“I decided to focus on my comparative advantage: economic issues (broadly defined)” - Interview with Curtis Melvin (North Korean Economy Watch)
Klaus-Martin Meyer: Mr. Melvin, you are the blogger behind www.nkeconwatch.com. Would you please introduce yourself and your blog to our readers?
Curtis Melvin: My name is Curtis Melvin and I am the creator and editor of North Korean Economy Watch, a project launched in January 2006 with the mission of collecting, organizing, and analyzing information on North Korea for business persons, policy makers, academics, and the media. For the last few years, I have worked with a research group based at George Mason University (USA) on economic development issues, but I have recently returned to graduate school to upgrade my MA in economics to a PhD.
North Korean Economy Watch was born of a personal interest in economic development and transition problems (specifically related to the DPRK) combined with a desire to make knowledge on North Korea as accessible as possible. When I launched NKeconWatch.com there were already several blogs focusing on North Korea issues, most notably NKzone (now defunct), DPRK Studies, One Free Korea, and Tim Beal’s site. Each of these forums have/had a particular focus and style to successfully convey information, so in order to complement these efforts and add value for interested readers, I decided to focus on my comparative advantage: economic issues (broadly defined).
The site’s readership has steadily grown since its launch, receiving regular comments and suggestions from a wide variety of DPRK stakeholders including journalists, academics, and business persons. One of the most popular features of NKeconWatch.com is the ever-expanding North Korea Google Earth project, “North Korea Uncovered.” Beginning as an effort to map my own travels in North Korea, the project has expanded to become the most authoritative, publicly-available mapping of North Korea’s political and economic infrastructure. It has been downloaded over 21,000 times and is on its 11th version.
Klaus-Martin Meyer: North Korea is a rather closed economy. How do you manage to write so many blog posts? Where do you get all the information?
Curtis Melvin: Although North Korea is a closed economy by western standards, it is more open now than it has ever been. The DPRK has a growing expatriate community, and regularly receives tourists, journalists, academics, business delegations, cultural exchange groups, and politicians. We are now seeing an increase in aid workers. Although information about top-level decision-making is difficult to come by, news of economic conditions does trickle out, though accuracy and confirmation remain a problem.
Readers from across the globe, who each have an interest in North Korea, send contributions, make comments, or point out information for the site. NKeconWatch.com would not be successful without their assistance. In addition to contributions by me and other readers, Google offers helpful news feeds that search the internet for stories related to North Korea. Finally, North Korea has two official web sites that publish information directly from the DPRK: KCNA and Naenara.
With all of the information that is available, it is actually difficult to keep up with North Korea news while balancing a job and healthy social life!
Klaus-Martin Meyer: Since David Ricardo we look at comparative advantages of different countries. Where do you see existing and potential comparative advantages of North Korea?
Curtis Melvin: I don’t think the DPRK has an “absolute advantage” in much of anything (it is not the most efficient producer of any good), and it is difficult to know their comparative advantages because so many of their economic resources are not freely owned or traded. The country is still a militarized, planned economy for the most part—lacking many of the mechanisms and institutions that support market economies such as formal property rights, effective contract enforcement, credible banking system, access to international capital, etc.
Given its current “institutional environment,” the DPRK’s producers have few opportunities to discover their nation’s comparative advantages. Although monetization and the spread of market prices in the last decade has facilitated the distribution of goods and opened up new business opportunities, social controls and international isolation make it difficult for most of the DPRK’s entrepreneurs to know what resources are available to be mobilized for production within the current political/legal environment.
There are, however, certain generalizations about North Korea’s comparative advantage in trade which we can infer from simple economic theory and verify through trade statistics. We know that North Korean workers have low opportunity costs because their productivity is very low. This means we can expect to see North Korean workers competing in low-skilled, labor intensive production (for international markets).
This claim is reinforced in the DPRK’s trade statistics. The Workers Party, the Korean People’s Army, and members of influential families have each created companies which generate revenue through natural resource exports (minerals, forestry, and maritime), particularly to China. These kinds of enterprises fit with North Koreas’ comparative advantage, but unfortunately carry few benefits for the broader economy. Workers do not get the opportunity to add value to the resources by processing them or converting them into textiles, nor do the institutions and skills needed to carry out these activities ever get developed in-country. One major exception is the Kaesong Industrial Zone discussed below.
Klaus-Martin Meyer: Since a couple of years a lot of South Korean and international companies as well are heading for Kaesong. How do you judge the development?
Curtis Melvin: The Kaesong Industrial Zone employs 30,084 North Koreans (as of July 4, 2008), up from 225 in 2004, and comprises 72 South Korean firms. I was initially hopeful that the Kaesong Industrial Zone would lead to greater economic policy changes in the DPRK, but if this is happening, the change is very slow. The news is not all bad. Up until a South Korean tourist was shot in Kumgangsan this July, inter-Korean trade was up 23% over 2007, despite higher political tensions. This was a good sign that foreign exchange was very important to the DPRK government and that political tension would eventually cool to protect these income streams. Since the Kumgangsan shooting, however, North Korea’s intransigence sends the opposite signal: that they are willing to throw away what they have invested, as well as all future income, to prevent the issue from being resolved in a cooperative manner. Although Kumgangsan tours are on hold, and South Korea has threatened to cut off Kaesong City tours, the Kaesong Industrial Zone is not something that either side is willing to seriously jeopardize just yet. This is a good sign as increased trade between nations is a guarantor of peace.
In retrospect, Chinese and European investment in the DPRK has probably been more effective at changing North Korean business practices. The European and Chinese companies deal directly with North Korean counterparts in their desire to earn profits. In so doing, they instill best practices, respect for contracts, and trust. South Koreas development projects involve official subsidies, of one kind or another, from government to government. When trade is transformed into aid we can expect to see these funds expropriated and the recipient’s desire to reform evaporate.
Klaus-Martin Meyer: And now our five-years-question: What is the status quo of the North Korean economy in 2013?
Curtis Melvin: The people who predicted collapse were (mostly) wrong. The people who predicted reform have been (mostly) wrong. I think I will say that things will be pretty much as they are now, barring any unexpected funerals.Stichworte: Curtis Melvin North Korean Economy Watch