Christian Businesses and Engaging with the North Korean Economy

Abstract

How can Christian businesses best engage with North Korea? North Korea’s economy has developed over the past several decades to be creative, entrepreneurial, comfortable with legal ambiguity, and dependent on personal relations and high levels of corruption. Christian organizations that are doing business in North Korea will need to take these factors into account and take great care in finding and developing the right North Korean partners for engagement, as well as thinking through the business sectors in which they should become involved.


Many Christian organizations use business as an entry into North Korea for the purpose of engaging with North Koreans, but given how opaque and difficult North Korea is, doing business in the country is often fraught with uncertainty and risk. In this article, I explain how the North Korean economy has developed, how North Koreans do business, and what that means for how Christian organizations might best engage with North Koreans through business activities.

The North Korean economy as it stands now is a product of 25 years of adaptation by North Koreans, both government officials and private citizens, to terrible circumstances. After North Korea was cut off from Soviet and Chinese aid at the end of the Cold War, electricity and agricultural production collapsed. In the face of famine and the government itself ceasing to function in many respects, North Koreans at all levels of society either starved or began providing for themselves. Average North Koreans (usually women) began to buy and sell goods in private markets. State company officials set their employees to work making money for the company, and went into business themselves. Government officials allowed all this technically illegal activity to happen to enrich themselves, and because people under their purview would otherwise starve. The central government itself also gave licenses to state companies to buy and sell goods abroad, including not only weapons and drugs, but also more prosaic items like clothes and specialty foods.[1]

By 2005, the severity of the famine had lessened, and the government felt more comfortable in its position. It began attempting to re-impose control, at first by limiting access and availability of private markets, and then in 2009, by re-denominating the North Korean won, effectively wiping out the savings of many North Koreans who had made money on their own.[2] Yet all these attempts to roll back the clock came to naught—North Korea’s economy had fundamentally changed.

With Kim Jong-un’s rise since 2011, the government has returned to a grudging acceptance of the hybrid economy. While the Kim Jong-un era has been characterized by intense political instability—recurrent purges at the top of the state, continual replacement of officials at the bottom, and an increasingly bellicose and adversarial relationship with China and the US as the country develops its nuclear weapons and missile programs—North Korea’s economy has been surprisingly stable. Pyongyang has seen a building boom, food prices have been relatively stable, North Korea has apparently been able to fund a large trade deficit with China year after year, and the North Korean economy has even grown (albeit at a very slow rate) even as the United Nations Security Council has imposed increasingly punitive sanctions. Kim Jong-un appears to be ‘paying’ for political instability and a tightening of repression with relative economic stability, at least for his elite supporters in Pyongyang.[3]

The current economic landscape has a variety of players. At the bottom, with the least influence or connections to power, are private small businesses, doing business either in won or in hard currency. At the top are the central state companies that are charged with bringing in income and goods for the central government. Slightly removed from the center are the other state companies that have licenses to go into business for themselves, as long as they send money back to the government. In the middle are hybrid businesses, which are formally owned by the government, but are in reality managed by private business people, who buy official status in exchange for paying government officials a fee and giving them a cut of the profits. The economy thus functions like a food chain, with Kim Jong-un and his core supporters extracting income from companies and government officials, with government officials extracting bribes and rents from businesses, and, at the bottom, individual North Koreans, in exchange for looking the other way.[4]

The peculiarities of the North Korean economy mean that North Koreans have developed unique business practices. First, North Korean business people are comfortable with ambiguity. Legality and illegality are not necessarily the right way to measure whether a business practice is legitimate. While private ownership remains technically illegal, and many of the activities in which business people engage—such as obtaining trading permits through bribes and crossing the border in many circumstances—are against the law, the government tolerates the existence of private companies and private enterprise because officials, and through the food chain, the central government itself, get a cut of the profits in exchange for looking the other way. Maintaining illegality also allows the government to crack down on business and officials (for ‘corruption’) at any time it chooses. The economy, in essence, runs on hypocrisy and the lie that North Korea is still a centralized command economy.

