Economic Performance and Legitimacy in North Korea

Geoffrey K. See is the Managing Director and Founder of Choson Exchange. He graduated from the University of Pennsylvania’s Wharton School and Yale University and is a consultant at a global management consultancy. Andray Abrahamian is an executive director of Choson Exchange and has a Master’s Degree from the University of Sussex in International Relations. He is currently pursuing a Phd, focusing on media images of East Asia while teaching at the University of Ulsan. 

The authors work for Choson Exchange (www.chosonexchange.org), a non-profit offering workshops and other training programs in business, economics, and law for North Koreans. Through our affiliates and our own interaction with investment-seeking arms of the North Korean government, we have noticed that intra-elite competition for investments, with multiple channels backed by different individuals at the highest levels of the North Korean government, has significantly increased in the last two years.

This leads us to speculate that with a leadership transition underway, such competition marks a shift towards increasing reliance on economic performance as a primary source of legitimacy for the North Korean government. This shift is significant as economic development has taken a back seat for the last two decades. If economic growth is to play a greater role in providing legitimacy for North Korea’s government, it will have a lasting impact on their foreign relations.

Evolution of Claims to Legitimacy

The conflict on the Korean peninsula has always been one of legitimacy; two governments both claim the right to rule the whole nation. As such, competition – for international recognition, the hearts and minds of the other Korea’s citizens, and above all the loyalty of domestic populations – has always played a central role in the politics of both North and South Korea. Without continually fostering the support of their own citizens, both Koreas face a threat posed by the competing government.

North Korea’s claim to legitimacy has been based on various narratives since Korea’s division in 1945, the first being that the leadership was made up of genuine anti-Japanese independence activists. Many of the key figures in the Seoul government formed after World War II had the reputation of being collaborators with the Japanese colonial government that had ruled Korea for 35 years. By contrast, the leadership forming around Kim Il Sung largely consisted of guerilla fighters based in Manchuria, Yannan and Russia. Not only were they untainted by collaboration, they had resumes that showed years of devotion to the patriotic struggle.

As Kim Il Sung consolidated his leadership in the 1950s and 1960s, his own personal greatness came to be the point of emphasis. No other leader, it was claimed, was wise and strong enough to guard the revolution from reactionary forces. Also in this period, North Korean legitimacy was also derived from the promise of higher living standards that communism could deliver. This promise was bolstered by economic growth in the North which outstripped the that of the South. It seemed, for a time, that central planning might be able to deliver on its promises to create not only a fairer, but more materially comfortable life for its citizens. While North Korea’s economy boomed South Korea struggled to produce wealth through import-substitution, a model of industrialization that attempts to reduce dependency on foreign goods by replacing them with domestic production..

In the 1970s and 1980s however, South Korea’s export-led economy took off at rates unmatched by the North. Despite this, Pyongyang continued to claim superior economic development as a source of legitimacy. Furthermore, as Kim Jong Il was groomed for leadership, his familial connection to the paramount leader, his filial piety, and personal genius were all emphasized, marking him as the only legitimate choice to lead both the socialist revolution and national development as well as to protect the purity of Korean identity.

Finally, as global communism collapsed and North Korea’s economy nosedived in the 1990s, “Songun,” or military-first politics, came to the fore. Legitimacy since then has appealed to the idea that with few allies and global imperialism surging, all efforts needed to be channeled into protecting the DPRK from hostile, outside forces. With survival at stake, economic considerations were not made a priority and as industrial capacity utilization, supply chains and foreign trade withered, it became impossible for North Korea to claim economic performance as a defining accomplishment of its system.

These narratives have always overlapped and existed as hybrids. The legitimacy drawn from defending the revolution is still important, as are the claims of Kim Jong Il’s personal genius. The development of nuclear weapons has also provided the leadership with the ability to claim that the DPRK is part of an exclusive and very powerful club. However, with domestic propaganda championing a “strong and prosperous” nation in 2012, the 100th anniversary of Kim Il Sung’s birthday, investment bodies claiming that special economic zones will soon “become like Singapore,” and the government offering highly public exhortations on raising the material standard of living, it appears that North Korea has recently placed the delivery of economic performance as one of its claims to legitimacy once again.

Public & Private Signs of Change

There are many signs that this shift is taking place. North Korea’s most important domestic policy statement comes each New Year, when the major newspapers publish a joint editorial. The editorial often signals where government priorities will be in the coming year. In 2010 the newspapers spoke of “Bring[ing] about a decisive change in the people’s lives by accelerating once again light industry and agriculture.” Similar themes were echoed in 2011. This is opposed to the joint editorials of the past few years, which have focused on the more traditional themes of military strength, revolution, and socialism.

Another public sign of a shift towards focusing on economic issues is the type of official visits and inspections carried out by Kim Jong Il. Following in the footsteps of his father, Kim uses these visits to signal emphasis or encouragement of specific industries, activities, and policies. According to a report by the Institute for Far Eastern Studies, the first six months of 2011 have seen Kim exceptionally busy, participating in 63 official activities. Unlike previous years, however, the number of military visitations has dropped off: only 14 visits were military related, the lowest number ever recorded. By contrast, 28 visits were economic related.

