Haggling over fiscal policy training

I just visited Pyongyang to check in on ongoing training programs, and to start preparing our partners for a major ramp-up of programs in 2013 and the conversion of our Beijing presence (i.e. Peter) into a full-time office. Program frequency and size continues to increase, and we are expanding coverage of topics and organizations. We will also be launching our flagship Women in Business training program targeting female entrepreneurs and managers. The most amusing training discussion award goes to the incredibly tenacious but good-humored negotiator from the Ministry of Finance. Typically, we try to keep workshops inside the DPRK short and focused, with a one-week session covering a specific topic in-depth. Short sessions in the initial phase help us understand what the learning needs are before we commit more resources to a topic area or organization. There are also budget reasons for keeping programs short. In terms of good topic areas, there was no shortage of them as the Ministry had a well-prepared list of areas that they wanted us to focus on. This was the easy part.

Our partner (rightly) insisted that longer sessions are much more effective. Our discussions became a see-saw battle in which I pushed for short sessions on a specific topic at this phase while he kept pushing for programs ranging upwards of 2 months and stretching to 9 months. When we had agreed that the majority of participants would be under 40 and moved back to discussing the program length, he mentioned that short programs would be suitable only for more senior people and we ended up discussing the participant ages again. It seemed like whack-a-mole as issues kept popping back up even after I thought I had resolved them.

Not wanting to commit to something without having had time to think it over and discuss it with the team, I explained that we might explore doing something in middle of 2013 with them, but that we are not ready to commit to anything yet. Our partner, who was enjoying himself, good-naturedly suggests that it was alright not to commit to anything yet, as this would be the first of many discussions. Perhaps next time Andray will get to enjoy negotiating with this partner!

First ever positive mention of "entrepreneurs" in North Korean press?

Three years ago, I worked with some North Koreans to have some candidates sent to a highly-prestigious conference overseas. The theme for the year was “entrepreneurship” and that partner told us that the theme was not suitable for North Koreans as it was a socialist economy. Given our focus on business innovation and talent in North Korea, entrepreneurship is always a cornerstone of our programs and we are launching an education program specifically focused on female entrepreneurs next year. We have a team in Pyongyang, that includes some very successful entrepreneurs and venture capitalists, running some programs this week . I am also visiting Pyongyang next week to discuss a venture capital idea we have been mulling over for more than a year, and we have been placing young North Koreans at start-up incubators overseas for internships.

However, I still do not know how North Koreans understand the term “entrepreneurship” or how they would react to it. Past mentions of the word in KCNA have either been neutral, used in reference to situations in external countries, or negative. Hence, I almost did a double-take when I saw the term “entrepreneur” on the front-page of Rodong Sinmun’s website recently:

Favor Shown to Small Entrepreneur

 

Immediately after the liberation of Korea from the colonial rule of Japan, Kim Jong Suk, woman General of Mt. Paektu, was engaged in revolutionary activities in Kyongsong County to arouse the people to the building of a new society. One day, a brewer came to see Kim Jong Suk.

 

Kim Jong Suk kindly greeted him.

 

After hearing out his career and present difficulties, Kim Jong Suk said: "Now, some people are finding fault with small entrepreneurs, labeling them as objects of overthrow or bourgeoisie. But, their accusation is an idle talk made by factional elements who act contrary to the will of General Kim Il Sung. From the period of the anti-Japanese armed struggle, Kim Il Sung trusted not only in small entrepreneurs and tradesmen, but national capitalists. In the liberated country today too, he believes in them as ever. You should more positively turn out in nation building for the country".

 

Keeping her instructions deep in his heart, he urged his fellow businessmen in the Kyongsong area to turn out in the construction of the country. A few days later, Kim Jong Suk called on the brewer at his house. Learning about his business in detail, she said; "Only when you run your enterprise for the country and people, can you be highly trusted by General Kim Il Sung and enjoy the respect of the people."

 

She went on to say: "General Kim Il Sung shows deep trust to small entrepreneurs and tradesmen who render cooperation to nation building. No matter who may say what, you should not vacillate at all, but trust and follow the General. He does not discriminate those who love the country and nation". In this way Kim Jong Suk implanted an unshakable faith in his mind.

