Every diplomatic strategy thus far employed

to engage with North Korea has ultimately failed to normalize relations. Both

Lee Myung Bak’s hardliner May 24th Measures and Kim Dae Jung’s Sunshine Policy

have been kicked to the curb by an anxious Pyongyang. At the same time, the

free market has had much more success, helping to forge lasting bonds between

the Koreas, provide a livelihood to scores of North Koreans, dispel myths about

the outside world, and lay the foundation for a civil society. Former

Unification Minister Ryu Kil Jae urged that unification can only be

accomplished by evaluating the realities of North Korea and then actively

seeking out collaboration through trade and other projects. Korea University

Professor Kim Hyo Jin has encouraged us to dump

zero sum strategies in favor of cooperative endeavors, following the

precedents of the Kaesong Industrial Complex and Geumgang Tourism Center.

While it is difficult for politicians to

say so in public, these crucial points of contact include both open, official collaborations

and covert exchanges. Open projects include the presence of foreign companies

such as Korean American Mark Kim’s Sunyang Shoe Company, the upcoming joint

archaeological excavation of the ancient Koryo capital in North Korea, and the

activities of NGOs such as business training from Chosun Exchange and

agricultural development from America’s Global Resource Services. Covert

efforts are just as important, especially when it comes to transmitting

valuable information to the truth-deprived North Korean population. These

covert exchanges include broadcasting pirate radio, connecting North Koreans

with their overseas relatives through illegal phone calls, and smuggling things

like solar panels, USBs, and textiles.

Given the regime’s unpredictable nature,

the market presents a much more stable, long term, and practical conduit into

North Korea. This is because we don’t have to rely on the good nature of the

regime to compromise and collaborate on symbolic “hearts and minds” projects.

Instead, we can rely on the motivation of individuals to grow their businesses

and maintain their livelihoods. Cold, hard cash makes a very attractive lure.

Counting on North Koreans to act on the prospect of raking it in is a safe

assumption.

Reuters correspondents James Pearson and Ju Min Park have shown us

that North Koreans are

embracing consumer culture and aspiring to the donju, or new money class,

by taking to business ventures. However, to stimulate meaningful change as an

outcome of said interactions, we need to consider the country’s economic and

cultural realities. In Towards a Political Analysis of Markets in North Korea,

Park Hyeong Jung encourages us to ditch the black market/ state enterprise

dichotomy that has become the most popular way to characterize the North in

favor of a

more cohesive and inclusive model , arguing that, “the economic structure,

including the grey markets, reflects politics and power distribution in… North

Korea.” It is this North Korea that we must engage with, not the war hawk or

the fractured state that we see in popular culture.

When we view the North as Park urges us to,

the evidence begins to pile up. The pattern of interactions occurring at the

intersection between state-sanctioned enterprises and the grey markets is creating

receptivity to market liberalization. We know that border

crackdowns , propaganda campaigns, and political purges have been ratcheted

up since Kim Jong Un rose to power. At the same time, jangmadang (marketplace)

regulations have been relaxed significantly. What’s more, city dwellers are not

the only ones enjoying the market’s increased autonomy. Rural folk are also

seeing the upside of this new attitude. It was recently reported that private

farmers are now

permitted to raise cattle for the first time. Since free market penetration

will continue to grow and shrink under the knife of the Kim regime, we should

turn our heads towards the relationship between state officials and the market.

Corruption and bloated bureaucracies

present devastating political roadblocks for those struggling to rebuild a

stagnant economy. North Korean coal mines and cellphones provide good examples

of how blockages naturally emerge from gift politics, wherein the ruling elite

reinforce their legitimacy by awarding lucrative contracts to their cohorts. We

might expect that this advantage gives the regime leverage to make jobs, but

the opposite is true.

The regime has become addicted to cheap/free labor and

the entire economy has become mired down by corruption, shortages, and

inefficiency. The regime is now unable to perform basic services like deal out

rations, maintain infrastructure, or provide utilities. North Korea is covered

with abandoned mines that were shut down when power outages dragged out and the

infrastructure crumbled. The state had no choice but to fire the workers and

leave the mines behind. Sensing an opportunity, North Korea’s emerging middle

class, or donju, have begun taking up the helm.

But this is a costly and

difficult investment for the donju. In addition to bribing various officials

along the way, anyone hoping to legally reopen the mines is also required to

purchase exorbitantly priced digging rights from the Ministry of People’s Armed

Forces and mineral rights from the Ministry of Mining Industries. Unwilling to

take such a huge loss up front, some

brazen donju are opting to risk it by jumping in without a license. The

result: North Korea’s abundant coal, mineral, and rare earth reserves – valued

by Goldman Sachs at over 140 times the GDP of the entire country – go largely

untapped.

