Entrepreneurship, Business, and Economic Reform in North Korea

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Entrepreneurship, Business, and Economic Reform in North Korea

An interview with Geoffrey See, founder of Choson Exchange.

Entrepreneurship, Business, and Economic Reform in North Korea
Credit: @ChosonExchange

What is the current state of entrepreneurship, business activity, and economic reform in North Korea? For a perspective on these matters, Jongsoo Lee interviews Geoffrey See, founder of the Singapore-based Choson Exchange, who serves on the Global Future Council on the Korean Peninsula at the World Economic Forum.

Your website states: “Choson Exchange supports entrepreneurs and business-minded individuals in North Korea through workshops, internships, mentorships and scholarships inside and outside of the DPRK.” From your experiences in training and working with North Koreans, how would you rate their entrepreneurial and business skills and abilities? In what areas, if any, do they still have room to grow?

Over a decade of work, we have trained close to 3,000 North Koreans in economic policy, business, and entrepreneurship. We bring volunteers to the country to lead workshops on these topics. Since COVID-19, we started an online program to deliver programs to our audience. Over the last decade, we have seen an increasing sophistication among North Korean entrepreneurs in terms of the businesses they operate, their scale and their ability to cooperate with foreign partners. When we started, many North Koreans we met were in trading businesses or restaurants. Over time, we have seen new concepts, such as convenience store chains, property development, manufacturing, or even e-commerce take root. This speaks to the increased sophistication of small and medium-sized businesses. This group has been growing in skills, capital, and opportunity. We have spoken to ambitious North Koreans who have seen the changes in Asia and seek to replicate those changes back home – such as building a nationwide digital payment network.

However, they face many obstacles. They lack familiarity working with foreign partners, given the limited opportunities to work with them. As such, North Koreans who can navigate both foreign culture and their own are rare. Where they exist, most of them are familiar only with working with Chinese partners.

Your website mentions “a growing group” of North Koreans “hoping to launch startups… who are working for positive change in their country.” How did there come to be a “growing group” of North Korean entrepreneurs? Has the North Korean government been encouraging and promoting entrepreneurship among its people?

In the 1990s after the famine (or “Arduous March” as the North Korean government calls it), more North Koreans became engaged in entrepreneurial activities. The North Korean government has at times turned a blind eye to it and at others clamped down on it. It seems that there has always been a dilemma among policymakers on how to deal with this sector. Many government officials express envy towards those in the business sector as earnings in that sector outstripped those in government jobs. After Kim Jong Un came to power, there was a long stretch of increased permissiveness towards the sector and reforms that supported it. While officially North Korea still adheres to the rhetoric of a state-run economy, de facto recognition of property rights increased and businesspeople were increasingly confident of investing and deploying their accumulated wealth. However, there seem to be fears among observers of North Korea that, under COVID-19 and failed U.S. negotiations over the last two years, there may be a policy direction away from greater autonomy for this sector and an emphasis again on the state economy as the country undergoes unprecedented economic stress.

Is there a “startup ecosystem” in North Korea? What impediments are there to entrepreneurship and doing business in North Korea? And what are the solutions?

There are many issues we work with the business community and policymakers on that we believe are critical. One is the lack of legal recognition of individual ownership of businesses. Businesses are unwilling to scale up if they fear losing a business. While many find ways to still start and run their businesses, this lack of protection creates risks and uncertainty for the business community.

Culturally, there is also a lack of understanding of what it takes to build a new business, or clear role models and ideas for doing so. Around the world, entrepreneurs need a lot of support in navigating the complex process of building a new business. This is much more so in a place like North Korea where there are no clear rules. We helped develop and establish an “accelerator program” outside of Pyongyang to help people at an ideation stage and have seen over 20 startups graduate from the program each year. Our hope is that someday we will have an incubator space to help these entrepreneurs support each other in their journey and to provide them more tailored startup advice. There are also many obstacles in communications with the outside world that prevent North Koreans from learning how to collaborate effectively.

As there is no taxation enshrined in the law, setting up a business can be costly. As a result, many small businesses face a fixed sum “tax” rather than a tax as a percentage of profits. This creates an unequal playing field for smaller businesses.

Lastly, capital is in shortage. With sanctions, there is not much that can be done here by us. But domestically, we try to encourage our partners and incubator program to match new ideas with wealthy North Korean businesspeople.

