[OUTLOOK]North: good start on long road

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[OUTLOOK]North: good start on long road

Since the first baby steps towards a free market economy were taken in North Korea in July 2002, big and small changes have taken place there. Recently, North Korea has even allowed foreigners to carry cellular phones and legislated new regulations on labor terms and advertising at the Mount Geumgang tourist site where foreigners are allowed to visit.
The degree of these changes might feel different to each person. Some might dismiss the permission to use mobile phones as something trifling. But for this writer, who has been watching the North Korean economy for the last 15 years, this is not a small change. I even have a personal experience that attests to that.
When I heard the news that foreigners were now allowed to use mobile phones, I remembered a particular incident in Pyeongyang last March when I found myself in a bad situation. At the time, I was staying at the Koryo Hotel in Pyeongyang to attend an academic seminar jointly held by the North and the South.
For some reason, my party had to leave without me for the People’s Culture Palace where the seminar was taking place, and I was supposed to get to the palace separately. The North Korean guide told me that he would send a car to the hotel to pick me up, but the car did not come. I wanted to call to inquire what happened, but there was no way to make a call. The People’s Culture Palace, North Korea’s biggest convention center, did not have a single phone and my guide did not have a mobile phone. The car arrived finally, but I had to worry about being late for my presentation.
The new labor regulations at the Mount Geumgang site have set the average wage of North Korean employees at $50 a month, a level lower than in China. When the Rajin-Seongbong special economic zone was being planned a few years ago, the wages in the zones had been set at over $100, a level higher than in China. At the time, I met one of the North Korean authorities responsible for the planning of the special economic zone and advised him that in order for the zone to succeed, all the costs would have to be lower than in China. If not, foreign firms would have no reason to be interested in North Korea, with its conditions inferior to China. The North Korean’s reaction was unexpected. Putting on a serious look, he asked me, “Sir, are you a Korean? Our people, as the descendants of Dangun, are far superior to the Chinese people. So how could our wages be lower than in China?”
That was how North Korea was only a few years ago. They would not provide cell phones to their own guides, let alone to foreigners. The main reason North Koreans refused the practical comforts of cell phones was security, their determination to block any information from leaking out. North Koreans did not know how the world economy worked. They didn’t consider comparative advantage or wage competitiveness. They naively thought that once they set up special economic zones, foreign capital would come rolling in.
That North Korea has started to change. A serious economic crisis has prodded the Stalinist regime to change. The North Korean economy has finally gotten over its negative growth of the 1990s and has shown positive growth for the last few years. Ironically, this has left the North Koreans feeling more acute economic difficulties. For example, there wasn’t much need for electricity when all the factories had been shut down. Now that the economy has recovered and factories are being operated, the demand for electricity has increased sharply and people feel the electricity shortage even more painfully. Unfortunately, North Korea does not have the ability to solve these economic difficulties alone.
North Korea has finally realized it needs to open up to survive. By allowing mobile phones, it is taking steps towards improving the conditions for foreign investors to do business and encouraging trade and investment. The new regulations at the Mount Geumgang site show that it is trying to attract foreign capital, including that from the South, by boosting their cost-competitiveness ― even if it takes neon advertising signs.
These are, of course, very desirable changes. But they are not enough. North Korea needs to change more, to open up more. Wages have been lowered, but if communications and travel are not freed, North Korea cannot expect foreigners to start investing actively.
Though this might be trite advice, North Korea cannot expect much foreign capital if it doesn’t open its market further and implement internal reforms to accommodate that market opening. Deng Xiaoping started the reforms that propelled today’s fast-growing Chinese economy with these trite words. “We are doomed unless we develop our economy through reforms and by opening our market.”

* The writer is a senior research fellow at the Korea Development Institute. Translation by the JoongAng Daily staff.

by Jo Dong-ho
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