation has been gradually improving and the economic reform is being continuously carried out despite the ‘nuclear crisis,’ while the internal situation has stabilized.”8

  Whether the regime was serious about reform was quite a different question from whether reforms would succeed. Regarding the latter, the evidence was mixed. An official of the Catholic aid organization Caritas who visited North Korea in August and September 2003 found smoke rising from factory chimneys and housing construction under way She encountered fewer electrical brownouts than before. “Small, family-size businesses or small cooperatives are providing services or producing goods (repairing bicycles, transporting wood, selling and bartering of agricultural products and consumer goods). A ‘bottom-up’ process seems to have started; there is more drive as people are left to fend for themselves. Under- or unemployed workers are engaged in the search for different coping strategies.”

  She found that flourishing kitchen gardens of farming families were providing a “support network for relatives without access to land.” The gardens meant extra income for farmers, whose regular farming work paid them mainly in food. Corn and rice were still the main crops, but “since the start of the economic reform process cooperative farm managers tend to have more freedom to plant. By now cash crops, such as tobacco, sesame, mulberry, fruits and vegetables, have been widely introduced.” Those crops “provide farms not only with a higher income but also with access to diesel fuel and other farm inputs for which foreign currency is needed. Farmers’ markets have evolved into general markets selling a variety of consumer goods and marketplaces are to be developed all over the country.” Prices, while kept within set limits, were fluctuating according to supply and demand.

  That aid worker saw both positives and negatives in what she had observed in her travels. “The cradle-to-grave security has disappeared,” she said. “Individuals are given, for the first time, more responsibility and thus feel more in charge of their own destiny. This has set capacity free, but at the same time there is a growing need to support people who have difficulties in coping with these changes. Haves and have-nots are developing; families tend to spend from 50 percent to 80 percent of the family income on food.” She warned that the economy was “balanced on a knife edge” and that international help was required if the reforms were to succeed: “The attention of the international community is focused on the nuclear crisis, ignoring—after years of calling for reforms and change—the fact that the DPRK leadership is now working hard to develop policies for economic reforms and opening-up.” Her organization did not expect quick results, “because real change has to come from within,” she said. But she emphasized that “Opening up the economy can only work if the international community is willing to help.”9

  In September 2003, Pak Pong-ju, who as chemical industry minister had been part of the high-level study delegation visiting Seoul the previous year, took over as North Korea’s prime minister, the top post running the domestic economy. Mean-while fine-tuning of the new economic measures proceeded. The original 2002 devaluation of the won had not sufficed to attract people to the official moneychangers. In the summer of 2003 the rate reportedly was adjusted to match the black market rate.10

  At the end of September 2003, Pyongyang issued what were seen as realistic tax and labor regulations for a new industrial park planned for Kaesong, the old royal capital near the South Korean border. The minimum wage there was set at fifty dollars a month plus a social insurance package computed at 15 percent of the wage. Businesses created in the park by outside investors would pay 14 percent of their profits in corporate income tax.11 (Still, some of the surviving members of the founding family of Hyundai, which had invested in both the Mount Kumgang development and the Kaesong industrial park, were becoming discouraged by the lack of return on the investments.12) Other rules announced later in the year included a ban on entry into the territory by “international terrorists, drug addicts, lunatics.”13 As the Kaesong regulations were being issued the South’s unification minister called the North’s reform efforts “meaningful.” He added that Pyongyang officials had explained to their Southern counterparts that they were obeying a previously ignored instruction by Kim Il-sung that they study the capitalist economic system.14

  The regime put out the word that it would license one foreign accounting firm and one foreign law firm to set up shop in Pyongyang,15 and moved to merge some insolvent banks.16 Some European investors said they would establish a capital company in Pyongyang, advise in restructuring the financial system—perhaps starting a credit card settlement system and opening a bond market—and encourage foreign investment.17 In January 2004 the European Union Chamber of Commerce in Seoul opened a two-person satellite office in Pyongyang.18

  Pyongyang envisioned a major thrust in the information technology industry to power its economic takeoff. In 2003 the country shifted its focus from soft-ware development to telephony, the Internet and hard-ware. It was able to announce that in the course of the year the number of mobile phone subscribers increased nearly seven-fold to 20,000. Its hard-ware production capacity had risen to 135,000 computers and 100,000 monitors a year. Plans included providing fixed telephone lines to every North Korean home within five years. But the country faced a severe cash shortage that threatened all its ambitious projects. A North Korean official noted at the end of 2003 that expanded international cooperation—read “technology transfer”—-would help things along. South Korean officials cautioned, though, that the level of progress would depend on whether the nuclear weapons issue could be resolved.19