 

Thanks to such a great loving care and trust of Kim Jong Suk, the brewer who was wandering at the crossroads in his life found out the path of a new life and turned out together with his colleagues in the general ideological mobilization movement for nation building. Afterwards, he was elected a deputy to a local power organ.

 

Paek Yong Mi

So remember, the President wants you to go forth and be entrepreneurial. Now if only policymakers chip in with policy changes that help make life easier for entrepreneurs. You might also be interested in this interview I gave at Knowledge@Wharton on entrepreneurship in North Korea.

Is "reform" talk too late and too muddled?

We have been mentioning since early last year that North Korea has a renewed focus on economic development which marks a break from its rhetoric of belt-tightening and self-sacrifice for the good part of the decade. We said that and still say it because it was mentioned consistently in government rhetoric and triangulated well with the policies, which we knew from our programs, that were being debated and considered. Hence, all the recent talk about “reform” seems rather belated. . That said, I dislike the word “reform” as it conflates too many issues. At the broadest level, it conflates changes in the political with those in the economic sphere. While there are issues with disentangling changes in both areas, it seems that talking heads tend to use changes or the status quo in one area to argue that similar things are happening in the other area. Some refer to the “status quo” political system or a tightening of border security as a sign that economic “reform” does not exist. Or some would link economic “reforms” with North Korea “opening up”, which carries connotations of a sort of rapid political change which may not happen at the same rate as the economic changes.

But at least people are starting to pay attention to the idea that top-down change can happen in North Korea. CE advisor Andrei Lankov, long a vociferous opponent to the idea that the North Korea’s elite will institute any form of economic “reform”, might actually be the canary in the coal mine. We like his work because he is close to the action in the North, willing to look at evidence and make a call even if it goes against everything he has said before.

The term “reform” is also conflated with a linear process. Critics of the idea of North Korea instituting economic “reform” point to contradictory policies or to non-performance as signs of non-reform. There is a tendency to conceptually link all market liberalizing actions as “reform” and to see greater state involvement in some areas as a sign of “non-reform”. Each policy on its own does not indicate a direction – there can be simultaneous moves to increase the role of the markets in some areas, while strengthening state supervision in others and policy mix matters.

Also, “reforms” can fail. Intention does not imply capacity. But that does not mean an attempt was not made. Both China and Vietnam had to feel their way through in their transitions (or as the Chinese described it “feeling one’s way across the river by touching the stones”). And just because they have done it does not mean that North Korea policymakers are fully aware of how it was done, or that the experiences of those countries are fully transferrable to North Korea.

From a practitioner point of view, if there is an intention in place to focus on economic development, there is a need to increase Choson Exchange efforts to reap a higher return from our education programs (yes! we do believe passionately in our mission). This month, we are making two trips to North Korea specifically to track workshop and global internship programs we have in place this year, to discuss expanded programs in business and economics training next year, and most importantly, to prepare our partners for the increased frequency of programs that will come as we convert our part-time Beijing office into a full-time office next year.

No More Bangapsimnida in Amsterdam

This was pointed out to us by Hamel, who 6 months ago guest blogged about Pyongyang's first foray into the European restaurant scene. Well, it turns out the Noord-Koreaans restaurant failliet. Accusations and counter-accusations abound: the Dutch partner says the restaurant was drained of money by the Koreans so they could start over without him, the Koreans say the Dutch guy didn't pay his share, including wages. Indeed, a court ruled yesterday that the employees are owed ​​payment by the Dutch company.

Whatever the cause of this messy divorce, we're going to go ahead and make a lazy joke suggesting that the Dutch partners were too high to run a business.  Wait, no we won't.

In a more significant conflict, JVIC responded to charges recently made by a Chinese mining company that North Korea had illegally kicked it out of the country and broken their contract. It was unusual for Xiyang - the Chinese company - to so publically air its greivences in the first place, especially while criticizing its own government's Korea-policy. For North Korea to respond is also highly unusual. Disputes like this should be resolved in international, public fora - hopefully soon it will be through arbitration rather than the media.

