North Korean Economy Watch

Korea Times
Andrei Lankov
9/17/2006

Nicholas Eberstadt once described the North Korean foreign economic strategy as a chain of “aid-maximizing stratagems.” Indeed, this is a good description.

For many decades, the international environment has made North Korea indispensable for some large sponsors, and Pyongyang diplomats have been very good at playing the aid-maximizing game and extracting money from those sponsors.

It is interesting that none of those great sponsors was inspired by the “aid idealism” that is so powerful in the West nowadays. Western left-leaning (and not necessarily left-leaning) intellectuals have for decades believed that the prosperous West has a duty to provide the less fortunate parts of the globe with aid. This belief became a part of Western psyche since the 1960s, but it is not shared by the countries of East Asia or by the former Communist world.

Indeed, most aid to the North was motivated by cold self-interest, not by some ideological construct. However, the North Korean diplomats could always steer this self-interest in right direction.

Actually, until the Korean War the USSR did not, in a strict sense, provide aid to the North. In the late 1940s, Stalin controlled the satellites (and I do not think that this is too strong an expression) via more direct channels, and even deliberately tried to bend the conditions of trade to Soviet favor.

In the case of North Korea, the USSR provided technical assistance, largely for military purposes. This required adequate payment, which had to be made in products that could be sold on the international market.

In those days Pyongyang paid in steel, iron, and monazite concentrate, the latter a substance that was then seen (mistakenly, as it turned out eventually) as potential raw material for producing nuclear weapons.

However, from 1953 the situation changed. The post-Stalin leaders relaxed their control over the Communist camp, and began to put more emphasis on economic dependency as an important additional tool to keep their involuntary allies from defecting.

North Korea was seen as a major strategic ally: it formed a protective buffer between the Soviet Far East and U.S. bases in the South. It had to be kept stable and, ideally, prosperous, so the late 1950s was the time of large-scale Soviet aid. Chinese aid was smaller, but the Chinese troops, stationed in the country until 1958, were widely used as an unpaid labor force on various construction projects.

In the late 1960s, Soviet aid dwindled, but the feud between China and the USSR provided Pyongyang with leverage over the two Communist great powers.

In essence, this was a policy of blackmail: if one of two quarrelling Communist giants refused to provide sufficient assistance or peculiar technology, Pyongyang switched to the other one. Both Moscow and Beijing wanted to have Pyongyang on their own side, but having it neutral was the second best option.

Thus, the great principle of the North Korean aid-maximizing approach was discovered: money was paid not for some action, but rather for nonaction.

With the Sino-Soviet rivalry, aid was extracted as a fee for not joining the other side. Ha[d] I been a fancy “political science” theoretician, I would probably call such an approach a “negative concession strategy.”

Of course, both China and the USSR also wanted North Korea to remain in good shape to contain the U.S. influence, even if this consideration was secondary to the politics of the Sino-Soviet rivalry.

The scale of the aid will never be known for sure, since a large part of it was provided indirectly: through preferential pricing or through a willingness to accept substandard North Korean merchandise in lieu of currency payment.

However, the depth of the crisis that struck North Korea after the collapse of the USSR once again confirmed how important the aid was for keeping the North Korean economy afloat.

The collapse of the USSR and the reforms in China around 1990 seemingly made such blackmail impossible. But soon the North discovered new rivalries to exploit.

First, there was a nuclear program, the same old good type of “negative concession” Pyongyang expected to be paid for not developing its nuclear weapons. The Geneva framework of 1994 was a masterpiece of blackmail diplomacy.

Then, there was (and is) a veiled but clearly present rivalry between China and the U.S. Beijing does not want a nuclear North Korea, but it is not happy about a unified country which might become _ or rather remain _ pro-American. It also needs a Communist regime or two hanging around and thus helping the current government to survive. This means that China is willing to keep the North in operation by providing it with aid, especially with food aid.

Finally, there are South Korean phobias to exploit. Seoul is increasingly uneasy about Chinese presence in the North.

There are other phobias as well. The South is afraid of a democratic revolution in the North, politely known as an “implosion.”

German-style unification is seen as a disaster since it will lead to a dramatic decline in the living standards of South Koreans.

This is a unique situation with few parallels in world history: a government feeds its enemy precisely to avoid its own swift victory!

However, it seems that the expectations of Seoul politicians are based on incorrect assumptions.