While giving a talk at the Wharton School in April, I stopped by the Knowledge@Wharton publication to chat about my work. The following are excerpts from the interview.

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Knowledge@Wharton High School: Geoffrey, thank you for joining us today. Why did you start this organization? Why did you focus on financial education as a way to support long-term economic development in North Korea?

Geoffrey See: When I was a student at Penn in 2007, I [chose] to go to China for one of the summers to do research and to intern in China. I had some time during my internship, so I went to North Korea as a tourist. I was familiar with the usual stereotypes of North Korea as a communist country, but what really surprised me was [that] I met university students who were very interested in business and economics. They wanted to get access to books and topics, they wanted to find ways to learn about business, and they were very curious to hear about it, especially from someone who was studying business in a university setting.

KWHS: Can you give us a snapshot of economic development today in North Korea? What does it look like?

See: [Many] young people there are very interested in trying new things. They want to set up their own businesses. They want to implement the things that they’ve learned and heard from the rest of the world. The problem, though, is that it’s still a very restrictive economy and society, so [they can’t implement] a lot of the things that they want to do. We have discussions with younger people who are trying to implement some of these ideas.

KWHS: Tell us about the workshops. How do they take shape?

See: We first go [to North Korea] and talk to the various institutions to try to understand what they want to learn about. It’s a very interesting process because when you talk to these people, they have very limited access to information and they are trying hard to understand the world around them. We have conversations, say, with a banker in North Korea, and she tells us, “I’ve read this term in the Financial Times and I don’t know what it’s about, but it sounds very interesting and I’ve seen it come up quite a few times in the paper.” Some of these terms are “private equity” and “exchange trader funds” — topics that are relevant in the rest of the world.

But in North Korea, the sad thing is that we [have to] tell them, “These are not things that you can implement in [this country] in the next 20 or 30 years…” But it’s interesting to see them being curious about a process. So we normally talk to them about these different topics, get a sense for what they’re interested in and what they can realistically try to change in the next three to five years. Then we say, “This is a topic we want to work on.” We bring in a team of workshop leaders who are volunteers from the business or policy sectors. They do small group workshops to discuss these topics and try to get [participants] to think about how they can potentially implement this knowledge within their environment.

KWHS: How strong is business education in North Korea?

See: They don’t have access to most of the modern knowledge that’s being created in the business area. We have looked at some of the universities and the books they have in the libraries, and we see financial textbooks from the 1970s published in the Soviet Union, which makes us a bit dubious about the extent to which they capture the current field of knowledge in some areas. The [people here] are really conscious of the fact that the world sees them as being very isolated. When we do a workshop, participants tend to drop big words that they might have read somewhere on the topic or heard about from someone. Very often, they don’t understand the concepts behind them. [For instance,] we had some of them raise [the concept of] corporate social responsibility (CSR) in a [context] that had nothing to do with [what CSR is]. They were trying very hard to show that, “Oh, I’ve read a little bit, I’ve heard a little bit of what’s happening outside and I’m in tune with the theories.” But very often, you realize that there’s a weak conceptual understanding of some of the things that they raise.

KWHS: As you build out your organization, say, in the next five years, what do you see as your main goals? What do you see as your biggest challenges?

See: We are very happy targeting younger adults aged 20 to 40 – [they have] high potential, and are very curious and very intellectually motivated. This group of people is [excited by interesting ideas]. They want to test and try them out. We probably want to expand the number of people we involve from that age group and get them to think about the next steps. It’s not just learning about business or finance or economic policy, but also saying, “Okay, now that I’ve learned this, how can I actually set up something and implement some of these ideas that I’ve learned?” We may try to support them, maybe by setting up a business incubator. The concept behind it is that people are interested, but they don’t always know how to set up a business, raise capital, set up a proper accounting system. We would come in and help them realize their dream by providing them with these kinds of resources and some of the funding to create businesses.

KWHS: Does North Korea have an existing incubator infrastructure?

See: This is the exciting part of our work and also the most challenging part. Currently, it’s a very alien concept to them. They’ve never seen it before and they need to get permission to get it done within the system. So we have started introducing the concept to them to get them to feel a little bit more comfortable with it. I think it’s something that we have to work towards, and I’m guessing in two to three years time, we may be able to get it set up.

KWHS: Are the young people you speak with in your seminars very entrepreneurial? Have you found that they really want to start their own businesses?

