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Lack of Money Is the Root of All Evil

While most of the media are fixed on the movement of stage props on reviewing stands in Pyongyang, mine remains in North Korea’s outer provinces, markets, and ratlines across the Yalu. These, after all, are the things that will drive real change in North Korea. A new report from the Korea Times suggests that increasingly, money smuggling has become an engine of regeneration for North Korea’s free markets:

It is common for North Korean defectors here to send money to their poverty-stricken family remaining in the communist regime. The widespread, but little-known practice should be legalized, a civic group and a lawmaker of the main opposition Democratic Party (DP) said Monday.

“Of some 20,000 North Koreans who have defected to South Korea, nearly all of the economically-active ones send money home,” Shin Mi-nyeo, head of the Organization for One Korea (TOOK), told The Korea Times. TOOK is a civic group dedicated to supporting new defectors since 1988. She claimed that many of those with even little income, such as elderly women, also regularly send money to their family and relatives that they left behind in the North, even if they have to borrow money from others.

“They can’t help but send money home as they know how bad the economic situation is there and the sufferings the ones they left have to go through,” Shin said.

Shockingly, I agree with Democratic Party lawmaker Won Hye-Young, who wants to legalize this practice, but the agreement ends at that basic point. Predictably for a party that acts more like a North Korean front each year, Won wants to do this in a way that will ensure that 100% of the proceeds are diverted from the defectors’ starving families and into Kim Jong Eun’s ChocoPie fund:

“The United Nations and other international bodies should address the issue and help North Korean defectors remit money to their family in the North through legal channels,” Won said.

How typical. Won really means to send the money through official North Korean channels, along the lines of the remittances from Japanese-Koreans via Chosen Soren. But this would guarantee that the intended recipients would never see won one. What the regime didn’t confiscate out of greed, it would confiscate out of spite. The returned Japanese-Koreans who received remittances from Japan have been objects of envy and suspicion, to be sure, but to the North Korean deiocracy, defectors to South Korea are capital criminals and their families are accessories to heresy. The last thing it’s going to do is send them money and incentivize more defections. The delivery of money though smugglers may be exploitive, but it doesn’t raise those concerns to nearly the same extent. If money smugglers demand a 30-50% cut — understandable given the obvious risks they’re taking — that’s still 50-70% better than what the families would get through “legal channels.” And over time, as defectors learn which smugglers they can trust, the market will reduce those transaction costs and risks.

I depart here from my usual default position of keeping foreign money out of North Korea, but the objective of that position was never to keep ordinary North Koreans poor, hungry, and ignorant. Rather, the objective is to damage the regime’s capacity to keep ordinary North Koreans poor, hungry, and ignorant. Our policy objective for North Korea should be to break down the isolation and dependency of its people, even as we constrict the regime and strain its capacity to oppress. Recently, I’ve given much thought to how we can catalyze this process. Because the market is still the only alternative institution that can challenge the North Korean regime, and because markets can’t exist without a medium of exchange, my thoughts always return to money as the solution. Without it, there is famine, dependency, and ignorance. With it, there is what passes for freedom in North Korea — a full belly, a warm coat, and a radio. More than anywhere else in the world today, lack of money is the root of all evil in North Korea. The regime must agree with me, or it would not have launched its Great Confiscation. But the Great Confiscation failed. Yes, there is still hunger and starvation as a result, but the markets are back, the people are more embittered than ever, and North Koreans don’t even want to hold their own country’s currency anymore.

With North Korea’s rife corruption, there is little that can’t be bought for enough money, and although the present priority has to be using that money to draw food and medicine into the country, a well-developed free market will eventually supply the basic needs of the people, break their dependency on the state, and supply the basic tools that an underground will need to challenge the state directly. Without the development and coordination of some sort of North Korean underground, the people can only resist the regime with sporadic and futile outbursts. As they have before, the North Korean people are showing us the next step in this Hegelian process — though the smuggling of currency from South Korea’s 20,000-strong refugee population back to their North Korean relatives.