H/T to Hamel.

Rason Report: "The Honeymoon is Over"

"The honeymoon period is over,” was the summary of 2012 in Rason by one investor. This wasn’t meant to reflect an end to investors’ dreaminess about Rason, but of Rason’s honeymoon with itself, so to speak. With the recent legal changes, road construction and a series of meetings between high officials over the last couple years, it was imagined that big-time investments would come flooding in. Investment does continue into the SEZ, but mostly from small- and medium-sized businesses that lack truly transformative power. This does not mean, however, that development is not taking place. A key piece of infrastructure is finished, while both local administrators and foreign investors eagerly anticipate other pieces.

Choson Exchange visited Rason during the 2012 Rason International Trade Fair with Hanns Seidel Foundation to explore the potential for joint projects.

This report, while far from comprehensive, outlines the major changes (or lack thereof) that have taken place in the last year.

Here is our report from last year, upon which this year's builds.

Rason Pictures

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Some snapshots of the trade fair and other developments in Rason.

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2nd Rason International Trade Fair

We just got back from Rason, where CE attended the 2nd  - and now officially annual - Rason International Trade Fair. Organizers stated that the trade fair had roughly the same number of exhibitors as last year: 130 in 2012 compared to 126 in 2011. There was no complete published list, however.

There was much more retail activity at this year's fair. After experiencing last year, local people clearly realized the fair is an unparalleled opportunity to shop - the equivalent of having a shopping mall come to town for 3 days. One T-shirt company brought a number of shirts to their booth based on his experience last year. They sold out within a few hours and had to spend two days apologizing. Carpets were the hottest seller, with a steady stream being carried out by shoppers.

At the same time, there were probably triple the amount of heavy machines on display as last year. Motorcycles, cars, tractors, trucks and heavy lorries filled the parking lot, which was considerably emptier last year. Hand tractors started at about 1000 USD, while a North Korea-assembled three-wheeler pickup was about 6000 USD, in case you're in the market.

It was slightly more international this year, with Czech, Swedish and Taiwanese companies adding to the milieu. There appeared to be more Russian participants, also.

Overall, Rason is experiencing some positive development, though things are not moving as fast as many would like. Look for a longer report about the past year's changes in Rason soon. We'll also have some pictures up in the next few days.

Bikes in Kaesong

parked bike

Daily NK reported this week that a 20 year old order forbidding the riding of bikes by women was repealed in August. No one seems to know exactly when the order was instituted, nor when it was repealed. North Koreans I talked to disagreed amongst themselves, with some saying the rule had actually been dead for three or four years, and others saying several months.

Certainly, whatever they'd been, the rules seem to be another example of Pyongyang exceptionalism: to see a woman on a bicycle in the capital is rare, but elsewhere it is exceedingly common. Moreover, some have estimated that while a decade ago, 30-40% of households had a bike, now it is up to around 70%.

The increase shows. Recently, both Koreans and visitors have noted that bicycles in and out of the capital generally seem shiny and new.  Absent are the clunky 25 kilo rustbuckets than one finds all over Beijing. (Of course, Beijing's plummeting bicycle use is now something the government seeks to reverse.)

On a recent trip to the DPRK, we noted that in particular, Kaesong seems to have enjoyed an explosion of bike use. Streets that were a few years ago dominated by pedestrians are now clogged with bicycles. (Check out this gorgeous shot, apparently from this winter. More here from the same photographer.) This can only be due to to the influence of the Kaesong Industrial Complex. The KIC has grown consistently since it opened in 2005 and now has over 50,000 employees. This is out of a total Kaesong population of something like 300,000, so one in six Kaesongers/Kaesongites/Kaesongians works directly in the zone. This means the vast majority of Kaesong families will be in some way dependent on the KIC for income. Income that apparently that has gone towards more bikes. Good news for them, wages have been bumped up 5% this month. The bad news being this almost certainly does not keep pace with inflation.

Nonetheless, people can now get around better than ever before in this city where someday they will literally bike to South Korea in under half an hour.

