WEBVTT - North Korea's Unlikely Economic Boom 0:00:00.320 --> 0:00:03.720 Barely a week passes without a missile launch or a 0:00:03.840 --> 0:00:07.720 nuclear test in North Korea, But what about the economy? 0:00:08.400 --> 0:00:12.200 When attention does focus on the economy, the country is 0:00:12.280 --> 0:00:17.640 mostly characterized as an economic backwater compared with its southern neighbor. 0:00:17.920 --> 0:00:22.279 It has no global brands like Hunday or Samsung, and 0:00:22.360 --> 0:00:25.239 it's only a few years ago that famine was reported 0:00:25.280 --> 0:00:28.680 to be widespread in the countryside. The only thing the 0:00:28.680 --> 0:00:32.159 place had going for it were nukes and a financial 0:00:32.240 --> 0:00:45.960 lifeline from China, but that may all be changing. Welcomed 0:00:46.040 --> 0:00:50.880 benchmarkers show about the global economy. I'm Daniel Moss, economics 0:00:50.920 --> 0:00:54.520 columnist for Bloomberg View in New York, and I'm scot Landman, 0:00:54.600 --> 0:00:58.760 an economics editor with Bloomberg News in Washington. Lately, there 0:00:58.760 --> 0:01:02.720 are signs that the North economic picture is brightening, admittedly 0:01:02.880 --> 0:01:06.600 from a very low base. Its economy grew almost four 0:01:06.640 --> 0:01:10.080 percent last year, faster than the US. It has a 0:01:10.120 --> 0:01:13.400 lot of catching up to do. Gross domestic product is 0:01:13.440 --> 0:01:16.760 a little less than thirty billion. To put that in comparison, 0:01:17.720 --> 0:01:23.480 South Korea's economy is about one point four trillion. But 0:01:23.600 --> 0:01:27.280 the North economy may be changing quickly, thanks largely to 0:01:27.400 --> 0:01:32.640 markets both legal and illegal. What markets? What's going on here? 0:01:32.800 --> 0:01:36.200 Isn't this the ultimate stalinist state? And to what extent 0:01:36.280 --> 0:01:38.920 is it emboldening North Korea? And could it also be 0:01:39.000 --> 0:01:42.040 a sign of weakness? Now joining us to explain this 0:01:42.120 --> 0:01:45.679 boom that nobody noticed is b y Kim, a professor 0:01:45.760 --> 0:01:49.480 at Soul National University and the author of the well 0:01:49.560 --> 0:01:55.920 timed recent book Unveiling the North Korean Economy Collapse and Transition. Professor, 0:01:56.120 --> 0:01:58.400 thank you for joining us where it's your evening and 0:01:58.440 --> 0:02:01.080 our morning. That's right, Thank you so much for having 0:02:01.080 --> 0:02:05.240 me today, Professor. Let's start with the basics. How is 0:02:05.320 --> 0:02:09.520 North Korea's economy doing right now? But the economy has 0:02:09.560 --> 0:02:14.320 been stabilized. If you remember the famine in the ninety late, 0:02:16.560 --> 0:02:19.359 a lot of people have died because of bamin. At 0:02:19.360 --> 0:02:22.920 that time we estimated about six hundred thousand people have 0:02:23.080 --> 0:02:27.280 died of stabation. But now nobody talked about the stabation 0:02:27.480 --> 0:02:31.560 in North Korea anymore. That is, although there is malutriction 0:02:31.880 --> 0:02:37.079 on the nourishment, but sturbation is now remote. So economy 0:02:37.120 --> 0:02:41.560 has been okay and stabilized. And the ad mentioned economic 0:02:41.560 --> 0:02:45.920 cross rate last year recorded three point nine percent panem 0:02:45.960 --> 0:02:49.519 and so what is driving the economy, Professor? What are 0:02:49.560 --> 0:02:54.320 the main UH commodities? Trade? What's going on? How are 0:02:54.360 --> 0:02:57.960 people getting their money? How is North Korea getting its 0:02:58.000 --> 0:03:01.920 products and delivering them to the outside world. Yeah, I 0:03:01.919 --> 0:03:06.280 think there are three factors which drive the economic growth. 