Getting entrepreneurial in Korea (Summer School)

This week’s stop on our world tour - Korea. A country divided into two very different power structures since the end of WWII. Today South Korea is the maker of some of the world’s favorite exports – from Samsung TV’s to BTS. But 75 years ago it was a much different story. How the textile industry and a partnership with Bangladesh lifted the country out of poverty and paved the way for rapid economic growth. Then later in this episode – how entrepreneurial endeavors look different on the other side of the 38th parallel. We’ll follow a woman who started her own small business selling goods in North Korea. How are the Donju, members of the affluent entrepreneurial class, faring and can capitalism exist in a highly restrictive socialist society? Featured Episodes: Richard Nixon, Kimchi and the first clothing factory in Bangladesh (2013) https://www.npr.org/sections/money/2013/11/27/247564324/episode-499-richard-nixon-kimchi-and-the-first-clothing-factory-in-bangladeshNorth Korea's Capitalists (2017) https://www.npr.org/transcripts/551232343 Featured Terms: VolatilityInflation expectationsCapital controlsAusterity Support: NPR+ (sponsor-free listening & bonus episodes) https://n.pr/3HlREPzAnd please click “follow” in your podcast app so you don’t miss an episode. Read: Our book: Planet Money: A Guide to the Economic Forces That Shape Your Life https://lnk.to/i3AukBdD (Audiobook here https://open.spotify.com/show/509P7k1QPcwgzOSCqVCDCZ) Our weekly longform Planet Money newsletter https://n.pr/3zrFvUBOur weekly Indicator link round-up newsletter https://www.npr.org/newsletter/indicator Follow: Instagram https://n.pr/3FqLuwsTikTok https://n.pr/3sGZdrqYouTube https://lnk.to/iCVDaW3CFacebook https://n.pr/3h92GwS This episode of Planet Money Summer School is hosted by Robert Smith. It was produced by Schuyler Swenson and Sophia Paliza-Carre and edited by Planet Money Executive Producer Alex Goldmark. It was fact-checked by Charlotte Isidore and engineered by Annlie Huang. Support public media with NPR+ and enjoy perks for over 25 podcasts like this one. Planet Money's perks include bonus episodes and sponsor-free listening. Learn more at plus.npr.org http://plus.npr.org/. See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

• 0:00Speaker 00

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• 0:17Speaker 01

  This is Planet Money from NPR.

• 0:33Speaker 02

  Welcome back, everyone, to Planet Money Summer School World Tour, the only international economics degree where the currency of interest is frequent flyer miles. And so far, including this episode, we have circled the globe and racked up 46,289 miles. Whew, double diamond. I think we deserve an upgrade.

• 0:56Speaker 02

  And why not? We should fly first class into today's destination, Seoul, South Korea, a country that has experienced quite an upgrade itself. Last week in Argentina, we learned about a very rich country that had lost its shine. Today, in South Korea, we see the opposite, a country that has written the playbook for rising from poor to rich. When the Korean War hostilities ended in 1953, Seoul was a city in near total ruin. People were living in rubble and shacks, going hungry. Things were grim. Now Seoul, South Korea, is a glittering, modern city. The country is home to Samsung, Hyundai, and the hot semiconductor company, SK Hynix,

• 1:39Speaker 02

  not to mention the silky song stylings of BTS. Hope this brings more young people to the podcast, Bora, hey, new listeners. So how did Korea pull this trick off? And can other countries follow this same playbook? Sounds like a question for international economists like ourselves and for our guest professor today, Oliver Kim. Hey, Oliver.

• 2:00Speaker 03

  Great to be here, Robert.

• 2:01Speaker 02

  Oliver is an economist who studies how countries climb the development ladder as a research fellow at the philanthropy Coefficient Giving. Oliver, your parents are Korean, but you were born in Hong Kong, right?

• 2:13Speaker 03

  That's right. I grew up in Hong Kong and Singapore. And I should also add that my parents were both children of diplomats. So they actually grew up, not just in Korea, my mom also in Zaire, in what is now the DR Congo. So they kind of saw developing societies from sort of different lenses.

• 2:27Speaker 02

  All of which gives you some great experience to talk about our big question today, really, the biggest question in economics. How do poor countries get richer? And how do the lessons from South Korea work for the rest of the world? I just gave the world's most basic recap of the tremendous success of South Korea, including a gratuitous mention of BTS. How do economists like yourself look at this development?

• 2:50Speaker 03

  The story that most people are familiar with is that, let's say, the starting point is around the post-war. If you just look at the GDP numbers, South Korea was roughly at the same income level, in some cases, lower than countries in Sub-Saharan Africa. And in the following decades, unlike Sub-Saharan Africa and other parts of the world, South Korea, Taiwan, Singapore, and Hong Kong, what were known as the East Asian Tigers, pulled away from the pack and converged very quickly in terms of their incomes to the industrialized West.

• 3:16Speaker 02

  It was incredible. But I wonder, did these tigers have some sort of existing economic advantage before they took off dramatically?

