North Korea News Podcast by NK News - Rudiger Frank on North Korea’s hidden middle class: North Korea Unpacked

Episode Date: July 23, 2026

This month, Dr. Rüdiger Frank joins North Korea Unpacked with Jacco Zwetsloot to discuss how decades of marketization have transformed North Korea’s economy and society, and why old assumptions about engagement and pressure may no longer apply. He talks about the emergence of what he describes as a sizable North Korean middle class, how smartphones, […]

Hello listeners and welcome to North Korea unpacked with Jacko's Wetsuit. I, of course, am Jacko's Wetsuit and today I'm joined by a returning guest, Dr. Rudiger Frank, who is Professor of East Asian Economy and Society at the University of Vienna and one of Europe's foremost experts on North Korea. He studied at Kim Il-Song University in Pyongyang in 1991 and 92 and has spent decades researching North Korea's political economy, economic transformation and international relations. He was last on the NK News podcast, which I then hosted in February 2024 on episode 331. Welcome back. Rudiger. Hello, Jacko, good to be back. So, Rudiger, there are two common assumptions about North Korea.

One is that North Korea is economically stagnant and fundamentally unchanged. Another one is that neither engagement nor pressure can ever work because the regime is too impervious to both. And now you argue that decades of gradual marketization in North Korea has created a new social and economic reality, including what you call a sizable middle class, and that these changes may eventually make Pyongyang more responsive to both external incentives and pressure than it was in the past. So let's get into that. Let's start with, you argue that many observers have drawn the wrong lesson from decades of failed engagement and sanctions of North Korea. So what's the lesson you think they should have drawn instead?

Well, I wouldn't say the lesson was necessarily wrong. I think it was absolutely right. It took them a long time, actually, to realize that North Korea's economy, North Korea's society does not function like ours. So a tool that would work in our societies, and usually that's how we start. We look at ourselves, imagine what would work here, and then we apply that elsewhere. Is it projection? Exactly. That was the first, the most common mistake, let's say, when the whole nuclear issue started 2002 and all the years following after the 2006 first nuclear test, you know, when sanctions became more intense, when engagement became more complicated.

Then here in South Korea, we had these ups and downs in terms of engagement, pro-engagement, anti-engagement, unification and all the rest of it. At that time, North Korea was not responsive to either economic engagement or other forms of engagement. engagement or sanctions because they didn't need this kind of cooperation. They would appreciate it. They would take whatever they could get. There's no doubt about it. I mean, who would refuse a little bit extra money to spend on something nice? But it was not vital.

And I call this the danger of overcorrection that after years and years of trying either engagement or sanctions. And, well, not without any effect, but we didn't really achieve the actual desired outcome. I mean, North Korea is still there. The human rights situation is still abysmal. The nuclear program is still around. Kim Jong-un seems to be in power much more stable than ever. So the lesson that we might draw now and that I believe is being drawn now is that of fatalism.

Like, okay, we tried it. It didn't work. Let's give it up. But the thing is that North Korea has changed. So what has not worked yesterday will actually work tomorrow. And that's my key point. I'm reminded of that moment in Singapore in 2018 at the first Kim Trump summit, when Trump showed that video of this is what North Korea could look like.

If you just give up the nukes and we can invest and bring tourism and business and investment into North Korea. Was that at that time when, as you say, the idea of extra money is attractive but not necessary? So Kim could look at it, but still not be impressed or particularly moved by it. Well, that's the $1 million question. If I would try to paint a picture, I would see Kim Jong-un standing in a river and the water level rising. And depending on where the water level is, is it at his ankles, his knees, his hips, his chest, or is it nearing his lips, actually, where you have to start swimming? That I cannot tell you, but I can tell you that the water level has been rising ever since the mid-90s,

when monetization happened in North Korea, something that is completely underappreciated by most people. Because, I mean, who has been to North Korea before the mid-1990s? I was, Andrei Lankov was, and a few other people were, but most of us who are now in this trade of, you know, being a North Korea researcher, observer, whatever you like to call it, we have known North Korea as a monetized society. And so anyway, I think we can talk about this later, too. come back to your question, where we stand right now. I think even by 2018, Kim Jong-un has already been interested in economic development. But of course, he understands that this is a risky

business. He has observed other countries. He saw that too fast and too far-going economic opening can be politically dangerous. And he tries to mitigate that risk. But at some point, I think he will have no other choice, but as I say, to ride the tiger. Because the alternative is to be eaten by the tiger. So I think he has to grab the bull by the horns. And if you read his speeches at the party congress earlier this year or the Supreme People's Assembly, he emphasized development. He did it in a very kind of relaxed way, like even economic development, balanced development.

I think these were the exact words that he used. But yeah, he complained about the failure of his first attempt with the five-year economic development plan. He's now really excited about the 20 by 10 policy. which is aimed at regional development, reminding us of Seymal Undong in South Korea and the early Seventh. But it's also focused on light industry, entertainment, health facilities, so services basically, trying to offer something to a middle class that is keen on having opportunities to spend their money. Now, China has been trying to encourage North Korea to go down this track of something like a,

well, we'll come back to the idea of a developmental dictatorship later on, but something like economic reform while keeping the politics the same. China's tried it through various different leaders, showing, you know, Shenzhen and free economic zones and other sorts of things. It's never really taken hold. But China seems to have ridden that tiger while keeping itself politically stable. Why do you think that hasn't, that Kim Jong and even his father didn't seize on this idea and say, oh, it can be done.

