Goodfriends on “Strong and Prosperous Nation”

August 15, 2011 6:00 AM

We recently published some statistics on the long-run performance of the North Korean economy and the challenges the regime will face in selling the “strong and prosperous nation” concept next year. Goodfriends is launching a three-part series on the same issue, and the first installation suggests that it will be worth a close read.

In interviews with its contacts, the South Korean NGO is hearing that the regime is focused on three core objectives for the April 2012 coming-out party: food, electricity, and the completion of the 100,000 housing unit construction in Pyongyang.

The last of these three objectives is a transparent effort to further improve the lives of those in the capital city, at the inevitable expense of the rest of the country. As we argued in Famine in North Korea, a similar diversion of resources to misguided construction projects—apparently at the behest of Kim Jong Il—was a contributing factor in the onset of the economic difficulties of the mid-1990s.

But the process of achieving the housing objective also shows how broken the central planning process is. The regime is handing the construction effort down to lower-level work units, regardless of their nominal function. An instructor at Kim Il-sung University was assigned the completion of a building in Mangyongdae District but without the provision of inputs or funding to meet labor costs. Needless to say, these exactions are generating frustration and anxiety. And construction and safety standards? Fuhgetaboutit!

As we mentioned in a previous post, Goodfriends is reporting that the Ministry of Foreign Trade is under severe pressure from the leadership. The Public Prosecutor’s Office and the National Defense Commission are jointly investigating customs offices and trading companies including overseas representative offices of the MoFT. The official reason for the investigation is to crack down on espionage or bribery, but the real reason appears to be failure of overseas trade offices to meet unrealistic “military provision” quotas. According to Goodfriends, each foreign trade office has been given a quota to come up with 5000 metric tons of grain, an assignment which is about as reasonable as expecting Kim Il Sung university professors to build apartment buildings.

The account also notes that the investigation may also simply be a pretext for ousting existing officials as part of the generational shift of the succession. Sources are reporting that current Minister of Foreign Trade Ri Ryong-nam may be the next Park Nam-gi, the former head of the Planning and Finance Department who was reportedly executed in the wake of the currency conversion debacle. In that Orwellian episode, Park has accused of being "a son of a bourgeois conspiring to infiltrate the ranks of revolutionaries to destroy the national economy" after carrying out an anti-market "reform" designed to confiscate the currency holdings of traders (Yonhap coverage here).

As we say with all sources—including our own work—caveat emptor! But the Goodfriends coverage comports with our view of a fraying state socialist sector: a highly fragmented planning process, the lack of resources at the center, and the incessant effort on the part of the government to raise revenues through ad hoc taxes and exactions on over-stretched and resentful work units. The report also underlines the mad scramble to secure Chinese investment as the solution to the shortage economy, with mixed success.

The next installments of the Goodfriends series look at food and electricity in more detail.

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