A Capitalist in North Korea

by Felix Abt

  Will North Korea strike gold?

  For all the errors and mismanagement, there’s reason to be hopeful for the future. The North Koreans are very pragmatic people, coming from a long tradition of industrialism and in its economic alliance with the Soviet Union. The DPRK even boasted a higher percentage of industrial workers than its former socialist idol, which is an important measure of “socialist progress.”

  That factor, combined with the population’s 99 percent literacy rate, can bring about a swift reconstruction of industry once economic reforms are carried out. All over the countryside, I saw they were in some ways not living agrarian lives. Their skills were clear, for example, when they would weld with pinpoint precision, something only well trained and experienced craftsmen do. More extraordinary was their ability to weld in the dark, along with not having undergone professional training. Factories were better organized and cleaner than what I’ve seen in other socialist countries in the past, such as those in Czechoslovakia and Hungary.

  I was highly impressed by the electrical and mechanical engineers who explained to me how they built a hydropower station, which included turbines and generators. The construction was based on one dam in a simple 1970s Russian leaflet with a few photos but without detailed drawings and technical specifications. ABB experts on power stations whom I led there were amazed and called it an engineering master piece.

  The good work ethic comes from the party’s sophisticated governance system, which uses awards and high-levels visits. One system is called the Ch’ŏngsan-ri management method started in the 1960s. The system was designed to give collective workers encouragement from top leaders, rather than money as an incentive. It urged officials to emulate Kim Il Sung by doing field inspections, during which they addressed farmers’ grievances and listened to their ideas. Observers in the West may see this approach as paternalistic and backwards, but stripping it of all moral judgments, it gave North Koreans reason to work hard when times were difficult. For factories, though, the Taean Work System was introduced and aimed at streamlining heavy and bureaucratic management.

  The Chongsanri method and spirit was first introduced in the Chongsanri agricultural cooperation in 1960 before it was applied as an agricultural management system to the collectivized farms. Essentially, it was to give workers ideological and spiritual rather than material incentives. In 1961 the Taean work system was first introduced at the Taean Electric Machinery Plant which put a party committee at the head of an enterprise. They were to debate and decide collectively directions and methods to be applied in the company. Like in the case of Chongsanri, the party committee not only had a supervisory role but an inspirational one to permanently motivate workers to achieve production goals.

  These socialist management systems were, with the exception of those of Mao’s China, the most radical ones, as even Stalin’s Soviet Union gave material benefits to well-performing workers. In addition to these management methods, mass production campaigns like the Chollima Movement that started in 1958 were introduced, which exhorted the workers to achieve production targets. To this effect it included “socialist competition” among industries, companies, farms and work units, where the winners earned praise for their outstanding socialist and patriotic deed.

  The Korean Workers’ Party also has the tool of mass campaigns in its cards, extolling workers to labor and to meet the planned targets. And last but not least the top leaders regularly inspect factories, farms, shops and military units where they offer guidance and mix with exemplary workers, farmers and soldiers. To memorize such a historical visit, the local committee always erects a commemorative stone at factory entrances, schools and other places that had what they could call the privilege of benefitting from the leader’s personal guidance.

  The most exemplary workers are honored with the award of a “labor hero” title, while others get all sorts of awards and medals. State-run factories, companies, and army units are also given Kim Il Sung medals and Kim Jong Il medals “in the struggle to construct the state,” the award reads. A small elite of senior party cadres, artists, sportsmen and sportswomen and scientists that have done extraordinarily great deeds for the country are honored with golden watches carrying the leader’s signature, cars with the leader’s birthday number (216, on the license plate) and sometimes even houses. On a side note, “things” too, such as buildings, tractors, trucks etc. are “rewarded” with stars and other symbols of recognition when the planned life span has been outlived.

  In 2004, a huge explosion of a cargo train flattened large parts of Ryongchon, a city close to the Chinese border town Dandong. Rumors and propaganda spread by defector groups claimed that it was an assassination attempt on Kim Jong Il who happened to pass by in his train just hours before the explosion took place. But there was no hint that the explosion had anything to do with that as the regime remained unshaken and stable on that day and thereafter. I did not see more police and military in the streets of the capital that day.

  I took this picture less than three months after the accident, when the newly erected raw buildings had been finished in what the government called its “speed battle” in the tradition of the Chollima. If I had not seen it, I would never have believed it. Of course, speed came at the expense of quality: a few years later, I noticed many of these buildings were already dilapidated.

  Everybody in the production line, from regular workers to chief engineers all the way up to senior ideological leaders, held a fervent belief in technology. They believed that it could solve pretty much every problem in their businesses. It’s a myth cherished in the past by all socialist countries that science and technology brings about an affluent socialist society, which also has influences in Confucianism. They constantly chattered using trendy acronyms like CNC (computer numerical control, meaning computer-controlled machine tools), IT (information technology), biotech and others, implying some level of sophistication.

