Again on Capitalist Restoration in North Korea

 

By Michael Pröbsting, International Secretary of the Revolutionary Communist International Tendency (RCIT), 12 June 2018, www.thecommunists.net

 

 

 

In our recently published book “World Perspectives 2018: A World Pregnant with Wars and Popular Uprisings”, we have dedicated a chapter on the political and economic developments on the Korean Peninsula. Therein we have outlined the background of the imperialist aggression against North Korea and the necessity for Marxists to take a position of revolutionary defensism in order to defeat the U.S. and its allies. [1]

 

In addition to elaborating on the character of South Korea as an imperialist state, we focused our analysis on the ongoing transformation of North Korea from a Stalinist planned economy into a capitalist semi-colony. We have explained, based on a Marxist analysis of political and economic developments in the past years, that the Rubicon to capitalist restoration in North Korea has been crossed and that it is not justified to view this country any longer as a workers state whatsoever.

 

Of course, our analysis that North Korea has become capitalist does not alter our defense of it against its imperialist enemies. However, it is crucial to have a correct assessment of the character of the Kim Jong-un regime in order to assess the inner laws of its development as well as its inner contradictions.

 

 

 

A Brief Summary of the RCIT’s Analysis

 

 

 

In our analysis provided in the above mentioned book, the RCIT has concluded that North Korea’s Stalinist regime has transformed in the past years from a bureaucratic caste into a ruling class. We have elaborated somewhere else the criteria which reflect if such a transformation takes place: “When can we state that such a capitalist restoration has taken place? The answer is: when a Stalinist bureaucratic workers’ government is replaced by or transforms itself into a bourgeois restorationist government. Such a bourgeois restorationist government is one which is firmly resolved, both in words and deeds, to reestablish a capitalist mode of production, i.e., to move decisively against planned property relations in favor of creating a capitalist economy based on the law of value.” [2]

 

North Korea’s new ruling class is certainly not without inner contradictions. It is fair to say that this class consists – as it has been the case in China and Vietnam – of both party functionaries related to the “old” sectors of the planned economy as well as those who are closely connected or partly even identical with the new layer of Donju, i.e. “red capitalists”.

 

This capitalist transformation has manifested itself, among others, in a massive expansion of the private market sector. The regime promotes the creation of such private markets and, as a result, the number of government-approved markets in North Korea has doubled to 440 since 2010. According to a recent assessment of Lee Byung-ho, director of South Korea’s intelligence service, at least 40% percent of the population in North Korea is now engaged in some form of private enterprise. [3] There is some estimation that the private sector now accounts for up to half of GDP.

 

This does not mean that the process of capitalist restoration has been completed. In fact, such a process usually takes a number of years as we have seen in other countries after 1989-91. However, as we already said, the Rubicon has been crossed. As a result of this process the task of the North Korean working class has changed – similar to China and Vietnam: on the table is no longer a political revolution against the Stalinist bureaucracy but a social revolution against the ruling Stalinist-Donju Class.

 

In this article we do not intend to repeat the RCIT’s analysis provided in the book. We rather want to provide our readers with some additional information which has become public in the most recent past. The large interest in North Korea has resulted in the publication of several studies and articles on its social and economic developments which, in our view, fully confirm our analysis. As we will demonstrate below they provide strong evidence for our assessment that the process of capitalist restoration has accelerated since Kim Jong-un took power in 2011.

 

 

 

“A Market Economy with a Huge State Sector”

 

 

 

Various economists who have studied the transformation of North Korea’s economy in the last years have arrived to the conclusion that the regime has developed into a market economy with a significant state sector. Andrei Lankov, a North Korea expert at Seoul’s Kookmin University and director of the Korea Risk Group and to whom we already referred to in our past analysis, stated in a recently published article: “A Stalinist state is about central control, a highly centralized command economy. They don’t have that any more, they have lost the command economy.” [4]

 

On another occasion, Lankov concluded: “They are going seriously capitalist”. He also called Kim Jong Un the most pro-market leader North Korea has ever had. [5]

 

Obviously, the regime in Pyongyang is following China’s model of shifting from a planned economy to a market economy because it was combined with keeping the continuity of the ruling elite.

