North Koreans Not Benefiting From Economic Reform

Kim Chol Min and his wife are browsing in the furniture section of the cavernous, deserted Taesong Department Store as music blares from a 43-inch Toshiba TV set priced at $3,500.

Talking to a reporter under the watchful gaze of a government minder, they claim life has gotten so much better in the past three years that they can afford to be here shopping for furniture and a wardrobe on just two months of savings.

"Thanks to ... the great leader comrade Kim Jong Il (search), our economy has improved step-by-step," says the bespectacled 50-year-old power station employee. "Our lives have greatly improved in every way."

But Taesong's wares are well beyond reach of most people in this isolated, impoverished nation.

In 2002, Kim's communist regime announced tentative economic reforms, and on the streets of Pyongyang, independent street stalls were visible to a group of reporters and academics allowed in for a rare and carefully controlled glimpse of the country.

But foreign experts say most North Koreans aren't benefiting.

"There are no visible signs of economic reform," said Andrei Lankov, a visiting professor at South Korea's Kookmin University (search) who was last here in 1985 and came back with the group. Between what he is told and what he sees, "There's a big difference."

The government has released few details, but foreign aid agencies say that besides letting farmers sell some of their own crops, the reforms have raised wages and cut subsidies.

But most of the country's 22 million people still depend on foreign food aid and are struggling with inflation set off by the economic changes. Aid workers say a bottle of vegetable oil on the open market now costs the equivalent of two months' pay for the average worker.

North Korean officials insist the reforms are working.

"We have entered a prosperous march," said Choe Jong Hun, an official of North Korea's Committee For Cultural Relations with Foreign Countries. "To develop our economy, we have reorganized what is necessary. We have modernized and expanded the old factories and encouraged people to work more according to the needs of our times."

"Production has increased since 2002 and people's aspirations for work have increased," he said.

According to South Korea's central bank, North Korea's economy grew about 2.2 percent last year, due largely to a bigger harvest — its sixth straight year of estimated growth.

Officially, $1 buys 140 North Korean won. But on the black market, the rate is 2,400-2,500 won to the dollar. The average worker reportedly earns about 2,700 North Korean won per month.

Outsiders still know little about the specific effects of the reform.

"It's a baby step," said Nicholas Eberstadt of the American Enterprise Institute (search), a Washington think tank.

"It says nothing about the incentive systems for enterprises and individuals," he said in a telephone interview. "It tells very little about the interaction of (North Korea) and the world economy."

Even Pyongyang, the showcase capital, feels in large part like a Soviet-era throwback, with rundown apartment blocks, hulking official buildings and monuments, and wide roads with few shops and almost no traffic. Power shortages are common, leaving much of the city dark at night.

The occasion for letting in foreign journalists was the 60th anniversary of the founding of the country's Worker's Party. Given three days off, many people were strolling on sidewalks, lounging in parks with ice cream or chatting in groups.

"We should be seeing bustle. We should be seeing people rushing around making money and spending money," said Bradley K. Martin, a former professor at Louisiana State University who was part of the group. "You have to be an optimist to believe something is going on."

At the Handicraft Art Laboratory, where about 400 women produce labor-intensive embroidery pieces, managers say the incentives program has been in full swing since 2002, suggesting that a profit motive is taking root.

Workers here earn more than double the average wage and can make up to five times more if they perform well, said Woo Kum Suk, a factory spokeswoman.

"After the system started, it's been good," Woo said. "If someone does nice work, she can get more money and she can go buy things."

The government's grip remains total. It recently banned grain sales in public markets and resumed full-scale food distribution, suggesting to analysts that the reforms were working too well for the government's liking.

"It could be that the traders got a tiny bit of power and that was judged to be way too much," said Eberstadt, the Washington researcher.

Inside his country, Kim Jong Il is a figure of mass-produced reverence. Slogans such as "Thank you to our great general Kim Jong Il!" and "Let us follow the revolutionary ideas of the Great Leader!" are plastered across billboards.

But to the outside world, Kim is a human rights offender, author of famine and promoter of his country's nuclear weapons ambitions, and all that deters investors.

Neighbors China and South Korea are the country's biggest economic partners. China says trade last year totaled $1.4 billion. South Korea expects its trade to hit a record high of $1 billion this year, chiefly because the two Koreas have opened a joint venture marrying southern technology and northern cheap labor, and has begun churning out kitchen pots and semiconductor parts.

The complex, in the North Korean border city of Kaesong, is to host 15 South Korean firms by the end of the year, and foreign buyers are being allowed in.

The principle is reminiscent of the special industrial zone China set up on its border with Hong Kong to launch its leap into capitalism following the death of communist founder Mao Zedong in 1976. But foreign experts say only new leaders can bring real change to North Korea.

"The biggest constraint is the ... government's fear that economic opening up and reform will unleash social and political changes that will threaten political control," said Eberstadt.

"If you look at other communist governments, when has policy changed? It's always with new leadership."