Let's do it the Chinese way. I actually believe that Kim Jong-il was much more of a reformer. Kim Jong-un clearly is not. Kim Jong-il, as you know, he visited China in 1983, and suddenly in 1984 we have the first North Korean joint venture law. That's clearly not a coincidence. Kim Jong-il was the one who came closest to announcing something like reform and opening in January 2001 when an article was published in Nodong-Sin-Mun

where he talked about the world not being the same as it used to be in the 50s and 60s, and that's why we have to do things differently or something. Kim Jong-il was the one under whom the July 2002 measures have been initiated. Kim Jong-il has been the one who met Koizumi Junichiro in, was it August or September 2002. Kim Jong-il was the one who actually apologized for the abductions somehow and even sent five Japanese back home, which was absolutely mind-boggling at the time. Unfortunately, it was a bad timing. It was a time after 9-11.

North Korea had just been characterized as a member of the Axis of East. and then the whole nuclear crisis broke out in October 2002 again. So, no, I think Kim Jong-un is not someone who really wants to reform his country. The thing is he has to. And I think he is coming to realize that. It's really, it's not a top-down decision. It's more like a pragmatic acknowledgement of realities that drives him. And that's why we see this very reluctant approach also his strong attempts to strengthen state control over the economy.

I mean, this is what he propagates. They even try to reintroduce parts of the public distribution system. So this is also a nice indicator, actually, that something is going on in North Korea, because why else would they do this kind of stuff? If it ain't broken, why would you try to fix it? So I think the vision is to have a tamed, controlled economy. Of course, the North Koreans learned from the Chinese example and from the Vietnamese example. They know it works, but they also saw other examples where it failed.

So, yeah, we will see how. they maneuvered out. Now, say what you will about Kim Jong-il, perhaps being more of a reformer than his son. As I recall, North Korea notoriously hates the word reform and refuses to use it, right? They have adjustments or tinkering and other sorts of reform, but they will not say reform. To what extent can reforms be carried out in North Korea without actually, if not using the word, at least admitting we're going in a totally different direction, that these are reforms, even if we don't use the word? No, I think that's the one thing that they will try to avoid by all means.

the impression that they are reforming the country, all the while they are reforming the country. Or actually, the country is reforming itself. I mean, come on, look at it. We now have markets everywhere. We now have a very diversified group of people in North Korea, and not just in Pyongyang. I mean, my estimate of the middle class is 8 million people. We'll come back to that moment. And that's definitely more than the population of Pyongyang.

We now have de facto North Korean Chabal. We do have North Korea trying to engage economically. with China, with Russia, to export things, to even introduce elements of market, economies elsewhere. I mean, I've seen slogans in North Korea, like foreign trade firstism or something. Well, why avoid the word reform? Is that for political reasons? Yeah, of course.

You definitely, you want to avoid the impression of a dynamic. I think this is what the North Korean leadership has learned from cases where all these reform movements went wrong, quote unquote, from the perspective of the powerholders. As soon as you create the impression of a dynamic, the people will always want more and more and eventually the process gets out of control. But China's managed to keep a lid on that so far, isn't it? Yeah, but it was close. I mean, think about June 1989.

It could have gone wrong back then. And, yeah, in China, I mean, the China story is still ongoing, right? It's not over. It is, but I don't want to get too bogged down in China. But I'm fascinated by the idea that there are now millions of Chinese people traveling and studying overseas, but they tend to come back to China, content with living in the conditions and the restrictions that they have in China. They don't come back and say, oh, we should be more like where I've just come from.

Yeah, but then China is China, of course, and they have a very interesting way of seeing themselves, which is one of the many reasons why I found it totally bizarre that Kim Jong-un gave up on the idea of a Korean nation, because this very strong Korean nationalism might have been a way to also generate this sense of patriotism that makes people come back. I mean, in North Korea, they have propagated the idea, especially vis-à-vis South Korea, as it became more clear to them that the South Koreans are wealthier than they would like them to be. They said, yeah, but they are the running dogs of the Americans, and we are poor, but we are proud. Whereas they might be rich, but they had to pay too high a price for that or something.

So they tried to deal with these things, but yes, you're absolutely right. So far North Korea is heavily isolated. North Koreans have no access to other alternative information. and it would be pretty dangerous if all this would suddenly become available to them. And I have no way and no idea how that could be done gradually, of course. They cannot travel abroad, which is highly interesting because it means that all the money that is generated in North Korea or that flows into North Korea from various sources actually stays in North Korea where it piles up and has all these effects that we talked about.

Yeah, well, let's get into the sort of the basic striking claim that you make is that North Korea has a sizable middle class. you said it's about 8 million people. What do you mean by the how do you define the middle class? And how is it that a country as poor as North Korea can have a middle class at all? It depends on how you define middle class. That's the beautiful thing about the definition. It's a definition. It's not a law of nature.