 

Since the regime started its economic reforms in 2011 important changes have taken place which advanced the implementation of the capitalist law of value. An article published by Bloomberg reports that these reforms allow “factory managers to set salaries, find their own suppliers, and hire and fire employees. Farming collectives have been replaced by a family-based management system, which has led to far greater harvests. The government has even come to tolerate private enterprise on a limited basis. (...) Although the government denies having abandoned the old socialist system, the evidence is undeniable: By some estimates, the private sector now accounts for up to half of GDP.” [6]

 

Andray Abrahamian, another economist who has taught business skills extensively to North Koreans under the aegis of Singaporean NGO Chosun Exchange, arrives to the same conclusion: “It is a mixed economy that has transitioned very far from the command economy it once was. It’s better to think of it as a market economy with a huge state sector that is in some ways integrated into that economy and in some ways separate. So, large state-owned enterprises have to use market principles to survive and thrive, by and large. But also much smaller enterprises get created and also compete. Awkwardly, they don’t really recognize private ownership yet, so much happens in a grey area.” [7]

 

Another example of the regime’s conscious pro-capitalist policy is the so-called Chosun Exchange. This is a project - “Chosun” is a native Korean word for Korea – which teaches North Koreans the basis of “entrepreneurialism”, i.e. the training of future capitalists and managers. It has been in operation for 11 years. According to a report, this organization has partnered with hundreds of foreign professionals to train thousands of business-minded individuals in North Korea. The NGO’s operations focus on business, finance, law, and economic policy. [8]

 

As we pointed out in our analysis, the new capitalist class of Donju is closely intertwined with the ruling bureaucracy. Many of them engage in public-private partnership projects. A famous example of them is Ri Sol-ju, Kim Jong-un’s wife. It is no surprise that many of Kim’s flagship economic projects are such playgrounds for the wealthy such as ski and beachfront resorts.

 

Daniel Pinkston, an international relations expert with Troy University in Seoul, reports: “The interesting aspect of the political economy is that regime loyalists are granted property rights to engage in market activities. Whoever has the mobile phone business, or the used car smuggling business, controls that and gets revenues, and the state can control those property rights.” [9]

 

Another indication of the advance of capitalist restoration is the successful monetary reform. Professor Steve Hanke from the Johns Hopkins University recently published an article in Forbes, one of the most prominent U.S. business magazines, in which he showed that Kim Jong-un overcame the problem of hyperinflation which plagued North Korea in the late 2000s. The country’s hyperinflation peaked in early March 2010, when the monthly inflation rate reached 926%. However, the regime succeeded in removing its economic problems by a policy of “spontaneous ‘dollarization’ and ‘privatization’”, as Hanke terms it. As a result, the Chinese yuan and the US Dollar today play a significant role in the huge currency black-market where they can be exchanged at stable rates with the North Korean won.

 

“Kim Jong-un’s approaches of spontaneous “dollarization” and “privatization” has worked much better than the press and experts in international affairs would have us believe. Just look at the KPW/USD exchange-rate chart below. The most important free-market price in North Korea has been very stable since 2012. Rice prices have also been stable since 2012. This suggests that the specter of inflation doesn’t appear to be haunting over the North Korea.” [10]

 

Another recently published study on North Korea arrived to the same conclusion: “The informal exchange rate for the won has been remarkably stable since 2013, following a period of hyperinflation in the aftermath of the 2009 currency revaluation.” [11]

 

As a result, the regime of Kim Jong-un has been able, despite the sanctions, to initiate a period of growth since 2011. According to the latest estimates released by the Central Bank of Korea in the South, which tracks North Korea's economic activities, North Korea's GDP has been projected to have expanded (albeit at a low rate) every year with the exception of 2015. [12]

 

 

 

Who will become the new Imperialist Master?

 

 

 

Related to this pro-market policy is the substantial growth of foreign trade since 2011. At least until the recently imposed harsh sanctions, foreign trade accounted for almost half of the annual output measured as GDP. [13]

 

In the last decade China has become North Korea’s most important trade partner. China now represents more than 90% of Pyongyang’s trade.

 

As we have stated in our analysis of North Koreas’ capitalist restoration, the country has no chance of playing a dominant role given its small and backward economy. Rather, it is becoming a capitalist semi-colony. As such it is going to be dominated by other, imperialist powers. The question is which ones?