• 3:25Speaker 03

  They had relatively high levels of education. They had relatively good infrastructure. But still, this transformation is remarkable. And in some sense, every developing country today is trying to emulate that experience.

• 3:37Speaker 02

  So what happened? Was it good decisions by the governments? Was it aid from the United States? Was it just being in the right place at the right time?

• 3:46Speaker 03

  Yeah, it's a nexus of all these different factors. One sort of set of initial policies that occurred was land reform. So in poor societies, the main thing that people do is they farm. And that sort of unites South Korea, Taiwan, that formation of agriculture and the promotion of agricultural activities.

• 4:02Speaker 02

  So by giving everyone land, some economists have argued that this increased the amount of food that could be grown, that it created more markets, more money for everyone, and then more demand for factory goods. Essentially, that land reform is the first step on the ladder to an industrial economy.

• 4:20Speaker 03

  I think there's like mixed evidence on that. But what I would highlight, actually, is this sort of more macro story. If you have a terribly unequal income distribution, where there are some people at the top who have so much more than people at the bottom, it sort of perverts incentives, I think, in terms of what you're going to do and in terms of investing in your society. And I think one remarkable characteristic of these countries is that the income distribution was relatively level when they were beginning this period of takeoff growth. And that meant that everybody had a stake in the long-term development of the country.

• 4:50Speaker 02

  Eventually, South Korea and these other East Asian countries started to grow their manufacturing. Those farmers that we talked about, they moved to the city, they work in more lucrative jobs. And the most famous thing about these countries was how much the governments there supported their manufacturers. They would give the factories cheap loans. They would put on tariffs to protect them. But as we pointed out in previous summer school lessons, this kind of industrial policy can lead to companies that need the government dole just to survive. They need the government money. So how did South Korea make sure that their companies were actually competitive?

• 5:26Speaker 03

  Yeah, so I'm going to paint with a broad brush here. But one missing ingredient, I think, is what economists sometimes call export discipline. Right? The government is going to support these firms, but we're also going to force you to go out and export.

• 5:38Speaker 02

  And the South Korean government would actually keep score. They would ask Korean companies, how many tons of steel did you sell to the United States today? How many cars? And the companies that excelled in exporting got more government support, more money.

• 5:52Speaker 03

  Yeah, and there's something, I think, disciplining about the process of exporting. Competing in an international market is a lot harder. There are a lot more firms, there are a lot more countries. You're competing with countries that are potentially at the technological frontier. And that sort of keeps the firm honest, right? So you actually have to be doing things to be improving your productivity. You have to be catching up to sort of global standards. And you can't rest on your laurels and hide behind high tariff barriers or depend on government subsidies. So you need some state support to get the industry going, coupled with this export discipline component, forcing these firms to actually go out and compete, which keeps them honest.

• 6:29Speaker 02

  OK, let's recap the basic South Korean recipe. Redistribute the land, reduce inequality, give subsidies to industry, but also push those companies to try to compete in the world with the best of the best. But this recipe is just the start of our lesson today. When we return, we will hear our first case study about how one of the crucial early technologies a country tends to master is clothing, textiles. What a T-shirt can teach us about how poor countries become rich after the break.

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• 7:33Speaker 00

  This message comes from Babson College. The world needs entrepreneurial leaders, and you can become one at Babson College. Gain the skills to lead, motivate, and inspire through a specialized master's or MBA program with full-time, part-time, and online options. Turn ideas into action with a graduate program that caters to your professional needs and fits your lifestyle. Ranked number one in entrepreneurship by US News and World Report, visit babson.edu/gradprograms.

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• 8:22Speaker 02

  Class, I know we've been around the world and then some, but please, no napping today. The summer school motto is awake, alert, and enthusiastic. We've talked about the South Korean model for development, but can Korea export those ideas, those skills, that know-how to other countries? Our first case study says, yes, you can teach some of this stuff, specifically textile manufacturing. In the 1960s, South Korea started to make clothing for the world. They had a little help. The US was ramping up the fight in Vietnam, and it needed clothing and other materials close by. So American military money starts to fund the growth of the textile and manufacturing industries in Korea.

• 9:04Speaker 02

  By the 1970s, Korea is moving into higher-tech manufacturing, and they're teaching other poor countries how to make the textiles that they once did, countries like Bangladesh. This was one of the first times we see other countries trying the South Korea playbook with the help of South Korea. Let's bring back in our professor for the day, Oliver Kim. Oliver, what should students think about as they listen to our first case study?

• 9:28Speaker 03

  I would say, as you listen to this episode, think about the process that all countries that are developing have to go through. We're talking today about Bangladesh and South Korea. At one point, the United States and Britain were also producing textiles. And this process of low-skilled manufacturing, it's not pretty to look at. The factory conditions often are quite brutal. But maybe think about this process as being almost a universal one that countries have to go through in order to develop.

