Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

North Korea Gets a Crash Course in Capitalism

By

A delegation of 12 DPRK officials visits the US amid speculation the last Stalinist state may be open to economic reform.

PrintPRINT

UPDATE: Last evening, CNN reported that a US businessman has been detained in North Korea. Citing diplomatic sources that spoke on condition of anonymity, a few details have emerged: the man is a Korean-American, who had a visa to enter the DPRK. A Swedish official confirmed to CNN that Sweden's embassy in Pyongyang, which looks after US interests in North Korea in the absence of diplomatic relations between the US and Kim Jong Il's regime, is working on the case and has requested regular access to the man. This development may impact significantly the initiative described in the following article, written before the news was released.

A delegation of 12 North Korean economic envoys flew back to Pyongyang on Sunday after spending two weeks touring companies that "represent main strands of the US economy."

The group visited Google (GOOG), Home Depot (HD), Bloomberg, Citigroup (C), Qualcomm (QCOM), Sempra Energy (SRE), Union Bank, and Universal Studios, as well as a mushroom farm, a seafood wholesaler, and the Port of Los Angeles, where they leaned about trade infrastructure.

Journalists were not permitted access to the visitors (they entered the Googleplex through a back entrance under tight security), and no mention of the trip appeared in the American media. I stumbled upon the story after striking up a conversation with a DPRK official at the North Korean embassy in Berlin, Germany.

Located on Glinkastraße, an avenue in what was once East Berlin, the North Koreans built an 87,788 square foot compound during the 1970s. After the Cold War ended, staff numbers were significantly reduced, and, according to the surprisingly friendly official I spoke with through the embassy's rear gate, two of the DPRK's three buildings were leased out to private companies.

In nearly-unaccented English, he pointed out the main tenant -- a youth hostel which opened for business in 2008:



Though the North Korean flag flies out front (visible in the upper right), the decision to become landlords was strictly capitalistic, as years of economic sanctions have taken a tremendous financial toll on the DPRK.

After learning I was an American, the embassy official told me that a group of North Koreans happened to be in the States at that very moment.

Before I could inquire further, he was gone.


On the heavenly grounds of the Dear Leader...

One of the few sources providing any details regarding the affair, South Korean newspaper JoongAng Ilbo, managed to obtain a copy of the delegation's itinerary.

According to the report, "Six director-level officials were in the group, including the delegation's head, Yon Il, a director at North Korea's trade ministry. The other directors work for the trade ministry, agriculture ministry, finance ministry and industry ministry."

Other delegates included lower level North Korean directors and managers, two advisors, and a researcher from a North Korean trade bank.

While Russian news outlet ITAR-TASS maintained that "[T]he initiator of these meetings is unknown," the North Koreans were in fact invited to the US by Susan Shirk, director of the Institute on Global Conflict and Cooperation at the University of California, "to see firsthand what improved relations with the United States might mean in terms of economic cooperation."

From 1997-2000, Shirk served as Deputy Assistant Secretary of State in the Bureau of East Asia and Pacific Affairs from 1997-2000, and is the head of the Northeast Asia Cooperation Dialogue, an organization engaged in "track-two" diplomacy.

As described by Tong Kim, a research professor with the Ilmin Institute of International Relations at Korea University and an adjunct professor at Johns Hopkins University's School of Advanced International Studies, the track-two approach "refers to contact, exchange of views, and other conduit activities between civilian organizations or individuals of two countries that are in dispute with each other."

An email to Shirk seeking further details of last week's visit was met with a terse "Sorry, no comment." But sources say the North Koreans attended lectures at Stanford University and NYU, where they learned about "the market economy, consumer protection, what a CEO does, corporate strategies in the US, and an overview of the western legal system."


North Korean delegates at Stanford

This is one of the pillars of the track-two strategy. In "North Korea Inside Out: The Case for Economic Engagement," a December, 2009 policy paper from an independent task force chaired by Dr. Shirk and Charles Kartman, former director of the Korean Peninsula Energy Development Organization, the case is made that:

The United States should adopt a long-term strategy of economic engagement with North Korea. North Korea's attitude toward the world is closely related to the underlying structure of its domestic political-economy: a closed, command economy that favors the military and heavy industry and is isolated from the sweeping economic and political changes that have transformed the Asian landscape in recent decades. Encouraging a more open and market-friendly economic growth strategy would benefit the North Korean people as a whole and would generate vested interests in continued reform and opening, and a less confrontational foreign policy. In other words, economic engagement could change North Korea's perception of its own self-interest. China's economic transformation stands as an important precedent, showing how a greater emphasis on reform and opening can have positive effects on foreign policy as well. Economic change has the potential to induce and reinforce the D.P.R.K.'s peaceful transition into a country that can better provide for its people's welfare and engage with other countries in a non-hostile manner.