I can see no better way to subvert the regime than to replace dependency on the state with dependency on economically independent rejectionists in South Korea. If the medium is foreign currency, so much the better. To the extent it operates beyond the reach of the kleptocratic state’s diversion, money smuggling may also be a more efficient way to feed North Koreans than international aid.

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14 Responses

  2. This is a logical post. Markets and money are clearly, in the end, the answer to the North Korean problem. On that most people probably agree.

    However, what it does not address is the clear geographical imbalance between the border regions, from which most defectors hail, and the rest of the country, who in large part do not have the financial outlet provided by family members abroad. And although markets have the potential to trickle development into the interior over time, it will not happen if the people in the interior have little money.

    In addition, for those who want to see an end to the regime rather than just full bellies in the north, wealth in the border regions may provide a locus of resistence, but it will be a locus of resistence 200 and more kilometers from the seat of power.

    These issues surely need to be considered regardless of the endgame one seeks.

  4. An interesting, but extremely dangerous, idea that is only really feasible with Renminbi — because, as soon as dollars, Euros, yen or South Korean won begin to undermine the economy, their possession and use will be forbidden as treasonous. The people you want to help will then become injured by your help. This would probably not be the case with Renminbi because that would insult China, and in fact contradict China’s current ploy, which is to encourage the DPRK to develop its own internal markets as China has. China appears already to be pursuing your idea, gently — if the reports of the content of the recent meetings with the Kims in China are to be credited.

    There was some indication during the Great Confiscation that the Joshua Stanton scenario has already occurred — where (1) possession of foreign currency was initially the passport to stable prices, but was then (2) forbidden to ordinary people and confiscated, but then (3) the use of Renminbi to buy cross-border rice was so essential that the Renminbi came back. The dollar, or any Western currency, is far more problematic, because it carries hostile baggage.

    What you are proposing is currently called “quantitative easing” or an increase in the money supply without any backing in specie or bonds. That is, in our case, a decision of the Fed. We are trying to increase the quantity of money so that our own markets (think housing, refrigerators, cars) will regenerate. We hope it works without generating inflation. But we at least have a functioning consumer economy. The DPRK does not. You are right — markets are the key.

    There are cases in other nations where a secondary currency has been a response to massive inflation — most often where the dollar is used as a fallback currency. But that is, nearly always, an indigenous response by the market users to an appalling national tragedy where their national money has lost all value. That was the case during the Great Confiscation — until foreign money was forbidden.

    There have been cases of the voluntary national adoption of a foreign currency — both the developing USA and China used the, utterly reliable, Spanish piece of eight for a century (or 250 years in China’s case) — but that was not comparable to the situation in the DPRK, where national money, with the portrait of the Kims, is a national symbol.

    The private manipulation of exchange rates can be enormously profitable — witness the source of George Soros’s fortune. The use of a secondary currency has tended always to increase the power and wealth of the richest section of the inflation-affected currency — until the government capitulates and adopts the secondary currency as its own. I seem to recall that occurred in Brazil and Colombia in the 70s, but maybe I’ve got the countries wrong. But in the DPRK, there’s no likelihood of an adoption of the dollar — and only the smallest possibility of any official dual currency to include Renminbi.

    There have been instances where external currency intervention has been tried as an effort to undermine an existing currency. This is the closest analogy to your plan — but the history is really bad. Two of the most well-known instances are the forgery and distribution by the Nazi SS in WWII of English and American currency, which caused the Brits to totally recall all their large bank notes — and thereafter the excessive printing of Occupation Marks by the Soviets from US currency plates in order to create inflation, discontent and revolution in the Western Zones. Whenever such currency activity is sponsored by a foreign government, it is considered hostile, unhealthy, deplorable — and it is.

    The only way that your plan could work with national money is for some external government to print, smuggle in and distribute real (but in fact counterfeit) DPRK won — and that is even more hostile an act (since you are seeking to modify a regime thereby) than the DPRK’s printing of Supernotes (since they are just trying to rip-off the USA without changing it.) Both actions are wrong.

