Capitalist Realism on the Korean Peninsula

One of the strangest features of the online left is the foreign admirers of the North Korean system. In a way it isn't that surprising if viewed as another depressing reminder that for many people what matters is the worship of power first, and for all its many faults and short comings the DPRK has managed to project an image of strength. That image loses its shine if you look to closely at just how old most of the armed forces equipment is, and how many of its missile tests fail, but still its ability to at least alarm and annoy larger regional powers and the USA is undeniable.

What really does baffle though is that how many of this admirers are wedded to this fiction that the DPRKorea and they themselves are some kind of socialist. Again sadly this isn't a new phenomena the history of socialism has always had admirers of force and despotism. But what's especially strange with the current generations of Kim and Xi admirers is that the nations they admire are pretty open about being open for business. And their rhetoric has been backed up by legal reforms dating back decades and the increasing presence of international business personalities getting invited to important party functions.

Its not hard to find evidence of the new growing market economy in North Korea, and the list of businesses investing in the country and the number of special economic zones continues to grow. I must have brought up the Korean Friendship Associations section touting its business interests section on a dozen occasions for just one example. But the information is largely scattered or in Chinese since that's were a lot of the companies come from.

So I wasn't surprised to see a book by one of the growing number of profit seekers, though I was surprised it hadn't come to my attention before. Especially when it also talked about the Korean Friendship Association and its role in drumming up investment opportunities for the country.

The book was published in 2014 and largely concerns the period of 2002-9 though the economics and history of North Korea before that is also covered quite a bit and later portions are dedicated to summing up the early years of Kim Jong-Un's leadership. I was worried at first that this would be a greed is good manifesto or vanity project like most of the stuff I've read that was written by investors and CEOs, but thankfully aside from a few brief paragraphs the book largely glosses over his personal philosophy. If your curious Felix Abt is a believer in trade being the best engine for understanding, peace and better governance.

Which coupled with his insistence on describing the North Korea of Kim Il Sung has an advanced socialist/communist/marxist state I did find somewhat irksome. But the meat of the book is the economic history and present, and it doesn't disappoint. Nearly every page I found myself making a note of some interesting data or anecdote, I already knew North Korea had pretty extensive links to big business interests and had been legalising market economics after the collapse of its rationing system in the 80s, but I was still surprised at the extent.

Felix Abt's main business venture was building a joint North Korean and foreign owned pharmaceutical manufacturer called PyongSu which I believe is still trading, despite being hit by sanctions. While Felix was running the operation it grew to the point it was running its own pharmacies, so there is some competition and for profit healthcare and treatments available.

He also found time to lobby North Korean officials for many other business opportunities, some of which were rejected, some approved but never got further, and some got off the ground. One of the projects that had some legs, was the founding of the Pyongyang Business School 2004-2010. It was as the name implies a school to train students (mostly top Pyongyangites) in how to run business in the way its run all over the world. In his account the authorities were hesitant at first, not because they saw this as encroaching capitalism strangling their socialist system, but because it would need many foreign academics who might bring ideologically incompatible views and ideas. Once he convinced them they could run a business school without indoctrinating the students in anti regime ideas they approved it.

The project was in jeopardy, so I took extra pains to carefully select the lecturers. I mostly took on those with an academic teaching background plus long-running business experience in Asia and elsewhere. I briefed them thoroughly on the sensitive political nature of their lectures, urging them, for instance, not to talk about the South Korean chaebol like Samsung and Hyundai. I revised and sometimes censored their lectures and teaching materials.

The school would close not because of a backlash by the government hardliners, but because its foreign funders were squeezed out thanks to tightening sanctions and the Swiss government lost interest.

My involvement with the Pyongyang Business School ended at the end of 2010, when the business school was about to be closed. By the following year, the market-driven idealism of those earlier years had withered. Seminars ceased to be held on a regular schedule after the only remaining sponsor, the Swiss government, halted all its development cooperation at the end of that year following a decision by the Swiss parliament.

So yes for several years there was a privately run business school in the heart of North Korea. Although it closed Felix Abt frequently noted with pride that many of his students went on to high positions in the state administration or to run successful businesses of their own.

If anything a running theme of the book is that Felix Abt lays the blame for the slow pace of economic opening up in North Korea, not on the conservative ideologues or the military, but on the western powers for continuing to put tighter and tighter sanctions on the country. Time and again he complained about how his businesses kept facing bankruptcy from the being caught in political entanglements, and having looked him up he does have something of a reputation akin to an embargo buster for the Apartheid regime, since he came up with ways to get around sanctions using tricks and agreements with less reputable Chinese companies.

The last sections are also the most gushing over Kim Jong Un I've seen that wasn't under a masthead of some People's Vanguard.

It was the state farms that were tied down by these measures, which made them unable to compete in markets and to produce more. Having recognized this, Kim Jong Un worked out a new agricultural policy in 2012 addressing some of these problems. Indeed, farmers were told in July 2012 that the state would henceforth take only 70 percent instead of 100 percent from their entire harvest.