Entrepreneurship in North Korea

While giving a talk at the Wharton School in April, I stopped by the Knowledge@Wharton publication to chat about my work. The following are excerpts from the interview.

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Knowledge@Wharton High School: Geoffrey, thank you for joining us today. Why did you start this organization? Why did you focus on financial education as a way to support long-term economic development in North Korea?

Geoffrey See: When I was a student at Penn in 2007, I [chose] to go to China for one of the summers to do research and to intern in China. I had some time during my internship, so I went to North Korea as a tourist. I was familiar with the usual stereotypes of North Korea as a communist country, but what really surprised me was [that] I met university students who were very interested in business and economics. They wanted to get access to books and topics, they wanted to find ways to learn about business, and they were very curious to hear about it, especially from someone who was studying business in a university setting.

KWHS: Can you give us a snapshot of economic development today in North Korea? What does it look like?

See: [Many] young people there are very interested in trying new things. They want to set up their own businesses. They want to implement the things that they’ve learned and heard from the rest of the world. The problem, though, is that it’s still a very restrictive economy and society, so [they can’t implement] a lot of the things that they want to do. We have discussions with younger people who are trying to implement some of these ideas.

KWHS: Tell us about the workshops. How do they take shape?

See: We first go [to North Korea] and talk to the various institutions to try to understand what they want to learn about. It’s a very interesting process because when you talk to these people, they have very limited access to information and they are trying hard to understand the world around them. We have conversations, say, with a banker in North Korea, and she tells us, “I’ve read this term in the Financial Times and I don’t know what it’s about, but it sounds very interesting and I’ve seen it come up quite a few times in the paper.” Some of these terms are “private equity” and “exchange trader funds” — topics that are relevant in the rest of the world.

But in North Korea, the sad thing is that we [have to] tell them, “These are not things that you can implement in [this country] in the next 20 or 30 years…” But it’s interesting to see them being curious about a process. So we normally talk to them about these different topics, get a sense for what they’re interested in and what they can realistically try to change in the next three to five years. Then we say, “This is a topic we want to work on.” We bring in a team of workshop leaders who are volunteers from the business or policy sectors. They do small group workshops to discuss these topics and try to get [participants] to think about how they can potentially implement this knowledge within their environment.

KWHS: How strong is business education in North Korea?

See: They don’t have access to most of the modern knowledge that’s being created in the business area. We have looked at some of the universities and the books they have in the libraries, and we see financial textbooks from the 1970s published in the Soviet Union, which makes us a bit dubious about the extent to which they capture the current field of knowledge in some areas. The [people here] are really conscious of the fact that the world sees them as being very isolated. When we do a workshop, participants tend to drop big words that they might have read somewhere on the topic or heard about from someone. Very often, they don’t understand the concepts behind them. [For instance,] we had some of them raise [the concept of] corporate social responsibility (CSR) in a [context] that had nothing to do with [what CSR is]. They were trying very hard to show that, “Oh, I’ve read a little bit, I’ve heard a little bit of what’s happening outside and I’m in tune with the theories.” But very often, you realize that there’s a weak conceptual understanding of some of the things that they raise.

KWHS: As you build out your organization, say, in the next five years, what do you see as your main goals? What do you see as your biggest challenges?

See: We are very happy targeting younger adults aged 20 to 40 – [they have] high potential, and are very curious and very intellectually motivated. This group of people is [excited by interesting ideas]. They want to test and try them out. We probably want to expand the number of people we involve from that age group and get them to think about the next steps. It’s not just learning about business or finance or economic policy, but also saying, “Okay, now that I’ve learned this, how can I actually set up something and implement some of these ideas that I’ve learned?” We may try to support them, maybe by setting up a business incubator. The concept behind it is that people are interested, but they don’t always know how to set up a business, raise capital, set up a proper accounting system. We would come in and help them realize their dream by providing them with these kinds of resources and some of the funding to create businesses.

KWHS: Does North Korea have an existing incubator infrastructure?

See: This is the exciting part of our work and also the most challenging part. Currently, it’s a very alien concept to them. They’ve never seen it before and they need to get permission to get it done within the system. So we have started introducing the concept to them to get them to feel a little bit more comfortable with it. I think it’s something that we have to work towards, and I’m guessing in two to three years time, we may be able to get it set up.