In terms of policy, North Korea has been haltingly experimenting with Special Economic Zones (SEZ) since the mid-nineties, but has recently built a bit more momentum in this area. Rason, an SEZ in the far northeast, is finally seeing some basic infrastructure upgrades that were long talked about but always delayed. Government investment bodies have started to promote the idea that Rason will be the “next Singapore,” an ambitious marketing claim to anyone who has been to Rason. With both Russia and China leasing port space, it seems more likely to be transformed into a regional transportation hub. Meanwhile, along the Chinese border in the northwest, the Hwanggumpyong SEZ recently held a groundbreaking ceremony, attended by high-ranking North Korean officials and Wang Qishan, China’s commerce minister.

Senior politicians in North Korea are increasingly judged by their ability to bring in foreign direct investments. These efforts appear to be competitive rather than coordinated. North Korean leaders associated with the National Defense Commission, the highest level policy body, have been meeting with visiting foreign investors. In 2009, the Daepung International Investment Group was re-purposed along the lines of a holding company model as a vehicle for attracting foreign direct investment l with “27 joint ventures planned and to be managed by the Group.” Daepung Group is backed by specific high-level individuals. Jon Il-Chun, reportedly the Director of Office 39, a murky international trade and finance organ, is definitely involved with the Daepung Group. Media reports also indicate that Kim Yang Gon, Director of an organization tasked with managing contacts with South Korea, the United Front Department of the Workers’ Party, is also behind the group.

In July of the same year, the Joint Venture & Investment Commission (JVIC) was established. Instead of a holding company model, JVIC is a government institution modeled as a “one-stop shop” for investors – that is, JVIC is meant to “seek out investments and assist investors in setting up operations in North Korea.” While multiple institutions claiming to hold such authority have always existed in North Korea, many of these institutions have been merged into JVIC and long-time investors have been directed to liaise with JVIC as their primary government contact. JVIC’s nominal and public head is Ri Chol, a high-ranking North Korean government official.

In August of 2010, we received credible reports that foreign investors were approached to help set up a group similar to Daepung that would be backed by another member of the National Defense Commission. Given this proposed initiative’s similarities to Daepung, the prior establishment of JVIC, and that all three groups do not appear to communicate with each other, we surmise that these various groups have a competitive relationship with the support of different patrons. Investment officials with whom our teammates have met confirm that the relationship between the agencies is “very competitive.” If this is the case, it is a signal that influential groups in Pyongyang sense that future power bases will require the ability to attract and deploy capital.

What Accounts for this Change?

We speculate that this shift is a result of interaction between broadening information environments, leadership succession, and changing social attitudes. North Koreans have greater access to information from outside the country. Despite having perhaps the strictest system of censorship in the world, technology has changed the information environment significantly since the 1990s, with entertainment and news from China and South Korea much more accessible. While many analysts focus on the comparison between North and South Korea’s standard of living, interaction with Southerners is still extremely limited. China’s greater volume of exchange with North Korea and its rapid growth despite relatively similar starting systems are what has accentuated the lagged pace of economic development in North Korea. The comparisons are even more obvious to elites who travel abroad.

Further impetus for change comes from the relative erosion of ideology, combined with a next generation of leaders that will be far removed from the original revolutionary movement. If Kim Jong Un, Kim Jong Il’s heir apparent, assumes the central role in a new leadership regime, something more concrete than family ties will have to be demonstrated if the reorganized government is to inspire broad popular support. By all accounts, Kim Jong Il does not inspire the same respect his father did and there is a major concern that his son will inspire even less.

Finally, the era of “Songun” politics coincided with a period of great hardship for North Koreans. However, putting the military first did, the government can argue, result in a successful nuclear program, effectively taking care of half of the stated goal of becoming “a strong and prosperous nation.” Now that the perceived external threat is held at bay by a nuclear deterrent, the citizens of North Korea can rightfully expect the government to devote more resources to achieving “the prosperous” part. Continued calls to endure hardship cannot go on forever. This compact is recognized by and frequently recited by policymakers as well as less politically engaged North Koreans.

Concerns

There is of course a big difference between intentions, capacity, and will. The biggest question marks concern both the ability and sustained willingness to push through changes that produce results.

There is a tendency to read any new emphasis on economic performance as North Korea having a new interest in “economic reforms” or “marketization.” This fails to take into account what specific mix of policy measures North Korean policymakers consider effective. Over the short-term, for example, policymakers might continue implementing ineffective economic policies despite a new emphasis on economic performance if they lack an understanding of what works. On one end of the spectrum are government officials whose idea of assuaging investors is to offer nothing more than promises that they are “powerful” and will thus resolve any conflicts the would-be investor faces. However, there certainly are policymakers who are well-informed about why investors are hesitant to enter the North Korean market and seek to overcome these issues in pragmatic ways.

Talented investment officers will also have to overcome a number of external constraints, including sanctions, fluctuating political conditions and a legacy of mistrust by foreign investors. North Korea’s investment history is peppered with defaults and false promises. Whether there exists the will and ability to make necessary changes in policy in the face of competing interests remains to be seen.

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Andray Abrahamian

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