Sorting Out Property Rights (We Don’t Need No Stinkin’ Badges)

August 20, 2012 6:15 AM

At the interstice of the ferment over reform and reports of audits and inspections is the issue of property rights. As we observed earlier, the North Korean won is essentially worthless, so what matters is the ability to command foreign exchange.  And what—apart from missiles—does North Korea produce that can generate foreign exchange?  Minerals.

So it is no surprise that control over these assets is subject to contestation.  Kim Jong-un recently gave a speech in which he called for rationalization of mining. Our post on the closure on the Taepung Group elicited a rapid response from David Stinson regarding the travails of the Xiyang Group, a Chinese mining firm which as Steph Haggard put it, got Shanghaied. All of this was brought into glorious focus by a DailyNK piece “Death to Mineral Thieves!” which reported that Japan’s Mainichi Shinbum was claiming that it had obtained a document from the Ministry of People’s Safety that reputedly read in part, “It is unacceptable to extract or trade in any natural resources for profit without the approval of the state…natural resources should not be sold to other countries at will….Serious infringements will be punishable by death." Shades of John Huston.

But the fluidity of property rights extends beyond the mining sector.  One of the things that we have been trying to pin down is what changes to the property rights regime are embodied in the 28 June Directive. In the industrial sphere, Jaesung Ryu has come across an account that suggests that says private capital can be invested in business as long as the individual is “registered.” That reminded us of yet another recent story in the DailyNK that suggests just how murky this can be.

Recall, that at the time of the 2009 currency reforms, the markets literally disintermediated; some of the prestige construction projects planned for the Kim Il-sung centennial were collateral damage. It seems that while the projects were being carried out by state construction firms, at least some of the cement was being sourced through the markets, and when they collapsed, the supply of cement dried up, no pun intended. Policymakers appeared to be caught unaware of how deeply implicated in the market were even core functions of the state.

The recent DailyNK piece, “Rich Traders Invest in NK Construction” could be read to suggests how “registration” will effectively regularize this situation, by sanctioning the role of rich traders and go-betweens in bringing even prioritized prestige projects to fruition.  The story describes how “affluent local wholesale traders have been co-opted to support the construction of apartment buildings inChongjin, North Hamkyung Province.” An unnamed source observed that “You can tell that there are people with genuine power involved in the construction by how fast the buildings are going up now.” The paper reports that “the rich people who finance the construction later receive a share of the finished apartments in return.”

The parallels to China should be obvious, and the Chinese case does demonstrate that under the right conditions, murky property rights are not an insurmountable barrier to development.  But many of the attributes that have been present in the Chinese case appear to be lacking in North Korea.  The economy is so distorted that incremental relaxation of control could generate significant gains. But it may well be the case that North Korea’s emerging trajectory is closer to some of the less well performing Central Asian parts of the former Soviet Union than the stellar Chinese example.

https://www.youtube.com/watch?feature=player_embedded&v=nsdZKCh6RsU

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Marcus Noland Senior Research Staff

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