• 9:55Speaker 02

  OK, our first case study comes from the Planet Money T-shirt project. This is when we manufactured a T-shirt, sold it to you, the listeners, and followed the process around the world. Our shirt was cut and sewn in Bangladesh. But Planet Money host Zoe Chace discovered that the know-how to make that shirt, our shirt, came from South Korea and their need to export their skills to a new place.

• 10:18Speaker 05

  This story begins in the early 70s. Bangladesh was one of the poorest places on earth. A civil war, a cyclone, a refugee crisis. It was bad, and it sparked the first live AIDS-style benefit concert ever.

• 10:36Speaker 05

  That's George Harrison, one of the Beatles. Now, inside Bangladesh, there was this other guy, working on a plan to help. Abdul Majid Chowdhury. Chowdhury was a businessman. He and a couple of his friends were looking around for ways to help their country's desperate economy.

• 10:53Speaker 06

  We need employment. We need dollar. We asked ourselves, what the hell we want?

• 10:57Speaker 05

  Back then, there was hardly any industry there. The country's main export was this plant, jute, the main ingredient in burlap sacks. Chowdhury saw an opportunity making clothes to sell to the world. Relatively low cost, relatively low skill, only one problem.

• 11:16Speaker 06

  I did not know how many buttons I had in my shirt. We did not know. I mean, that is the thing.

• 11:21Speaker 05

  There was a place that did know exactly. The country of Korea. Chowdhury saw Korea as a model for Bangladesh, also devastated by a war and written off. But its economy had rebounded in part because they'd learned to make clothes and sell them to the world. So Chowdhury went to South Korea and toured a massive garment factory there. And he saw the jobs he'd been looking for.

• 11:46Speaker 06

  What I saw, that lot of girls, they were working. And when I saw those girls, I remember my country and I can see that my girls can replace these girls like that. And that was the intention.

• 11:59Speaker 05

  Chowdhury set up a meeting with the head of the factory, the CEO of the company Daiwu. The meeting was scheduled for 45 minutes. It went over.

• 12:08Speaker 06

  You will not believe it. I started the meeting after lunch. It was about 4 o'clock and I finished at 2 o'clock in the morning.

• 12:15Speaker 05

  Chowdhury emerged in the dead of night with a deal. Korea would help set up the first export-oriented garment factory in Bangladesh. Chowdhury had help convincing the Daiwu chairman to invest in Bangladesh, help from an unlikely source, Richard Nixon.

• 12:33Speaker 07

  And so what we're fighting for is for the protection of our textiles and our textile markets.

• 12:40Speaker 05

  This is President Nixon talking in Asheville, North Carolina in 1970, promising to do something about the cheap clothes and textiles that were flooding in from places like Korea and threatening jobs in textile towns like Asheville.

• 12:54Speaker 07

  You know, textiles are produced all over the United States of America. And we have the problem of imports, imports from abroad.

• 13:01Speaker 05

  So Nixon helped create this massive piece of trade policy in 1974, the multi-fiber arrangement. Sounds boring, but you could say it reshaped the entire global economy. It set these firm limits for how much clothing and textiles each country could sell to the United States. And around the time that Mr. Chowdhury had made his trip to the Daiwu Clothing Factory, Korea had hit its limit, which gave the Koreans an incentive, open up a factory in another country, say Bangladesh, get made in Bangladesh labels, put on their Korean-made shirts and sell them to the West. So the deal Chowdhury and the Daiwu CEO worked out in the late hours of their meeting

• 13:45Speaker 05

  was for Chowdhury to come back to Korea with a whole bunch of Bangladeshis. The Koreans would train them for six months and then they'd all go back to Bangladesh together and open a factory. Eventually, 128 Bangladeshis fly off to Korea, a country most of them had certainly never seen. And the culture clash was instant. Mohammed Narudin was on that trip.

• 14:08Speaker 06

  The problem we had, this stinky food, kimchi, we could not, we could not eat them. Some girls were vomiting. They could not exist.

• 14:17Speaker 05

  Did they really? They threw up?

• 14:19Speaker 06

  Yeah.

• 14:20Speaker 05

  The Bangladeshis weirded out the Koreans too, I discovered.

• 14:23Speaker 04

  Yeah, what's up?

• 14:24Speaker 05

  Yeah, what's up?

• 14:25Speaker 04

  Yeah, yeah, yeah.

• 14:26Speaker 05

  I reached Kim Un-hy. He was the Korean trainer at Daiwu in charge of the collar and cuff section. Korea was still pretty isolated back then. Kim Un-hy had never met someone from that part of the world.

• 14:41Speaker 07

  When they approached me to shake hands, their hands smelled. I mean, they had this smell on their hand that I was not used to. Just generally, when they were around, there were, there were these different spices that I could smell from them. And so it was not too easy at first to approach them and to be near them.

• 15:06Speaker 05

  Neither side had been prepared for this aspect of the training, the smell of each other. But they worked through it. Kim Un-hy even tried the Bangladeshi food himself at a special event the Bangladeshis threw for the Koreans.

