North Korean House of Cards

While the reporting on this restructuring is highly speculative, it is
consistent with the North Korean media’s treatment of Kim Yo-jong as the “reincarnation”
of her aunt in the Kim Jong-un era. The question is whether Kim Yo-jong
is simply a figurehead or an actual manager. More than likely, she is being groomed
to assume the role of the Kim family financier. Actual day-to-day Kim family
management of the Royal Economy probably resides in the hands of senior advisors
to Kim Jong-un, such as his half-sister Kim Sol-song. Many Pyongyang-watchers
believe that the transition of this oversight responsibility to Kim Yo-jong will occur
in concert with Kim Jong-un’s full consolidation of power.
4. The Future of the Royal Economy
Created in the 1970s to support the first hereditary transition of power
from Kim Il-sung to Kim Jong-il, the Royal Economy has steadily grown to
become the regime’s primary source of revenue. The very stability of the regime, to
say nothing of the survival of the Supreme Leader, is based on this highly secretive
part of the economy. 492
The Royal economy has evolved over the last four decades, shifting its
dependence between various sources of funding. Much of the funding comes from
mundane commercial activities, such as the sale of seafood, gold, coal, iron ore, and
the export of labor. However, as has been made abundantly clear to the outside
world, there is an illegal side to many of North Korea’s revenue-generating activities.
In the 1990s and 2000s, much of this funding was tied to illegal weapons sales,
drugs, and counterfeiting. This has since become the legacy of covert yet bureaucratic
sounding entities, such as Office 38 and Office 39. But in recent years, many of
these illicit sources of funding have been severely curtailed by the efforts of the
international community. Programs, such as the Proliferation Security Initiative
(PSI), and enhanced measures to track North Korea’s finances through the banking
system have severely constrained the regime. This has forced North Korea to look
elsewhere, such as building statues for other dictators and trading gold and other
precious metals, where transactions are exclusively cash-based, leaving no paper trails.
492 A very interesting series of articles by Jonathan Corrado of Georgetown University and Daily
NK collectively entitled, “Economic Incentives Make Good Bait for Reform,” suggests that the long term
pathway for North Korea is dependent on the eventual extinction of Fearpolitik and gift politics, the later
initimately tied to the Royal Economy. See Jonathan Corrado, “Part I: A New Approach,” Daily NK, June
25, 2015; ——— , “Part II: The Path to Healthy Cash & Market Receptivity,” Daily NK, July 6, 2015;
and ——— , “Part III: Helping North Korea find a better self interest,” Daily NK, July 17, 2015.
Ken E. Gause
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