    China and you think alike — the daily living problems of the people of the DPRK (and, China adds, the stability of their government and the continued separation of the two Koreas) can be greatly improved by a vibrant market economy. You are right that markets are the key. But for vibrant markets, one needs goods; they can always be traded without money, by barter — but goods, clothes, food, not money, is the current problem in the DPRK. There is a recent report that there will be a six-month food distribution shortly after the harvest — and that will stimulate market conduct, if it happens.

    Your idea will work with Renminbi, since that could facilitate markets and cross-border trade with the only real external market available to the DPRK. It is presently unclear if China is accepting DPRK won or not — there are conflicting reports. If China does accept that utterly worthless currency, it is only doing so because it has already adopted the Joshua Stanton theory of markets for the North.

    It could, just, work with other foreign currency — but only on the same small level as is demonstrated by the inflight of dollars on balloons. Any real success would produce a horrible backlash. Your idea would be dynamite with counterfeit currency — but deplorable

  5. “As they have before, the North Korean people are showing us the next step in this Hegelian process — though the smuggling of currency from South Korea’s 20,000-strong refugee population back to their North Korean relatives.”

    Should that read through instead?

    Great post non the less.

  8. Jason, I’m pretty sure that is the cold-weather look of the local flora. Given that some green grass is starting to show, my guess is that it’s late winter (assuming the picture with the grass was taken around the same time as the others).

    The other giveaway? Rocks and asphalt chunks are a winter crop. 😉

    Those pictures were a trip. In so many ways it looks like the South Korean countryside in the 1980s. The lack of vehicles, the human-pulled carts, the rough look of some of the houses, the crude cartoon characters at the playground, etc.

  9. Regarding what David Wooley said, I think the important thing here is that the extra money is going to relatives of those who have escaped. Most of the recipients are probably not within the elites and the ‘Outer Party’ members. The elites and the Outer Party members are those who get rations from the government and whom the government at least tries to care for. This will distribute goods away from those people to the disenfranchised castes who survive in the market and allow the trickle of consumer goods from China to continue in.

    There is also some theories that North Korea’s government stockpiles large quantities of food and other supplies in case of war with the US. The effect of currency in the hands of the wavering or hostile castes may be to get corrupt members of the Outer Party to embezzle some of these supplies and put them into the market. The members of the Outer Party may be able to buy more luxury goods with the foreign currency they collect from selling these supplies through the official channels.

    While it would be best to find ways to increase the actual supply of food and goods to the markets in North Korea from China, these secret remittances are probably one of the few ways people on the outside can actually help the disenfranchised castes in North Korea. I remember reading somewhere that Good Friends managed to provide aid directly to starving people in Korea. Does anyone have a link to that story?

  10. @david woolley

    Interesting comment. I’m not sure I completely follow you on “quantitative easing,” though. My understanding is that the appeal of foreign currency in North Korea is not just that it is more reliable (the government can’t really initiate a Great Confiscation of something that’s illegal), but more that foreigners just over the border will accept it in exchange for Useful Things. That being the case, the injection of foreign currency into the DPRK economy – at least in this manner – really is bringing value along with it. And the way I understand it, that is the point of Joshua Stanton’s argument. He isn’t advocating internal currency manipulation – he’s advocating an alternative source of revenue. Foreign currency is key because it introduces a competitor into the DPRK economy that is not under the thumb of the regime. When you only have DPRK won, you can only by DPRK rice from DPRK suppliers, since no one else will take the currency. But when you have renminbi, you can also buy rice from Chinese smugglers. It is this that reduces the Party’s power.

    Now, granted, to the extent that foreign currency just hands local buyers a magic advantage in buying from the (not at all increased) pool of local goods, then you’re right, it’s quantitative easing. But I think the point is that locals are willing to take foreign currency in exchange for local goods because they know it can also buy foreign goods.

  11. The slideshow definitely has a vibe packed along with it that’s bleak yet interesting, a feeling I wish I could have and hold, just to understand a North Korean winter for the average teenager.

  14. Josh, this is your best yet. I don’t think I’ve seen even any academics raise this issue which I believe has the greatest potential to destabilize the regime. Anyone recall the currency debacle?? Best, Sean