A witness to North Korea’s economic downfall: Swedish diplomat Erik Cornell

In Pyongyang, a new podcast that covers issues related to North Korea engagement, recently aired a three-part interview with Erik Cornell, a Swedish diplomat who opened the Swedish embassy in Pyongyang and served as its inaugural charge d’affairs between 1975 and 1977.

The interview reveals fascinating details about North Korea’s world outlook in the 1970s and how its rigid ideological position undermined the foundations of its industries.

Cornell sees two major domestic factors that pushed Sweden to establish diplomatic relations with the DPRK

  • During the student movement in 1968, left-leaning youth organizations in Sweden insisted that Stockholm extend recognition to both East Germany and North Korea

  • After the North Koreans purchased mining equipments from Sweden, the Federation of Swedish Industries requested the presence of a diplomatic staff in Pyongyang to facilitate communication and ensure the safety of Swedish personnel who were being dispatched to help the North Koreans use the new machinery

He then points out that the North Korean state also had much to gain by establishing diplomatic ties with Sweden:

First, there was Pyongyang’s competition with Seoul to be diplomatically recognized as the sole legitimate government authority on the Korean Peninsula. North Korea started off at a disadvantage as South Korea leveraged its alignment with the United States to establish diplomatic relations with countries in Western Europe (South Korea established relations with Sweden in 1959). Meanwhile, North Korea’s diplomatic relations during the 1950s and 60s were largely limited to countries in the communist bloc. However, starting in the 1970s, Pyongyang made a huge effort to obtain recognition from newly independent post-colonial states in Africa and pushed to build relations with Western European states. (read more about North Korea’s diplomatic aspirations during this era in Charles Armstrong’s “Juche and North Korea’s Global Aspirations”)

Second, North Korea faced significant roadblocks to their development by being part of the communist bloc. Pyongyang refused to participate in COMECON (Council for Mutual Economic Assistance) because Kim Il Sung believed that participation in a Soviet-centric system of economic cooperation would leave North Korea locked in a peripheral economic position. As we noted in a previous article, Pyongyang sought to move away from exporting raw materials and aspired to develop industries that would produce manufactured goods domestically; however, COMECON forwarded the view that North Korea should continue exporting raw materials and support fraternal communist economies by importing finished goods from Eastern Europe. This fundamental disagreement on North Korea’s place in the communist economic community created friction between Pyongyang and Moscow. In addition to the communist bloc’s animosity towards North Korea’s industrial development, North Korea’s mineral exports to the Soviet Union were fixed at a low price that was not adequate enough to support the import of machinery and other equipments necessary to further advance Pyongyang’s vision of an industrialized economy. Therefore, the North Korean leadership believed that trade with capitalist economies like Sweden, which imported mineral resources at market price, would greatly improve both North Korea’s economic growth and development.

While Pyongyang’s overall economic plans appear sound, Cornell highlights how the execution of North Korea’s industrialization plans were fraught with crippling errors.

In one very telling anecdote, Cornell describes North Korea’s foray into paper manufacturing. A Finnish company sold paper manufacturing machinery to North Korea with strict instructions that the temperature within the plant had to be kept constant for the equipment to function correctly. However, the North Koreans simply did not possess the technological knowhow to follow through on this very specific requirement and as a result could not use the equipment. Cornell believes that this was in part brought on by the ideological rigidity of the North Korean state which overexaggerated domestic capabilities and discouraged further reliance on foreign assistance. Furthermore, the centralized state-directed economic development provided little room for feedback and thus left the economic planners and managers of industries unaware of each other’s predicaments.

Even in the case of the Swedish mining equipments where personnel were dispatched from the companies to assist with the operation of the machinery, the North Koreans could not utilize what they had bought to increase their output or efficiency. As a result, Pyongyang could not raise the anticipated capital from export earnings to pay back the companies. To make matters worse, the North Koreans were completely untrained in placing value on their products, relying heavily on the Marxist principle of accounting for only the labor input. While there were a few communist states that had substantial understanding of market mechanisms due to their pre-communist experience with international trade, Cornell believes that these economies were reluctant to share the information with the “renegade” communist state. Default was inevitable and the 800 million krona contracts (around $183 million in 1975, nearly $800 million in 2014) had to be paid for in the end by the Swedish taxpayers.

All in all, Pyongyang’s aspirations had totally outpaced its capabilities. Cornell likened what he witnessed in North Korean industries to trench warfare during the First World War where incompetent leadership ordered bayonet charges against machine guns.

North Korea’s general unreadiness to interact with the world was evident in other areas as well. During the infamous smuggling case in 1976 when North Korean embassies in Scandinavia were discovered trading in narcotics, Cornell recounts how authorities in Pyongyang were completely unaware of the diplomatic protocols. Pyongyang initially believed that Stockholm’s request to expel the guilty embassy staff and the ambassador was equivalent to severing diplomatic ties between the two countries, not realizing that a replacement ambassador could be installed immediately afterwards.

Cornell also reminds the audience that Pyongyang is often more interested in presentation than the substance behind the facade. For instance, in 1988 North Korea demanded that the Polish and Yugoslav governments make corrections to newspaper articles written by travellers to North Korea who claimed there were “winds of change” in the country. In another case, a East German diplomat confided with Cornell that even the most ardent communist countries thought it was strange that Kim Il Sung made the public announcement “abolishing” all taxes (thereby making North Korea the model communist state) when public finances were still going to be derived from the people. These instances provide some insight into how invested the DPRK is in projecting abroad the image that it had crafted for itself.

The characteristic of wanting to uphold a certain reputation could turn into a major strength if the state becomes invested in projecting an image of economic robustness (a feature ascribed to South Korea by many political economists). At the same time it could handicap the economy if the state continues to advance the overblown image of a nation that does not need to acquire knowhow from foreign countries.

More immediately, Erik Cornell’s anecdotes present some concerns on how exactly the North Korean state is currently cooperating with Mongolian, Chinese, and Russian enterprises to develop North Korea’s mineral reserves. From a macro perspective, cooperating with multi-nationals to develop natural resources presents opportunities for a country to acquire revenue and investment. However, the precedence established by North Korea’s cooperation with Scandinavian industries in the 1970s reveals how Pyongyang’s rigid ideological position and centralized management system could damage both output and relations with foreign investors. For instance, It is not enough that the North Koreans are utilizing new equipments and have obtained the necessary capital to exploit rare earth metals – prospective investors should also look into the quality of the labor force and other associated factors (including whether enough energy can be supplied to these sites for optimal operation, etc.).

Running at 1 hour and 18 minutes in total, the interview with Erik Cornell is very informative and provides several areas where further research and discussions could take place.

If you are not yet acquainted with In Pyongyang, I highly recommend you visit their page here


About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
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2 Responses to A witness to North Korea’s economic downfall: Swedish diplomat Erik Cornell

  1. Pingback: North Korean values, universal principles, and Ruediger Frank | Rice and Iron

  2. Pingback: Looming Maritime Conflict in Korea Bay | Rice & Iron

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