• 15:20Speaker 07

  And what happened was they served some of their food to us and we couldn't eat it. It was just repelling. We kind of sat there not eating it and our CEO actually called all of us out. And he brought us to a corner room. He said, we're going to be living in an international society and this is something that we're just going to have to endure. So suck it up and just eat it.

• 15:44Speaker 05

  That part about the international society turns out to be true, certainly immediately for Korea. After six months of training, Kim Un-hy flew to Bangladesh to help them set up the very first export-oriented garment factory there, Dash Garments in Chittagong. That was in 1980. In 30 years, a country that had only the material to make burlap sacks to sell to the world, became one of the biggest clothing makers on earth. Now more than 4,000 factories. Anwal Chowdhury, another person from the original group who went to Korea, he says you can trace everyone back to our trip.

• 16:24Speaker 06

  Wherever you go, the origin is there. Maybe it is now fourth or fifth generation that I trained one person, he trained another person, and then again, he trained another person.

• 16:32Speaker 05

  Now, the rapid spread of the garment industry in Bangladesh has brought problems. The government is weak, the infrastructure weaker. You've probably heard of Rana Plaza, the factory that collapsed, killing more than 1,000 people. The country industrialized so quickly that sometimes it's dangerous. Kim Un-hy, in fact, Daiwu, the company, stopped making clothes, moved into high-end fabrics and electronics, but he still remembers a little Bengali from those days.

• 17:01Speaker 04

  I mean, I've never get below that. I'm a dancer, I love you.

• 17:05Speaker 07

  That means I love you.

• 17:06Speaker 05

  Oh, is that what you guys said to each other at the end?

• 17:10Speaker 04

  Yeah.

• 17:11Speaker 07

  Yeah, we did.

• 17:12Speaker 05

  Passing the T-shirt baton from one country to the next, all because of a piece of trade policy that changed the world and certainly utterly changed Bangladesh. Zoe Chace, NPR News.

• 17:27Speaker 02

  That story and the Planet Money T-shirt project first aired in 2013. And you really should check out the whole Planet Money T-shirt series if you haven't heard it before. It's magnificent. It's all you need to know about world trade in a single garment. Let's bring our professor du jour back in here, Oliver Kim. Hey, Oliver.

• 17:44Speaker 03

  Hi, Robert.

• 17:45Speaker 02

  Economists love to talk about something called the industrial ladder. Countries start out making simple things like T-shirts and then they climb this ladder and they get good at building factories, they educate their workers more, and then they can make more complicated things like steel and cars and computer chips eventually. But that bottom rung of the industrial ladder really does seem to start out with clothing, with textiles, because you need so many people, I guess, right? To cut and sew each product. And the one thing these countries have is people.

• 18:16Speaker 03

  Yeah, it's an incredibly labor-intensive process. And this is also part of the reason why I don't like to use the term low skill, though it's common amongst economists. This is tremendously onerous work. It's hard to do. And if you want to do it well, it has to be very precise. But it doesn't require a sort of a high level of formal education, which is why often the people working in these factories are young women. These are the most sort of economically marginal people in these societies. And that's why, from an industrialization perspective, they're great because they can absorb large amounts of this sort of surplus labor that's sitting around and otherwise is not doing that much that's very productive.

• 18:47Speaker 02

  One of the things I loved about this story was that it reminded me that economic development is more than just investment and transferring money. It's about transferring knowledge.

• 18:59Speaker 03

  Yeah, the term is called flying geese. And this was originally applied in the East Asian context, but I think it definitely applies here. So Japan was the first to sort of industrialize it. It was the first to have this sort of textile industry. But as Japan grew and wages increased and productivity increased, it no longer became competitive for a lot of these sort of lower value-added activities to be occurring in Japan. And so what happened is that Japanese entrepreneurs moved to other places in East Asia. So in this case, South Korea and Taiwan, and brought their expertise with them and helped to start factories and invested in factories there.

• 19:32Speaker 02

  So they are the flying geese?

• 19:33Speaker 03

  They are the flying geese. And as South Korea and Taiwan developed, in turn, they also moved, in Taiwan's case, investing in mainland China, actually. And so there's this been this historical pattern that this expertise and this knowledge is sort of transferred and the geese fly from country to country and start to grow industries there.

• 19:50Speaker 02

  So if you're looking at a country and the geese aren't coming, you have to do something about that.

• 19:54Speaker 03

  Yeah, it's something to be worried about.

• 19:56Speaker 02

  When we did the T-shirt series, we talked about this. We expected that Bangladesh would eventually start to manufacture more complicated goods, you know, move up this industrial ladder. And we pictured them taking this textile knowledge from Bangladesh to someplace like sub-Saharan Africa. But this didn't happen. Bangladesh is still all in on textiles. It's now the second-largest clothing exporter in the world.

• 20:21Speaker 03

  Yeah, in sub-Saharan Africa, unfortunately, the picture is even bleaker. In a lot of cases, countries haven't even been able to sort of climb that first step of the ladder, which is moving to apparel and textile manufacturing. I've traveled a lot in sub-Saharan Africa and a lot of policymakers, I think, look with envy at what's going on in Bangladesh in which they could at least achieve that.