Similarly, ownership and official status are not always clear – many privately-run companies are formally state-owned companies, and private citizens can buy official status. Even whether different government officials have the right to exploit resources or sell goods is often unclear to the officials themselves. Because of the ambiguous nature of business in North Korea, business is also a series of relationships—between buyers and sellers, between businessmen and their protecting/exploiting officials, between officials and their superiors, and the like—rather than an open market. Business people survive by cultivating these relationships over time in an effort to ensure that they have continued access to suppliers, customers, resources, and (given the illegal nature of much of what they do) their freedom.

Second, North Koreans are entrepreneurial. They are extremely good at finding and exploiting market niches (from personal experience, for example, North Koreans are willing to run restaurants advertising dog meat in northeastern China when others are more discreet) and are adaptable in how they do business. North Koreans do business as if their survival depends on it, because it often does. They are willing to (and indeed, have to) operate in an uncertain, high-risk business environment where failure, either in the form of business failure or a government purge or crackdown, can mean imprisonment or death. As a result, they can be ruthless and pragmatic in their business dealings, despite the political indoctrination emanating from the government.

From the perspective of a Christian organization thinking about doing business in North Korea, this environment has many risks. Aside from the general hostility of the North Korean government to Christians, organizations must deal with corruption and bribery challenges, as well as an inefficient (and hungry) workforce and infrastructure problems: roads and rails are in terrible shape, the electricity supply is inconsistent, and communications both within North Korea and between North Korea and the outside world are difficult. United Nations and US sanctions against North Korea make transferring money into and out of the country difficult, and US and South Korean organizations in particular have to be careful not to run afoul of sanctions (including the US travel ban). Within North Korea, the actual laws on investment are often irrelevant, dispute resolution mechanisms are essentially nonexistent, assets that are stuck in North Korea are liable to expropriation, the risk that a change in the political climate will endanger operations is high, and under Kim Jong-un, there has been a rapid turnover of North Korean officials.

Chinese businesses have come up with a number of strategies to deal with these problems and with the North Korean economy in general, many of which may be useful for Christian organizations as they think about how to engage North Korea.[5] The primary strategy for Chinese businesses is not to invest in North Korea at all, but to focus on import and export trade with North Korean partners at the border. In this way, they leave nothing in North Korea for the government to expropriate, and do not have to enter North Korea at all in many circumstances.

Minimizing contact with North Koreans is likely to be at odds with Christian organizations’ desire to engage with North Korea, and so it would make sense to make some investment in North Korea. If they do, it is important to do research before, and, through engaging their networks, find the right industries where there are opportunities for business. Based on the experiences of Chinese businesses, Christian organizations are likely to want to go into businesses where North Korean partners are dependent on them, and where their continued presence in North Korea is required. One Chinese firm we talked to, for instance, imported sophisticated construction equipment into North Korea, confident that his North Korean partners would not have the expertise to run it themselves. Another ran an auto-repair business that used Chinese employees and required constant imports of auto parts from China.[6]

If engaging in manufacturing, Christian organizations may also want to consider industries that do not require particularly efficient processes, consistent electricity supply, or huge capital outlays. Low value-added manufacturing is one such example—one of our Chinese contacts made wigs in Rason. Finally, it may behoove organizations to go into organizations that take advantage of and help alleviate the North Korean economy’s dysfunction. Hybrid companies within North Korea, for instance, provide much of the intercity transportation (such as long-distance buses and trucks and financial services such as loans and money transfers). Many businesses with ties in multiple parts of North Korea can also take advantage of different local prices by buying goods in one part of the country and selling them in another. [7]

It is also important to find the right business partner inside North Korea: one who is trustworthy (if possible), and with an official position with enough influence to clear away bureaucratic barriers, acquire a consistent supply of resources such as electricity and water, and avoid being purged. In all cases, building up extensive networks with North Korean officials will help organizations to weather political storms, find new opportunities for engagement, and guarantee contracts. Ideally, these partnerships are long-term, with partners who can connect with other officials and clear political hurdles. One Chinese businessman, for example, helped his business partner’s career in the North Korean military, and the partner in turn was in a position to help him later.[8] Building networks of multiple partners in strategic positions allows organizations to go to different officials for different needs, and alleviates the risk that any one partner will be purged. In building these relationships, Christian organizations should also be prepared to provide these partners with food and supplies, as well as arrange for their own electricity and raw materials if necessary.