  The South Korean government’s theory-was that a sense of vulnerability had spurred Pyongyang to build nuclear weapons. Certainly it was not some inexplicable case of paranoia that led Kim Jong-il and his colleagues to worry that they might be attacked. North Koreans had been “staring down the barrel of American nuclear weapons for decades,” said arms control expert Peter Hayes. “Indeed, it is a large part of the explanation of why they have built a subterranean society.”20

  In 1998 journalist Richard Halloran reported that United States and South Korean forces had replaced their Korean peninsula war plan. The old plan had called for simply repelling any North Korean invasion of the South, pushing North Korean forces back behind the Demilitarized Zone. The new plan was far more ambitious, and included the possibility of preemptive strikes if the U.S. and South Korean presidents should agree that war was imminent. Americans and South Koreans would invade the North to capt
ure Pyongyang, wipe out the regime and its military and place the country under South Korean control. Halloran quoted a senior American official as saying, “When we’re done, they will not be able to mount any military activity of any kind. We will kill them all.” One officer told Halloran that the plan responded to concerns that the North Koreans, contemplating the evidence that their force was deteriorating, might decide they had to “use it or lose it.”21

  The new plan and the tough talk accompanying it obviously could be sobering to Kim Jong-il and perhaps could deter him from any such adventure. No doubt that was part of the intention. In 2003 Halloran reported further details of what was officially called Operation Plan 5027. “The North Koreans are believed to know the general outline of plan 5027,” he wrote, suggesting that the plan was “a factor in North Korea’s latest threats and its desire for a nonaggression pact with the United States.22

  While South Korea’s military worked with the Pentagon on the new plan, civilian officials in Seoul were taking a separate tack. They believed that a successful shift to economic interdependence with the outside world would lessen Pyongyang’s feelings of insecurity (as well as its shortage of hard currency) and facilitate a solution to the problem of weapons of mass destruction. Indeed, the Southern unification minister in October 2003 agreed with Pyongyang’s claim that Kim Jong-il’s “military-first” policy could actually be seen in part as a bid to make the economy more efficient.23 How in the world could that be? German scholar Ruediger Frank explained how, in a provocative essay24 Frank said that the military-first policy was methodically removing the socialist elements of the country’s ideology, leaving the nationalist elements intact. He quoted the party newspaper Nodong Shinmun as saying on March 21, 2003, that the policy—now called the “military-first ideology”—raised the military above the working class. That quite explicitly meant jettisoning Karl Marx’s mid-nineteenth-century Communist Manifesto, as the newspaper signaled in an April 3 article: “In the past, it was recognized as an unbreakable formula in socialist politics to put forth the working class. However, the theory and formula … generated one and a half centuries ago cannot be applicable to today’s reality.”

  Determining people’s status according to their relationships with the military instead of their economic class would permit granting legitimacy to North Korea’s new moneyed class, Frank argued. The argument was interesting. After all, as chapter 33 of this book makes clear, many of the new traders had emerged from the military and quite a few of their companies were tied to the army or other military organizations such as bodyguards and police. It could be a relatively small matter to decree that the rest of the enterprises belonged to the military-industrial complex. In any case Kim Jong-il, as Frank wrote, would not have to “force the group of entrepreneurs, who will very likely emerge as one of the results of successful economic reforms, into an obviously anachronistic ideological and propagandistic corset.”

  Kim had displayed “exceptional foresight to deal with this issue now, in this early stage of economic reforms,” the scholar wrote. “The working class loses its position as the leading group in the North Korean society. Without the working class, what happens to socialism and its final stage, communism? Very simple: they are gone, although this is not openly admitted in North Korea yet.” The replacement? “There is a simple answer to that, too, and we call it nationalism, also known as juche,” Frank wrote. “The transition will be smooth, because already since its introduction in 1955 juche began to gradually replace Soviet-style socialism in North Korea anyway.”

  Frank was right to say that nationalism should be seen as the core of juche. Korean self-reliance was only one component and, as we have seen from Kim Jong-il’s conversation with Chongryon officials in 1998, the Dear Leader had come to believe that the self-reliant component had been overemphasized to the detriment of the economy.

  There was more to Frank’s analysis of how “military-first” fit with economic reform. The military wanted modern weapons, but the country could not afford them. “Where does the money come from? Economic reforms.”

