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One can easily imagine how discontent with the North Korean system, as well as information about the astonishing South Korean prosperity, will spread: first through the relatively well-heeled North Korean groups who are suddenly allowed to interact with South Koreans and foreigners, or who have better access to the foreign media and entertainment, and then down to the wider social strata. Once North Koreans come to the conclusion that they have no reason to be afraid of the usual crackdown, they are very likely to do what East Germans did in 1989.
There is another important difference between North Korea and China—and, once again, this difference is created by the existence of the successful South. It is an open secret that the Chinese party officials used the reforms to enrich themselves: the new Chinese entrepreneurial class to a significant extent consists of former officials as well as their relations and buddies. The situation in the post-Communist countries of the USSR and Eastern Europe is no different. With few exceptions, the political and economic life of those countries is dominated by the former second-tier party apparatchiks who once used their connections, experience, education, and, above all, their de facto control over the state assets to appropriate the government property and remake themselves into successful capitalists and/or politicians. It might be just a minor exaggeration to describe the collapse of Communism as a “management buyout,” as Richard Vinen recently did.7 On balance, in the 1990s the younger generations of Eastern European and Soviet nomenklatura jettisoned the system they never actually believed in, while enormously increasing their wealth, if not power, in the process.8
However, the situation of the North Korean elites is different. They stand little chance of becoming successful capitalists if the system is overthrown. In all probability, the regime collapse will be followed by the unification of the peninsula—after all, this is what the common people will likely want, on the (mistaken) assumption that unification will instantly deliver them the same level of consumption as enjoyed by their southern brethren. In such a case, all the important positions in the new economy will undoubtedly be taken by people from South Korea—people with capital, education, experience, and perhaps political support. The capitalism in the post-unification North is to be built not by born-again apparatchiks (as was the case in the former USSR), but rather by the resident managers of LG and Samsung, as well as assorted carpetbaggers from Seoul.
This fact is understood by at least some North Korean bureaucrats, but it seems that the majority has another, greater, fear. They know how brutal their rule has been. They also know how they would treat the South Korean elite (and their descendants) had the North won the intra-Korean feud, and do not see reasons why they would be treated differently by actual winners. This makes them very afraid of retribution. They are not merely afraid to lose power and access to material privileges (these privileges are quite modest, incidentally, by the standards of the rich in most other countries). They are afraid of being slaughtered or sent to prisons, of suffering the same fate they have bestowed on their enemies for decades. A few years ago, a high-level North Korean bureaucrat with an unusual frankness told a high-level Western diplomat: “The human rights and the like might be a great idea, but if we start explaining it to our people, we will be killed in no time.” This seems to be a common assumption. It is also not coincidental that many visitors to Pyongyang, including the present author, had to answer the same question quietly asked by their minders: “What has happened to the former East German party and police officials?”
Perhaps one of the reasons behind the remarkable resilience of the North Korean regime is this universal assumption of its bureaucrats (including those who are quite low in the pecking order) that they would have no future in case of regime collapse. This makes North Korea different from many other dictatorships. A clerk in Mubarak’s Egypt, for instance, could assume that, Democrats or not, Islamists or not, under a new regime he would still sit at his desk and continue the old routine of, say, issuing permits for house construction. Ditto a high-ranking military officer, who also would expect that under a new government in Cairo he would still command his battalion. Consequently, they did not see the revolution as a personal threat, and might have even been supportive of the movement.
In North Korea things are different: the elite—pretty much everybody who is somebody—believe that it has nothing to gain and much to lose through unification with the South. These fears might be—and, indeed, are—exaggerated, but they are by no means groundless. It is important that their predicament stems from the existence of a successful South, not from particular policies followed by a specific Seoul administration. Even if the most pro–North Korean administration imaginable will come to power in Seoul, it will not make South Korea less dangerous (perhaps, as we will see later, a friendly South is actually more dangerous—even though this fact might not be currently appreciated in Pyongyang).
This reconstruction of the Pyongyang elite’s thinking is necessarily hypothetical, but an impressive confirmation of this hypothesis has emerged recently. This confirmation came from Kim Jong Nam, Kim Jong Il’s oldest son who lives overseas in semi-exile (largely in Macao and continental China). Kim Jong Nam is the only member of the Kim family who talks to foreign journalists. They occasionally manage to intercept him in an airport or a lobby of an expensive hotel. With the passage of time, his short interviews have become more substantive in content and more politically frank. In 2010 he even went so far as to openly voice his disapproval of the hereditary power transfer at that point developing in Pyongyang.
His remarks became even more candid in recent years, and in January 2011 he gave a lengthy interview to Yoji Gomi, a journalist for Tokyo Shimbun. Soon afterward it was revealed that since 2004, the maverick North Korean prince had maintained e-mail exchanges with Gomi, who published these e-mails in a book.