The ambiguity of North Korean business and the lack of meaningful difference between legality and illegality mean that in many cases, organizations should think missionally about bribes and corruption. Chinese businesses generally found that while bribes (or more accurately, gifts for business partners) were useful for building relationships, they did not actually solve problems in North Korea. Rather, the relationship with the partner itself helped to smooth business and guarantee contracts, and building up relationships can be done in other ways. The Chinese businessman involved in auto repair, for instance, had little reason to pay bribes because he repaired the cars of important officials for free, and could use the services he provided to the officials as a way to build his networks and give his partners a reason to keep him in the country. He also used the auto repair business as a loss leader to build up and find opportunities for other, more profitable ventures.[9]

These are some strategies that have helped businesses survive in North Korea in the past, but there is always going to be a substantial amount of risk, and Christian businesses should take that into account. Given their missional focus, Christian businesses are uniquely placed to engage with North Koreans in this environment. While there are substantial challenges in dealing with the North Korean economy, the creativity and drive with which North Koreans have taken to using business to survive mean that there are also many opportunities.

Endnotes

  1. Haggard, Stephan & Marcus Noland. 2007. Famine in North Korea: Markets, Aid, and Reform, New York: Columbia University Press; Lankov, Andrei, Peter Ward, Yoo Ho-Yeol and Kim Ji-Young. 2017. “Making Money in the State: North Korea’s Pseudo-State Enterprises in the Early 2000s,” Journal of East Asian Studies 17:1, 51-67; Lankov, Andrei and Kim Seok-Hyang. 2008. “North Korean Market Vendors: The Rise of Grassroots Capitalists in a Post-Stalinist Society,” Pacific Affairs 81:1, 53-72.
  2. Haggard, Stephan & Noland, Marcus. 2010. Winter of Their Discontent: Pyongyang Attacks the Market, Washington, DC: Peterson Institute for International Economics.
  3. Hastings, Justin V., David Ubilava, David and Wang Yaohui. 2017. “The Economic Effects of Sanctions: Evidence from North Korean Markets,” Sydney: University of Sydney; Noland, Marcus. 18 March 2013. “Hugely important: North Korea running a current account surplus?,” Washington, DC: Peterson Institute for International Economics. http://blogs.piie.com/nk/?p=9647
  4. Hastings, Justin V. 2016. A Most Enterprising Country: North Korea in the Global Economy, Ithaca and London: Cornell University Press, pp. 104-110.
  5. Hastings, Justin V. & Wang Yaohui. 2017. “Chinese Firms’ Troubled Relationship with Market Transformation in North Korea,” Asian Survey 57:4, 618-640.
  6. Ibid.
  7. Hastings, A Most Enterprising Country, 113-117.
  8. Hastings and Wang, “Firms’ Troubled Relationship with Market Transformation in North Korea.”
  9. Ibid.
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Justin V. Hastings is currently Associate Professor in International Relations and Comparative Politics at the University of Sydney. He is the author of No Man's Land: Globalization, Territory and Clandestine Groups in Southeast Asia (2010) and A Most Enterprising Country: North Korea in the Global Economy (2016), both from Cornell University Press. He has lived in the United States, Japan, Singapore, and Australia, and has engaged in research or consulting in Austria, the United Arab Emirates, China, South Korea, Taiwan, Indonesia, Malaysia, Thailand, Myanmar, and the Philippines. Hastings can be reached at [email protected], and his research can be viewed at http://jvhastings.wordpress.com.