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Kim Jong-un’s regime has recently undertaken a flurry of diplomatic engagement with Vietnam. Photo: AP

Can North Korea copy Vietnam’s economic miracle?

  • Hanoi’s series of reforms, known as doi moi, turned it into one of the world’s fastest-growing economies
  • But there is much to do before Pyongyang can use them as a road map for development – including getting Kim Jong-un to relax his iron hold on power
North Korea

When Vo Van Dai started working at Vietnam’s Van Phan Dien Chau fish sauce company in the late 1980s, the state-run firm comprised five departments overseen by 18 managers. By the time he rose up the ranks to take charge of the company after its privatisation in 2000, the Nghe An province-based firm had slashed management by two-thirds.

During the same time, revenues exploded tenfold to over 20 billion dong (US$860,000) and the regular workforce more than doubled to 180 employees.

“In the past, as a state-owned company, we worked according to the state’s plan, meaning we just cared about production and didn’t have to worry about sales,” said Vo, now the company’s director.

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He owns 15 per cent of Van Phan Dien Chau, as the biggest of its 116 shareholders. The company was privatised after the government sold shares to workers – subsidising 30 per cent of the share value – and offering more shares to those who had worked there for longer.

“Privatisation meant we … had to decide on our own what to produce, to sell what the market needs. The state’s role changed from direct involvement to managing companies indirectly through laws and regulations,” Vo said.

Vo’s is an experience that has played out across officially socialist Vietnam since the death of strongman leader Le Duan in 1986 ushered in private markets, consensus-based decision-making via the Politburo, and vigorous engagement with the outside world.

Vietnam’s economic and political reforms, known as doi moi, have been credited with transforming a decrepit system of central planning into one of the world’s fastest-growing economies. Per capita GDP has risen five times since the 1980s to about US$2,500, with economic growth last year topping 7 per cent.

Ahead of North Korean leader Kim Jong-un and US President Donald Trump’s second summit in Hanoi on February 27 and 28, the Southeast Asian country’s steady economic liberalisation has been held up as a road map for impoverished North Korea to kick-start its development.

In South Korean media, Kim – whose regime has recently undertaken a flurry of diplomatic engagement with Vietnam – has been quoted by unnamed sources expressing his wish to learn from the country.

Vietnam’s doi moi has coincided with a broader loosening of state control despite the communist party’s monopoly on power, according to experts. Photo: Handout

Over the weekend, Reuters reported Kim would arrive in Vietnam on February 25, with a source saying he would visit the manufacturing base of Bac Ninh and the industrial port town of Hai Phong.

Like the North is now, communist-ruled Vietnam was once economically moribund and isolated on the international stage.

But Hanoi’s opening may be difficult to emulate in the isolated, totalitarian North, whose dynastic leader exerts near-absolute control over almost every facet of life and extinguishes any flicker of dissent, experts say.

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“The regime will always place political stability and its own hold on power higher on its list of priorities, and it wouldn’t institute changes that it seriously believed could threaten social and political stability,” said Benjamin Katzeff Silberstein, co-editor of North Korean Economy Watch.

Under doi moi, officially socialist Vietnam embarked on a shift towards a “socialist-oriented market economy” by dismantling state rationing, price controls and production targets, and opening up industry to foreign investment. Where the private sector was once non-existent, the country is now home to somewhere between 440,000 and 600,000 private businesses, according to government figures.

Donald Trump and Kim Jong-un are set to meet in Hanoi for a second summit. Photo: AP

Although the communist party maintains a firm grip on dissent and the flow of information under a one-party system, Vietnamese enjoy freedoms unimaginable to citizens in the hyper-authoritarian North, including relative freedom of movement and access to the internet. In its global report for 2018, Freedom House gave Vietnam a score of 20 – where 100 is most free – for political rights and civil liberties, compared with 3 for North Korea.

Vu Minh Khuong, an associate professor at the Lee Kuan Yew School of Public Policy in Singapore, said doi moi coincided with a broader loosening of state control despite the communist party’s monopoly on power.

“The people feel free and empowered to talk about the country’s problems and make suggestions on how to tackle them, to seek opportunities everywhere in the world to make their life better, to establish firms and do business globally,” he said. “Political leaders and government officers now listen more seriously to people and behave accordingly.”

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Since coming to power after the death of his father in 2011, Kim Jong-un has repeatedly emphasised the importance of economic development. Last year, South Korean President Moon Jae-in said Kim was even interested in joining international institutions such as the IMF and the World Bank.

Under the third-generation leader’s rule, the reclusive North, officially known as the Democratic People’s Republic of Korea, has undergone modest growth after decades of stagnation.

