Rare Inside Look Into North Korea: Controlled Capitalism

GAESONG, North Korea, Feb. 28, 2006 — -- Na Un-Suk, director general of the Central Special Economic Zone Control Agency, walks a thin line as the top North Korean official in charge of a new, spiraling joint industrial complex between the two Koreas.

On the surface, the Gaesong Industrial Complex Project, initiated by the leaders of the two Koreas, is a perfect match for a way to use South Korea's capital investment and North Korea's cheap labor. But underneath the economic reasons lie different agendas.

South Korea hopes to "open up" the hermit kingdom as the poor nation gets a taste of capitalism. On the other hand, Na needs to keep his 6,047 North Koreans working for South Korean companies from becoming "contaminated" with the evils of capitalism.

"Our workers here are not motivated by material satisfaction. We are motivated by the fact that this is a national business project. We are one nation, and this is an important part of our unification process," said Na, walking up the assembly lines. Hundreds of North Korean women in uniforms sporting badges of Kim Il-Sung, North Korea's founder, diligently sorted cosmetic cases for U.S. companies like Clinique and Bobbie Brown.

The Gaesong Industrial Complex, just five miles north of the heavily armed border that separates the two Koreas, is one of the key fruits of a rising detente mood on the Korean peninsula. The communist North and capitalist South are still technically at war since their division after the Korean War, which ended in 1953. But since a historic summit in 2000 between Kim Jong-Il and then-South Korean President Kim Dae-jung, tensions have eased dramatically with increased social, cultural and economic exchanges.

Three years after the summit, Hyundai Asan Corp., one of the top South Korean conglomerates, led the construction of the Gaesong complex, which is expected to be a complete city with industrial, commercial and residential areas about two-thirds the size of Manhattan. The complex is expected to be finished by 2012, creating 2,000 enterprises and 700,000 jobs for North Koreans. A wage of $57.50 a month, one of the lowest in Asia, has inspired many companies' interest, but political tensions with the United States, South Korea's most important ally, have slowed the pace of leasing.

To kick-start the project in the impoverished North, the South Korean government has laid out the basic electrical infrastructure to power the complex, built water-supply facilities, and installed telecommunication lines. The pilot project, recently showcased to foreign journalists, seems brisk and lively, with 15 South Korean factories making labor-intensive manufactured goods like clothing, watches, shoes and automobile parts. All products are supplied to the South.

Already, Gaesong has in a major way boosted inter-Korean trade to historic levels; it surged more than 50 percent last year, topping $1 billion for the first time, according to the Korea International Trade Association.

South Korean businessmen who set up shop in Gaesong cite highly skilled but cheap labor as the major advantage.

"Everyone here has at least a high school education. Many of them are college grads. But the most convenient is the fact that they all speak Korean. It's easier to train them," said Ryu Nam-Ryul, a section manager at Taesung Industry, which makes cosmetic cases. "It was difficult at first because of cultural differences. They have never used or seen women's cosmetics. I had to show them video of foreign women using makeup. I even taught them how to use the Western-style toilet. But their learning curve is impressive."

For the clothing company Shinwon Ebenezer, the monthly wage paid in Gaesong is less than one-third of what it pays at its factories in China and more than 20 times less than in South Korea.

It takes only three hours to deliver the products from Gaesong to the South Korean warehouse, whereas it would take more than one week from China. As a result, Shinwon plans to increase the proportion of products made in Gaesong from 5 percent to 14 percent of total production this year. Gaesong has also exempted foreign companies from corporate income taxes in the first five years, and gives a 50 percent reduction for three more years.

While South Korean businessmen hope to benefit from the economic competitiveness of Gaesong, it is not clear whether the North Korean workers will benefit as well. When asked how much $57.50 is worth in the North Korean standard of living, North Korean workers turn stern and reply with similar answers, while South Korean managers patrol the assembly lines and North Korean onlookers listen to interviews.

"We are one nation. And this is our national business. I am sure that North and South together can make the world's No. 1 product," stated Kim Eun-Hye, who has worked at Shinwon Ebenezer for more than a year.

Kim was handpicked by a North Korean government agency in charge of human resources in Gaesong. The agency also collects dollar-denominated checks from South Korean companies and claims that after deducting the price of scarce food items distributed equally to every household, the rest of the money is given back to workers in North Korean currency.