Friday, January 29, 2010

North Korea's monetary reform plays at the New York Korea Society

The New York Korea Society is the right venue for discussing things North Korea. Its management is well vetted by the US government; Pyongyang finds it a useful instrument for meeting the US power elite in and out of government. It is the carrot to the Washington stick in US's confused policy towards the Democratic People's Republic of Korea [DPRK aka North Korea].
So it drew a full house at Marcus Noland's slide show on 'the winter of their discontent: Pyongyang attacks the market'. Noland is a senior economist, a deputy director of the influential and conservative Peterson Institute for international economics, and a senior fellow at the East West Centre in Hawaii. More, he is fluent in Korean, and has visited many times the DPRK; he has a healthy list of publications on North Korea, and has sired around foreign business leaders looking to invest in the DPRK.
GuamDiary suggests its readers link up to, for Noland and Haggard's policy brief on Pyongyang attacks the market.
Noland is a smooth talker. He has his facts at his finger tips. He is the first to admit that Kim Jong il & co. play their cards close to their chests, so much so that putting one's teeth into something solid seems almost impossible. Yet, not completely impossible. Though the angle of behavioral economics, and by skilfully interviewing North Korea refugees, he is able to reconstruct modes of economic trends that he sees in a brutal Stalinist handover, a failing state which is simply not imploding or going quiety away.
Pyongyang's recent devaluation of its won, he claims, came upon North Koreans with the suddenness of a tsunami. By lopping off two or three zeros on the old won, forbidding the use of foreign currency in transactions, Kim Jong il's coterie, which Norland characterises as 'Bonapartist', has visited untold misery on the Norht Korean people, including the core elements, in the party and the army. It is a kamikaze hit on the 'market'. It is an attack on the burgeoning 'free market'.
Obviously, Pyongyang has been trying to reaffirm its complete control of the economy in the wake of the famines of the 1990's and the abrupt end of Soviet and Russian aid. To survive, it allowed the existence of private markets and a release of control in the provinces in agriculture, small and medium enterprises, and a free market of sorts. Economic hardship and the black economy and more openness in the market place has enriched many, fostered corruption, and put food and household comforts in the family dwellings. Furthermore, the central government's control of the money supply appears to have been escaping the central bank's purview, so on and on.
The monetary reform, theorettically not a bad thing in itself, in the DPRK, aroused some popular protest which did not escape the outside media's eye and the analyst who track North Korea. Pyongyang softened restrictions to calm public anger, especially in Pyongyang, but held firm on the won's reevaluation.
Noland sees in this, a way of retaining the loyalty of the nomenklatura and the military, and the reimposition of barter which is visiting dire consequences for the little people.
To Noland, Kim Jong il & co. have violated the market. He condemns Pyongyang's desecration of the 'market' as a kick in the head of Pareto efficiency. And here is the Achilles heel of Noland's approach.
Economist Noland is a cheer leader of free market capitalism. And to him the 'market' is sacrosanct, no doubt about it. Never for a moment does he entertain the idea that 'socialist' North Korea has another definition of the 'market'. The two use the same concept but mean totally different things. Difficult as it may be, since Noland is fluent in Korean, reading North Korean economic literature may be instructive.
And here's where Noland's slip is showing. Evans Revere, president of the Korea Society, gave the game away of sorts, at the end of the question and answer period, by pointing out an article in Korean that Noland shared with him from a DPRK publication which bore the name of Kim Jong il's sister, without other attribution as to title and position. The article in question appeared in September, strongly hinting at a currency reform, so that the elite who did suffer somewhat [how much? that's hard to make out], was alerted to the change of the wind's direction.
So, to say that demonetarisation had come out of the blue, is not particularly true. Also, during the q&a, Noland lifted a hem on his berating the DPRK, by pointing out, what say the Swiss, who are funding a business school in Pyongyang, reported a year or two before: the further away you get from the centre, that is Pyongyang, foreign investor from abroad will find a more decentralised economy, not necessarily a seedling of capitalism, but plants and business who can adapt to the demands of foreign customers, which would bring benefits to workers.
This is hardly ground breaking news since Pyongyang's unofficial ambassador in Japan, Kim Myung chol dangled the economic advantages of doing business with the DPRK 7 or 8 years ago, during a dinner the Korea Society sponsored.
Noland's 'lecture' was of use, with the caveat that he sees the DPRK through capitalist lenses, and is frustrated to the extent that Pyongyang is unwilling to share with the outside world its economic data or give hints as to who is planning the economy. Yet other European economists, it seems, appears to be able to offer different narratives, cutting and pasting together bits and pieces of data, gleaned here and there and further there.
Let's say, it ain't easy being a Pyongyang watcher.

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