US embassy cable - 97STATE230033

C O N F I D E N T I A L STATE 230033 
 
 
USTR FOR CASSIDY/CHENG 
 
E.O. 12958: DECL: 12/08/08 
TAGS: PINR, KN, PGOV, PREL      - 
SUBJECT: // INR ASSESSMENT // -   DPRK: QUACKS LIKE CAPITALISM 
 
DOD/ISA/AP FOR SCHRIVER; NSC FOR KRISTOFF/BADER, NSA FOR 
KILMER, DIA FOR NIXON, LONDON FOR HALL, ROME PLEASE PASS 
EMBASSY VATICAN 
 
THE FOLLOWING INR ASSESSMENT WAS PRODUCED BY THE OFFICE OF 
EAST ASIA AND PACIFIC ANALYSIS AND IS PROVIDED FOR YOUR 
INFORMATION AND COMMENT 
 
CLASSIFIED BY ROBERT CARLIN, DIVISION CHIEF INR/EAP/NA. 
REASON: 1.5   (D) 
 
 
1.   (C) EVEN AS PYONGYANG CONTINUES TO EXCORIATE CAPITALISM 
AND INSIST THAT THE NORTH WILL "NEVER CHANGE," THERE ARE   - 
SIGNS THAT SOME IN THE REGIME ARE INCREASINGLY OPEN TO 
EXPERIMENTING WITH CAPITALIST PRINCIPLES.    BUT CONSERVATIVE 
OPPOSITION AND BUREAUCRATIC INERTIA ARE STRONG, AND THE 
NORTH'S LIMITED MEASURES THUS FAR WILL NOT BRING NEEDED 
FOREIGN INVESTMENT. 
 
2.   (U) THIS SPRING AN OFFICIAL ECONOMIC JOURNAL CARRIED 
SEVERAL ARTICLES STRESSING THE IMPORTANCE OF SUCH MARKET- 
RELATED ECONOMIC PRINCIPLES AS COMPETITION, AUTONOMOUS 
DECISION-MAKING, AND INCENTIVES.   THE ARTICLES ARGUED THAT 
THE DPRK MUST MEET THE DEMANDS OF THE CAPITALIST MARKET 
THROUGH MARKET RESEARCH,  STUDY OF CONSUMER BEHAVIOR, PROPER 
PRICING, QUALITY CONTROL, AND ADVERTISING.   THEY DISCUSSED 
IN FAVORABLE TERMS JOINT-VENTURE CONTRACTS AND PROFIT- 
SHARING ARRANGEMENTS, EMPHASIZING THAT FOREIGN DIRECT 
INVESTMENT WOULD PROMOTE TECHNOLOGICAL DEVELOPMENT AND 
IMPROVE THE QUALITY OF DOMESTIC PRODUCTS.   INCENTIVES, THE 
JOURNAL EMPHASIZED, ARE KEY; INCREASED PAY "INCREASES 
ZEAL," AND AUTONOMY SPURS INITIATIVE. 
 
-THE DEBATE JOINED 
 
3.   (C) THE DAY THE ARTICLES APPEARED, THE PARTY NEWSPAPER 
CARRIED AN AUTHORITATIVE COMMENTARY CITING THE ALBANIAN 
EXPERIENCE AS A WARNING AGAINST ABANDONING SOCIALISM. 
THOUGH PROBABLY NOT WRITTEN DIRECTLY IN RESPONSE TO THE 
ARTICLES, THE COMMENTARY REFLECTED SERIOUS CONCERN AMONG 
CONSERVATIVES THAT THE IDEOLOGICAL DIKES WERE BEGINNING-TO 
LEAK. 
 
4.   (C) THERE ARE SIGNS THAT MORE THAN THEORETICAL JOUSTING 
IS GOING ON.   HIGH-LEVEL OFFICIALS FAVORING PRAGMATIC 
ECONOMIC MEASURES REPORTEDLY WERE DISPATCHED TO THE NORTH'S 
NAJIN-SONBONG FREE TRADE ZONE TO INVESTIGATE THE NEED FOR 
NEW MEASURES.   IN JUNE, FOLLOWING UP THEIR RECOMMENDATIONS, 
PYONGYANG IMPLEMENTED LIMITED STEPS TO PROMOTE MARKET 
PRACTICES.   THESE INCLUDED EXPANDING THE RANGE OF ECONOMIC 
ACTIVITY AUTHORIZED IN THE ZONE AND ALLOWING NORTH KOREANS- 
NOT JUST FOREIGNERSWRO ENGAGE IN PRIVATE ENTERPRISE RANGING 
FROM SELLING SURPLUS FARM GOODS TO OPENING RESTAURANTS. 
 
5.   (C) THE PROCESS TOOK ANOTHER STEP FORWARD IN AUGUST 
WITH PUBLICATION OF A KIM JONG IL THESIS ON REUNIFICATION. 
SOUTH KOREAN FIRMS HAVE TOLD EMBASSY SEOUL THEIR DEALINGS 
IN THE DPRK HAVE BECOME-MORE BUSINESSLIKE SINCE THE KIM 
THESIS, WHICH APPEARS TO HAVE GIVEN NORTHERNERS AN 
IDEOLOGICAL BASIS TO DEAL WITH THE SOUTH. 
 
COLD COMFORT 
 
6.   (C) IT IS UNLIKELY THAT THE LIMITED REFORM MEASURES 
UNDERTAKEN WOULD HAVE BEEN CARRIED OUT WITHOUT KIM JONG 
IL'S BLESSING.   NONETHELESS, UNLESS KIM EXPLICITLY STATES 
THE NEED FOR BROAD ECONOMIC REFORMS, THE PROCESS WILL MOVE 
SLOWLY, ALWAYS UNDER COVER OF A PRUDENT-IF TATTERED 
IDEOLOGICAL VEIL.   IDEOLOGICAL COVER IS NECESSARY TO 
PROTECT THE REFORMERS, ALLOWING THEM TO ACCOMMODATE MARKET 
ACTIVITIES AND PURSUE NEW MEASURES FOR DEVELOPMENT WHILE 
PAYING PROPER OBEISANCE TO ORTHODOX BELIEFS.   THESE SUBTLE 
SHIFTS IN PYONGYANG'S ECONOMIC LINE WILL PROVIDE COLD 
COMFORT TO POTENTIAL WESTERN INVESTORS.   BUT THEY HAVE 
ALREADY STRUCK A RESPONSIVE CHORD AMONG SOME SOUTH KOREAN 
FIRMS AND PROMISE TO ENCOURAGE NEW ECONOMIC BEHAVIOR IN THE 
NORTH.  (JBADER) (CONFIDENTIAL) 
 
 
PICKERING