Kim Jong Un acknowledged in a landmark speech that he would make sure that North Koreans “will never have to tighten their belts again.” Indeed, ever since his succession, a number of economically oriented policy advisors have risen to power. This will lead to more streamlining of the bureaucracy and the creation of a more investor-friendly environment. I have met some of these new bureaucrats, whom I consider to be clearly pro-business and pro-growth. A few small changes have already been made in market policy: more flexible opening hours are allowed for markets, and more companies are permitted to interact with businesses abroad. These have led to changes in light industry and economic development in the broader sense. Kim Jong Un acknowledged in a landmark speech that he would make sure that North Koreans “will never have to tighten their belts again.” Indeed, ever since his succession, a number of economically oriented policy advisors have risen to power. This will lead to more streamlining of the bureaucracy and the creation of a more investor-friendly environment. I have met some of these new bureaucrats, whom I consider to be clearly pro-business and pro-growth. A few small changes have already been made in market policy: more flexible opening hours are allowed for markets, and more companies are permitted to interact with businesses abroad. These have led to changes in light industry and economic The government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control—an amazing move for a country with an “army first” policy.development in the broaThe government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control—an amazing move for a country with an “army first” policy.der sense.

 The government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control

He even notes approvingly that state owned companies are moving away from the old system of service provision to active trading for profit.

While I met a number of risk-averse leaders of socialist bureaucracies, I also met young company heads with sharp business acumen. One bright fellow was Dr. Jon Sung Hun, the president of Pugang, one of the country’s largest state-run corporations. His group, founded in 1979, had capital of $20 million and eight business divisions spread across many industries, such as mining, electronics, pharmaceuticals, coins, glassware, machinery, and drinking water factories. Collectively, Pugang realized annual revenue from sales of more than $150 million. The group had sales offices or agents all over the world, in Germany, Bulgaria, Egypt, Ethiopia, and Malaysia, to name some of its prime markets.

The whole book is like this, but in between the stories of wheeling and dealing there are more human stories about interacting with North Koreans for over seven years, which are also pretty interesting. Sometimes they relate to business stories, such as Felix saying how he found it cheaper and more effective to give people usb sticks instead of the more expensive traditional gifts, usb sticks are really popular because you watch movies, listen to music and read books that are at least frowned upon if not outright illegal.

He also describes the life of a urban worker including typical pay and conditions. Its pretty grim.

PyongSu had, like most if not all Korean companies, a canteen where the staff could eat. Some staff brought food to the workplace that they had prepared at home. It was usual for workplaces to feed the staff and their families, provided they were able to generate the necessary revenues.

"provided they were able to generate the necessary revenues".

Salaries at PyongSu were 35 Euros a month and this was typical of workers at foreign or joint owned businesses, but this was still higher than the average wage at a state owned factory. Though the workers at Kaesong Industrial park where an exception and typically got paid much more.

Furthermore due to the constant electricity shortages it wasn't unknown for a factory to only be able to work for two or three hours a day but the staff were still expected to be there for the full day and either had to make up the rest of the time on maintenance and cleaning or on extra ideological lessons.

Interestingly unions were mentioned just once,

The trade union cells and the party cells in the company were responsible for holding regular sessions for our staff, including exams.

It worth keeping in mind too, that while at times everything that could go wrong did go wrong, and at times staff morale was poor do to them not being able to turn a profit and maybe even facing closure, their are no mentions of workplace complaints from the North Korea staff, or mention of strikes or any resistance at his company or any of the others he was involved with or knew about. It just doesn't feature, the workers don't have any agency, especially not compared to this small but growing class of market traders and public/private business partners.

This is particularly curious since while many books on North Korea have a habit of painting the population as obedient drones, this book usually goes out of its way to destroy that notion. There are brief passages about flats putting bars on their windows because thefts are on the rise, being held up in traffic because someone in front has gotten out to argue in broad daylight with the police, women ignoring laws on appropriate fashion and the ban on them riding bicycles, officials admitting over drinks that they've had plastic surgery or that so and so has had an affair or that prostitution does happen. There's even a really interesting chapter about how the role of women in North Korean society has changed since the disruption of the famine. Women are now regularly ignoring the laws on dress and prohibitions on bike riding, which led to many of those laws being abolished in 2012. So it does strike me as very strange and ominous that at no point in his seven year stay plus seven more years of being heavily connected with country that not one example of workplace resistance became known to him.

Overall its a interesting read and quite informative on North Korea's growing market capitalist economy and life working in the country.

The government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control—an amazing move for a country with an “army first” policy.The government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control—an amazing move for a country with an “army first” policy.The government’s order applied to its own companies, but not to companies and banks under the party and the army. This was because there were three self-contained economies: the civilian economy under the civilian government, the army’s economy under the National Defense Commission, and the party economy under the Central Committee. This has led to unproductive frictions, and Kim Jong Un has started shifting economic decision making away from the party and army and to the cabinet headed by the prime minister. And that’s not all: even a number of military companies were recently moved away from the army and are now under civilian government control—an amazing move for a country with an “army first” policy.

Kim Jong Un acknowledged in a landmark speech that he would make sure that North Koreans “will never have to tighten their belts again.” Indeed, ever since his succession, a number of economically oriented policy advisors have risen to power. This will lead to more streamlining of the bureaucracy and the creation of a more investor-friendly environment. I have met some of these new bureaucrats, whom I consider to be clearly pro-business and pro-growth. A few small changes have already been made in market policy: more flexible opening hours are allowed for markets, and more companies are permitted to interact with businesses abroad. These have led to changes in light industry and economic development in the broader sense.