The single-most important topic in this book is the (im)possibility of Chinese-style reforms in North Korea. Kim Jong Nam has clearly stated his belief that market-oriented reforms would probably revive the North Korean economy. In one case, addressing his half-brother Kim Jong Un (by that time already the successor to Kim Jong Il), he implored him to “have pity on the common people” and follow the Chinese example.
However, in many other cases, Kim Jong Nam is far less certain about the potential positive impact of reforms. In his January 2011 interview, he said, “I personally believe that economic reforms and openness are the best ways to make life better for the North Korean people. However, taking North Korea’s unique position into account, there is a fear that economic reforms and openness will lead to the collapse of the present system.”
In the same interview, Kim Jong Nam repeated the same point: “The North Korean leadership is stuck in a bind. Without reforms the country’s economy will go bankrupt, but reforms are fraught with the danger of systemic collapse.”9 This is a remarkably forthright—but completely reasonable—admission, and unfortunately it confirms that the North Korean leaders understand perfectly well how dangerous the reforms would be for their survival.
In such a case, what is the best policy choice for the North Korean elite? The optimal course of action appears to be a continuation of the policies the current leaders and their predecessors have followed for the last two decades. Domestically, the regime’s policy aim has been to keep the North Korean population under control, compartmentalized, and, above all, isolated from the outside world. Internationally, the safest solution is an aid-maximizing strategy, which includes attempts to squeeze more aid from outside through diplomacy and blackmail.10 This foreign aid helps to keep the inherently inefficient economy afloat, prevents another major famine, and allows the country’s tiny elite to live a reasonably luxurious lifestyle while buying at least some support from “strategically important” social groups (the aid was first distributed to the military, the police, and the populations of major urban centers).11
Judged from the point of view of leaders in Pyongyang, this policy has been a success
: they remain in control and enjoy a privileged life even today, in 2013, while a majority of more liberal and permissive Communist regimes have long been overthrown. By keeping the system unchanged and restraining the spontaneous growth of the private, market-based economy, the North Korean elite has probably forfeited the chance to achieve sustainable economic growth. However, growth is not their major concern. They do not mind growth, to be sure, but only as long as it does not jeopardize more important goals of maintaining the political stability and their own domination. They would be happy to see a North Korean economic boom—as long as they are not going to enjoy this wonderful picture through the window grate of their cell.
The international media often engage in the endless (and useless) speculations about the factional struggle in Pyongyang, telling us about the technocrats, also known as “pragmatists,” who allegedly fight the conservative ideologues and military hard-liners. Such struggle might indeed go on even though most media reports are often based on speculations and unreliable hearsay. However, the oft-repeated description of the alleged reformers as “pragmatists” is misleading. If such people actually exist, they are better described as “dangerous idealists” or “starry-eyed romanticists” whose reformist program, if ever carried out, will hasten the regime’s demise and lead to their own downfall (which would be good for a majority of the North Koreans—but this is an altogether different matter).
Pyongyang reformers will face a sad (should we say tragic?) paradox: no matter how successful their reforms will be if judged in objective terms, the majority of North Koreans would still perceive even the most brilliant success as a failure when using the fabulously rich South as the natural benchmark.
However, even if reform-minded individuals exist, they are a minority. What the mainstream North Korean elite want is to return to the year 1984—not that of the Orwellian dystopia, but the last year when Kim Il Sung’s system was still functioning properly (though admittedly, the properly functioning Kim Il Sung society had a number of remarkable similarities with an Orwellian dystopia). The economic policies of the regime are largely driven by the desire to revive the hyper-Stalinist model of the past. It is possible that many people on the top sincerely hope that this model might somehow work, but even if they do not succumb to such fantasies, they still have no choice: due to the existence of the rich South, the hyper-centralized and highly controlled Stalinist economy seems to be the only type compatible with maintaining political stability.
PUTTING THE GENIE BACK IN THE BOTTLE: (NOT-SO-SUCCESSFUL) CRACKDOWNS ON MARKET ACTIVITY
When we described the North Korean “capitalism from below,” it is important to remember that most of the new entrepreneurial activities have been technically illegal, even if the government is willing to turn a blind eye to what is happening at the marketplace. In the midst of the famine, North Korean authorities still sporadically cracked down both on markets and on so-called capitalist profiteering. Usually, such crackdowns ended in naught, being quietly sabotaged by the low-level officials who either depended on markets themselves or understood that excessive pressure was likely to further aggravate the already disastrous situation.
In 2002, however, Pyongyang’s negative attitude toward the emerging market economy appeared to change. On July 1, 2002, North Korean leaders introduced a set of measures that are frequently described in the foreign media as the “2002 reforms.” With the word “reform” regarded as too radical, even subversive, the state media never accepted this description and the policy is officially known in North Korea as the “7.1 measures” (that is, “July 1 measures”).12
As usually happens at the first sight of any change in North Korea’s policies, the measures were heralded overseas as the sign of the long-awaited reforms and received an enthusiastic reception in the international media. This started a wave of the usual speculations about North Korea finally doing the right thing and turning the Chinese way. Newspaper headlines were sanguine: “With Little Choice, Stalinist North Korea Lets Markets Emerge,” “Signs That North Korea Is Coming to Market,” and “North Korea Experiments, With China as Its Model.”13 This optimism was completely unfounded, as we see later.