See: I think for most of them, there is excitement because they read and have had the opportunity to go to other countries. For example, they visit a supermarket in China or visit a fast food chain in China and [think], “Wow, this is a very interesting concept.” It has the connotations of modernity, so they look at a fast food restaurant and see it’s not just convenience and cheap food, but it’s fast, it’s clean, it’s modern. A lot of them want to bring those concepts back because [these ideas are] very innovative and exciting. There’s so much curiosity, but people haven’t had a chance to go out and try to get it set up in a space where none of this exists.

KWHS: It sounds like they have hope.

See: I think there’s a lot of hope. There are challenges, too. There’s always going to be an opening-up process where there’s more leeway to do things, and then [other times] it’s going to be more strict and restrictive. When you’re between 20 and 30, you [get excited]. When we see them getting to 30 to 40 years old, people tend to be a bit more rational and want a more stable path in life.

Over at the Diplomat, Geoffrey and Andray argue that a resource curse in North Korea is something we should be keeping an eye on. Some Excerpts:

The idea of the “resource curse,” long debated by development theorists, is helpful in understanding how the DPRK might marketize and yet remain stable. Rather than spur change, a what we might call “resource-driven equilibrium” might develop in North Korea.

Resources can put tremendous strains on the economy’s manufactured goods, by driving up the exchange rate and making exports more expensive. Furthermore, human resources are drawn away from export-oriented industries, further eroding the competitiveness of the manufacturing sector. There are also political consequences associated with a resource boom. When there’s a lack of manufacturing to begin with, a country’s elites are incentivized to fight for control over the resource base, rather than producing wealth by other means.

Both the economic and political pressures brought by control of a valuable resource can be mitigated in a variety of ways, including good governance through strong institutions.

If managing resources and overcoming the so-called curse is a matter of concerted, institutional commitment and the corresponding development of effective economic institutions, North Korea will struggle to avoid the trap, both in economic and political terms.Marketization without good governance could result in a stagnant and isolated economy, much like Burma over the last decade.

North Korea’s system has shown resilience to the encroachment of unofficial sources of news and information that have been growing since the mid-1990s. A more marketized economy with greater engagement with the outside world may allow more outside information in, yet paradoxically serve to bolster, rather than erode, this resilience.

Full article here.

On April 15^th, 1912 the future path of both James Cameron’s career and the modern history of Korean peninsula began . For it was that day that man’s hubris was checked in the North Atlantic and “the lodestar of the Korean revolution” was born. (By the way, have you ever noticed that certain English words – lodestar among them – seem to have been given life only by KCNA? Have you ever seen the word ‘flunkyism’ in a publication not related to Korea?)

100 years later, Kim Il Sung’s grandson provided a spectacle that no North Korean had seen since the early 90’s. He gave a public speech. South Korean media outlets fell all over themselves as they rolled out audio analysts and psychologists to discuss the similarities between Kim Jong Un and Kim Il Sung. The link was also explicitly made on North Korean TV, with a newscaster marveling at how Kim Jong Un had the look of his grandfather.

If the style was his grandfathers, the content was his dad’s. “First, second, third…in a hundred ways we must go out and strengthen the people’s army,” he said, while at the same time emphasizing that prior accomplishments meant that North Korea was safe from its enemies. “Superiority in military technology is no longer monopolized by imperialists, and the era of enemies using atomic bombs to threaten and blackmail us is forever over,” Kim said.

He threw out military terms a total of 56 times in his speech, and economic ones only 9 times, according to a count done by KBS, a South Korean broadcaster.

This weekend, despite starting badly for the North Korean authorities with the failure of the satellite launch, was always going to emphasize the military. The military parade that preceded Kim’s speech appeared to unveil a new missile.

North Korea’s experiments in economic reform are far from fully articulated. The ambivalence towards change is still there and in these early days of Kim Jong Un, it is unsurprising that they’re emphasizing the sure bet over the unsure one.

The telling thing is that this is very much part of Kim Jong Un’s process of finding the balance between his father and grandfather, before he can establish something of his own path. The content of his words in last couple months have seemed increasingly like Kim Jong Il, while his gregarious and relaxed manner have seemed every more like his grandfather.

Nonetheless, reminding people of the Kim Il Sung era won’t suffice for long. He will at some point have to start demonstrating the fruits of economic growth, including the material comforts that his grandfather oversaw for much of his tenure.  Citizens of North Korea, for now, will go back to their daily lives, with a clearer impression of Kim Jong Un: One that he is very much the inheritor of his paternal lineage.

Kim Il Sung’s Juche states that “man is the master of all things”. For now, the world – and most of all, North Koreans – are watching to see if a single man can successfully master the tricky political economy of the DPRK.

