Pyongyang Regime Rushes to Seize Initiative As Endgame Nears

Wednesday’s high-level talks between North and South Korea — the first since December 2007 — reflects the growing urgency and even desperation felt by N. Korea’s ruling cliques at the prospect of losing their iron grip over the nation’s fate.

On the surface little seems to have changed in N. Korea. A Kim remains paramount leader. At least a quarter of the population continues to suffer from chronic food shortages. The regime continues work on developing nuclear weapons and the means to deliver them. Hundreds of thousands suffer and die in labor camps. Brutal executions are carried out for purported offenses against the regime.

But reports of the mechanism sustaining the N. Korean economy reveal it to be functioning in a radically different mode from the one in place during the final years before Kim Jong-il’s death.

Instead of a state-run rationing system that assumed at least nominal responsibility for feeding the population, an estimated three-quarters of N. Koreans now support themselves by engaging in commercial activity ranging from selling crops on the open market to selling their labor to trading across the Chinese border. Only the most privileged quarter of the population receive substantial food rations, and even most of them are participating in commerce as the best way to accumulate wealth.

A recent report suggests that a quarter million N. Korean families now have assets of over $50,000 — a bewildering statistic for a supposedly dirt-poor communist nation whose annual per-capita GDP is $1,800. By comparison the median family net worth in S. Korea is about $26,036 and about $80,000 in the US, with an OECD average of about $40,516. Of course, a quarter million families is only about 3% of all families in N. Korea. But their wealth suggests that a financially secure middle class has begun emerging in N. Korea.

In short, N. Korea has ceased being a communist regime in all but name. Instead it is now a distressed welfare state increasingly engulfed by a burgeoning capitalist economy. This reality has become glaringly apparent to all N. Koreans, including even the privileged minority living mostly in Pyongyang. Rather than put their faith in the ruling regime, they are putting their faith in the hard currencies they can amass.

The regime has had little choice but to acquiesce to this reality. It has recently created 14 special economic zones in which transactions are lawfully conducted only in yuan, dollars, euros and other foreign currencies. Despite their names, very little of the activity in these SEZs involve foreigners who remain too skittish about N. Korea’s erratic leadership to invest there. The SEZ designations are a fig leaf to provide a bit of face-saving cover for the regime at having to let its own people use foreign currencies to conduct purely domestic economic activity because the N. Korean won is essentially worthless.

The capitalist free-for-all taking shape in N. Korea will make continued central control all but impossible without a radical transformation of the ruling regime into a governmental structure equipped to exercise broad-based control of a market economy. That is unlikely given the jostling among the various factions that make up the regime — the military, the Workers Party, and of course Kim Jong-un and his recently diminished family. The abrupt and systematic executions of Kim’s uncle Jang Song-taek and his family and followers was most likely a symptom of Kim’s need both to appease the powerful military faction as well as to assert his own precarious authority.

Now not only Kim, but the military and the party, face the stark choice of either being shoved aside as irrelevant in a capitalist society over which the regime is losing its grip or launching another brutal crackdown on free-market activity and forcing the nation either to sink back into mass starvation or explode in a thousand desperate uprisings. The latter option seems increasingly less attractive, especially as the Pyongyang cliques recognize the diminished prospect of securing Beijing’s help against a possible intervention by the South and its US ally.

It’s little wonder that the regime is now eager to resume the dialogue it abandoned seven years ago in hopes of improving its bargaining position with nuclear weapons and long-range rockets.

One of the more interesting developments to follow in the coming year or two will be the manner in which the various factions that currently cooperate to sustain the N. Korean regime will unravel as each intensifies the competition to play a bigger role in normalizing relations with the South and the outside world.