And of course, I'm aware of all the definitions of middle class in the academic literature. I define middle class in a literal sense, like the class in the middle. It means people who are not poor, so people will live above subsistence level, but also people who do not believe. belong to the top elite. So the one who stand in the middle, who have money to spend. And of course, the middle class itself is not homogeneous. There is the old middle class, let's say military officers or bureaucrats, and there's a new

middle class, entrepreneurs, people who were able to get more or less money through corruption, through entrepreneurship, by sheer luck or whatever it is. These are the money masters or the donju. No, the donju are the upper part, the upper segment of the middle class. but there are not 8 million donju in North Korea. Let's be realistic. What is the entire population of North Korea as best as we can tell? 25 million?

25. So we're talking around a third. About a third, yes, definitely. And how do I arrive at that number? It's simply the number of smartphones that you have in North Korea. That's my proxy. And I understand that some people maybe have two smartphones and all the rest of it, but we don't really know the exact number of smartphones anyway.

What we do is we extrapolate from the last reports we have from the, is telecommunications company, ORISCOM, because they did publish reports on that. So I guess, I mean, if you're now in North Korea and look around, it seems that everyone seems to have a smartphone and not just in Pyongyang, but also around the country, but many people don't. But I'm reminded of the time, how many, was it 10, 15 years ago,

that Somalia, the big issue around Somalia was piracy, right? And there was a lot of the ships being taken captive. And the number of cell phones and satellite dishes in Somalia was surprisingly high at that time. and yet it's a poor country. And North Korea is a poor country too. Yes. I mean, if you travel around, you see villages that still have to struggle with getting

clean water and electricity on all that. So is it possible for you to be a member of this middle class you're talking about but still not have access to clean water? Do they go together? I don't think so. I think you will find very few members of the middle class in these very remote rural areas. But North Korea has more cities than just Pyongyang. and there are mid-sized cities as well,

and that's why I think we arrive at this figure. Do we have an idea of the percentage of the North Korean population that is urbanized living in cities? It's about one-third. Okay, so you would see that there's a strong overlap between those in the middle-class and those who live in cities? That I don't know. I do think we also have members of, well, again,

my definition of middle-class living outside of cities, or at least in smaller cities. I mean, urbanization is again a matter of definition. I mean, since when does a settlement count as a city or something? That's why I'm not really a big fan of applying this kind of stuff. It just distracts us from seeing the forest for the many trees, if we look too much at the trees. If a settlement has one of those eternal lifetowners, the Yongseng Tup,

would you call that a city or a town? Is that a metric or a visible marker we can use? I never thought about it, but it's an interesting idea. Yeah, good I know that I've heard from some North Korean refugees that if they live in a town without one, they would have to travel on special days to a town that had one in order to lay the flowers at the statue or at the tower. I mean, the point about mobile phones, to just explain why I'm so into this as a proxy, is that you know that a smartphone costs a substantial amount of money. I mean, we talk about 250 to 500 US dollars or the counter value in North Korean currency.

plus you have to pay your monthly subscription fee. And compare that to a North Korean who has difficulties actually getting enough rice for his family. And certainly you would not purchase a smartphone and pay $5, $6 a month for the subscription if you would not be able to feed your children. And that's why I do believe that this is an appropriate metric. But only a smartphone alone doesn't make you a member of the middle class. It's just a proxy. It's an indicator.

What counts is that you basically live Kimmel Song's dream. like live in tile-roofed houses, eat rice soup with meat and dress in silk clothes. Okay, so what does life look like for these people in the middle class compared to ordinary North Korean workers and farmers then? I think it looks more like ours, actually. They have a little bit of wealth and they are afraid about losing it and they are busy getting more of it. So this is something that has completely transformed North Korea society in the past three decades. instead of just living their ordinary lives under what I call equality and poverty, that's how I encountered North Korea when I came there in 1991.

Now you have a strong diversity and you have a huge sense of dynamism. Everyone is really struggling to sometimes even climb over other people's bodies to reach higher through various means. Again, who has more opportunities to embezzle funds, who has more opportunity to collect money here and there, who has the best business idea, who has more political capital, who can marry better in order to be in a more powerful position, etc.

But when you say that their lives are probably a bit like ours, I can think of three things that they probably don't have access to. You live in Europe, and yet here you are in front of me in South Korea, so you have international travel at your disposal. You sent me an abstract of your talk that you recently gave through the Internet. North Koreans don't have access to – most North Koreans don't have unfettered access to the Internet. And you can buy books from South Korea and have them sent to your house. And so you're able to get international goods and, you know, deliver them to your place of residence.

North Koreans, even in the middle class, most of them don't have access to those three things. Is that something that, well, can we still call it a middle class? Or can we still say that their lives are much like ours? They're much like ours in principle, in that they, you know, they are worried about keeping what they have, about losing something. If you have nothing, you have nothing to lose. As soon as you have something, you start worrying. It's the same life as ours in being ambitious. It's the same as ours in having an opportunity and the chance for upward social mobility

within the constraints of their system. Again, this is why I am so critical of comparisons of middle class in, let's say, South Korea or middle class in Austria where the middle class in North Korea. Of course, we are talking about apples and oranges here. These are completely different conditions. But only if you are not able to abstract enough. On an abstract level, they are exactly the same thing. They are under the same constraints.

They are driven by the same goals, same desires, and that also leads to the same outcomes. And besides, they do, of course, have information coming in, especially via China and through the grape wine. I mean, I was born and raised in East Germany. And I mean, okay, we were lucky because we had West German television. Yeah. But, I mean, it's unbelievable how fast rumors would travel within the country. The North Koreans have at least the intranet. They do have smartphone apps.

