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Interview: A Capitalist in North Korea (Yes, They Do Exist...)

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Though far from becoming a beacon of freedom anytime soon, entrepreneur Felix Abt says that, "by North Korean standards, there has been quite a practical change in society and the economy."

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While the world was quasi-agog last week over images of Google (NASDAQ:GOOG) chairman Eric Schmidt watching students at Kim Jong Il University utilizing his company's search engine, it's a safe bet they won't be networking with potential employers after graduation.

A small slice of North Korean society may be permitted to access the Internet in limited ways (according to analysts, only a thousand or so of North Korea's 25 million people can get online; the best most can do is view the country's walled -- and heavily restricted -- intranet, where state-sponsored news is available). Expats living in-country (a small number of diplomats, NGO workers, and a tiny sprinkling of brave businesspeople; a 2005 census reported 124 foreign nationals residing in Pyongyang, a city of 2.1 million) are, however, able to get online via satellite -- though even they face restrictions.

"LinkedIn (NYSE:LNKD) blocked me when I listed my North Korean address -- and I was not the only one," Felix Abt, a Swiss entrepreneur who spent seven years living and doing business in North Korea, tells me.

Abt, co-founder of the Pyongyang Business School, former managing director of the Pyongsu Joint Venture Company, North Korea's first-ever foreign-invested pharmaceutical enterprise, and author of the new book, A Capitalist in North Korea (Amazon Publishing Services, 2012), was unceremoniously booted from the site in 2009.

"Maybe LinkedIn's legal department thought it was too risky or something," Abt, now living -- and working -- in Nha Trang, Vietnam, says. "I don't know."

In fact, "as a matter of corporate policy," LinkedIn does not allow "member accounts or access to our site from Cuba, Iran, North Korea, Sudan, or Syria" under the conditions of international sanctions imposed by the US Treasury Department's Office of Foreign Assets Control. (LinkedIn is not alone; other major tech names such as Google, Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and Oracle (NASDAQ:ORCL) among others, also restrict access to their products from sanctioned countries, though one wonders if Eric Schmidt notified Google's legal department that its products are being utilized at Kim Il Sung University.)

Abt's book offers an extraordinary first-hand account of life in a place where it is almost impossible for outsiders to know what is actually happening on the ground. He could travel without being accompanied by official government minders, and (obviously) had daily contact with his North Korean staff at PyongSu -- who impressed Abt as budding capitalists in a rigidly communist system.

"At the beginning, we had philosophical differences about how a business should be run," Abt tells me. "The North Koreans were used to the socialist way of running a business. I was raised in a market economy."

Abt's first obstacle? Marketing.

"I explained that without it, we could never sell what we produce," Abt tells me. "They would say, 'No, no, in our country, nobody does that.' Finally, I said, 'Okay, let's start manufacturing and see what happens.' And nothing happened."

With a warehouse full of product and no customers, Abt says his employees "started realizing, 'Maybe he's right.'"

"When it turned out that I knew what I was talking about, they started agreeing with me," Abt continues. "Eventually, my staff started suggesting doing 'Another advertising campaign, and another advertising campaign,' and that was pretty amazing in itself."

A Hermetically-Sealed Country? Not Quite.

A popular Western trope is that North Koreans are a robotic, brainwashed populace with little to no understanding of the outside world. Abt says this not true.

"I regularly took my staff to China for business, so they saw what was going on," he explains. "I brought them to supermarkets, to restaurants; some went to the dentist or the doctor and saw how well-equipped, how well-organized, how competitive they had become -- but also how expensive they were."

Abt educated his employees on the finer points of consumerism before landing in China, describing them as "perhaps a little vulnerable."

"The shop assistants can be very competitive and aggressive and the North Koreans are not used to this," Abt says. "So I taught them, 'Okay, they will set the price very high for you at the beginning, offer them half. When they say 'no,' walk away, they'll call you back and go down a bit, and so forth.' I must say, these guys learn fast."

According to Abt, details of these experiences were quickly shared with other North Koreans via Pyongyang's "bush telephone."

"Of course they had to make reports to the authorities and security officials when they got home," Abt tells me, "but they also showed their photos with friends and family. People communicate a lot; you read all these horrible stories and think the people are all afraid to talk to each other because somebody's always watching, but I did not have this impression, really. Of course they are cautious, but not overly so."

For this reason, Abt takes exception to reports claiming that the North Korean regime will collapse once information begins "trickling in."

"If that were true, the system should have collapsed a long time ago," Abt says. "People know quite well what is going on. From the South Korean soap operas they watch at home to foreign books they read at the university, there is always some information. It's not a hermetically-sealed country, and it never has been."

To be sure, North Korea's reputation as one of the world's most brutal dictatorships is well-deserved. The country reportedly detains between 150,000-200,000 political prisoners in a vast network of labor camps, though Abt avoids the topic in his book.

"There are surely gulags that may be horrible, but I didn't come across them so I cannot write about anything I have not seen myself," he explains.

A Middle Class Emerges

Though far from becoming a global beacon of freedom anytime soon, Abt says that, "by North Korean standards, there has been quite a practical change in society and the economy."

"Most North Koreans today are involved in some kind of business, so they seem to have an income that allows them to buy their daily necessities in the markets," Abt tells me. "The most important thing is that a middle class has emerged in the cities; in the countryside, there is more private farming going on -- throughout North Korea, you can see plenty of farming going on on the slopes; the flatland is still reserved for the state-run farms."

Today, the regime is slowly introducing a capitalist component to the agriculture sector.

"Workers on the state farms were promised last year that they will be allowed to sell up to 30% of their harvest to free markets at a premium," Abt says. "Should that be realized, it's the beginning of quite a big change, like early reforms in China and Vietnam."

Is North Korea Now Open for Business?

Not quite. But Abt tells me he believes opening up to commerce has "become a more important priority" for the North Korean government over the past ten years.

"I'm getting a lot of proactive proposals from the North Koreans, which we haven't experienced in the past, so there is quite a big change on that front," Abt says. "My business partners in Pyongyang can use [file-sharing service] Dropbox, they can travel more often now, and more North Korean companies have been allowed, particularly in 2012, to interact with foreign ones."

Still, obstacles exist for anyone seeking to do business in this most frontier of frontier markets.

Power cuts are frequent, infrastructure is crumbling, and sanctions remain strict. On the other hand, Abt says the hardships he encountered cemented deep personal bonds between him and his colleagues.

"We had to solve practical problems every day; it was a daily struggle that brought us close," Abt recalls. "We worked hard together, but we also partied together, went to karaoke, had good dinners, went on excursions, and had fun together. I never had the feeling that I was an alien in their eyes or a potential enemy or a spy -- the relationship was quite relaxed and friendly, driven by our joint goals."


Abt and staffmembers celebrate International Women's Day in Pyongyang (Photo: Felix Abt)

So, would he do it again?

"I like to go back from time to time to eat some good food and have a merry evening, but otherwise, of course, I am happy where I am now," Abt says.


Pyongyang



Nha Trang

"Seven years is a long time."

Follow Justin Rohrlich on Twitter: @chickenalaking

No positions in stocks mentioned.
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