Real Change Afoot In North Korea? A Look From The Inside

Stability at last?
Stability at last?
Philippe Pons

PYONGYANG — Mounted on the façade of the new Haedanghwa complex is a giant screen broadcasting slick propaganda messages. Just across the way, the “people’s ice rink” glimmers with its wavy modernist roof. On the opposite bank of the Taedong River, a dozen of 50-story-high residential buildings completed last year have helped give this area the nickname the “Dubai” of Pyongyang. Indeed, entering Haedangwha, which was inaugurated in June by Kim Jong-un, you no longer feel like you’re in the famously closed and desolate North Korean capital, but instead in a typical thriving Asian city.

This new complex features high-quality marble, wooden, steel or glass interior decorations; Italian luxury clothing stores on the ground level and, on the first floor, a swimming pool with a huge green water-spitting toad, a sauna, mahjong rooms and restaurants where you can watch chefs work in well-equipped, open kitchens.

This particular evening, the place is full. The simplest menu costs 50 euros. The customers were all Korean except for one noisy Chinese table. Not far from this scene, a man was sitting at the foot of a lamppost reading a book. He may have gone out for some fresh air, or because he had a row with his wife, or… because he had no electricity at home. Power cuts are frequent as ever in some parts of the city.

Is this elegant Pyongyang — with its brand new neighborhoods, its theme parks, its avenues with neatly cut flowerbeds and ever more dense city traffic — just one vast “Potemkin village,” an illusion? As soon as one wanders away from what is shown to the visitor, the landscape changes: roads full of pot-holes, dilapidated buildings, crowds walking along dark avenues, cramming into buses or the back of trucks. Stagnation and shortages are more visible in provincial cities; in rare places, the odd house will be equipped with solar panels, but the others will have taped-on plastic for windows. Others, such as Nampo port, Sariwon or Wonsan, are rapidly changing.

The new Haedanghwa complex, the "Dubai of Pyongyang" — Photo: wikimapia

These contrasting images, particularly striking in Pyongyang, reveal a social evolution in this totalitarian and repressive regime. Between 100,000 and 150,000 prisoners are said to be detained in forced labor camps, and in many other ways is still the same: single party, extreme concentration and personalization of power, fierce nationalism, war rhetoric, socialist planned economy. No dissident voice is to be heard, except for those of the refugees who made it to South Korea (some 24,000) and the tens of thousands who crossed over to China, which provide an overview of a harsh reality that one only gets a glimpse while here.

In the 1970s, the Democratic People's Republic of Korea (DPRK) represented, even in the expert eyes of the CIA, a “success” in terms of economic development, education and social infrastructures: up until 1975, the country’s income per capita was higher than in South Korea. Two decades later, the country was on its knees: the collapse of the Soviet Union, on which the DPRK relied on for energy supply, and the defaults of collectivism combined with natural disasters led to a famine between 1994 and 1998 that left 600,000 dead out of a population of 24 million.

The black economy

The survival economy that compensated for the collapse of the state economy and the public distribution system was about to become an underground economy and, de facto, central black market. The regime tried to regulate this phenomenon with the 2002 reforms, new controls and harsher punishments. But, under the bottom-up pressure, the black economy proliferated and keeps the country afloat.

Kim Jong-un’s accession to power, in 2011, accelerated this evolution. Now in his thirties, he gives the regime a more modern look. With the pragmatic Pak Pong-ju’s return as Prime Minister (he was behind the 2002 reforms) and the sacking of more than half of the army’s and Workers’ Party senior officials between January 2012 and September 2013, the regime is looking to reinforce young Kim’s control over the state apparatus. But this also leads to the rejuvenation that should facilitate policies focusing on improving living conditions.

Since he came to power, Kim Jong-un has said the people will no longer have to “tighten their belts.” Recently, he called for the development of substitute products over imported ones and announced the establishment, in every province, of a dozen special economic zones aiming to attract foreign investments. Official sources say this was only made possible by the nuclear deterrent capability that the country acquired, after the DPRK carried out three nuclear tests, with the most recent one in February 2013.

“Having ensured our security, we can now concentrate more on improving the people’s living conditions,” says one North Korean official.