0:03:06.480 --> 0:03:12.239 The first one is markets. Nowadays, North Koreans lion markets 0:03:12.240 --> 0:03:18.320 for survival and for prosperity for some people. And about 0:03:18.800 --> 0:03:25.919 seventy nine of house income drives from markets, and fifty 0:03:26.520 --> 0:03:31.320 people participate in the official economy while seventy percent people 0:03:32.000 --> 0:03:37.240 work informally. Therefore, in North Korea, although it's socialist country, 0:03:37.280 --> 0:03:42.560 market dominates in reality. The second factor is trade. Norse 0:03:42.640 --> 0:03:45.600 create can be regarded as being open economy in terms 0:03:45.640 --> 0:03:48.120 of the share of a trade in g d P, 0:03:49.520 --> 0:03:54.600 which is about fifty percent. World average is a pip 0:03:54.760 --> 0:04:00.240 eight percent. Therefore, North Korea is open economy. That might 0:04:00.280 --> 0:04:04.400 surprise many listeners, Professor, given the images we have that 0:04:04.480 --> 0:04:09.200 it's kind of a gray hermatic nation sealed off from 0:04:09.200 --> 0:04:13.320 the rest of the world, with a population that's basically enslaved. 0:04:13.560 --> 0:04:18.839 How has what you've described gone so unnoticed that that's correct? 0:04:18.880 --> 0:04:26.120 Because the image of North Korea was based on politics 0:04:26.240 --> 0:04:31.520 and security from the prospective of politics anstuity, not from 0:04:31.560 --> 0:04:36.880 econic perspectives. And these changes have occurred in the middle 0:04:37.040 --> 0:04:42.599 and late nine nineties. They call it arvious much and 0:04:42.640 --> 0:04:46.200 I mean many people have died of starvation and therefore 0:04:46.279 --> 0:04:53.000 markets emerged unnoticed because people were transjecting are if possible 0:04:53.080 --> 0:04:57.480 in markets for survival. And afterwards that the government applied 0:04:58.040 --> 0:05:02.840 zig policy on arche activity. Sometimes they try to press. 0:05:02.880 --> 0:05:08.640 Sometimes they applied blind eyes to the activities. So it's 0:05:08.680 --> 0:05:13.120 rather too zack. But the process of expansion of markets 0:05:13.400 --> 0:05:16.920 has been a coding for the last fifteen years and 0:05:17.040 --> 0:05:21.320 the current leader, Kim John has actually given somewhat of 0:05:21.360 --> 0:05:24.880 a blessing to these markets. If I'm not mistaken, Can 0:05:24.920 --> 0:05:28.520 you explain, you know what's going on here, and you 0:05:28.560 --> 0:05:32.880 know how they're helping the economy function. You know, how 0:05:32.920 --> 0:05:36.400 are people able to get the money to buy commodities 0:05:36.480 --> 0:05:41.320 or to even participate in these markets that you talk about? Right? Uh? 0:05:41.760 --> 0:05:47.040 If you remember there was currency formed in post online. 0:05:47.640 --> 0:05:54.279 They somehow trying to repress markets by forcing a conversion 0:05:54.279 --> 0:05:57.040 of the older currency with the new currency, with some 0:05:57.200 --> 0:06:04.040 buildings that intended the shrinkageer markets because the the authorities 0:06:04.080 --> 0:06:09.120 and Kim jong Il so far, the Kim Joan regarded 0:06:09.640 --> 0:06:14.840 markets as a domain or budua, and so they applied 0:06:15.360 --> 0:06:20.800 at this uh policy against markets that reduced market activities. 