BY IGGY KIM
SEOUL — As political relations between the leaderships of South Korea and North Korea thaw, the generals and bureaucrats around North Korea's "Dear Leader" Kim Jong-il are not yet united on a clear, single objective. They are sure of only one thing: the economy must be "reformed" if they are to maintain their grip on the Democratic People's Republic of Korea (DPRK). The Stalinist Pyongyang clique is undoubtedly weighing up the benefits of a controlled capitalist restoration a la China.
That was the essence of the recent visit by Kim Jong-il and three of North Korea's military top brass to Shanghai's stock exchange and associated showcases of China's capitalist restoration. Following Japan's defeat in 1945, a movement of people's committees swept the Korean peninsula, took political power and gained control of industry and the land. The bulk of the economy had been owned by the Japanese. The movement was led by the Korean Workers Party. At the head of this mass movement, the Central People's Committee proclaimed a Korean People's Republic on September 6, 1945.
The Korean People's Republic was supported by the Soviet Union, which had helped liberate Korea in the last weeks of the war. However, the Kremlin agreed to US troops overseeing a "trusteeship" south of the 38th parallel. On September 8, 1945, US troops invaded southern Korea and established a military governing authority. The US groomed a right-wing anti-communist regime composed of the old landowning class that had collaborated with the Japanese.
In the north, a working people's government consolidated in Pyongyang under the leadership of Kim Il-sung. In June 1950, crying "invasion" the US led 16 countries in a war to try to crush the Korean revolution. The revolution was not completely overturned. The DPRK, assisted by China, was able to survive.
North Korea embarked on a massive reconstruction effort that quickly achieved economic superiority over South Korea. In response, the US underwrote rapid planned capitalist development in the Republic of Korea (ROK). The result was a group of powerful capitalist conglomerates able to be active in world markets normally reserved for First World multinational corporations.
By the 1980s, South Korea had begun to overtake the North's economic development. North Korea was stagnating under the weight of its authoritarian bureaucratic system. In the 1990s, following the collapse of the Eastern European Stalinist bloc, North Korea experienced a catastrophic economic decline, aggravated by natural disasters. The continuing restoration of capitalism in China has added greater pressure on Pyongyang.
Reunification
In this climate, a wing of the South Korean capitalist class moved to take advantage of the North's crisis by proposing reunification of the two Koreas. Previously, the South's rulers had been hostile to reunification because they knew they could not dictate the economic and political terms.
In 1992, Cheil Industries began manufacturing clothes on a "processing on commission" (POC) basis. Under POC arrangements, companies send equipment and materials to the North to take advantage of the cheaper labour. In 1996, LG Electronics set up a TV assembly plant in Pyongyang and the Daewoo Group set up a joint venture apparel firm in Nampo near Pyongyang. In 1998, another member of the LG Group set up a joint venture fishery firm with a North Korean enterprise.
Also in 1998, Hyundai launched a large tourist resort and ocean cruise program at Mt Kumgang and Korea Land obtained approval from Seoul to launch a real estate development and consulting business in the North.
In March 1999, Samsung began mass production of TVs, telephones and audio equipment in Pyongyang. In October 1999, the Korea Tobacco and Ginseng Corporation, which is owned by the South Korean government and jointly produces cigarettes with the North, imported North Korean cigarettes in return for US$2.4 million worth of cigarette-making equipment.
Last June, the ROK's Unification Ministry confirmed that 20 to 30 South Korean companies have operations in the North making computers and peripherals, cassette tapes, telephones and electronic components.
A way out of crisis
Especially since the 1997-98 financial crisis, South Korea's conglomerates began to falter. Dogged by technological dependence on the imperialist economic powers and lower productivity, they hit the outer limits of the leeway permitted by imperialism during the Cold War.
The North came to be seen as a way out of the crisis by South Korea's ruling class. Bilateral trade expanded rapidly, with last year's figures surpassing 1999 by over 30%.
This upturn culminated in the historic Korean summit in Pyongyang last June between the two Kims. The large South Korean delegation included the heads of six major conglomerates and business groups.
A precondition for the thaw in relations was the changes in political leadership in both North Korea and South Korea. In the North, Kim Jong-il came to power after the death of his father, Kim Il-sung. In the South, Kim Dae-jung was elected president in early 1998 and was the first ROK president free of ties to the military regimes that followed the Korean war.
Kim Jong-il and Kim Dae-jung were considered to be at a safe enough distance from the war. Consequently, both could come together with less political risk. Since the summit, ROK firms have stepped up their march north, confident that their interests will be looked after by both Seoul and Pyongyang.
Hyundai, through a new division dealing solely with North Korea, is negotiating the construction of an industrial megalopolis in Kaesong, just north of the 38th parallel. The complex will house 850 manufacturers and churn out some US$20 billion worth of exports a year. The Federation of Korean Industries, the South's employer organisation, is to establish "an educational institute on capitalism and corporate management" at the complex.
The Samsung Group recently expanded the range of products produced at its electronics plant in Pyongyang. It plans to invest about US$500 million over the next 10 years to build an electronics complex and is also planning a software research and development centre.
LG is planning a joint venture bicycle production firm, as well as others in resource exploration, oil refining, forestry, tourism and downstream petrochemical production. LG Electronics wants to build another 200,000-unit-a-year TV plant, while LG International will spend about US$1 billion on a large logistics centre in the demilitarised zone near the border village of Panmunjom.
Shortly after the summit, representatives from 10 medium-sized electronics companies visited Pyongyang to work out ways to locally supply parts for the Samsung and LG plants in the North.
Another key priority has been the upgrading of inter-Korean land transport and communications. At present, trade is carried by sea, which is much more expensive. The construction of a rail line and parallel highway were among the first agreements struck by the two Kims last June. These projects are being implemented by a consortium of Hyundai Engineering and Construction, Samsung's construction division and Daewoo Construction.
In December, the fourth meeting of cabinets from both sides of the border resolved issues of double-taxation and legal guarantees for investment from the South. Regular meetings will continue to coordinate regulatory mechanisms and oversee infrastructure works.
Capitalist restoration?
Seoul has worked to secure Pyongyang's participation in international bodies. Last July, the North was admitted into the ASEAN Regional Forum. In August, North Korea applied for membership to the Asia Development Bank. Seoul is helping Pyongyang gain admission in the face of US and Japanese opposition.
The DPRK has also moved fast to expand diplomatic relations, particularly with European Union member states. Investment guarantee pacts are in place with 17 countries, including Australia. Even before the Kims' summit, Canberra saw the potential for Australian big business and normalised relations in May. In December, Australian energy industry executives visited Pyongyang. North Korea is to upgrade its power generation system. The bulk of inter-Korean trade in 2000 was part of the POC scheme, which leaves the direct management of production in North Korean hands. North Korea's foreign investment laws also stipulate adherence to the country's labour laws. Obsolete technology and operations that hinder economic development are prohibited, as are those that threaten national security or the environment. Another clause states, "should unavoidable circumstances make it necessary to nationalise or seize enterprises and assets, fair compensation shall be paid".
There is little evidence that Pyongyang is using concessions to South Korean capitalists to reform its socialist system. It is not clear where the North's share of the South's investment returns are going, such as Hyundai's monthly payment of US$6 million from its Mt Kumgang tourist operation. It is hard to ascertain whether these are being personally amassed by members of the bureaucracy in preparation for bigger things to come, as in China.
The KWP has not publicly sought to justify a turn to "market socialism". In a New Year's Day joint editorial with the newspapers of the military and youth organisations, the KWP's Nodong Shinmun stressed the priority of modernising technology and building up economic strength. However, there was no praise of China or any talk of emulating it.
There has been no political discussion or debate at the mass level in the North about the reasons for the introduction of aspects of capitalism — or what should be the limits — similar to those that have taken place in Cuba.
Without a functioning workers' democracy in North Korea, it is hard not to conclude that Stalinism's tendency towards capitalist restoration is at play.
[Iggy Kim is a member of the Democratic Socialist Party resident in South Korea.]