Some, more hawkish Korea-watchers brush aside track-two diplomacy as a rube's game being played with a staunchly anti-American entity that already knows far more about the outside world than it lets on.



However, there aren't many other options in this increasingly unstable era, as a North Korean power handoff from Kim Jong Il to his son, Kim Jong Eun, is said to be in the offing.

Professor John W. Lewis of the Center for International Security and Cooperation at Stanford, who has been involved in track-two negotiations with North Korea since 1986, told the Stanford News Service, "They would definitely prefer to have these talks and meetings with American officials. But since American officials won't talk to them, we're the only game in town. We have this weird access."

A wholesale transformation of the North Korean political-economy would surely reap unprecedented benefits for the world at large. Of course, it would also benefit tremendously the foreign business concerns that manage to be first to market.

In this instance, Susan Shirk's deep connections in Washington certainly bear mentioning. Shirk is a Senior Director at the Albright Stonebridge Group, a "global strategy firm that helps corporations, associations and non-profit organizations around the world meet their core objectives in a highly competitive, complex and ever-changing marketplace," which happens to be led by former National Security Advisor Samuel R. Berger, former Senator Warren B. Rudman, and former Secretary of State Madeleine Albright -- the first American official ever to visit North Korea.

The company "address[es] challenges for clients in any country, and work[s] with them to develop and implement winning strategies for long-term growth and success" – something that dovetails nicely with the goals of Albright Capital Management, an "emerging markets investment firm" of which Albright Stonebridge is "a significant shareholder" and "strategic partner", "leveraging collective networks and skills to enhance each firm's ability to serve as a trusted advisor in the emerging markets."

The kind of access someone like Madeleine Albright provides cannot be understated.

"We see a lot of potential in emerging markets for economic growth," Jelle Beenen, a portfolio manager at Dutch investment firm PGGM, told Bloomberg in 2007. "The reason that investing there is always a problem is there are issues like fraud and political instability, so that's why there's value in political-risk management and the involvement of Secretary Albright is a valuable one."

Could the "DPRK 12" be sending a signal that the North "is finally getting serious about introducing more market-based economic reforms?" JoonAng Ilbo asks. "Has the reformist message that China, its closest ally, has been hammering home for years finally gotten across? Or is the envoys' mission just a conciliatory gesture to try to woo food aid from the U.S. amid a deepening food crisis?"

The short answer is, no one knows.

David Straub, a former Senior Foreign Service Officer who spent 30 years focused on Northeast Asian affairs declined a request for comment, but in a recent paper, asserted that, "The fact of the matter is that no one, not even in Pyongyang, really knows what is going to happen there. I believe there could be dramatic change in the regime in North Korea even as you are reading this, but I also believe it is possible that the regime could last many decades more."

Henry Rowen, Co-director of Stanford's Program on Regions of Innovation and Entrepreneurship, Director emeritus of the Shorenstein Asia-Pacific Research Center, and a Senior Fellow at the Hoover Institution who gave a presentation to the North Koreans, said in an email that he knew "very little about the group and its mission," though he added a caveat that, "My hunch is that it was less significant than you suggest."

Most optimistic of all seems to be Dr. Siegfried Hecker, former director of Los Alamos National Laboratory (1986–97) and current co-director of Stanford's Center for International Security and Cooperation.

Hecker, who has been granted access to North Korea's Yongbyon nuclear complex, told an audience about an experience he had during a recent visit to Pyongyang.

As Hecker entered a subway station in the capital city, he encountered a young man "wearing a backwards baseball cap with a Nike (NKE) swoosh."

"When he gets to be 21 years old, they're gonna have a hard time keeping him down on the farm," Hecker said.

"Where there is 'swoosh,' there is hope."


Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE