Capitalist Realism in North Korea

A Capitalist in North Korea: My Seven Years in the Hermit Kingdom, written by Felix Abt and published in 2014. The book is part autobiography, part how to guide for business dealings, and part social history of life in North Korea, mainly in Pyongyang with occasional excursions to the countryside. It mainly covers the period of 20002-9 as that was when Felix Abt was in the country building his business connections, but the book does delve into the period before it and has some commentary on events that took place after.

Its probably the most thorough and exhaustive in detail source of information I've found on modern North Korean economics, the rest I've come across has either been just statistics about production targets and outputs, or much smaller and narrowly focused accounts of working with one the outsourcing firms like Guy Delisle's Pyongyang, which consists almost exclusively on the animation industry and work culture.

The Author

Felix Abt is a Swiss citizen whose travelled the world and seems to specialise in doing business in markets that have a reputation for being unpopular and unstable, from parts of Africa where foreign businessmen are routinely held to ransom to various dictatorships with questionable human rights records and regional tensions. The most prominent of the latter is North Korea, and I've found from this book and looking him up afterwards that he has something of a celebrity status in the region, or at least as much celebrity as a boardroom dealing senior manager can muster.

His main contributions and ventures in North Korea are the setting up of a private health products company called PyongSu, which eventually grew to the point it was running its own private pharmacies and franchising. I've looked it up and found references to PyongSu still trading up to 2018, though it appears that many of the problems Felix laments in the book are still plaguing it. And I found a video presentation by the company to attract foreign clients made in 2014

https://youtu.be/Wh_v-VKpK0o

And the Pyongyang Business School, the first privately run business school in North Korea which brought in accomplished academics from around the world to teach up and coming state and party administrators how to build a successful business to an international standard. The school would close down in 2010, but not because of a government crackdown on market deviations, it closed because its foreign funders all dropped out due to pressure from American sanctions and a right wing shift in the Swiss parliament.

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.

Felix takes pride in several passages that many of the most active and `dynamic` of North Korea's small but growing middle class business community came through his school. I suppose its worth mentioning that Felix has something of a reputation as a `sanctions buster` and has been accused numerous times of propping up or being a useful idiot for the government. The business is conducted perfectly legally the way he tells it in this book, he just had to import through multiple partners (mostly Chinese companies) instead of directly thanks to the economic sanctions.

Indeed, he seems to be an ideological liberal capitalist, he defends his reputation numerous times by citing that he worked in developing medicines and admin training and other civilian ventures, accusing the international community of hypocrisy since it happily trades with many other nasty regimes and ignores human rights abuses in other industries, and claims that many of the reports about the worst aspects of North Korea are exaggerated.

Though it should be kept in mind, that he never denies the horrible features of the government, he acknowledges that labour camps exist and that he's known people who were sent to them, and its tendency to prioritise the military and its nepotistic elite system, and that he did still see malnourishment and evidence of food scarcity in the countryside into the 2000s etc, so he isn't one of those strange "The Democratic People's Republic of Korea, is paradise on earth, everything bad is made up lies of the American Imperialists" type mouthpiece, but he does just write it all off as a problem that can be solved by the power of trade to build better societies.

As the French economist and writer Frédéric Bastiat once said: “When goods do not cross borders, armies will.”

…

Businesspeople, on the other hand, pursued a different strategy, what the French sociologist Alexis de Tocqueville called “enlightened self-interest.” In this case, it was the tendency of businesses to want to inject true, sustainable reforms in North Korea, creating a feedback loop in which profits return to them later.

This naïve thinking is a little hard to stomach, but there isn't as much dedicated to it as I feared when I checked the book. And it does raise an interesting point, in many ways Felix Abt is the idealised capitalist, a man who works hard to build a profitable enterprise, is capable of making friends with his clients and earnestly believes in trade and the market as engines for social progress, despite all the evidence to contrary. He even quotes Tocqueville approvingly, a politician active in the July Monarchy, a regime controlled completely by France's financial sector, and it was so corrupt and hostile to reform it had to be torn down in a violent popular revolution after 18 years of existence.

And yet sees no real obstacle to business in North Korea, in fact on the contrary Felix lays most of the blame for the lack of progress in integrating North Korea into the mainstream of the world capitalist economy not on conservative hardliners in the Korean Workers Party, nepotism in the Kim family, or the army and its control of much of the economy, but on world capitalist economy and the United States in particular.

And for what its worth he makes an excellent case for that part of his world view, the main obstacle to keeping the companies he represents in North Korea afloat were usually the sanctions policies. If the company needed raw materials or new equipment and they couldn't find a North Korean producer they would have to import it. Which usually meant a labyrinthine process of importing through multiple companies or arranging for it to be assembled in China. On the other hand while he does have some anecdotes about corruption and difficulties dealing with state and joint venture companies in North Korea he apparently was able to smooth over most of the issues fairly easily.

The Pyongyang Business School for example did encounter some reluctance on the part of the authorities to back the initiative. But he quickly over came that once he identified the man source of hesitance wasn't opposition to capitalistic heresy, but to worries this foreign lecturers would advocate political liberalisation and undermine the propaganda about South Korea by using it as a positive case study.

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 Economy

A senior official at the State Planning Commission told me that “a healthy competition between manufacturers within the socialist planned economy is not unwelcome.” Competition among them was lively. In rural towns and villages one could see “compost competition production charts” showing the results of competing neighborhood units racing to collect kitchen waste, mud, and even human excrement to produce compost.

Its a very interesting read as far as economic histories go, I made a note on nearly every other page. It wasn't a complete surprise to me as unlike the more dishonest foreign Juche-ites I've known North Korea wasn't a pure state owned firm for a long time. I've annoyed many a "Defend Korea" type by linking the IKBC section of the Korean Friendship Association website, where the association prominently touts for foreign investment in North Korea because of how cheap and disciplined the workforce is.

The DPR of Korea (North Korea) will become in the next years the most important hub for trading in North-East Asia.
Lowest labour cost in Asia.
Highly qualified, loyal and motivated personnel. Education, housing and health service is provided free to all citizens. As opposed to other Asian countries, worker's will not abandon their positions for higher salaries once they are trained.
Lowest taxes scheme in Asia. Especially for high-tech factories. Typical tax exemption for the first two years.
No middle agents. All business made directly with the government, state-owned companies.
Stable. A government with solid security and very stable political system, without corruption.
Full diplomatic relations with most EU members and rest of countries.
New market. Many areas of business and exclusive distribution of products (sole-distribution).
Transparant legal work. Legal procedures, intellectual rights, patents and warranties for investors settled.

https://www.korea-dpr.com/business.html

But I was still surprised by how far the market economy has gotten in North Korea and how old its roots are. I'd assumed the market reforms and transition from state capitalism where the state/party/government/army were the sole employer and poured the profits back into the system to generate more industrial expansion to generate more profits to invest in further industrial expansion etc, to the more `typical` market system with a greater role for private companies and foreign investment was a response to the famines of the 90s when the Kim Il Sung era of rations of the Public Distribution System (PDS) broke down completely. So I was surprised to learn that the first legal reforms permitting foreign investment outside of the "Socialist camp" were passed in 1984, when it became clear the PDS economy was slowing down and the generous loans and investments from the Soviet Union were also declining, and that investment banks to facilitate trade and joint venture companies were soon set up.

In 1984, the first law on foreign investment was passed, allowing foreigners to set up factories with majority ownership. The change was prompted by the decline of the economy and of Soviet subsidies.

...

In 1992, the Supreme People’s Assembly adopted three laws allowing and regulating foreign investment: the Foreign Investment Law, the Foreign Enterprise Law, and the Joint Venture Law. More relevant laws and regulations including special provisions for trade zones and tax breaks and reductions, several dozen in total, were added over the years, and existing laws have been adjusted and refined, usually in favor of foreign businesses. The laws provide the legal framework within which foreign investors can operate, and define the allowed areas of investment, along with the rights and the obligations of the foreign investors.

Overall the growing legal toleration and acceptance of foreign investment and market style practices have continued over the years. Arguably the economy of North Korea is now kept a float by its participation in Special Economic Zones, the most famous being the Kaesong industrial park with South Korea, but there are more along the Chinese border and several tourist zones have been opened to inject more cash into the economy. And many factories in Asia, including Russia, China and Mongolia employ North Korean guest workers for a period.