North Korea’s state-led economy, one of East Asia’s poorest, grew by an estimated 3.9 per cent in 2016, according to the South’s central Bank of Korea – its best performance in more than a decade. Crude estimates for per capita GDP range from several hundred US dollars to US$2,000.

Vietnam’s steady economic liberalisation has been held up as a road map for impoverished North Korea to kick-start its development. Photo: AFP

In recent years, the North has initiated minor reforms to lessen its reliance on the command economy, sanctioning more than 400 private markets and establishing more than a dozen special economic zones for foreign investment. In a survey carried out by the Centre for Strategic and International Studies, all but one of 36 North Koreans surveyed said they made at least three-quarters of their income through private market activity.

Whereas Kim Jong-il cracked down on private commerce, the younger Kim tolerates the underground economy. Black markets called jangmadang, which sprang up after famine in the mid-1990s pushed the state rationing system to breaking point, now make up about 60 per cent of the economy, according to the Institute for Korean Integration of Society.

Investors such as Singapore-based American Jim Rogers, the billionaire founder of Quantum Fund, see a potential economic powerhouse in North Korea – if it can embrace sweeping reforms and the international community relaxes sanctions. “They don’t have anything you have and they want to have it, they want to live like you do, they want to live like they live in South Korea, they want to live like they live in China even,” Rogers told The Straits Times.

Among its natural advantages are proximity to China, Japan and South Korea, and huge untapped mineral reserves estimated to be worth in the trillions of dollars. At the weekend, Trump predicted that the North would become an economic “rocket” under the “capable” Kim.

“The clear resolution of the war in Vietnam meant that just a couple of decades later, Hanoi and Washington were able to establish a cooperative relationship with one another,” said Andray Abrahamian, who trained start-ups in North Korea with Singapore-based non-profit Choson Exchange.

“The lack of conclusion to the Korean war has meant Pyongyang has felt compelled to continually organise itself in resistance to the United States. If the two sides now are able to find a way to end this conflict, who knows what might be possible?”

China, which accounts for more than 90 per cent of the North’s trade, has for decades held out hope that its erratic ally would initiate reforms similar to those spearheaded by Deng Xiaoping after 1978.

Yanfeng Xia, an East Asian history expert at Long Island University Brooklyn, said Kim Jong-il’s first visit to China in 1983 was full of signs of Chinese eagerness for the then-heir apparent to embrace reform. “The Chinese clearly wanted to showcase some recent successes of reform and opening to their North Korean guests and hoped they would follow China’s footsteps,” he said.

After Kim Jong-un announced a halt to nuclear tests early last year, pledging to direct efforts towards building a “socialist economy”, Beijing made its approval clear.

To replicate Vietnam’s success, Pyongyang (pictured) would need to overhaul its legal system and system of ownership. Photo: AFP

“China’s hope has been for North Korea to adopt the Chinese model of economic reform. But in China’s view, Vietnam’s doi moi since 1986 is modelled after China’s reform anyway,” said Yun Sun, director of the China programme at the Washington-based Stimson Centre. “They are both adaptations of communist regimes to resort to economic development for performance legitimacy without jeopardising their authoritarianism.”

But there are doubts that Kim, who has overseen the purging of numerous perceived rivals including his half-brother and uncle-in-law, would risk opening up his country to a degree associated with economic take-offs elsewhere. The North received net inflows of only about US$25 million in 2016, according to the World Bank, compared with Vietnam’s US$12.6 billion.

“Look at Kim Jong-un’s heavy priority on special economic zones, for example,” said Silberstein of NK Economy Watch. “There’s a reason he favours them so strongly: they are a way to contain change and reform to specific parts of the country, without risking too much.”

To replicate Vietnam’s success, Silberstein said, the North needed to overhaul its legal system and system of ownership so businesses could flourish on their own initiative. “North Korea’s system is arguably far more archaic and rigid than those of comparable examples, so conversely, the challenge would likely be bigger,” he said.

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It’s a challenge that fish sauce company director Vo knows all too well. “Because we were one of the first to privatise, workers … saw privatisation as pushing them out to the streets. They were very worried,” Vo said, adding they felt better when insurance policies and other welfare benefits were introduced.

Vo believes privatisation has improved productivity – now that workers are shareholders, they have more incentive to work. It has also given the government funds to invest elsewhere. “The management board has to be more proactive, find ways to rotate capital flows faster and become more productive,” he says, speaking the language of a savvy businessman. “Privatisation has lifted a lot of burden for the government and allowed it to focus on the most important issues.”

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