So they are familiar with electronic payment systems. They have a chat function, et cetera. I think much to the pleasure of the state that's able to keep a good track of them. So, yes, of course, their lives are different from ours if you look at the details. But in principle, they're getting much closer to a normal life outside of North Korea, much closer than it has ever been, let's say, 30 years ago. It was a completely different planet, even. Well, let's talk about money and markets and frustration.

You argue that money is increasingly trapped within the borders of North Korea because of the country's isolation. Can you explain how that dynamic works? I think this is one of the most decisive factors because if you think of any low-income country, as soon as something like a middle class emerges, people get more money than they need to sustain themselves. They start thinking about keeping that money safe. And usually low-income countries, they are a risky territory, political, economically, there might be hyperinflation, there might be a change of government, there might be an expropriation drive.

Or a change of currency. The North Koreans had that, right, in 2009. So you try to evacuate your money to a safe place. So if you live in cities like London or Vienna, people start buying real estate. And interestingly, they come from really interesting countries around the world. Anyways, or you have these Swiss bank accounts. Yes. So you're saying North Koreans don't have access to these avenues?

Most North Koreans don't. Some North Koreans do. We know that, of course. A small number. But the average North Korean middle class member, if he manages to accumulate money through luck, through ability, through whatever, the money is trapped within the country. And he has to spend it within the country. And this has a very interesting, it has two very interesting effects. One effect is forced saving because there aren't too many ways to spend your money in North Korea.

It's a chronic shortage economy, as we know. And this can be super frustrating. And here again, I'm speaking out of my own experience as an East German. I still believe that our peaceful revolution, 1989, was of course triggered by an avant-garde that was politically conscious and interested in political freedom. And I mean, who is not interested in political freedom? But the fact that the large majority of the population joined,

even like the not very revolutionary members of the average population, was this frustration over just their accounts growing, but no opportunity to spend the money on something that they wanted. So do we think that in North Korea also these enforced savings that you refer to are kept in bank accounts? Well, they do have money in bank accounts, as we know, and the North Korean state also tries to actually encourage people to put them there. And the state in particular is offering people more and more opportunities to spend their money. As we see, I mean, the latest news about the cars in Pyongyang,

I don't think these $250,000 cars are really for the population. they would be purchased by enterprises. But we do know that there is now the opportunity to own private cars in North Korea. But it all started with restaurants in the early 2000s. I was there in Pyongyang, was it 2004 or something? Then the restaurants wouldn't even be on the main street. Someone, some local had to take me there.

And then I was totally surprised to see the menu in US dollars. And the whole place was full of North Koreans who were having a good time in eating. Because that's the first thing you do. If you have a bit more money, then you actually need. You eat more. You eat more. Then you start dressing better.

And then you move up all the chain, you know, then you invest into transportation, into services, et cetera. And now we have arrived at a point where even real estate trade is taking place. And I think also. It's illegal still though, isn't it? Yeah, but it doesn't matter because it's semi-illegal. It's accepted, right? People change their apartments and then a little bit of a payment is happening as well. I think Andrea Lankoff has published about this and how that works in detail.

And also the state is really trying to offer, I would even dare say desperately trying to offer the middle class away to spend their money. Number one, in order to kind of reduce their frustration over having money and no way to spend it. But also because a sizable middle class with too much money and nothing to spend it on will drive up prices for ordinary goods. And this will harm the other 16 million North Koreans who do not have money, who depend on the markets basically for some. survival and are crowded out because they can't keep up. So taking liquidity out of the market is highly important. And this is just one example, how I interpret the Onsand Kalama Tourism Project. Okay. Yeah, I want to go say more about Onsen, but first of all, just these frustrations here. Have we yet seen any signs of frustration emerging in public, any small-scale demonstrations,

any riots, any special forces sent into a city to put down a disturbance in the, like that? I mean, it's North Korea, so we never really know for sure, but obviously there have been no signs of this, and I think there are two reasons. One reason is that the state has understood the problem and is trying to do something about it. As I just said, they try to offer their middle class more opportunities to spend money, and at the same time also by the same means to reduce pressure on the general population. The state has reintroduced the public distribution system for food in order to make sure that despite rising prices on the markets, people do not go hungry. And yeah, the other part is that people tend to be relatively okay with a bad current situation

if they believe their future is going to be better. And in that sense, if I may call it that way, the American dream lives in North Korea. If you see people around you making it into this new middle class, and if you still have hope to sooner or later be able to follow them, you will be less frustrated about current conditions, no matter how bad they actually are. It's this theory of two speeds that has been propagated by Deng Xiaoping. And so far, it seems to be working in North Korea. The question is, how long is this going to be? Say a bit more about Wonsan Kalma resort and how that can be a way to take, sort of let off some of the steam. Well, it's very simple. I mean, travel is a form of consumption.

