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Hard Currency for the Dear Leader

An Oasis of Capitalism in North Korea

By Wieland Wagner

Funded with capital from the south and staffed with workers from the north, North Korea's Kaesong special economic zone is a booming oasis of capitalism in the totalitarian state. It's just as well: North Korean dictator Kim Jong Il desperately needs the hard currency.

The manager inspecting the factory floor seems satisfied with what he sees. About 1,000 female workers sit crowded together at their machines, sewing and gluing together athletic shoes. The air reeks of rubber and adhesive, while loudspeakers blare upbeat North Korean music: The regime's propaganda specialists apparently believe that listening to peppy music makes the women work harder.

Kwon Soon Jin is a manager for Stafild, a shoe manufacturer that has shoes produced here in North Korea's Kaesong special economic zone, located only 70 kilometers (44 miles) from the South Korean capital Seoul. Kwon comes from South Korea, and before taking this job he spent 11 years managing factories in China.

Some things are better in North Korea, he says. He likes the conditions in Kaesong. The workers, he says, speak his language and are more disciplined and thorough than the Chinese. And, most important of all, they are cheaper. Their official wage is $57.50 a month, which is far less than Chinese wages and only a tenth of what South Koreans would make for the same work.

The North Korean women working in the shoe factory are more likely to compare their earnings to conditions in their own country, which make Kaesong look like some kind of luxury labor camp. They earn about three times as much as other North Korean subjects outside the special economic zone. However, no one knows exactly how much of their earnings the workers at Kaesong are permitted to keep. They receive a portion of their wages in the form of vouchers for daily necessities.

The women are not allowed to speak with visitors to the factory. They are spruced up like extras in one of the many revolutionary operas dictator Kim Jong Il supposedly wrote himself, wearing neat blue uniforms and modestly applied red lipstick.

The 330-hectare (815-acre) Kaesong special economic zone was founded four years ago. The Hyundai Group operates the zone, which lies only one and a half kilometers (about a mile) from the tightly guarded border between North and South Korea. A green fence separates the zone from the rest of Kim's starving realm. Kaesong is a product of the market economy, which oddball dictator Kim has declared the work of the devil -- despite the fact that China, his great protector, has embarked on its own large-scale experiment with the market economy.

Managers from the south, like Kwon Soon Jim, run the factories in Kaesong, bringing along the necessary capital, equipment and technical expertise. South Korea even supplies the electricity -- straight across the 38th parallel. The Hyundai Group pays several millions of dollars in fees, a very welcome financial boost for Kim. Twenty-three South Korean companies produce inexpensive goods here, including watches, jewelry, clothing and shoes.

About 20,000 workers, male and female, come to the zone each day from Kaesong, the country's fifth-largest city. Under the supervision of 500 South Koreans, they generate the hard currency North Korea sorely needs.

The special economic zone is considered a successful example of cooperation between the two Koreas. The North Korean despot, with his platform shoes and his bouffant hairdo, sees it as a way to save his regime from ruin. The wealthy south has similar objectives. It wants to prevent the North from collapsing or imploding and is anxious about the unpredictable results of a possible mass exodus or even civil war.

To avoid jeopardizing its own prosperity, Seoul is attempting to raise the standard of living in North Korea, a country whose gross domestic product is only about 2 or 3 percent of South Korea's. If the North Korean economy could be boosted, it would greatly improve the chances of a possible reunification of the two countries, which have been divided since 1945.

This underlying objective also makes Kaesong a sign of relaxing political tensions on the Korean peninsula. Plans call for a doubling of the special economic zone to 660 hectares (1,630 acres) in a second phase. In addition, Kaesong could soon be joined by a number of other major patriotic construction projects in the North. The South plans to invest an estimated $55 billion in revitalizing the North's crumbling infrastructure, including harbors, roads and railroads. Once the work is complete, even more islands of capitalism could develop in North Korea, joining the current economic oasis in Kaesong and the Kumgangsan vacation paradise on the country's east coast, which caters to tourists from the South.

These ideas have been making the rounds since South Korean President Roh Moo-hyun traveled to Pyongyang in early October to chat with Kim. One should not forget, however, that there have been several cases in the past when hopes that Kim would allow a relaxing of tensions and reforms in his country were stifled as quickly as they were raised.