• 20:39Speaker 02

  But we've listed off all the tricks of the East Asian countries. Why don't those tricks work everywhere around the globe? Why don't they work in countries in Africa?

• 20:48Speaker 03

  Yeah, I mean, this is again, one of the big open questions in economics. One sort of theory that's been put forward is that, at least until recently, population density in sub-Saharan Africa had been too low. And so actually, one feature that made low-scaled manufacturing, like textile manufacturing, attractive in East Asia and Bangladesh is that population density was so high, there had been so many people that it drives up the labor supply and wages were low enough to be competitive. There's been a recent demographic boom in Africa. But before that point, most countries in sub-Saharan Africa just didn't have the density in order to support that kind of low-wage manufacturing.

• 21:24Speaker 02

  Well, in our next case study, we will talk about how to build up businesses when you are starting with no advantages whatsoever and every disadvantage, really. We will sneak over the border into North Korea and look for small signs of economic hope after the break.

• 21:46Speaker 04

  Stay tuned for the following announcements and messages from our sponsors.

• 21:50Speaker 00

  This message comes from Babson College. The world needs entrepreneurial leaders and you can become one at Babson College. Gain the skills to lead, motivate and inspire through a specialized master's or MBA program with full-time, part-time and online options. Turn ideas into action with a graduate program that caters to your professional needs and fits your lifestyle. Ranked number one in entrepreneurship by U.S. News and World Report. Visit babson.edu/gradprograms.

• 22:20Speaker 04

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• 22:44Speaker 00

  This episode's sponsor is HubSpot, which offers the following message. What if instead of updating your CRM, your CRM updated you? No catching up on manual edits, no more guesswork. HubSpot's self-updating CRM keeps your customer context current and helps you understand what to do next. So, marketing builds more demand, sales wins more deals and customers keep coming back. Learn more at hubspot.com.

• 23:10Speaker 02

  Okay, everyone, stay together as we cross the DMZ, the de-militarized zone into the hermit kingdom, North Korea. A mere 35 miles from Seoul is a whole different world. Oliver Kim, you've never been there, I've never been there, most people have never been there. So what should we keep in mind as we hear our second case study about North Korea?

• 23:32Speaker 03

  One thing is to just highlight that economists know very little about the economy of North Korea, right? We don't have reliable statistics in the same way. We don't have the wealth of sort of economic data that we have in rich countries or even developing countries today. And so, we have to rely, I think, a lot on these sort of more circumstantial pieces of evidence, alternative sources of data, like looking at nightlights from space. And so, you know, we're starting to piece together, I think, a bit of a picture that there is this sort of secondary economy outside of the formalized economy, which does show signs of vibrancy, but it's a very sort of incomplete and patchy picture.

• 24:05Speaker 02

  We're gonna have to do the best we can here. Our first case study was about how governments can shape and encourage economic growth. The next case study is also about growth, but from the bottom up. North Korea shares some of the same entrepreneurial spirit as South Korea, but it has a repressive government and almost no market economy. Almost none, but not zero. In order to pay for the North Korean military and their nuclear program and those intercontinental ballistic missiles, the country needs to bring in some money. It needs to have some economic activity and it has let a few sprouts of capitalism emerge. Stacy Vanek Smith reported on this in 2017.

• 24:44Speaker 00

  By now, we are all very familiar with North Korea's accelerated missile program. And we're pretty sure we know how they got the technology. But how did they get the money? I mean, North Korea's broke, right? They're sanctioned to the teeth. So, how on earth could they afford to get their hands on some of the most expensive, coveted technology on the planet?

• 25:04Speaker 05

  So, how old are you? What is your age?

• 25:10Speaker 01

  26 years old.

• 25:11Speaker 00

  Like, how would you describe yourself to someone who has never seen you?

• 25:18Speaker 01

  I'm sexy and cute at the same time.

• 25:22Speaker 00

  This is Jessie. She is from North Korea. And she grew up in Hesseon, a town on the northern border, on this river called the Yalu River.

• 25:31Speaker 01

  Hesseon is known as the place that is closest to China. When we open the door and go outside, you can basically see China there.

• 25:41Speaker 00

  Jessie is in Seoul, South Korea now. I spoke with her over Skype through my translator, Ji-Hae Lee, who was able to affirm that, yes, Jessie is sexy and cute at the same time.

• 25:52Speaker 01

  It's true. I can attest to that.

• 25:55Speaker 00

  Jessie says money was always really tight when she was growing up. If you needed something, you had to find a way to get money for it. When she was eight years old, her family needed matches. So, she and her brother went up into the mountains, picked a bunch of wild raspberries and sold them at the local market.

• 26:15Speaker 01

  We went to the market and we started selling and it sold well, not because people loved wild berries, but because there was this eight-year-old girl trying to sell all these wild berries at the market.