serve any service is a form of consumption right so so these are not like the socialist holiday resorts in east germany where you didn't have to pay well i'm guessing you didn't have to pay much money these are actually well we did have to pay i did but indeed not the too much money you're right this is more market driven is it the prices it would be interesting to know i mean we don't have enough information so far i do not believe that i mean it's 20 000 beds per day or night and i don't know how long the holiday season takes in north korea let it be a hundred days or something. So we talk about 20,000 times 100. So that's what, two million nights. If you would sell them at $100 per night, we talk about $200 million that the state would be able

to make from this. I suppose we will have a mixed system. We will have some of those beds being sold to tourists. We have some of these beds being distributed to model workers. But I think the vast majority of those holiday resort beds will be sold to paying customers. within from within the country. But again, this is only speculative on my side. I have not seen any reports about how this is being handled. But isn't there a risk there that, you know, one of the things I've heard again and again over the years is that in a society like North Creek, you have to keep people busy all the time because too much free time can lead to dangerous thinking. And so you've got to, you know, have people going to the study groups and the self-criticism sessions

and never have a moment's rest. If people actually have, you know, vacation time, free time to go off to a resort for five days and think about, well, imagine if life was more like this. Isn't there a risk there for the North Korean state? Oh, definitely. And that's the catch 22 that we have here. And that's a problem that the North Korean state has to solve. And we see how they struggle with it. That's why we see this back and forth and sometimes one direction, sometimes the other. I think it's a bit of repression and liberalization. I think it's a bit also of walking through the river by feeling for the stones to use another quote from China, actually. I think they have this trial and error policy. But eventually, I'm pretty.

sure they understand there's no way of keeping the current system. They have to somehow transform their society more along the lines of China without creating the image that they are now on a reform drive. So that's a bit the tricky they have to solve. And it's fascinating to watch this from the outside. Do you think that Kim Jong-un really understands the reality of this dilemma? Or is he, well, is he consciously trying to manage these contradictions and created by marketization? Or is he shielded from the truth by his advisors? Because that's another image that we we've heard over the years, isn't it? Well, that's always an argument that is made when it comes to autocratic rulers that the longer they are empowered, the more they are out of touch with. I heard

the same thing about Mr. Putin or something. Well, frankly, I have no idea. I mean, I never met Kim Jong-un personally. I have no idea about... Right. How could we know either way? But, yeah, I mean, you know, this one argument that has been brought up, usually combined with some frustrated sentence that he's lived in Switzerland, et cetera. I think he knows how the world functions. I think he knows how a normal economy works, and I do think he has a pretty good understanding of these things. Again, I don't think he's really actively pushing all this. I don't think he's been a born reformer or something. I think he's more like a reluctant reformer, if you like. But in my understanding, he has a pretty good idea of what's going on, and I think

he's also firmly in control of what is happening. Now, let's come back to this idea of a developmental dictatorship, which is one of the most interesting concepts that you've raised, that North Korea may be evolving towards a developmental dictatorship. What exactly do you mean by that? Well, exactly what you find in textbooks about the East Asian developmental model, starting with Japan. They invented it. And then South Korea... This is Imperial Japan before the Second World War. Then South Korea, third and fourth republic under Pak Chongi. You have something similar in Taiwan under the Guamendang before democratization in 1987 or

1988, the same model that in a way the People's Republic of China has applied, also what the Vietnam has applied, etc. Doi Moy. Yeah. And if you look at the components, some of them are actually already present in North Korea, and many are still missing. So, for example, you have an autocratic political system, which has been a unifying future of all those, because you have to have the labor under pressure so that wages stay low

and workers do not go on strike or something. You have to repress them. you start with import substitution, which North Korea has been doing for decades. They call it Ju-Chi or Joddy, like this independent... So making your own products. Exactly. I mean, as an economist, again, if you try to take a few steps back and stop looking at the trees, if you try to see the forest, that's import substitution.

That's what South Korea has done in the 1950s. And they even start, then the interesting part that is so far missing is to see how they are going to finance their economic take. off. In South Korea, it was debt financed because they were very skeptical of foreign direct investment. Other countries like China, for example, financed it through the special economic zones. So they used FDI. For North Korea, both is possible. I mean, they do have special economic zones. So they are underutilized, as we all know. Which ones are still functioning? None of them, actually, I would say. I'm not even Rasson.

But at least they have them in place. I mean, they have the structure there. That's why I'm telling you, I have no idea how they are going to do it. I'm curious to see it myself. And depth, of course, is out of the question because North Korea has no access to international finance. So that's one of these things that is missing. But also how to control the economy. Like in South Korea, for example,

Pak Chongi was able to tame the Jable through the financial system. As Ujong-un called it, the Jable were private agents of public purpose. So the cheable were de facto private enterprises, but whenever they misbehave, the state would just turn off the flow of money. The Gukchechechebel case in South Korea is a very important one and then they would go bankrupt. In China, it's different. In China, it's just administrative control and pressure on the SOCs,

on the large players. Just look at the case of Mr. Ma and his business. He goes too far, right? Then the state will rain in. Again, we will see how that plays out in North Korea. So there are various options. And of course, we are not there yet. But this is like my very, very distinct future perspective, if you think about it, where does it lead to? Let's say we had this monetization starting in the mid-90s, more or less concluded by 2002 when these three domestic currencies were unified into one, when money was restored to its functions as means of payment, store of value, unit of accounting. Then you have this wealth accumulating, leading to social changes, including the emergence of the middle class, that becomes a powerful political factor

as well, in addition to the elite that is of course also benefiting from all these things plus generating also pressure from the very lowest parts of the population. And a leader who understands the problem is reluctant but still needs to ride the tiger, lest he

will be eaten by it. So that's the situation where we are right now. So where is this going to lead to? Okay, so we're still looking towards a future. Absolutely. But it's not the future of 30 years from now. I think it's more like five to ten years from now, where we'll see more actually visible signs of this.