Early last year, we asked a banker in Pyongyang what finance-related workshops we should implement in Pyongyang and she replied that “Exchange-Traded Funds” and “Private Equity” were topics of interest. We immediately considered these impractical and when we asked why she wanted to learn about the topics, she said that she had come across the words in the Financial Times and was “curious.”* While we encourage our participants to be curious, given limited resources, we had to pick issues where we believe we can make an impact that leads to positive outcomes.

The way we do this is through a due diligence process where we identify key priorities of partners on the ground, see if this is in line with developments we would like to see, and decide what kind of workshops could help make it happen. This normally takes 3-4 trips and occasionally a pre-workshop (i.e. a workshop where the purpose is more to find out about a policy issue in North Korea and its associated challenges) before we can identify the opportunity. For our most recent workshop, which focused on systems supporting commercial lending, we started the due diligence phase as far back as 2010 through workshops and extended discussions over several trips.

Our North Korean partners have identified aspects of banking knowledge needed for commercial lending, and we agreed that these were key priorities that can be implemented in a 2-3 year time frame. Currently, at least on paper, banks lack a lending system. We believe that for new enterprises to grow and develop, a true lending system needs to be in place to provide capital on a commercial basis. This was the basis for covering risk management and asset-liability matching in our most recent workshop in March 2012, which are systems needed to support commercial lending.

*According to a friend who works for the Financial Times, one of the FT reporters had met the same person in Pyongyang and asked her what she thought about FT. Her reply was that FT focused too much on traditional equity coverage, and not enough on derivatives.

Last year, we met with both the Taepung Group and the Joint Venture and Investment Commission (JVIC) to discuss potential training programs in economic and investment policy. We ended up working with the JVIC on some training programs as most of their staff came across as being professional, earnest, and well-intentioned. They were focused on critical issues such as reshaping investment laws and strengthening the rule of law in general. Many of them were aware of key challenges businesses faced in North Korea. Many of the staff also lived abroad and brought with them creativity and pragmatism in looking at problems and in devising solutions.

During programs and meetings, workshop leaders constantly reinforced the themes of establishing credible investment laws, tackling corruption, providing more information on the business environment and reducing expropriation risks. We emphasized the need for a consolidation of investment-seeking efforts as we were worried that having multiple investment agencies would lead to investments being funneled into different patronage networks instead of being redirected to broader development objectives. There was also the risk that different agencies would offer inconsistent terms to investors, leading to an unfair playing field.

While we heard over the course of last year that a JVIC-Taepung major was in the works, we never knew when this might take place. Hence, we are gladdened to read that Taepung is going to be merged into JVIC (which we have yet to confirm). We believe that this is a positive step forward for North Korea’s economic development, as they will need an effective agency to support foreign investors, shape the domestic business environment, and help foreign investors navigate the domestic business environment. Perhaps a next key step would include JVIC formally taking on some of the roles of the State Planning Commission, as foreign investment is critical if North Korea is to revive its moribund state enterprises and overall economy.

What is the Taepung Group?

As of April 2011, executives at Taepung describe a business model more reminiscent of a holding company rather than a government institution. Investors place their capital with the Taepung Group or create joint-ventures with the group. Taepung acts as the manager of the companies. There could be potential deviation from this description, although this is the model envisioned by leading executives on the group. The group aims to “build an economy outside of the state-planned economy.”

What is the Joint-Venture & Investment Commission?

The JVIC is similar to the more traditional investment-promotion agencies in other parts of the world. In addition to promoting North Korea as an investment destination, JVIC officers also work with investors to navigate the North Korean business environment, as well as provide feedback on key policies influencing the investment and economic environment. They oversee North Korea’s Special Economic Zones in Rason and Wihwa Islands and lead government negotiations with China in developing these zones.

In this paper written for Korea Economic Institute’s Academic Paper Series, Andray explores the ongoing changes seen in Rason.

The paper is available to download here.

Abstract:

Rason, North Korea’s Special Economic Zone located in the far Northeast of the country, is undergoing change at a pace unseen in its twenty-year existence. Its history has been one of insufficient support, both from leadership in Pyongyang and from external actors. Now, however, amid political transition in North Korea, reform and reoganization have taken place in the SEZ, while at the same time China has included Rason in its ambitious plans to develop its Northeastern province of Jilin. These changes demonstrate Pyongyang’s increasing need to reach out to foreign investors to reinvigorate its economy. They also point toward China’s desire to develop its Northeast region and promote stability while increasing its leverage over North Korea’s economic growth. Despite the myriad challenges facing both the SEZ and North Korea’s economy, these factors give Rason better prospects for development than we have seen before.

