In North Korea, the military now issues economic orders

By Blaine Harden
Tuesday, November 3, 2009

SEOUL -- North Korea's military, whose nuclear program vexes the Obama administration, has grabbed nearly complete command of the nation's state-run economy and staked out a lucrative new trade in mineral sales to China to make money for its supreme commander, Kim Jong Il.

As it deepens its dominance over nearly every aspect of daily life, the Korean People's Army is also deploying soldiers to take first dibs on all food harvested in the isolated, chronically hungry country, according to the latest assessments of analysts.

The army has earned hundreds of millions of dollars selling missiles and weapons to Iran, Pakistan, Syria and other nations. But its two nuclear tests, the most recent of which occurred in May, have triggered U.N. sanctions that are now choking off arms sales. So the army has come up with a new business model, taking over the management of state trading companies to rapidly increase sales of coal, iron ore and other minerals to China, according to trade data and analysts.

The potential profits are eye-popping: China is one of the world's most voracious consumers of raw materials, and North Korea's mineral reserves are worth $5.94 trillion, according to an estimate by South Korea's Ministry of Unification. China has been critical of North Korea's nuclear program and missile tests, but it also has vastly increased its economic ties with Kim's government.

Kim is increasingly creaming off a significant slice of Chinese mineral revenue to fund his nuclear program and to buy the loyalty of elites, according to "North Korea, Inc.," a recent report by the United States Institute of Peace, a Washington-based group funded by the U.S. Congress.

The report echoes the views of North Korean analysts in South Korea, Japan and the United States, who say the military has elbowed out other ministries and the Korean Workers' Party to take control of exports that earn hard currency. The military is also sending trucks to state farms to haul away as much as a quarter of the annual harvest for its soldiers, analysts say.

"The military is by far the largest, most capable and most efficient organization in North Korea, and Kim Jong Il is making maximum use of it," said Lim Eul-chul of the Institute for Far Eastern Studies in Seoul.

North Korea is perhaps the world's most secretive and repressive state, but it makes no attempt to hide the ubiquitous role the military plays in the daily lives of the country's 23.5 million people. Soldiers dig clams and launch missiles, pick apples and build irrigation canals, market mushrooms and supervise the export of knockoff Nintendo games. They also guard the country's 3,000 cooperative farms, and help themselves to scarce food in a hungry country.

"The army is the people, the state and the party," the government has declared. All references to the word "communism" were removed this year from the North Korean constitution. They were replaced with the word "songun," which means "military first."

Defectors and outside experts agree that "military first" is a literal description of how the economy works, how citizens are forced to organize their lives and how Kim remains powerful -- and wealthy.

Chinese cash cow

North Korea is the most militarized state on earth, according to the Strategic Studies Institute, a research arm of the U.S. Army War College. With 1.19 million troops on active duty, about 5 percent of the country's population is in uniform -- compared with about 0.5 percent in the United States. Conscription is universal; men serve 10 years and women seven. An additional 4.7 million people serve in the army reserve for much of their adult lives.

The government devotes about a third of its budget to military spending, according to South Korean and Western estimates. The United States allocates 4 to 5 percent of government spending to the military. The army is also front-loaded for war, with more than 70 percent of its fighting forces and firepower positioned within 60 miles of the border that separates the two Koreas.

Kim's top priority is a ferocious military that can deter a preemptive strike on the nuclear facilities that make North Korea an actor on the international stage, according to Bruce Klingner of the Heritage Foundation, a former CIA intelligence analyst who specialized in North Korea.

But Kim also demands that the military be the primary engine of national prosperity. Outside economists describe that strategy as absurd because defense spending usually crowds out sustainable economic growth. North Korea, though, thinks differently.

"Once we lay the foundation for a powerful self-sustaining national defense industry, we will be able to rejuvenate all economic fields," said the Nodong Sinmun, the main government newspaper.

Missile sales were for many years major earners of foreign currency, according to a report for the Strategic Studies Institute by Daniel A. Pinkston, who is now a Seoul-based analyst with the International Crisis Group. But the cost of the arms trade has gone up and sales have declined as a result of U.N. sanctions imposed after the North's nuclear tests in 2006 and this year, South Korean analysts say.

The military has thus turned to its new Chinese cash cow. As the army has taken over management of mines in North Korea, mineral exports to China have soared, rising from $15 million in 2003 to $213 million last year. Led by those sales, the North's total trade volume rose last year to its highest level since 1990, when a far more prosperous and less isolated North Korea was subsidized by the Soviet Union.

A unique advantage the Korean People's Army brings to foreign trade is a well-disciplined workforce that has to be paid -- nothing. Soldiers receive food, clothes and lodging, but virtually no cash. This competitive edge makes military-run trading companies especially attractive to the North's leadership, according to the Institute of Peace report.

Based on confidential interviews with recent North Korean defectors, four of whom said they worked for trading companies run by the military, the paper concludes that a "designated percentage of all revenues generated from commercial activities . . . goes directly into Kim Jong Il's personal accounts." The rest of the revenue flows into the operating budget of the military.

Pattern of corruption

In a cold, mountainous country chronically short of food, it is no small trick to feed more than a million soldiers every day. In the "military first" era, the army has come up with muscular solutions.

"At harvest time, soldiers bring their own trucks to the farms and just take," said Kwon Tae-jin, a specialist on North Korean agriculture at the Korea Rural Economic Institute, which is funded by the South Korean government.

In the far north, where food supplies are historically lean, the military takes a quarter of total grain production, Kwon said. In other areas of the country, he said, it takes 5 to 7 percent.

To make sure that workers at state farms do not shortchange the military, Kwon said, the army stations soldiers at all 3,000 of them. He said that when tens of thousands of city dwellers are brought to the farms to assist with the fall harvest, soldiers monitor them to make sure they do not steal food.

The permanent deployment of soldiers on the farms has led to a pattern of corruption, Kwon said: Farm managers pay off soldiers, who then turn a blind eye to large-scale theft of food that is later sold in private markets.

Disputes among groups of corrupt soldiers periodically lead to fistfights and shootouts, according to a number of defectors and reports by aid groups. And chronic malnutrition among low-level soldiers persists.

In the past month, Good Friends, a Buddhist aid group with informants in the North, reported on a fight between soldiers and guards at a state farm. In a scuffle over a piece of corn, one soldier was reportedly stabbed with a sickle.

Special correspondent June Lee contributed to this report.

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