A 1.3% growth in 2012

Most inhabitants continue to suffer from severe shortages (food, medical care, heating), but the economy seems to be slowly emerging from a rut: This is at least what the atmosphere in Pyongyang seems to show, confirming estimates of the Bank of Korea in Seoul, according to which the country grew by 1.3% in 2012 thanks to better crops and iron ore, coal and rare mineral (very abundant in North Korea) exports to China.

The country is moving forward: Between 2012 and 2013, more than 50 major construction projects were undertaken (renovation of the Pyongyang airport, residential homes, hospitals, port infrastructure, theme parks, tourist sites etc). For more than ten years, the economy has been monetized — replacing ration coupons — and cash is circulating. But, of course, it doesn’t make it into most hands.

The two million cellphones (which work in an internal network with no connection abroad), the Samjiyon touchpad (produced locally), the foreign car models with custom number plates, the taxis (an innovation), the bars and cafés, which are full in the evening, a few sharply-dressed women in Pyongyang’s city-center are all signs of a greater social diversity, and of the emergence of a new privileged class, which extends further than the traditional elite of state apparatchik and high-ranking military officers.

A new social stratification

The different types of stores in Pyongyang are a sign of this new social stratification: Beyond the state markets, which are better supplied than before, are a dozen or so indoor markets full of foodstuffs and imported products from China, Singapore, South Korea, where a crowd of customers flood in each day. There are also the higher quality imported product stores, where supplies can be bought with prepaid currency cards. The liquor, beauty products and clothing shelves leave doubts on the efficiency of international sanctions meant to ban luxury product exports towards North Korea. According to Seoul, the imports of such goods increases every year and amounted to 467 million euros in 2012. For the vast majority of the population, the prices for these products are far out of reach, and the impoverished majority depend on the public distribution system.

Several currencies are in circulation: the euro (exchange currency), the dollar, the Chinese yuan and for the poorest, the local won, which depending on whether it is exchanged according to the official rate or on the black market can vary in value from 1 to 100. Direct payments in foreign currencies are forbidden. But in practice, many transactions are done so: the reassessment of the won in 2009 (its value was divided by 100), which suddenly “wiped out” shopkeepers’ businesses, made many lose their trust in the currency. Soaring inflation also made foreign currencies more attractive.

As a socialist state, the DPRK aimed to be an “egalitarian” society. But with the development of a de facto market economy and widespread shortages, this façade was smashed to pieces: the wider privileged class consumes without hiding it, if not flaunting it. How do the people perceive this difference in living conditions? Official response: “This prosperity reflects the avant-garde of the society we aim to reach.”

Contradiction as state doctrine

The industrial world remains opaque. Companies are operating below capacity. Since April 1, however, they are more autonomous: They may keep 40% of their income, choose foreign partners and adjust wages according to the work provided, says Ri Ki-song, economy professor at the Pyongyang Academy of Social Sciences.

“Let’s be clear”, he adds, “we’re not heading towards capitalism. The goods and the means of production are still property of the state, but we are experimenting with new management methods that allow those who work more to earn more.” Companies’ relative autonomy favors a rudimentary competition to conquer new markets. Advertisement has made its appearance.

The notion of “reform” is an anathema in North Korea, so they only speak of “adjustments”. According to our official representatives, they will be substantial. “Reform is the only option for Kim Jong-un, but implementation will not be easy, because he must accomplish many tasks simultaneously,” Rüdiger Frank, a DPRK specialist at Vienna University, writes in Global Asia. “The countryside and the poor must trust in future improvements; the middle class in the capital must be given assurances of continued upward mobility; and the top elite must feel safe about its privileges without becoming too confident.”

North Korea needs foreign investment most of all. But as long as the country persists in simultaneously developing its nuclear capacities and its economy, international sanctions will hinder production growth. According to the economist Marcus Noland of the Peterson Institute for International Economics, “contradiction has become a state doctrine.”

A voluntary or forced transformation? Controlled opening with unavoidable constraints? North Korea is changing, but no one really knows how, or how much. No one, starting with North Koreans themselves.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!