0:06:21.080 --> 0:06:26.200 But they've failed, and the prime minister apologized to people 0:06:27.240 --> 0:06:30.520 and they pointed out one person escape good and he 0:06:30.680 --> 0:06:34.960 was shot to death. And I imagine that Kim Donan 0:06:35.600 --> 0:06:40.000 might have realized without markets, the economy would not go 0:06:40.160 --> 0:06:44.960 well and people not survive, and therefore he accepted the 0:06:45.000 --> 0:06:50.720 markets because it's sel safety. But on the other hand, 0:06:51.640 --> 0:06:55.480 he thought by himself, okay, handle on the markets, okay 0:06:55.600 --> 0:06:59.920 right now, because it sustained the economy and well repaire people. 0:07:00.760 --> 0:07:04.400 But on the other hand, markets could become a danger 0:07:05.200 --> 0:07:08.159 or enemy in the long run, that's what should I do? 0:07:09.160 --> 0:07:13.880 And perhaps he wants to concentrate on development of nucle 0:07:13.880 --> 0:07:18.320 weapons and missiles in that way can protect his power 0:07:18.920 --> 0:07:23.960 from extra or extra force. So we see economic upswing 0:07:24.200 --> 0:07:31.000 emboldening Kim or is Kim's behavior a product of markets 0:07:31.120 --> 0:07:36.960 weakening him? That's right, since short run markets helped him 0:07:37.000 --> 0:07:41.040 to maintain power. By long run it weakens the power. 0:07:41.560 --> 0:07:44.880 But that is a dilemma he faces because of market 0:07:44.880 --> 0:07:50.120 tiation in Thus Korea and this market activities are intertwined 0:07:50.200 --> 0:07:53.240 with the trade for in trade because fort in t 0:07:53.240 --> 0:07:58.520 trade provides resources to markets, also provides a pertunent power 0:07:59.120 --> 0:08:04.080 for market demand. Therefore, these markets and trades are like 0:08:04.360 --> 0:08:11.760 twins ultiple. Aside the coins UH, exposing Kim the power 0:08:12.080 --> 0:08:15.920 to afford in trade and markets could have been danger 0:08:16.560 --> 0:08:21.200 if something occurs regarding these perfective Now, if you look 0:08:21.200 --> 0:08:26.000 at North Korea's neighbor China, they opened up their economy 0:08:26.360 --> 0:08:29.840 forty years ago, UH, and they still are engaged in 0:08:29.880 --> 0:08:33.400 this perennial struggle over how much of the economy to 0:08:33.559 --> 0:08:36.760 open to markets and how much should still be controlled 0:08:36.760 --> 0:08:39.960 by the state, and how that threatens the power of 0:08:40.000 --> 0:08:42.800 the Communist party. And I think a lot of people 0:08:43.200 --> 0:08:46.880 probably were making similar predictions years ago that you know, 0:08:46.920 --> 0:08:49.320 that once China really opened up their economy, that it 0:08:49.360 --> 0:08:53.400 would risk the power of the Communist party. But in fact, 0:08:53.720 --> 0:08:57.080 the parties today seems to be very strong, and you know, 0:08:57.160 --> 0:08:59.920 has has somehow balanced this opening up of the economy 0:09:00.080 --> 0:09:03.600 with um, you know, maintaining control and staying in power. 0:09:04.160 --> 0:09:07.080 Do you think that's possible it to happen in North 0:09:07.160 --> 0:09:10.640 Korea as well well. For time being, I don't think 0:09:10.920 --> 0:09:15.120 that it is possibility in North Korea. If you look 0:09:15.160 --> 0:09:19.000 at the Chinese case that there were change in power. 