KWHS: Are the young people you speak with in your seminars very entrepreneurial? Have you found that they really want to start their own businesses?

See: I think for most of them, there is excitement because they read and have had the opportunity to go to other countries. For example, they visit a supermarket in China or visit a fast food chain in China and [think], “Wow, this is a very interesting concept.” It has the connotations of modernity, so they look at a fast food restaurant and see it’s not just convenience and cheap food, but it’s fast, it’s clean, it’s modern. A lot of them want to bring those concepts back because [these ideas are] very innovative and exciting. There’s so much curiosity, but people haven’t had a chance to go out and try to get it set up in a space where none of this exists.

KWHS: It sounds like they have hope.

See: I think there’s a lot of hope. There are challenges, too. There’s always going to be an opening-up process where there’s more leeway to do things, and then [other times] it’s going to be more strict and restrictive. When you’re between 20 and 30, you [get excited]. When we see them getting to 30 to 40 years old, people tend to be a bit more rational and want a more stable path in life.

Opening, Reform & Media Frenzies

There has been, as we noted on this blog last week, a frenzy of speculation on North Korean reform and opening, leading to a headline from yesterday claiming that North Korea has virtually ditched state planning. This news comes from RFA (which has its own particular concerns and standards) and has now been cycled into South Korean English language media. It will not unlikely pop up in some Western media outlets, also. Whatever the veracity of this latest and greatest claim about dramatic change - and there is good reason to be skeptical - it is clear that there has been a shift in media coverage of the DPRK. Why?

There are the usual issues that relate specifically to reportage on North Korea. The opacity and unwillingness to abide by western norms essentially mean all bets are off regarding what can be said about the North. The normal journalistic rules don't apply. Much of the rumor comes from South Korean media and outlets like RFA, who are more willing to quote unnamed sources, both official and otherwise, when constructing a story.

But it can also be in large part explained by the Competitor-Colleague concept put forward by Jeremy Tunstell in his pathbreaking 1971 book, Journalists at Work. In this paradigm, a particular journalistic specialist receives regular, usually daily, acts of competitive (and co-operative) behavior from other specialists in his or her field. Asia correspondants are few in number, and Korea correspondants are fewer still. Their interactions are frequent, with offices often in the same buildings or neighborhoods and foreign correspondants' clubs providing social and professional support.

When an idea sweeps through the professional group, and particularly when several experts in the social sciences are willing to support those ideas, it can be difficult for individual journalists to avoid reporting on a story. "If everybody else is doing it, I should be too." Institutional and social pressures provide too powerful a guiding hand.

These stories then get picked up by regional publications and given even more certain and ridiculous headlines by editors and writers who are not specialized in the area and are more interested in selling papers that working out nuanced caveats.

When a new narrative about  a "mysterious and unknowable place" like North Korea comes out it can quickly become the dominant construct through which any North Korea-related information is filtered. Especially, as Chris Green puts it, when it is "exactly what so many of us would really like to hear". So unlicensed (shock!) Disney characters are signs of opening with western culture. Ri Yong Ho's retirement was due to a battle over economic reform. And a single rumor in Yangangdo about an economics lecture becomes "state planning ditched".

We will probably see the "reform and opening" paradigm shape news stories on North Korea for many months to come.

Let's finish with a little more from Tunstall's assesment of how ideology constrains competitor-colleagues:

"The ideology of a particular competitor-colleague group appears to be carried forward in a largely oral tradition. It is probably all the more potent for not being written down. The group’s ideology cannot be easily challenged by outsiders. It also cannot easily be challenged by members of the competitor-colleague group. Indeed the group ideology –strongly influenced as it is by news organization goals, news sources, and by the previous careers of competitor-colleagues – is in its very nature likely to be well adapted to occupational realities and to the forms of pressure which are regularly exerted on group members. The group ideology is expressed in conventional wisdoms, some of which appear so obvious, or are so strongly held by a majority of members, that they are never challenged." (p. 270)