Right. And we might, by then, in five or ten years' time, we might be able to say which of those earlier models that you referred to North Korea is closest to? And it's becoming conventional wisdom already. I mean, there has been much discussion about an article in the Wall Street Journal, about North Korea being the next booming economy or something. I mean, I've been writing a bit overwrought, but how? I wrote about this more than 10 years. ago already and everyone thought I'm crazy. And maybe I am. I mean, you will never know. You only know in hindsight. That's when we're all much more clever than we are usually. But no, but I think it's entering mainstream. I remember when I first started writing about marketization in North Korea,

people thought I'm slightly off track. And that was in 2002 and 2003. And now this is not even being discussed anymore. It's accepted. So I'm fairly optimistic. Now, your argument ultimately leads to a rather a surprising conclusion, and that is that North Korea may become more susceptible to both engagement and pressure than it has been in the past. And why is this? Because for the first time, they will need external economic cooperation to sustain the pace of their economic development. And again, this is not just me making this up, but if you look at the theories of economic development that we have, take the stages model of Walt Rostov, you have the first stage where you can basically develop your country for a long time, relatively cheap.

fielded from the rest of the world, but once you want to take off, I like his image of an airplane on a runway, getting faster and faster and faster and still being on the ground, but then there's this lift-off moment, you know? And then, I mean, then you don't want to lose steam because then the whole thing will drop. So you're destined, you must continue. You need to have fuel in your engines to move your aircraft until it reaches the, whatever, flying altitude or whatever, and then you have this phase where most of our societies are in. But this hypergrowth, this takeoff, this is what North Korea will need at some point.

And I think they are getting faster and faster. And for take off all theories of economic development degree, you can't do this without external economic exchange. And this is my point for the first time in its history, North Korea will, for North Korea, this kind of trade will become vital. It's not optional anymore. It is mandatory. It's not a choice. So far, they did trade with us. did accept all these inputs because it's always nice, but they weren't forced to.

So whenever they felt uncomfortable about it, they could say, okay, thank you. That's it. We are walking away. But this time might be over. And this is why I say those mechanisms that malfunctioned in the past under these new conditions will be actually functioning. Does this mean that sanctions might become more effective than they have been historically? Absolutely.

Both sanctions and engagement. That's the beauty of this idea. I think it will make everybody happy, whether you're a hawk or a dove. Doesn't matter. Could we see the reopening of the Kersong Industrial Zone between the two careers? This is too specific, actually. But something like this zone, definitely, yes. Whether it's going to be Kersong specifically or whether South Korea would be allowed to invest,

not allowed actually, invite it. And to invest in Rasson or elsewhere, that's a different story. Or maybe even somewhere in Sini Jiu, or maybe they opened something in Hedju as they had originally planned. And Numpur, I remember they had some Jebel's going to Numpur back in the 90s too. That's right. Are you seeing any signs that North Korea would be considering South Korea to invite South Korea as a partner? Not right now. I mean, they would be stupid if they would do it.

It's way too risky. Politically? Yes, politically. I mean, something that I've been writing about is also North Korea's de-risking strategy, where they really try to even close embassies in non-essential countries and try to reduce their contact with the outside world because it's too dangerous. ideological poisoning, the risk of intelligence flowing out of the country, etc. So, of course, they will pick the low-hanging fruits first.

And it's pretty obvious that so far, Russia and China will offer all North Korea needs for the moment. Thank you. That's my question. Would that not be enough, external inputs from Russia and China? No. I mean, for a beginning, yes. And that's why I'm saying for a couple of years, there might be not much happening in terms

of North Korea reaching out to the West, if I might use this general term. But why wouldn't China be enough? I mean, China's huge. China is huge, and so is Russia, but they do not have everything that North Korea needs. Plus, it's politically a sensitive issue to be too dependent on just one or two trading partners. As you might know, every North Korean you talk to is unhappy about their one-sided dependency on China. It's not like they are friends or something, despite our media displaying them as such. Both have their very strong national interests. Plus, of course, there are also that China is a bit reluctant to be completely open to North Korea

because the Chinese have to pay at least lip service to international sanctions because China is not just dealing with North Korea. They're dealing with the rest of the world as well. And the last thing they want is to be as isolated as Russia is at the moment, for example, not to mention North Korea. So there are limits to how far China can actually go in cooperation with North Korea. Plus, at some point, they might even need high tech that is not available to China and that is increasingly being denied to China by the rest of the world.

So if you were advising policymakers in Washington, Seoul, Tokyo, Brussels, what should they be doing today differently to prepare for this possibility that you're talking about? Well, first of all, they should relax and certainly stop making office to North Korea. Just let it go. Absolutely, absolutely. Absolutely. I think it would be a grave mistake to come knocking on that door with a present in your hand and hoping that they would finally be willing to accept them. They will come to our door when they are ready.