Cellphones

exemplify the frustration from a consumer’s perspective. Even if you manage

to work your way through the dizzying bureaucratic maze of certifications and

approvals, you’re still not guaranteed a phone. That’s because the government has

recently had trouble selling a device called a watt-hour meter. Anyone hoping

to retain their mobile subscription is now required to buy the useless $32

meter, which essentially amounts to a “telecommunications tax.” Those who

refuse to purchase the meters and submit the receipt have had their service

discontinued. Taxes, of course, are healthy profit generators for the state,

but when bribe-based tax systems operate outside the legal system,

inefficiency, bloat, and inequality multiply at alarming rates.

It isn’t hard to see that the state and the

economy are strange bedfellows in a post-communist country. Rather than

comfortably settle into their new roles, the two are prone to backstabbing,

infighting, reneging, and beguiling each other in an effort to gain small

pieces of territory at a time. The unclaimed gets taken, and the unprotected is

up for grabs. When asked why Kim Jong Un has ordered less crackdowns on market

activity than his forebears, Daily NK economic correspondent Kang

Mi Jin said that there are three main reasons .

First, the extra slack is a

compensation for the malcontent caused by Fall and Spring mobilizations.

Because of the mobilizations, ordinary students, soldiers, and factory workers

have been forced to do arduous work for an extra two hours per day. This has caused

significant social unrest .

Second, the market deregulation demonstrates the

government’s tacit recognition of its inability to issue rations.

Third, and

perhaps most importantly, the Ministry of People’s Security collect

on the stall fees for traders in the jangmadang, so the more sellers the

merrier for them. In Hyesan, a city on the Chinese border, the stall fees from

a single market brought in approximately 100 million KPW in a single month.

When you consider that the city has five markets, it’s easy to see why the cash

strapped authorities are in no rush to clamp down on market activity.

Although it is hard to predict the specific

policies of the Workers’ Party, we can still use our knowledge of the regime’s

basic operating principles to make educated guesses about best and worst case

scenarios. Which is to say, we can use our flashlight to pierce through the

darkness. That being said, we have to know where to shine our light and what to

illuminate. Up until now, much of the scholarly work on North Korean

marketization has emphasized the role of the unofficial market while

underestimating the role of state policies.

Park Hyeong Jung not only wants us

to understand how economic and political systems reflect one another, he also

contends that marketization in North Korea today does more to defend the

political system than to undermine it. This is because the Workers’ Party uses gift

politics to reinforce its power base, damaging the market’s equalizing

potential.

Having endured a famine, the current

generation of North Koreans are independent, motivated, and ambitious. They

understand market incentive and are hungry for change. By transitioning from a

military first (Songun) to a parallel track (Byungjin) policy, the Workers’

Party has demonstrated that they know how to step out of the way when

convenient for them. But the regime has played a backseat role in North Korea’s

revival so far. By legitimizing changes that the residents have already created

on the ground, they’re still playing second fiddle. If past is prelude, they’ll

need to hop in the front seat and introduce substantial reforms to encourage

continued growth.

But it would be foolish to assume that they’d do this out of

the goodness of their hearts. Pundits have long hailed the introduction of

Chinese style reforms in North Korea, and have long been met with frustration

and disappointment when reform packages like Special Economic Zones (SEZs)

failed to live up to the hype. Some scholars are now predicting North Korea to

follow the ASEAN track by emulating the likes of Singapore and Vietnam. We’re

left to wonder whether these predictions will ever come to fruition. But

there’s no need to sit back and wait. History teaches us valuable lessons about

what’s to come.

Given the connected nature of the political

and economic systems, it might be helpful to take a closer look at what sorts

of political changes other post-Communist states made in order to smooth over

the transition to a market economy. Only then will it be possible to learn from

their failures and see which successes might be reasonable fits for the DPRK.

With that in mind, in parts two and three, we’ll take a tour of former

socialist economies like Poland, China, Vietnam, and Russia in order to sniff

out what sorts of challenges liberalization posed for them. Then we’ll try to

modify the more effective policies to fit inside NK’s specific socio-political

climate.

I’ll ultimately conclude that the reform package should focus on:

currency convertibility, a rollback on sanctions, an end to isolationism,

compromise between reform-minded and conservative officials, and the extinction

of Fearpolitik and gift politics. So, basically, a walk in the park. This

doesn’t mean anyone expects all those goals to happen in a windfall of

enlightenment and good cheer, but any decent archer will say that you need to

know what your target looks like before you even think about picking up the bow

and arrow.

*Views expressed in Guest Columns do not necessarily reflect those of Daily NK.