• 26:27Speaker 00

  Jessie made 45 North Korean won selling her berries that day. That is about a nickel. It was the first time she'd ever had money of her own and she still remembers how it felt in her hand. So she bought the matches and then she saw these peaches. Jessie says her mom loved peaches. And her mom was one of those people who was always doing things for other people, never really did anything for herself. So Jessie took her leftover money and she bought her mom a peach.

• 26:57Speaker 01

  When I got that peach and I saw her getting the peach and eating the peach, she looked really happy and it made me really happy. That's when I realized that I wanted to make a lot of money to make her happy.

• 27:09Speaker 00

  Jessie started selling berries and other things at the market regularly, saving up her earnings, looking for more opportunities. And then one day, she had this flash of brilliance. She noticed that the men in her village would always gather for a drink at the end of the day and they were drinking this alcohol that they were making themselves out of the potatoes they were farming. And Jessie thought she could get them better stuff.

• 27:32Speaker 01

  My alcohol was really, really popular because it was very pure, there was no hangover. And so, they said it was a huge difference.

• 27:41Speaker 00

  Jessie had more orders than she could fill. A small business was born. There is a special name for North Korea's entrepreneurial types like Jessie. They're called the Donju. It means lords of money. 30 years ago, there is no way the Donju would have existed in North Korea. It's a socialist country. People are supposed to work for the good of the whole and get everything they need from the government. The idea of making a profit or growing a business or even owning something was blasphemy. The North Korean regime, in fact, had a special term for it.

• 28:14Speaker 07

  Honey-coated poison. And we, the West in general, wanted North Korea to swallow the honey-coated poison.

• 28:21Speaker 00

  That's what they, those are the words they use?

• 28:22Speaker 07

  Those are their words, not mine.

• 28:23Speaker 00

  Wow, that is some serious writing.

• 28:26Speaker 07

  Poetry, yeah, some Pyongyang poetry.

• 28:28Speaker 00

  Nicholas Eberstet is with the American Enterprise Institute. He's been studying the North Korean economy since the 70s. And he says the shocking thing to him is that back then, North and South Korea were in a heated economic race. Now, South Korea's economy is 50 times larger than North Korea's. And just to put this into perspective, the state of Wyoming has a bigger economy than North Korea.

• 28:51Speaker 07

  It's gone a long way since then. And now there's a whole class of marketeers and Donju, or I might say, Donju are like North Korean yuppies.

• 29:03Speaker 00

  The country's leader, Kim Jong-il, would occasionally crack down on the Donju, throw some of them in prison, close down some markets. But when Kim Jong-il's son, Kim Jong-un, came into power, he had a very different approach.

• 29:22Speaker 00

  Kim Jong-un proclaimed that the era of struggle was over and he declared two main goals for his country. Number one, to build up the weapons program. And number two, to grow the economy. Growing the economy? That meant making a little more room to maneuver for this tiny class of Donju.

• 29:41Speaker 07

  The North Korean government has implicitly revealed that they believe they can take a little bit more of that honey-coated poison than would have been tolerated in the past. And that's getting economic results.

• 29:58Speaker 00

  But North Korean entrepreneurs were at a real disadvantage. Things that are just like in our blood in the U.S. Marketing, two-for-one sales, venture capital, these things don't really exist in North Korea. So, Kim Jong-un decided to help out the Donju. He started letting business experts come in from overseas and coach them.

• 30:19Speaker 07

  For the last several years, I've been involved with a nonprofit called Chosin Exchange that trains North Koreans in entrepreneurship and economic policy.

• 30:28Speaker 00

  This is Andre Abrahamian. He has been to North Korea dozens of times, teaching classes on things like marketing, management, accounting, trade. And North Korea's cool with this? They'll say like, great, come like, spread your capitalist ways in our like-

• 30:45Speaker 07

  Oh, heavens, heavens, no, we're not spreading capitalism by any means. We are just introducing management techniques so that they can develop their economy more efficiently.

• 30:58Speaker 00

  In 2010, Andre got on a plane in China headed to North Korea. He was on a quest to train the North Korean Donju in Western-style business techniques, basically bringing honey-coated poison into North Korea with Kim Jong-un's blessing. Andre says Donju would crowd into his classes. People who ran retail shops, shoe factories, software companies, people with startup ideas. The government even let Chosin Exchange take a group of entrepreneurs abroad to see how people ran businesses overseas. Andre said some of the Donju were so poor, they brought their luggage in plastic shopping bags. But they were so excited to go and so excited to see everything.

• 31:37Speaker 07

  What do you want to see in Singapore? I asked, what's, you know, what's, what are you curious about? And he's like, an ATM. Never seen one. I've heard about them. Show me an ATM. I was like, all right, let's go.

• 31:48Speaker 00

  Were they like taking photos of the ATM?

• 31:49Speaker 07

  They took photos of everything.

• 31:52Speaker 00

  The Donju were getting training and support, their businesses were growing. Kim Jong-un's plan was working. Local businesses were thriving, foreign investment was increasing and North Korea's economy was growing. Now, there is almost no venture capital to be had in North Korea, but there is this startup mentality. The tech sector has grown a bit, there's a- Domestic Intranet and even an Amazon-type company called Menmusong, where you order online, anything from noodles to 2x4s and can get them delivered to your door. Andre Abrahamian, the business teacher, says he has seen the effects of his teachings firsthand, most recently when he visited the cafe of one of his students in Pyongyang.

