North Korea's road to riches

By John Burton

Seymour Hersh, one of America's most prominent investigative journalists, recently spoke about a psychological profile of Kim Jong-un, based on electronic intercepts, that was done by a team of top experts for the U.S. government. They concluded that Kim "has a real desire to have money. He wants to be a leader in tourism," Hersh said.

That finding may explain why U.S. President Donald Trump said in a press conference immediately after the Singapore summit with Kim that North Korea had "great beaches" and they would be the perfect location for condos and hotels. Although Trump was mocked by many for the remark, Hersh suggested that Trump "knew enough [from Kim's psychological profile] to make this pitch _ I can offer this guy money and he will [abandon] his bombs."

Skepticism remains strong among most Korean experts that Pyongyang can undertake the economic reforms needed to make North Korea the next Vietnam _ another communist-ruled country that has become both a popular tourist destination and a growing industrial base for foreign multinationals.

Nonetheless, North Korea could surprise many if Kim is serious about his vow to improve his country's economy. North Korea is no longer the collectivized economy it once was. It has gradually evolved over the last 20 years into a hybrid model combining state ownership of industry with grassroots capitalism focused on private market activity.

Signs of entrepreneurship are increasing, which potentially could provide the critical mass necessary to create a civil society that would ease the government's repressive grip.

Pyongyang has encouraged the opening of official markets as long as vendors pay taxes or rent to the state. The Center for Strategic and International Studies recently estimated that there are at least 436 official markets in North Korea, which "appear to be deeply integrated into both the economy and society." They generated an estimated $57 million in tax revenue for the government last year.

"The sheer volume and geographic distribution of markets indicates that they have become an institutionalized part of North Korean society," CSIS noted. "The advent of mobile phone technology, SMS texting (within the state's intranet and closed cellular system) suggests there is evidence that a latent civil society could be emerging around these markets as citizens share information, commerce and a growing autonomy of livelihood within these markets."

An informal survey of North Korean residents by CSIS found that 72 percent received almost all of their household income from the markets and 82 percent believed that outside goods and information had a greater impact on their lives than government decisions. As a result, society reacts angrily when the government periodically tries to repress market activity.

Markets look like they are here to stay. Their concentration in cities, where 60 percent of North Koreans live, provides a platform for the growth of a service economy in the future.

Another big economic advantage for North Korea is its geographical location in the heart of Northeast Asia, one of the world's most vibrant regions. North Korea could emerge as a transport and energy hub with rail and gas pipelines linking South Korea to the rest of continental Asia.

North Korea's proximity to China, Japan and South Korea and its cheap and disciplined workforce could attract foreign investment. Although North Korea's population is aging, that might also prove to be an advantage since there would be less resistance to automation in factories, which at the same time would increase productivity.

There are three big "ifs," however, that shadow plans to transform North Korea's economy.

The first is that North Korea must respect foreign investment rules instead of its usual habit of seizing assets. One test case will be the future of Orascom's venture in North Korea. The Egyptian telecom group established North Korea's Koryolink mobile service a decade ago and there were reports last year that it was withdrawing from the country due to business disputes. But the company recently said it would stay, indicating that Pyongyang is taking a more pragmatic attitude.

The second is whether Kim decides that liberalizing the economy will outweigh the risks of opening the door to political dissent. The marketization of the economy is already creating this potential. But Kim is likely to take comfort from the deals struck in other regional authoritarian societies from China to Singapore where the population agrees to remain loyal to the regime as long as they see an increase in economic benefits.

Finally, Kim must commit to denuclearization in return for security guarantees from the U.S. This would end the international sanctions regime against North Korea and allow it to pursue economic reforms with the help of foreign capital.

Kim may have recognized that he has little alternative except to pursue economic reforms. But the road to riches in North Korea may be less fraught then many think.

John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is now a Washington, D.C.-based journalist and consultant.