0:09:19.200 --> 0:09:24.520 Part of power from Mata Tom, Tomsha Pin and Tom 0:09:24.840 --> 0:09:29.320 Pinch reformed the economy because in that way he was 0:09:29.400 --> 0:09:33.400 able to stabilize the power. But in the case of 0:09:33.800 --> 0:09:36.760 Kim Znan, his a power base is from his father 0:09:36.840 --> 0:09:39.840 and grandfather, and so it did held for him to 0:09:39.880 --> 0:09:45.160 deny the foundation of to chideology, which is inherited from 0:09:45.240 --> 0:09:49.800 his father and grandfather. Different situations. In North Korea you 0:09:49.880 --> 0:09:52.280 have the Party of Kim. In China you have the 0:09:52.320 --> 0:09:54.760 Communist Party, so it's a little different, that's right. I 0:09:54.800 --> 0:10:00.480 think political change transformation proceeded economic transformation in China, but 0:10:00.600 --> 0:10:04.439 we don't see this political transformation in those Korea. That 0:10:04.640 --> 0:10:07.640 is the biggest obstacle. But if you look at this 0:10:07.760 --> 0:10:11.280 problem from different perspectives, there is a possibility for him 0:10:11.320 --> 0:10:18.160 to be fought to take that road Chinese road or reform. 0:10:18.240 --> 0:10:22.680 Why because well, he may have to confront the expansion 0:10:22.720 --> 0:10:27.160 markets at some point he had to choose should I 0:10:27.320 --> 0:10:31.280 compromise or should I depressed market activities. But the latter 0:10:31.679 --> 0:10:34.959 maybe too riska for him. Then he may take the 0:10:35.000 --> 0:10:39.360 first option to compromise on markets. Then they could the 0:10:39.400 --> 0:10:44.880 possibility that Chinese tire reform can take place in Those Korea. 0:10:45.520 --> 0:10:50.640 But critical to China's economic growth as it opened up 0:10:50.640 --> 0:10:53.920 its economy and as market reform strengthened was the role 0:10:54.000 --> 0:10:59.160 of foreign direct investment the manufacture of goods for use 0:10:59.360 --> 0:11:03.000 in Europe and North America in China. It's tough to 0:11:03.120 --> 0:11:05.800 see that happening in North Korea as long as there 0:11:05.880 --> 0:11:10.079 is a nuclear program exactly. That's why I think it's 0:11:10.120 --> 0:11:16.040 the the growth sustain away and fust growth in uh 0:11:16.240 --> 0:11:20.720 in long period were they possible um as long as 0:11:21.080 --> 0:11:26.520 they had to euklepans and long ridge missile development. Let's 0:11:26.520 --> 0:11:32.480 talk more about China, Professor. China does play a role 0:11:32.760 --> 0:11:37.320 in helping North Korea's economy. They really are the gateway 0:11:37.360 --> 0:11:39.760 to a lot of this trade. And it's hard to 0:11:39.800 --> 0:11:44.920 see North Korea's economy doing what it is without having 0:11:45.520 --> 0:11:49.400 some degree of support from China, which which can really 0:11:50.000 --> 0:11:55.240 affect whether North whether the North Korean economy lives or 0:11:55.360 --> 0:12:00.800 or collapses. Is that right, Yeah, that's right. Yes, But 0:12:00.920 --> 0:12:04.040 if you look at the Chinese role in North Korea. 0:12:04.840 --> 0:12:08.480 I would say that the political leverage is limited given 0:12:08.880 --> 0:12:14.640 nowadays circumstances relations between aus Korea and China. But China 0:12:14.720 --> 0:12:21.760 has you know, almost leverage economically. So China can choose 0:12:22.320 --> 0:12:27.920 say between zero zero means no pressure on North Korea, 0:12:28.480 --> 0:12:33.920 one means destabilizing in North Korea economy and society, and 0:12:33.960 --> 0:12:37.080 they can choose. I think any point between zero and 0:12:38.559 --> 0:12:43.320 at what point are we now, well, that's a good question. Well, 0:12:43.800 --> 0:12:47.199 I think it's the if North Korea feels real pain, 0:12:47.400 --> 0:12:52.199 I would saying that should be say seventy or eighty. 