  By early 2004 the accumulation of ideological and practical measures had reached something of a critical mass, persuading quite a few longtime skeptics that Kim Jong-il probably-was serious about change. Although I had not managed to receive permission to visit the country since 2000, a tally of-what others were finding finally persuaded me. Journalist Hideko Takayama heard from a Japanese investor who recently had renewed a repeated entreaty to his North Korean joint-venture partner to please turn off the propaganda announcements that blared incessantly in their processed seafood plant. Instead of huffily refusing, as before, the partner silenced the loudspeakers. He explained by saying, “Politics is now separate from economics.” Mean-while, Newsweek International reported, videotapes of South Korean soap operas were for sale in North Korean markets and Pyeonghwa Motors had rented billboard space in the capital to advertise its locally made Fiat sedan, the Huiparam (-whistle).25

  Stanford scholar John W. Lewis (whose lectures on arms control I had attended in 1983) found “dramatic” changes on his ninth visit to the country since 1987. “The real shocker-was the massive semi-private market in Pyongyang where potential buyers can find quantities of meat, vegetables and fruits as well as hardware, furniture and clothes,” Lewis reported. “A market economy however limited, has arrived in the North.”26

  For years the regime had vociferously refused to commit to the model of China or any of the other communist countries that had changed course. Finally though, Newsweek International reported, some officials acknowledged to South Korean counterparts that their model was Hungary’s 1970s experiment in grafting market measures onto the basic state planning structure.27 Indeed, many of the measures adopted in North Korea between 1998 and 2004 were similar to the Hungarian “goulash communism,” as it had been called back then because of its stew-like mixture of market and central planning measures.

  To the extent that naming the model provided an affirmative answer to the question of whether Pyongyang was contemplating some sort of market economy, the news was encouraging. And yet the Hungary of the 1970s seemed a curious model for Pyongyang to have chosen. There had been many problems with Hungary’s reforms in that period. The long-entrenched bureaucracy had dragged its feet, forcing reversal of many of the new measures until a second wave of reforms began in 1978. Perhaps an attempt to avoid that trap was behind a reported order by Kim Jong-il to downsize the North Korean party and state bureaucracy—by as much as an astonishing 30 percent.28 (Of course the Hungarian economy required further drastic changes, starting in 1989–90 with the full retreat from communism.)

  China and Vietnam had been the models often proposed by outsiders. But economist Marcus Noland observed that neither of those Asian countries would be a good fit—because both started the process as predominantly rural economies, able to use the rationalization of inefficient agriculture to drive industrial development.29 North Korea, like Hungary, started its reforms as an already industrialized country. To free up enough surplus labor to staff all the new non-state enterprises that Pyongyang wanted to see built would require downsizing not only the bureaucracy but also the bloated military. That peace dividend would be available if the North could end its military standoff-with the United States and South Korea—or, as Kim Jong-il evidently had calculated alternatively, if it built its nuclear arsenal into a credible enough deterrent to compensate for slashing its conventional forces.

  Further probing into the reasons for choosing the Hungarian model, we could guess that at least one top North Korean planner was an alumnus of a Hungarian university. We might also speculate that the supposed Hungarian model was to some extent a proxy for a real model much closer to home, a model that could not be publicly identified without thereby branding as lies the propaganda that had gushed forth from Pyongyang for decades. South Korea, while under military dictatorship in the 1970s and 1980s, had very successfully combined broad central planning
with market decisions.

  While recognizing that Kim Jong-il had spent much of his career pounding down every would-be Deng Xiaoping who popped up, South Korean officials evidently believed that no one was beyond salvation. An ideologically born-again Kim himself could be seen as the prospective Deng for his country if he got the right encouragement.30 And so the South tried to help, although still cautiously. South Korea was moving ahead of Japan and China in the value of total imports from North Korea. The South’s imports from the North in the first ten months of 2003 were up almost 30 percent over the same period a year earlier.31 Plans were afoot to rebuild roads and railways across the border.

  If Kim Jong-il really was serious about changing course, what would explain ?why it was happening at this particular time and “why it had taken him so long? Many of the factors have been discussed above. Others are summarized in the table below. My then-and-now comparisons suggested that even if Kim Jong-il had been eager to reform the country much earlier, the country might not have been ready and other conditions also would have been unfavorable.

  How “would that inference fit with what we thought we knew about Kim Jong-il? Had he lain in wait for decades, intending to play the reformer as soon as conditions might permit? The available evidence indicated that from his student days in the 1950s through the 1980s and early 1990s Kim had been—if not always a sincere opponent of significantly changing the system his father had built—at best a cautious opportunist. If he was ready for far-reaching change now, I thought, it was because of overwhelming circumstances—many of them the same circumstances that had changed the minds of other people similarly raised in North Korea to be true believers.

  CHANGED CONDITIONS POSSIBLY AFFECTING PROSPECTS FOR SYSTEM REFORM

  Early- to mid-1990s