North Korean House of Cards

C. CHAPTER SIX: THE ROYAL ECONOMY—
CONTROLLING THE KIM FAMILY FINANCES
Over the years, there have been a number of articles devoted to the Royal
Economy in North Korea, which is the part of the economy that is devoted to
keeping the Kim family in power. Most of these articles discuss the number of illicit
programs the regime has put in place to raise hard currency across the world. A 2014
report by the Committee for Human Rights in North Korea entitled Illicit: North
Korea’s Evolving Operations to Earn Hard Currency reveals an underworld where
North Korean financiers, money launderers, counterfeiters, and scam artists conduct
their business all while seeking to circumvent the sanctions and surveillance of the
international community. 384
This chapter will briefly discuss the overseas aspects of the Royal Economy. It
will mainly focus, however, on the apparatus and key individuals inside the regime
that generate and control the funds that Kim Jong-un relies on to maintain and
consolidate power. It will also look at some of the critical funding streams that feed
the Kim family’s coffers.
1. Origins of the Royal Economy
The creation of the Royal Economy dates back to the 1970s and is tied to
the politics of succession. In many respects, the 1970s was a watershed decade
in North Korean history. During this period, Kim Il-sung fully consolidated his
power, as spelled out in the 1972 constitution. Kim Il-sung also attempted to
institute a direct hereditary transition of power to his son, Kim Jong-il. Finally, the
regime began to feel the ire of the international community, which began to freeze
North Korea out of the capital markets. Pyongyang had defaulted on its loans after
incorrectly predicting the value of its raw materials, leaving the country scrambling
to secure hard currency. 385
384 Sheena Chestnut Greitens, Illicit: North Korea’s Evolving Operations to Earn Hard Currency
(Washington, D.C.: Committee for Human Rights in North Korea, 2014).
385 Bruce Cumings, Korea’s Place in the Sun: A Modern History (New York: W. W. Norton &
Co., 1998). In the 1970s, the expansion of North Korea’s economy, with an accompanying rise in living
standards, came to an end and began to contract a few decades later. Compounding this was a decision
to borrow foreign capital and invest heavily in military industries. North Korea’s desire to lessen its dependence
on aid from China and the Soviet Union prompted the expansion of its military power, which
began in the second half of the 1960s. The government believed such expenditures could be covered by
foreign borrowing and increased sales of its mineral resources in the international market. North Korea
invested heavily in its mining industries and purchased a large quantity of mineral extraction infrastructure
from abroad. However, soon after making such investments, international prices for many of North
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