And that could be five or ten years down. That could be five or ten years down the drain. Who cares? I mean, we have other problems to solve anyway, as long as the nuclear program doesn't get out of control, of course. But it's not like we can do nothing, meanwhile. Meanwhile, we need to prepare for that moment. When the North Koreans come and signal that now they are actually really interested in cooperating with us,

then we need to be ready to do so. now we are not. We are not so ideologically and we are not so technically. Again, I talk about sanctions. No company in its right mind would ever engage in business dealings with North Korea because that would mean they would be blacklisted instantly by the US Treasury Department and all their other businesses would break down. So we need to find a way around those sanctions, probably even a way to get rid of them. One way would be to have a tit-for-tat deal with North Korea, also something that has already been proposed in the past, hasn't worked, but it doesn't mean that it's entirely wrong.

Does that be bilateral TETTIL or a UN North Korea? That depends on what sanctions you talk about. When you talk about bilateral sanctions, it can be bilateral tit for tat. When you talk about UN Security Council sanctions, then of course it must be on a multilateral level. For example, I mean, as much as we all, I think now agree that North Korea will never warm up to the idea of CVID or complete and verifiable, irreversible dismantlement of its new program, I think they would be open to something in this gray zone between black and white,

which would be freezing the nuclear program, increasing transparency through inspections, signing declarations that they will not proliferate. I mean, I know they can't really easily go back into an NPT. That's a different story. But they can still declare that they will not proliferate. So kind of reducing the many problems we actually have with their nuclear program. and that in exchange for lifting the one or the other sanction, that is definitely one possible way forward.

Again, another way forward would be to find a clever legal way to have a sanction in your way, but then to find a detour. I mean, this is what we have lawyers for. Aren't you a lawyer as well? No. Maybe you have a good idea. I have no legal training audience. I have once worked for a law firm, but I'm not a lawyer.

I see. Okay, well, then probably, but maybe still you have a good idea. And there are all these spin doctors. I mean, come on, man. We are being sold the weirdest ideas by our politicians. Something that was wrong yesterday is right today and vice versa. So I'm pretty sure that this can be done for North Korea as well. But that's definitely beyond my expertise as well.

What signs should observers look for that would indicate this window of opportunity is starting to open? When they knock on our door. How would that look? Yeah, like reaching out and saying... I mean, they won't say we need money, we need external economic inputs. Would they say we'd like to talk about, I don't know, normalizing relations or something like that? Which is, of course, now if you think about South Korea, definitely possible because it's now two normal states. So you can even normalize your diplomatic relations.

You cannot do this with a renegade part of your own country, but you can do it with a foreign country, even if it's hostile. Yeah, I think when they come and say, well, you know, we would like to export textiles to your country, what would it take to make it happen? But this is the moment. Now, let me push back a little bit. Critics might argue, and I often hear this from North Korean human rights organization, that North Korea has actually become more repressive, more isolated, self-isolating, and more militarized in recent years during and after COVID. And they might say that the evidence points in the opposite direction.

How would you respond? I would say they're absolutely right. I mean, it's the state struggling with this situation and trying to find a way to have its cake and eat it too, you know, to preserve its safety. while at the same time somehow letting all these changes happen. Of course, it must be very, very frightening to see this dynamics unfolding within North Korea, with this huge diversification of society that used to be uniform. And we all know that with economic power comes political power as well.

And with economic ambition comes political ambition. And aspirations. Absolutely. And they try to control that. So I think, again, all these repressive mechanisms and this strong attempt of the state to regain control over the economy, there are really very clear indicators that what I just talked about is actually happening. And well, human rights is a complicated topic because there are so many different types of human rights. Social and political and economic cultural. Absolutely. And I mean,

I also believe that in the long run, the solid and lasting improvement of human rights is only possible through a change of the system in North Korea. And this is what we are talking about right now. And that's why I've always propagating the idea of economic engagement with North Korea because I think it will benefit the wrong people in the first place, but eventually it will also benefit the right ones. There are trickle-down effects. And the safer and the more comfortable the North Korean leadership feels, the less threatened they feel, the less repressive they might also become domestically.

So even on that front, we will see some relief. And I mean, some people still point at China as a great example of, of how many million people were lifted out of poverty since 1978. And no one would call China a heaven of human rights. But if you take it, put it in perspective, from the mid-1970s, even to current times, even though we see many steps back actually taken in China, we still would see a huge improvement in terms of human rights there for the average person. And I clearly see something similar happening for North Korea as well.

These 8 million people, this emerging middle class North Korea, are they the people that the North Korean government has to keep happy if they want to maintain regime stability? I think they have to keep everybody happy. You know, my comprehensive reform equation that I developed, where I tried to find out, you know, how the likelihood of economic reform and change in North Korea can be displayed mathematically. And I came up with this idea that the likelihoodness of reforms increases if the number of reform supporters multiplied by the power, political power of reform supporters, grows, whereas the number of reform opponents and their political power shrinks. And the thing is, you have 16 million people in the general population who might be reform supporters, but they have very little power. but you have these 8 million middle class people who are obviously also reform and development and change supporters and they have much more power. So I think indeed that their impact is much higher than that of a general population and it is

growing. And I think it has already grown beyond the point where Kim Jong-un could afford trying to repress that, which is why we have not seen a repetition of the 2009 currency reform. What would be, just for as a reference point, what would be the, the size under your estimation of the elites in North Korea? So, Kim Jong-un and his closest and some of the people around them, above the middle class. I mean, again, we talk about definitions here, and I know that different people see that differently. In my view, I use the German expression, the upper 10,000.