Are there North Korean startups that have become significant successes? If yes, what explains their success and what lessons can be drawn from them?

Yes! We have seen over the years a number of successes from people who have participated in our programs or whom we have met. For most of them, finding a good partner in China seems to accelerate their growth significantly. Being skilled at navigating an ambiguous regulatory environment also accounts for their success. We were really impressed with a scientist who joined our accelerator program in 2017. He built a surge protector and struggled against cheaper Chinese imports. Working with our volunteer workshop leaders, he was able to come up with a simple branding strategy that emphasized the local origins of his product. He grew his business and came back to subsequent workshops to share his experience with other North Koreans embarking on their startup ideas.

Your website also states: “We believe that entrepreneurship provides a viable path towards positive change and a healthy civil society in North Korea.” What kinds of positive change, if any, have already taken place or can be expected to take place? What signs, if any, of a healthy civil society are emerging in North Korea?

Our programs emphasize the importance of knowledge, networking, and improved property rights for small and medium-sized businesses. In our Women in Business program, we found some entrepreneurs developing small self-help groups for female businesspeople to help them cope with common challenges they face, such as balancing family duties and professional success. In other areas, we have seen strengthened property rights around land use, with legislation passed to support this. North Korea today is very different from 10-20 years ago. The growing business sector has created unthinkable opportunities for North Koreans to gain success through alternative pathways and forge new associational relationships. We also hope that policymakers there understand that to achieve economic development, these are also important foundations.

Apart from supporting organizations like Choson Exchange, how can the international community support entrepreneurship in North Korea? For example, can the international community play a role in enabling more North Koreans to travel overseas to gain business training and experience?

From new styles of coffee shops, to e-commerce or messaging, we have seen many of our program participants take ideas they have seen abroad home to start new businesses. For most of us living globalized lives with easy opportunities to travel, we take the ideas we gain from this process for granted. But for many North Koreans, what they see overseas on an once-in-a-lifetime trip to Singapore, Switzerland, or Vietnam is a rich source of ideas. Unlike Vietnam, which has a huge global diaspora bringing modern ideas home, North Korea’s innovation suffers from the lack of knowledge and diversity of global experiences.

In what ways, if any, has the COVID-19 pandemic impacted entrepreneurship, industry, and business in North Korea? In what ways can North Korea emerge stronger from the pandemic?

We are concerned that the massive economic impact of COVID-19 and failed negotiations with the U.S. have led North Korea to prepare for a long-term ration-economy mentality. Many analysts believe the government is preparing for prolonged economic isolation and appears to be strengthening state-planning at the expense of the small and medium-sized business community. We are monitoring this situation and hope that economic reforms favorable to entrepreneurs in the early years of Kim Jong Un’s administration are not abandoned permanently.

Please comment on the role of women in North Korea’s business and entrepreneurial economy. What are their contributions and the challenges they face? How can they overcome their challenges?

Females lead many of the small businesses in North Korea. This emerged from the 1990s when many of them adjusted to the changes in the economic system first by starting small businesses. Over time, they have gained in experience. We led a successful Women in Business program that helps this community network, support each other and learn to build more sophisticated businesses. Unfortunately, the downturn in interest in supporting this community since the Trump administration led us to shutter the program. We still try to ensure a significant involvement of females in our existing programs.

Is there room for more inter-Korean engagement and cooperation to promote entrepreneurship and economic reform in North Korea? How can South Korea learn from Choson Exchange in undertaking such engagement and cooperation?

North Korea is hesitant to take advice from South Korea on such a highly charged domestic policy issue. They are wary of being seen as adopting a “South Korea” model and believe they have to find a unique path suitable for the situation they find themselves in. The most effective way for South Korea to support economic knowledge exchange is for them to build consistent international platforms for North Korea to engage with the world and learn from those exchanges. These will come back to enable easier partnerships between both Koreas when such exchanges can take place.

What role is there for Singapore and Southeast Asia to play in supporting entrepreneurship and economic reform in North Korea?

North Korea looks up to Singapore for its economic development. This was affirmed when Kim Jong Un visited Singapore. As a neutral country, learning from Singapore is less politically sensitive than with other countries that have a more direct stake in the issue. Vietnam also provides experiences in transitioning its economy that are useful to North Korea. One of our dreams is to bring North Koreans to study at the Fulbright University in Vietnam for longer programs. In some sectors like hospitality and tourism, Thailand and Indonesia have expertise that can be shared.