 

Obviously South Korea, an imperialist state itself, will play an important role. [14] Already in the past, Seoul has fostered close economic relations. Indeed, there are strong factors which could enhance such a development. Given the cultural and language proximity, South Korea’s chaebols – as the big corporations of the country are called – would welcome the opportunity to super-exploit the extremely cheap labor force in the North. They already did so in the past when the two countries ran the joint inter-Korean Kaesong Industrial Complex – a factory park in the North’s border city of Kaesong. While it was shut down in early 2016 in the wake of missile and nuclear tests, it gave South Koreans monopoly capital a taste of the advantages of investing in the North. Just compare this: the average monthly wage paid to a North Korean worker was $169. A minimum wage worker in the South earns nearly 10 times that, at about $1,470 a month, working a 40-hour week. [15]

 

Furthermore North Korea has a vast amount of mineral resources which the chaebols would like to exploit. Since North Korea does not disclose the details of its natural resources, it is difficult to come up with an estimate of potential value. However, one estimate by the Korea Resources Corporation in the South puts it at more than $3 trillion. In addition, North Korea is known to have a big reserve of rare earth metals, essential materials in producing digital devices such as smartphones. In contrast, while South Korea is the fifth largest consumer of minerals in the world, the country is poorly endowed with natural resources and has to rely on 90% of the mineral resources it consumes from foreign imports. [16] Unsurprisingly, the South Korean government has already earmarked roughly $1bn for an inter-Korean economic cooperation fund.

 

 

 

The advantageous Position of Chinese Imperialism

 

 

 

However, South Korea is certainly not the only imperialist power to play a hegemonic role in North Korea. China is a much stronger imperialist power than South Korea. [17] It is furthermore much better positioned as a future master of North Korea than the U.S. due to geographic, political and historic reasons. U.S. has a long history as an imperialist aggressor against the Korean people. China, on the other hand, helped the Korean people to defend themselves in the 1950-53 war and has sided with it since then.

 

Naturally, this will not stop the U.S. to try taking advantage of the capitalist restoration of North Korea. But we are rather skeptical that the American monopoly capitalists will succeed to play a dominant role. [18]

 

In contrast, China as a rising imperialist power can offer North Korea integration into its ambitious global economic initiative – the so-called Belt and Road Initiative. This is an infrastructure project which spans over 60 countries and will cost over a trillion US Dollar. [19] Jeon Kyong-man, an economist at the Institute for Korean Integration of Society, therefore could be quiet right when he points out that after the hype of the Trump Kim summit, Pyongyang’s focus could turn not to Washington but rather Beijing: “Kim is talking to Trump because he needs to get the United States to back off sanctions. After that, headlines will be all about Kim and Xi Jinping.” [20]

 

Kim Jong-un has already made two visits to meet Xi since March, while a high-level delegation from his ruling Workers’ Party toured China’s industrial hubs in an 11-day visit in May that focused on China’s high-tech urban transport and latest scientific breakthroughs.

 

Zhang Anyuan, chief economist at Dongxing Securities in Beijing, points out China’s advantageous position compared with its imperialist rivals: “Taking into consideration geographic location, economic system, market size, economic development stage, China-North Korean economic cooperation has advantages that are irreplaceable and hard to replicate.” [21]

 

Finally, imperialist Russia also hopes to gain from the political developments on the Korean Peninsula. It had already reached agreement with South Korea in 2008 on a $100bn deal to supply annually 7.5 million tones of Russian natural gas starting via a pipeline to be built via North Korea. While this project was placed on hold in the wake of souring inter-Korean relations in the past years, the Putin government intends to revive this project.

 

In short, several imperialist powers – the U.S., China, Russia and South Korea – hope to utilize the capitalist restoration in North Korea for their advantage. However, one important actor has not spoken yet – the working class of North Korea which has a strong and battle-hardened ally among their brothers and sisters in the South!

 

It is the working class which we suffers most from the consequences of capitalist restoration. It will not silently put up with a hire and fire regime and super-exploitation. Neither will it put up with arrogant foreign capitalists and managers. Hence, the process of capitalist restoration will be a very rocky one for the Kim Jong-un regime and its cronies!