  In 2009, I began hearing choirs sing a propaganda song praising the greatness of CNC machines. It was striking that the North Koreans, otherwise proud of conserving the purity of the Korean language, used even the English expressions CNC and CAD and not a Korean euphemism, stripped of any foreign tinge. That was because everybody agreed, at least on the surface, that the DPRK did not require social and economic reforms. The fatherland was perfect, but the economy suffered because it didn’t have state-of-the art technologies. They blamed that problem on Western embargoes.

  Kim Il Sung considered heavy, more sophisticated industries as the first step to attaining success in other industries. Those operations thus took precedence over light industry. For more than half a century, the DPRK stuck to the goal of building up a heavy industry, urging for laborers to work at the godly speed of the Chollima, the flying horse from Korean mythology (to the left, I am standing in front of the horse’s portrait).

  In the mid-2000s, the DPRK started highlighting the need to strengthen its light industries while continuing to build the heavy industries. The idea was to make people’s lives less strenuous, and to churn out an array of consumer goods. One of the various light industrial factories set up recently produces instant noodle soups (right). As a result, media and propaganda posters have been regularly announcing the upcoming “radical turn in the people’s living standard” over the past few years.

  North Korea has the potential to experience a windfall of wealth from natural resources—but the problem is, unfortunately, that it’s not selling metals and minerals systematically. An important cause for this is the lack of electricity and materials, along with the worn-out equipment, antiquated facilities, and poor maintenance. This made even the country’s most important ones operate at about 30% or less of their capacity only in the mid-2000s, according to the assessment of some mining equipment companies I represented in North Korea. The country has impressive deposits of more than 200 different minerals.

  North Korea’s magnesite reserves are the world’s second largest after China’s, and it’s a
particularly valuable mineral because it is important for industry. It has a wide range of uses such as in insulating material in the electrical industry or as a slag in steelmaking furnaces or even in the preparation of chemicals and fertilizers.

  Its iron ore mine in Musan, near the Chinese border, is Asia’s largest iron ore mine. Iron is with more than 90% of all metal used the most commonly used metal. It’s used for all kinds of buildings including bridges and highways, transportation means such as cars, trains, ships and aircraft or tools such as machines, knives and others.

  Its tungsten deposits are likely the sixth-largest in the world and North Korea is China’s second largest coal supplier. While coal is primarily used for producing steam in electric power plants or by the steel industry for coke making tungsten is used for mining and drilling tools, cutting tools, dies, bearings and armor-piercing projectiles. In countries like the United States or Germany tungsten is widely used in the production of cutting and wear-resistant materials.

  North Korea is also home to substantial deposits of rare earth minerals, which are difficult to find around the globe but are increasingly in demand from growing powers such as China and India. They are particularly valuable because of their omnipotent potential: they’re present in pretty much every piece of consumer electronics, such as computer disc drives, X-ray imaging, flat-screen televisions, iPhones, wind turbines, halogen lights, and precision-guided missiles, to name but a few. The country is also home to an estimated 2,000 tons of gold, 500 billion tons of iron and 6 billion tonnes of magnesite, with a total value running into the trillions of US dollars. At least that’s according to a 2009 report titled Current Development Situation of Mineral Resources in North Korea by South Korea’s government-owned KORES Korea Resources Corporation.

  China is North Korea’s largest trading partner – accounting for more than half of North Korea’s foreign trade – and I saw its influence everywhere. At this international trade fair in Pyongyang, the Chinese government trade promotion body set up a large information booth, well positioned at the entrance of the exhibition hall. Chinese exhibitors outnumbered all other nationalities.

  North Korea feared losing control of its glamorously valuable natural resources, and as such was reluctant to sell raw materials to neighboring countries. As a result, only a few foreign and North Korean-invested mining joint ventures have been doing the extractions in the last 10 years. When I suggested upon my arrival in North Korea to the senior officials in the then-Ministry of Metal and Machinery Industries, which owned the large Musan Iron Ore Mine at the Chinese border to open it up to Chinese investment and exploitation, the answer was that “it is a part of the Korean heritage which we cannot give away.” Over the following years I witnessed the government turn down a dozen or so foreign requests to invest in mines.

  But change is in the air, and North Korea is getting serious about profiting from metals and minerals. The China People’s Daily reported in September 2011:

  According to China’s General Administration of Customs, the value of direct exports to China from the DPRK last year was $1.2 billion, a 51 percent increase year-on-year, attributed to China’s robust demand for iron ore, coal and copper. At present, the DPRK mainly imports grain and oil from China. In 2010, China’s exports to its peninsula neighbor reached $2.3 billion, an increase of 21 percent from a year earlier.