• 32:31Speaker 06

  I did notice that the barista at the coffee shop were starting to give little freebies, making these tiny decisions on their own that generally North Korean waitstaff just do not do. So I'd like to think that we contributed to a slight change in mindset there.

• 32:49Speaker 00

  There was also more money coming in from other countries, from overseas businesses. Political economist Nicholas Eberstadt says all of that money was going straight to one place: nuclear weapons.

• 33:00Speaker 06

  You have to assume that the really rapid increase in the tempo of the testing has something to do with getting more funds to do it.

• 33:09Speaker 00

  The economic prosperity the donju helped bring to North Korea made the nuclear program possible for Kim Jong Un. And all this subversive seeming capitalism, the marketing training, the international relationships, all of it had ultimately gone to support the military ambitions of Kim Jong Un. Jesse, our North Korean entrepreneur, com bootlegger, also caught this entrepreneurial spirit. Her business grew and expanded, and she started trading products back and forth with China, smuggling things across the border. She would send medicinal herbs, animal skins, and pine nuts over to China across the Yalu River in these boats, and she would bring very in-demand items back to North Korea.

• 33:49Speaker 01

  받는 거는 소시지를 받아요. And what we would get in return is sausages. And we would get soaps, and there's something called sakkarangae.

• 34:01Speaker 00

  That is an artificial sweetener that North Koreans like to use in desserts. This was one of Jesse's biggest sellers. Her business was booming, she was making more money, and people close to her started to notice.

• 34:12Speaker 01

  이 자체가 불법이거든요. 원래 불법이거든요. My uncle realized that I was doing all this business, and he didn't approve of it at all. And he reported me. So it felt like everything vanished and everything just evaporated in a snap of a moment. And basically, what I had was almost all gone.

• 34:30Speaker 00

  Years and years of work just went up in smoke. And Jesse says she was actually lucky she wasn't sent to prison. Jesse decided to leave North Korea. She had relationships with border guards in China and North Korea from working as a smuggler for all those years. So one night, she just smuggled herself out across the Yalu River on one of the same boats that she'd used to transport animal skins and sweetener back and forth. All of Jesse's money, everything she owned, was taken by the government. Then again, the government had always owned it all anyway. Political economist Nicholas Eberstadt says people like Jesse are the real tragedy of the current situation in North Korea. I mean, Kim Jong Un got what he wanted. He got the money he needed to grow the nuclear program.

• 35:12Speaker 00

  But it came, of course, at a huge price for the North Korean people.

• 35:19Speaker 02

  That was Stacy Venick Smith from Planet Money episode in 2017. Our main character Jesse ended up in South Korea, where, when we last talked to her, she was a student. Recently, we've gotten some interesting economic news out of North Korea. A Bloomberg investigation showed that leader Kim Jong Un had brought in $22 billion in foreign revenue over the last few years. He did it by selling weapons to Russia for use in Ukraine and from an army of internet hackers who steal cryptocurrency. Kim Jong Un is the ultimate donju, the lord of money. When we return, we will bring back our professor, Oliver Kim, and ask why some repressive economies become free and some do not.

• 36:03Speaker 04

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• 36:07Speaker 00

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• 36:48Speaker 00

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• 36:56Speaker 02

  Okay, students, we are leaving North Korea. So you can get back on the internet again. Check your socia ls. And let's bring back in Oliver Kim, development expert, to talk about the lessons from the north. Hey, Oliver.

• 37:08Speaker 03

  Great to be here, Robert.

• 37:08Speaker 02

  You know, the story from North Korea does remind me a little bit of China, in the early days of China, where at first, a few entrepreneurs broke the rules, not really sanctioned by the Chinese government. But of course, China changed pretty quickly, allowing private ownership, markets, competition, and eventually, a high-tech economy. Why did this capitalist evolution happen in China but not in North Korea?

• 37:33Speaker 03

  I think the basic story is that the Chinese government was willing to lean into these policy changes, even potentially at the risk of lessening some of its political power. Ultimately, it figured out a solution where it was able to maintain political control while also getting all the benefits of economic growth. Whereas in North Korea, economic growth has been sort of repressed to a much lower level because the state is, I think, a lot more paranoid about alternative sort of poles of power.

• 38:00Speaker 02

  Yeah, it seems like in North Korea, they never got the very basic thing that you need for the success of businesses, which is property rights. Jesse, the character in the story, built a successful business, but after she got ratted out by her uncle, she had no recourse. There's no court system. There's no ownership of what she had.

• 38:20Speaker 03

  Yeah, so, I mean, China, obviously, is the other example here. And in China, there aren't really either very strong property rights, and at least in the way that Westerners would conceive. In China, the state saw this as an enormous opportunity. It leaned into it. It didn't suppress, for instance, the formation of these township and village enterprises, these small rural firms that grew out of the countryside and started to mass manufacture things. It chose not to suppress those activities and decided, okay, this is actually going to be a route to prosperity. In North Korea, the state has taken a much different tack.