With the news that North Korea has agreed to halt uranium enrichment and allow inspectors into the country to verify its nuclear activities, we are probably going to hear from pundits making claims about Central Military Commission Vice-Chairman Kim Jong Eun’s role in this decision and whether it marks a sea change in the North Korean leadership.

What I would like to emphasize is that this deal was negotiated before the National Defense Commission Chairman Kim Jong Il passed away. While there was some pushback on the amount of food aid and the composition of food aid, the announced details for aid do not mark a major shift from initial positions (based off US assessment of North Korean needs), although it does indicate some concessions from North Korea’s Ministry of Foreign Affairs which was supposedly angling for a larger amount of aid.

As such, I don’t think we can at this point draw any strong conclusions as to whether Kim Jong Eun’s leadership will indicate a significant policy shift from before, but rather, conciliatory measures seem in line with ongoing trends from 2011 which emphasized economic development and standard of living over traditional security themes.

There could still be significant changes down the line, but we believe people will start mistakenly attributing North Korean policy trends emerging in 2011 that were not covered by the media as changes implemented in 2012 because of a new leadership.

We were profiled in the Korean Herald:

Teaching business principles to communists in the world’s most isolated state may seem a thankless task, but for the NGO’s founder Geoffrey See it can engage the so-called Hermit Kingdom in a constructive and a-political way.

State-run enterprises are already working to attract international business and foreign investment in joint ventures. With infrastructure investment in areas such as the Raseon special economic zone, there is a thirst for commercial knowledge there like never before.

“The old generation in North Korea has very little incentive to experiment,” Abrahamian said. “This is true in any country ― younger generations tend to be open to new ideas. There’s definitely that sense in North Korea too, the young people are more interested in broader way of doing things. In that sense North Korea is going to change.”

While North Korean startups tend to be smaller branches of state enterprises, Abrahamian explained that the growing number of joint ventures with international companies has created the need of better understanding of how to manage assets and resolve disputes. Seminar attendees have asked for help in setting up ventures from chicken restaurants to a spa resort, areas that can prove lucrative if they can position themselves at the top of a state-run venture.

“The last couple of years have seen a bit of a shift in North Korea so there is more of a focus on economic issues,” he said.

“You are seeing some developments at their special economic zones in the far north, there have been positive developments there, they revised laws regarding foreign firms operating in North Korea last year and we can see the international trade numbers soaring upwards especially vis–vis the Chinese.”

Read more here…

An op-ed on commercial life in North Korea by Geoffrey at 38North, a publication at John Hopkins SAIS.

On one training trip to North Korea this year with Choson Exchange, I enjoyed less-than-tasty fried chicken washed down with copious amounts of beer with North Koreans at a joint venture fast food restaurant. On the rooftop, chickens ran around in what might be the only locally-sourced fast food restaurant in the world. Outside, traffic was definitely up from what I remembered from a visit four years ago—just as the many visitor reports to Pyongyang have been claiming throughout the past year. Inside, the North Koreans I was with would eventually try to convince me to help them set up a spa and restaurant.

Two parallel and somewhat conflicting narratives of North Korea have emerged over the past year. Visitors to Pyongyang point to the progression of major construction projects, increasing traffic on the city’s previously empty streets and more well-stocked shops as signs of prosperity. Elsewhere, humanitarian agencies and North Korean government officials warn of a deteriorating food situation. While officials solicit aid overseas, enterprising North Koreans are seeking capital to fund new businesses particularly in the service and resource sector…

Read more at http://38north.org/2012/01/gsee013112/

Geoffrey See, Managing Director at Choson Exchange, will be speaking at the following events in February:

Closed-door event on developments in North Korea
February 6, Monday, 2-4pm
Organized by John Hopkins SAIS and National Committee on North Korea
At the Berstein-Offit Building at SAIS (1717 Massachusetts Avenue NW), Room 736

We will discuss North Korea’s developing investment agencies and competition among these agencies.

Panel on Social Entrepreneurship in Asia
Harvard 2012 Conference – Cross-Cultural Connections: Weaving New Roads
February 19, Sunday
Organized by the Harvard Project on Asian & International Relations

We will discuss our approach to operating a social enterprise in the highly challenging North Korea space.

Panel on Creating the Right Business Environment for Social Enterprise
Social Enterprise Conference at Harvard
February 26, Sunday
Organized by Harvard Business School and Harvard Kennedy School of Government

We will discuss the challenges of working with multiple government partners on an incredibly sensitive and politicized issue.

Please check back for updates.