  The prospect was unthinkable just a couple of years ago, but North Koreans are now rolling out the red carpets for Chinese investors. They’re also building manufacturing outposts along the border where China can hire cheap North Korean labor, where dealings are more relaxed than in Kaesong. China is making an effort, too, to develop its desolate northern provinces by taking advantage of cross-border exchanges. These provinces are now booming with factories along with a construction frenzy to build roads and railways that move outside of North Korea, but China supports the construction and maintenance of some roads into North Korea as well.

  Some unlikely spots are being developed for joint manufacturing projects. Hwanggumpyong, a farming and military-focused island south of the Chinese border city of Dandong, and Wihwa, a smaller island in the middle of the Yalu River, are being turned into hubs for manufacturing, tourism and logistics. Russia, too, has moved in with construction projects that will give them access to the ice-free North Korean port of Rajin. Moscow’s hope is to export Siberian coal and import Asian goods that it will eventually transport to Western Europe (Russian Railways operates the world’s second largest network after that of the U.S., reaching from North Korea’s border well into Western Europe.) Of course, North Korea stands to get significant cuts from the project.

  Many South Koreans fear that China is encroaching on North Korea with money, hoping to swallow it up and turn it into a de facto Chinese province. The accusations are unfounded; I just don’t see convincing evidence that the investments—made by individual companies and not the government itself—are part of a political conspiracy driven by common defense interests or a grand geopolitical strategy on the Korean peninsula.

  Trade and investment are bigger priorities for China. That will improve the standard of living of its northeastern provinces, as well as promote stability in its immediate neighborhood. Too much pessimism can block out this sort of objective view, and there’s much to look forward to in China-North Korea relations.

  North Korea and its economy at a glance, according to the CIA World Factbook and UN agencies:

  Full name: The Democratic People’s Republic of Korea (DPRK)

  Government: Centralist one-party state led by Workers’ Party of Korea with elected Supreme People’s Assembly

  Population: 24 million (UN, 2010)

  Labor force: 7 million

  Capital: Pyongyang

  Area: 122,762 sq km (47,399 sq miles)

  Urban population: 62% (2007 / UN) (most probably an exaggerated percentage)

  Major language: Korean

  Major religions: Mainly atheist or non-religious, traditional beliefs

  Life expectancy: 76 years (men), 83 years (women) (UN)

  Monetary unit: 1 won = 100 chon

  Currency (2011): officially approx. 140 to the Euro, market rates multiple times higher

  GDP: US$26,5 billion (2010 est.) (In comparison, South Korea’s economy is estimated to be about 40 times larger than North Korea’s with a population about double as large as that in the North)

  GDP per head: US$1,800 (2009 est.)

  GDP real growth: 3.7% (2008 est.), -0.9% (2009 est.)

  GDP composition: agriculture and fisheries 21%, industry 22%, services 57% (2011 est.)

  Natural resources: More than 200 different minerals. The biggest deposits are coal, magnesite, iron ore, gold ore, zinc ore, copper ore, molybdenium, limestone and graphite

  Main exports: Minerals and metals, processed and manufactured goods incl. armaments, metallurgical products, textiles, cement, agricultural and fishery products

  Major import products: Petroleum, grain, coking coal, new and second-hand machinery and equipment, and consumer goods

  Major trading partners: China (ranking No. 1 with at least 50% of total trade), Singapore, Russia, Hong Kong, Germany. South Korea and Japan used to be major trading partners in the 2010s until North Korea’s rocket and nuclear tests. South Korea will most likely become a major trading partner again after the conservative president Lee’s government will have stepped down in 2013.

  International Memberships: ESCAP, FAO, ICAO, ICRM, IFAD, IFRCS, IHO, IMO,

  Intelsat (non-signatory user), IOC, ISO, ITU, NAM, UN, UNCTAD, UNESCO, UNIDO, UPU, WFTU, WHO, WIPO, WMO, WTO

  Internet domain: .kp

  International dialing code: +850

  1 http://www.country-studies.com/north-korea/agriculture.html

  Chapter 3:

  Look to the Party, Young Revolutionary, and Buy

  “Only the mob and the elite can be attracted by the momentum of totalitarianism itself. The masses have to be won by propaganda.�
� — Hannah Arendt

  “He looks like a monkey,” Mr. Kim, a customer, said while giggling during our lunch time one day, as he watched a Western aid worker at another table. I laughed as I found both the foreigner funny, as well as the reactions of the two Koreans.

  Inundated from years of propaganda, North Koreans made humorous remarks when they saw raffish foreigners.

  The foreign aid worker had piercings all over his face, on his eyebrows, nose, lips and even cheeks. His untidy long hair was patched with dyed colors. He wore a ridiculous looking cap that was too small and had zany insignia, and tattered clothes, including the typical torn jeans in vogue for Westerners. He wasn’t the only unkempt Westerner I knew in the expatriate community, and people like him who reinforced the stereotype. They seemed to forget that they were, in fact, guests in a foreign country, and not there to enjoy some twisted tributary in the Far East.