0:12:52.559 --> 0:12:57.360 I think now it's the the extandard pain would be 0:12:57.400 --> 0:13:01.000 about the fifty or sixty. It's a bit lower then 0:13:01.040 --> 0:13:05.000 say optimal level of pressure. And what amount of pressure 0:13:05.160 --> 0:13:09.640 due to the international sanctions have on North Korea such 0:13:09.720 --> 0:13:14.600 as the most recent round approved by the United Nations, right, 0:13:14.760 --> 0:13:18.040 I think all together, including the most recent one uh 0:13:18.480 --> 0:13:23.160 UNS sc UNS count resolution. I think if the level 0:13:23.200 --> 0:13:26.240 is about the sixty sixty as we are a bit 0:13:26.280 --> 0:13:30.280 lower than optimal level or pressure. So when we talk 0:13:30.360 --> 0:13:35.640 about a greater role for markets in the economy, ultimately, professor, 0:13:35.880 --> 0:13:38.679 is North Korea going to be China or is it 0:13:38.720 --> 0:13:42.680 going to be the Soviet Union. One ended well, the 0:13:42.760 --> 0:13:46.319 other market experiment did not well. I think these two 0:13:46.400 --> 0:13:49.760 possibilities are quite open. I don't know which way they 0:13:49.760 --> 0:13:55.880 able to go. I can't allowed the scenario which is 0:13:56.240 --> 0:14:00.280 our preferred one. But if I evaluate the possible nity 0:14:00.480 --> 0:14:03.680 right now, I will say the second scenario is more 0:14:03.720 --> 0:14:10.200 possible because, Uh, it's difficult for him to accept make 0:14:10.280 --> 0:14:16.120 reform given his circumstances and the power base, and try 0:14:16.280 --> 0:14:24.200 to find against markets. Then some violent eruption or power 0:14:24.240 --> 0:14:29.040 struggle may violent say struggle, power struggle may erupt in 0:14:29.080 --> 0:14:33.240 North Korea that could end the system. Then they may 0:14:33.400 --> 0:14:39.080 lead the way of that's a transition towards Russia. Professor, 0:14:39.680 --> 0:14:43.520 let me ask the question that's on everybody's minds. You're 0:14:43.560 --> 0:14:48.480 an expert on the economic situation in North Korea, and 0:14:49.600 --> 0:14:52.200 the topic that we hear most about, of course, is 0:14:52.640 --> 0:14:58.000 what's happening with with with Kim's nuclear tests. Uh, you know, 0:14:58.040 --> 0:15:01.320 all the developments there at the different source that they 0:15:01.360 --> 0:15:06.280 have been testing. Uh. What is your personal opinion or 0:15:06.320 --> 0:15:09.280 how much concern do you have that this will end 0:15:09.320 --> 0:15:11.880 badly for everybody? That there will be some sort of 0:15:11.920 --> 0:15:16.960 attack from North Korea on perhaps Soul or somewhere else, 0:15:17.480 --> 0:15:20.200 and you know that it would be a nuclear attack. 0:15:20.240 --> 0:15:23.560 How much is that concern in your mind or fear 0:15:23.640 --> 0:15:28.160 in your mind? Well, I'm concerned as from being because 0:15:29.120 --> 0:15:35.119 is if that is kind of military conflict in peninsula, 0:15:36.320 --> 0:15:42.040 it could have devast an effects on people here. Therefore, 0:15:42.240 --> 0:15:46.040 I'm worried. However, the possibility of having one in the 0:15:46.120 --> 0:15:50.400 count Peninsula is limited for the same reason I explained, 0:15:50.440 --> 0:15:58.720 because the damage is too large. Prepare uh from the 0:15:58.760 --> 0:16:02.000 roast quin perspective him that perspective, I don't think he 0:16:03.480 --> 0:16:07.680 well initiate anyone against the United States or against South 0:16:07.760 --> 0:16:13.560 Korea Japan, because I I believe he's a rational person. 