North Korea faces a long road to reform

http://www.theguardian.com/world/2013/dec/05/north-korea-reform-kim-jong-un

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New rules for farmers. A massive wage hike for some miners and steelworkers. Multiple new economic zones to attract foreign investors.

Observers are asking whether these dots join to form a picture of real change for North Korea, almost two years after its young leader Kim Jong-un took the helm.

"Two months ago I would have said that I don't think it's happening. Now we can say it seems like reforms are here and beginning to speed up - but we have to wait another year or two to be certain," said Andrei Lankov of Kookmin University in Seoul, a leading expert on the country. "It looks like they are looking at doing something serious, but it is hard to say because [over decades] we have seen at least three or four waves of speculation about change."

This week's unconfirmed claims that Kim's uncle Jang Song Thaek had been ousted from power have refocused attention on the country's domestic affairs; some analysts say Jang was associated with reform.

The country's 24 million inhabitants have been heavily dependent on the unofficial economy since the devastating famine of the 1990s; people even pay bribes not to turn up to their allocated jobs, because wages are so low.

The north has repeatedly indicated interest in reform - only to waver or roll back changes, despite the encouragement of China, which embraced capitalism from the late 1970s. Periodic crackdowns on

markets and trading have devastated household incomes and even in more tolerant times such illicit activity has limited economic development.

The North Korean economy grew by 1.1% in 2012. Staple food production has increased in recent years, according to the UN's Food and Agriculture Organisation and the World Food Programme; but their latest report warned that chronic malnutrition persists and 84% of households have borderline or poor food consumption.

"There is lots of knowledge and interest in economic reform at senior levels in the Democratic People's Republic of Korea, but it is always stymied by the security imperative," said Hazel Smith, an expert on the North at the University of Central Lancashire.

The elite has good reason to be cautious, Lankov noted: a reforming North Korea will be much less stable.

But there is a logic to the idea that Kim would take the step when his father hesitated, he added. The gradual disintegration of state control and people's growing awareness of the outside world - through illicitly consumed media or working overseas – has made the regime vulnerable.

"Kim Jong-un is a young boy: if he does nothing and just sits and waits, the system is not going to last," said Lankov. "Without reform, he can easily continue for another five or 10 years, maybe 25. But definitely not 50 – and being 30, he needs 50 years."

The question is how much of an impact will come from recent developments including pilot agricultural projects allowing farmers to keep part of the harvest, one hundredfold increases in the wages for key export-oriented jobs – giving employees wages of around $40 (£25) a month – and the announcement of multiple new special economic zones.

Moving towards reform and denuclearisation could see inter-Korean trade grow from around $2bn a year to $11-16bn by 2020.

"They are avoiding saying reform or opening [up] but that's what it amounts to – a crack at any rate," said Andray Abrahamian of Choson Exchange, a non-profit organisation which helps to develop economic and business skills in the country.

He said the new zones would allow the people running them to learn from each other and outsiders. Marcus Noland, executive vice president of the Peterson Institute for International Economics, noted that the current pilot agricultural projects are similar to experiments in the late 1990s, involving changes such as the introduction of sharecropping.

"My understanding is that the state – not the market – is still setting the price for inputs such as fertiliser and the prices at which grain could be sold back to the state in the sharecropping arrangement," he added.

"This is an attempt to tweak the existing system, not fundamentally reform it."

The country's current premier, Pak Pong-ju, previously held the role around a decade ago, when the North introduced major wage increases for groups including military officers, scientists, and coal miners.

Recognising the importance of material incentives is important, Noland said, adding: "That earlier reform attempt was full of contradictions and was badly implemented and failed. Pak was removed from his position. Normally one would not think of the appointment of a 74-year-old who had failed earlier as a good sign, but at a minimum he probably learned some things from his mistakes."On the investment front, Japanese media has claimed that most of the new zones will be small. Infrastructure and particularly power remain unreliable, though Kim appears to be overseeing a building boom.

Shuttering the Kaesong industrial complex, run jointly with the South, during this spring's nuclear crisis also hammered home the investment risks. There is plenty of cheap labour elsewhere in Asia.

The fundamental challenge, said Noland, is the fundamental challenge is the north's policy of developing nuclear weapons and the economy in parallel; "a contradiction reified as doctrine".

"How do you convince the world that you are open for business while brandishing nuclear weapons at the world's largest economy and kidnapping an octogenarian?" he said, referring to the detention of 85-year-old Korean war veteran Merrill Newman, a US citizen.

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