The 7.1 measures in fact included several different sets of policies. First, consumer prices were raised dramatically. For example, for decades rice was “sold” within the PDS at the purely token price of 0.08 North Korean won per kilogram. After the reforms, the price increased by a multiple of 550 (!) to 44 won per kg, approximating the market price at the time. Official wages increased as well, albeit on a smaller scale. According to Yim Kyong-hun’s calculations, retail prices on average increased by a multiple of 25, whereas wages increased merely by a multiple of 18.14
Second, the 7.1 measures introduced changes in the management of state companies that increased the power and independence of company managers. Not only were managers allowed to use the market to acquire resources and sell finished products, but they were also given more freedom to design incentives for workers—like, say, a right to pay performance bonuses.
Third, the 7.1 measures envisioned the establishment of “general markets” (chonghap sichang), a move that in the foreign media was often described (misleadingly) as “lifting the ban on private market trade.” Of course, one could not possibly lift a ban that never existed, as by 2002 a majority of North Koreans were already earning their living through private market activity of some kind.
The formal establishment of general markets was less significant a change than it might have appeared. Essentially, it was a belated and grudging acceptance of what the government knew it could not control. One might be surprised to learn that the majority of the market vendors whom the present author interviews regularly (many dozens of people) simply have no idea about any reform happening in 2002! They did not hear about the measures that supposedly legalized their businesses and changed their lives—and with good reason: the much-hyped measures had little impact on the actual working of the markets, apart from changing their official name and making them (eventually) a bit more regulated. The vendors continued to do what they had been doing for years.
Nonetheless, the 7.1 measures and associated policies indicated that the Pyongyang leadership acknowledged and, to an extent, accepted spontaneous “de-Stalinization from below.” This relaxation did not last long, however. Soon afterward, the North Korean authorities began their attempts to reverse the changes that had spontaneously occurred in the previous decade.
This approach might be bad for the economic growth, but it is good for the political stability that is Pyongyang’s overwhelming concern. The North Korean leaders understand that spontaneous liberalization was dangerous and never felt at ease about the markets. Thus, in 2005 they decided that this was the time to launch a decisive offensive against the informal economy.
By that time, the famine was over, even though malnourishment remained widespread (and still is). A large role in the economic recovery was played by the generous foreign aid. However, it would be an oversimplification to think that it was foreign aid alone that put an end to the disaster of the late 1990s—the partial recovery was helped by the emergence of the private economy (private fields in particular) and the adjustment of what remained of the state sector. Improved harvests played a role, too. The North Korean government saw this mild but palpable improvement as a sign that it could do what it wanted to do—revive the pre-crisis system.
As an interesting illustration of this attitude, consider a remark made by a North Korean official in October 2005. When asked by a visiting South Korean scholar whether the government indeed had restarted the rationing system, the official replied: “Now, when we have a good harvest and plentiful reserves of rice, are the private sales of rice at the market necessary?”15 The underlying assumption is clear: ideally, the economy should be based on administrative distribution and rationing, whereas markets and retail trade should be tolerated only as a means of coping with emergencies.
In October 2005, roughly w
hen the above-quoted conversation took place, the government announced that the long-defunct PDS would be restored in full, albeit with some modifications. The North Korean populace was assured that from now on everybody would be given standard rations on a regular basis, as had occurred under Kim Il Sung. The price of rations was fixed at the post-2002 official level—rice, for example, was 44 won per kg. By the time of the announcement, however, the actual market price for rice had already reached 800–900 won, and by 2009 was fluctuating around the 2,000 won mark, so the new PDS price of 44 won per kg still remained a token.16 The decision to reinstate the PDS was accompanied by the revival of the government’s monopoly on grain purchases. It was said that private trade in grain would be banned—or, rather, authorities reconfirmed the ban that had technically existed since 1957, was never formally lifted, but ceased to be enforced in the early 1990s.
The attempted revival of the PDS was presented as a sign of a “return to normality” and was officially referred to in the North Korean parlance as the “normalization of food distribution” (siklyang konkup chongsanghwa). Most of the North Korean populace would agree with this description: after all, a majority of the North Koreans would have lived most of their lives under the PDS and indeed would perceive the system as “normal.”
The revival proved to be a very partial success. In subsequent years the rations began to diminish again. As of 2012 anyone living outside of Pyongyang has to be an official or work at a military plant in order to get a full or nearly full ration. The ban on the private sale of grain lasted for merely a few months. By late 2006 rice and corn were again sold and bought freely, as the police and low-level officials were unwilling to enforce the new regulations. As we will see below, this was a typical outcome of many attempts to revive the old patterns: the government efforts seldom meet open resistance, but are quietly sabotaged by the low-ranking officials and population alike.