0:16:13.680 --> 0:16:17.400 Although he's a cruel He wants to be seen as 0:16:17.440 --> 0:16:19.800 a mandy man. But I think he's a rational guy 0:16:21.080 --> 0:16:25.360 and he knows that if the texts militarily the United States, 0:16:25.440 --> 0:16:29.880 South Korea, Japan, that means the end of his regime 0:16:29.920 --> 0:16:36.360 and himself. So he's a person who loses everything. He's 0:16:36.360 --> 0:16:40.480 the only person I think who is that the person, uh, 0:16:40.760 --> 0:16:44.520 you know who whose damaged his largest by this kind 0:16:44.560 --> 0:16:48.160 of a military conflict. But therefore, he would are there 0:16:48.200 --> 0:16:53.600 to start anywhere against other countries. Professor thank you for 0:16:53.680 --> 0:17:04.600 joining us. Thank you so much. Well, Scott, the real 0:17:04.720 --> 0:17:10.439 surprise here from talking to Professor Kim is just how 0:17:10.640 --> 0:17:14.600 vibrant he makes the North Korean economy sound, and that 0:17:14.840 --> 0:17:19.360 really isn't the way it's been portrayed. Well, it might 0:17:19.400 --> 0:17:22.480 be vibrant compared with how it was ten or twenty 0:17:22.560 --> 0:17:25.760 years ago, but you know, compared with its southern neighbor 0:17:25.960 --> 0:17:29.240 or China or Japan, it's far. I think it's still 0:17:29.320 --> 0:17:33.080 far far from being anywhere close to those And I 0:17:33.119 --> 0:17:38.000 guess the interesting point of tension is as North Korea 0:17:38.040 --> 0:17:42.320 tries to adopt market reforms, does it become like China, 0:17:43.000 --> 0:17:47.680 where markets have grown the economy and cemented the group 0:17:47.720 --> 0:17:50.560 of the party, or does it go down the root 0:17:50.640 --> 0:17:55.600 of the Soviet Union, where market reforms ultimately exposed the 0:17:55.760 --> 0:18:01.200 weakness of the party's control and foreshadowed it's collapse. Well, 0:18:01.200 --> 0:18:03.920 it's interesting you say that, because the Chinese have really 0:18:04.400 --> 0:18:07.040 they they've made it their business to take the lessons 0:18:07.080 --> 0:18:10.040 from the collapse of the Soviet Union and to not 0:18:10.200 --> 0:18:14.080 make those kinds of mistakes that led to the Communist 0:18:14.080 --> 0:18:17.920 Party's collapse in in the U. S. SR. And instead, 0:18:18.440 --> 0:18:21.680 you know, take them, take those away and do their 0:18:21.680 --> 0:18:25.439 best to balance the markets and stay control of the 0:18:25.440 --> 0:18:28.679 economy that's kept them in power in China. And like 0:18:28.760 --> 0:18:31.720 the professor said, Uh, you know, you have a big 0:18:31.720 --> 0:18:35.560 difference here. Where As in North Korea it's the Kim 0:18:35.600 --> 0:18:38.879 family that's trying to stay in power, whereas Uh in 0:18:38.920 --> 0:18:41.080 the Communist Party in China has found a way to 0:18:41.560 --> 0:18:45.320 transition power from one generation to the next roughly every 0:18:45.320 --> 0:18:48.639 ten years. Um, so it's a party verse as a 0:18:48.720 --> 0:18:57.320 family exactly. Benchmark will be back next week and until then, 0:18:57.520 --> 0:19:00.720 you can find us on the Bloomberg terminal, Bloomberg dot com, 0:19:00.840 --> 0:19:04.920 l Bloomberg app, as well as on Apple Podcasts, pocket 0:19:04.960 --> 0:19:07.480 casts and stitch it. While you're there, take a minute, 0:19:07.560 --> 0:19:10.840 rate and review the show so more listeners can find 0:19:10.920 --> 0:19:13.440 us and let us know what you thought. You can 0:19:13.520 --> 0:19:18.760 follow me on Twitter at Moss Underscore Echo Scott I'm 0:19:18.760 --> 0:19:23.240 at at Scott Landman. Benchmark is produced by Sarah Patterson. 0:19:23.640 --> 0:19:25.240 Thanks for listening, See you next time.