Off course legal frameworks and corporate deals is one level, for me another very important feature of economics is work life. There is some material here covering modern North Korean work practices, since Felix is a corporate officer its not really the focus of the book and when its recounted its usually from the point of view of a prospective investor, but there are still some insights into typical work conditions and issues. He had no issues finding personnel as the average starting salary of 35 Euros per month was very attractive. Of course its customary for this salary to be supplemented with extras, such as gifts, -apparently USB flash drives are now more popular than scarves and bottles of liquor as they can be used to access movies and books and songs- and the factory work canteen is available to staff and their families, as a remnant of the old PDS,

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.

(My bolding)

Indeed, working conditions don't seem all that great, factories outside Pyongyang still struggle with power, which according to Felix mean either the workforce turn up, spend two hours on manufacturing and the rest of day on maintenance and cleaning or attending party and union sponsored ideology lessons, or sleep on the factory floor in case the power returns in the middle of night.

Overall the economy during the 2000s seems like a hybrid between an aging and crumbling state sector that still officially supposed to fulfil the commitments of building a strong military and provide for the needs of the population, but struggles to do both so often prioritises the former, and a small but growing private sector that was initially a pole of opposition but is increasingly building links to the established authorities.

The Future?

Felix left the country in 2009, but he did not break off contact, he remains an important adviser and point of contact for the business community and North Korea, so he's paid attention to developments after he left. The book was published in 2014 so it isn't the most up to date but I've not encountered any reliable information that contradicts the latest developments documented. In 2011 as we know Kim Jong-Il passed away and was succeeded by his son Kim Jong-Un. Surprisingly Kim Jong-Un has managed to tap into the bubbling resentment against the USA and become something of a hero to those who call themselves "anti-revisionist" socialist/communists. He has an image as a hard-line ideologue and last defender of the old Cold War style regime.

How does Felix Abt respond to this? Well he loves the `Marshal`, and credits him with going even further down the path of reform and market economics.

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

The praise is flowing, I haven't read a report on Kim Jong-Un that was this glowing that wasn't authored either by the KCNA or a tiny political party newspaper with a hammer & sickle masthead.

Now since this is the final part of the book and the period where Felix is least present the details are a bit sparser in concrete examples but he doesn't have to scrape the bottom of barrels either.

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.

This change for example, the state is still taking the majority of the harvest, but by allowing 30% to remain this essentially removes restrictions on agricultural markets, a big change, especially in a nation that experienced a devastating famine in living memory.

Felix even goes so far as to favourably compare Kim Jong-Un to Deng Xiaoping.

The young leader Kim Jong Un implemented a number of personnel changes in April 2013 that revealed a shift from the conservative military to the more reform-minded, civilian technocrats. This is a significant reform in a country where the official policy has been “army first!” for more than a decade. In the words of North Korea leadership expert Michael Madden: “These appointments appear to be important steps in moving key economic development projects and production away from the control of the military to the party and government.” In June 2012, Kim Jong Un gave farm managers more control over their decision making over their land. The Supreme Leader allowed farmers to keep surpluses for sale at a profit after they fulfilled state-mandated quotas. Some analysts believed he was experimenting with the early stages of a market-style relaxation, similar to the agricultural reforms that planted the seeds of change under Deng Xiaoping.

While I imagine such a view may prove controversial at the annual meeting of the Kim Jong-Un appreciation society but I can see it. Though personally I'm more curious how Felix balances his optimism for the benefits of capitalism with Kim Jong-Un's record as both a market innovator and a brutal despot. Felix acknowledges that much of these reforms were pushed through via a purge of the party and state administrations, including the famous execution of his uncle Jang Song Thaek, but just shrugs it off since this didn't mark the end of the economic reforms and they continued after Jang's downfall.

Ultimate this book is a strange reflection of reality. Its a document that is openly pro North Korea, and pro big business, and in its efforts to provide justifications for both it shows how neatly the two can and increasingly are working together. But whereas Felix Abt the capitalist takes heart from this growing collaboration, I can't help but view this has a cause for deep concern. After all Deng Xiaoping is credited with opening the Chinese economy, but he isn't known for opening the prisons, or bringing about peace and stability in the region. The opposite in fact, and today entire regions of Chinese territory are placed under extreme police surveillance and active oppression.

If big business; Chinese and international didn't give a damn about murdered students and Uighur concentration camps, why would Korean (north and south) and international business lose any sleep over the labour camp system or the occasional show trial? Felix Abt certainly doesn't.