• 38:53Speaker 02

  Do you have any hope for North Korea to eventually become an economically successful state? I mean, the story did demonstrate that people want something different.

• 39:02Speaker 03

  Yeah, there's clearly no shortage of entrepreneurial talent. One could imagine that with a more sort of sane set of policies, North Korea actually would do relatively well. One of my pet theories, actually, is that Marxist-Leninist states actually tend to do well economically once they drop at least the Marxism, right? They tend to actually have states with a high level of what economists call state capacity. So the government is actually able to do things. Often, the things they choose to do are not wise. But the state is actually able to penetrate into society, and if they want to build a bridge, they're able to get it done. And so, you know, a lot of the countries that we think of as the sort of economic success stories of the present, China, Vietnam, they often have this sort of Marxist-Leninist DNA. But once they shed the communist part, that's when they start to grow very quickly.

• 39:46Speaker 02

  And of course, there is the prospect of the two Koreas eventually reunifying. Could that ever work?

• 39:52Speaker 03

  I mean, it sounds tremendously onerous. The gap in incomes between North and South Korea, I think, is like 30 times compared to, let's say, East and West Germany. That gap was around three times. So I think in the short term, that process of integration could be tremendously painful. But in the long run, I actually am relatively optimistic that this would be a good thing. South Korea has this tremendously aging population, shrinking population size. North Korea is relatively young, and so the integration of these two economies could see boons for both.

• 40:23Speaker 02

  It would be the biggest economic news of my lifetime. I hope I can be there. Oliver, this season on Summer School, we're asking each professor to give us a big lesson we could take from the country that might help here in the United States. There is a lot that we could learn from South Korea. Which one would you suggest?

• 40:41Speaker 03

  One potential lesson that you can take away, to the extent that the United States wants to support the growth or the rebirth of manufacturing, is to pair industrial policies, so supporting firms with subsidies, supporting them potentially with protectionist tariff barriers, but making sure that these firms are competitive on export markets. So going out there and sort of nudging them and pushing them out to the global market to compete. There's a disciplining effect of going out into the world and competing with the rest of the world's best sort of companies that ensures that firms don't just hide behind the domestic barriers and grow fat on the rents that the state is providing them.

• 41:17Speaker 02

  So in other words, you could provide money to build a new silicon chip factory out in the desert. But don't just make that for the United States and don't just protect it with tariffs. Make sure that plant is the best in the world.

• 41:31Speaker 03

  Exactly. There's something about going out there and competing with the best of the best that I think forces you to reach the frontier and grow quickly yourself.

• 41:39Speaker 02

  Excellent advice. And you even used one of our vocabulary words from today: export discipline. Another word we can throw in around conversation or use on the test, which is coming next week, is the term industrial ladder. That's how countries climb from making t-shirts to silicon chips to the highest rung of the ladder, which is Squid Game. And one way to climb that ladder is to follow the geese. Oliver?

• 42:03Speaker 03

  The flying geese is this historical pattern where industrialization sort of travels from one country to another. We saw this in East Asia, where the geese sort of flew from Japan to South Korea and Taiwan, and eventually to mainland China.

• 42:16Speaker 02

  Oliver Kim is an economist at Coefficient Giving, a philanthropy that supports economic growth in developing countries. Thanks, Oliver.

• 42:24Speaker 03

  Thanks so much for having me. This was a lot of fun.

• 42:29Speaker 02

  If you want more examples of how trade barriers can have unexpected consequences, like we heard in that story from Bangladesh, may I recommend our new book, Planet Money: A Guide to the Economic Forces That Shape Your Life? Take a look here. I have it right here. Take a look at page 49. It's headlined "The Chicken Tax." I'll let you figure out what that means. Remember to join us for the final episode next week, where we will tell you how to access the final exam and get your souvenir diploma, suitable for LinkedIn bragging rights. I suspect you will all pass. Summer School is produced by Sophia Palizacar and Skylar Swenson. It's edited by Alex Goldmark and fact-checked by Charlotte Isidore. This show is engineered by An Lee Wong. I'm Robert Smith.

• 43:13Speaker 02

  If you can't tell, I am obsessed with economic history, and I have a new show that tells all of the great stories. It's called Business History. Check it out. This, where I'm talking right now, this is NPR. Thanks for listening.

• 43:31Speaker 01

  This is your final boarding call for our last stop on our Planet Money Summer School World Tour. Our final destination, as promised, Antarctica, a place that actually has a ton of economic value. But how do you quantify the value of an entire continent? Tune in next Wednesday.

• 43:52Speaker 00

  Stay tuned for the following announcements and messages from our sponsors. This message comes from NPR sponsor Charles Schwab. Financial decisions can be tricky. Your biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help. Download the latest episode and subscribe at schwab.com/financialdecoder.

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