And I would not consider anyone beyond that as a member of the elite. I would call them upper middle class. So 10,000. Yes. And that would be defined by mostly by political connections. that is the extended family of Mr. Kim and his very, very closest comrades. You know, the offspring of basically the 50 members of the Kapsan faction, there are many of them, right?

And we know that there are many children of the Kim family. Some we know about, many we don't know about. And this is basically a family business. But, yeah, it's not more than 10,000 in my view. But then again, this is just my definition. Would we expect to see the top level of the military in there, the generals, or just not necessarily? Oh, yes. I mean, they have many generals, actually, right? That's what I'm wondering. Like, you might be quickly over that 10,000.

Yes, exactly. So I wouldn't even count every general as part of the elite. Probably the four and three star generals, but one or two star general, again, would rather be upper middle class, but not part of the elite. Could you give a couple of concrete developments over the next five years that you think would prove your thesis right? That's a tough question. Well, more and expanded economic cooperation between North Korea and China and Russia. No new currency reform and attempt to expropriate the middle class. More consumption opportunities, like more of the sense of once in Kalama, cars, and so on and so on. and something that would be fascinating if it would happen

a beginning de facto privatization of state-owned companies as well. And not the commanding heights, but at a certain level where it's less politically sensitive. And the growing number of the middle class, middle class that keeps growing. More mobile phones. From 8 to 9 million. Or look, if someone can come up with a better indicator,

I would be happy about it. I mean, at some point, they will also need to have a more reliable, a statistical system in order to be able to manage all that. So probably we get even more economic information out of North Korea. But yeah, these would be some of the indicators. If we suddenly saw larger numbers of North Koreans traveling overseas for business or pleasure, what would that mean to you?

That would endanger the current model, interestingly enough, because it would give them money in North Korea a way to flow out. And this would kind of threaten that dynamic that I just talked about. I think it's inevitable. I mean, at some point, they will have to let more North Korea's travel, simply, again, for business purposes and so on. But I think the North Korean leadership will be very reluctant to grant them this freedom of travel abroad.

But probably freedom of travel within the country will become easier because, as you know, so far, it's also pretty limited. Yeah, permit systems. So the informal cross-border trade between North Korea and China, is that of too small a scale to allow for the economic currency inflows and outflows that we're talking about? I think it has been reduced to almost, and not to zero, but strongly reduced during COVID. And not just by the North Koreans, but the Chinese have also started building fences a couple of years ago. So I think both China and North Korea want to have

this cross-border trade under control. And I think they will do their utmost to actually keep it that way. Perhaps if they start using that bridge, the new bridge of friendship, that'll be a sign of this closer cooperation. The bridge of friendship in Sinu, but also the bridge built between Russia and North Korea in the northeast, et cetera. But these are official ways, right? We are not talking about smuggling any longer. We talk about intensified trade. Yes, definitely.

I mean, I'm pretty sure that we will see more activity there. You see that the rail connection between China and North Korea has been reinstalled. Airplanes are going back and forth. And I think we will certainly see more of that, as long as the state can control it. And contrary-wise, what would be a couple of headlines that you would think, oh, maybe I was wrong. And that is definitely possible. We also have to say that.

I mean, I don't have the gift of foresight. And no one can look inside the head of Kim Jong-un. I think if he feels too threatened, if he thinks the whole thing is getting out of control, we might see a repetition of the 2009 currency reform, like a strong, repressive option. We might even see something like a military adventure. Because the best way how you can have a radical economic reforming crack down, reform in a negative sense is actually during and after a war. If you think about how North Korea got rid of monetized economy, it inherited after 1945,

how they got rid of private ownership in agriculture and in industry. It was mainly through the Korean War. The Korean War, and especially its aftermath, they were a very useful opportunity for them to, for example, have their collectivization, which in many other countries created lots of trouble. In the Soviet Union, it created a civil war. In East Germany, it created lots of backlash. In North Korea, it happened almost silently right after the Korean War because the country was so much under stress due to different factors.

So I sincerely hope that this is not going to happen, but unfortunately, it's definitely also a scenario. But looking at more recent history, the last two examples of North Korean military adventuaries that I can think of, the sinking of the chonan, the shelling of Yangtendor, they happened shortly after the... currency reform, not before or during it. No, I'm not talking about singular events.

I'm talking about an actual war. And that's why, I mean, you asked me what would be a scenario. I'm not saying this is going to happen. Okay, this is not what I was thinking. South Korea being the most likely target could be Japan or could be, who knows? Again, I'm just speculating and I really don't think this is going to happen. I'm not predicting it. But it would be one indicator that, I mean, it's a classic, right?

If you have domestic problems, you create an external. problem to their worth attention, rally around the flag phenomenon, justification for repressive measures, tightening the belt policies and whatnot. Yeah, not just in North Korea. Exactly. Thank you very much, Riga Frank, for coming back on the NK News podcast. It's been the pleasure, Jacko. Thank you.

Ladies and gentlemen, that brings us to the end of today's episode of North Korea unpacked with me, Jacko's wed sleut. Our thanks go to Brian Betts and David Choi for facilitating this episode and to our post-referral. and to our post-recording producer genius Alana Hill. Thank you and listen again next time.