Getting entrepreneurial in Korea (Summer School)

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This is Planet Money, from NPR. Welcome back everyone to Planet Money Summer School, world tour. The only international economics degree where the currency of interest is free-foot flyer miles, and so far, including this episode, we have circled the globe and racked up 46,289 miles.

“Double diamond, I think we deserve an upgrade.”

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 has still these 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 semi-conductor company S.K. Heinix. Now, to mention, the silky songs styling of BTS helped this brings more young people to the podcast for a 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. Great to be here, aren't? 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?”

That's right, I grew up in Hong Kong in 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 insire in what is now at the DR Congo, so they kind of saw developing societies from sort of different lenses. 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? The story that most people are familiar with is that let's say the starting point is around the postwork. 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 African, 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.

“It wasn't credible, but I wonder did these tigers have some sort of existing economic advantage before they took off dramatically?”

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. 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? 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 United South Korea, Taiwan, that formation of agriculture and the promotion of agricultural activities.

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 latter to an industrial economy.

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 sort of unequal income distribution, where there are some people at 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 in terms of investing in your society. And I think one sort of remarkable characteristic of these countries is that the income distribution was relatively level when they were beginning this sort of period of takeoff growth.

That meant that everybody had a stake in the long term development of the country. Eventually South Korea and these other East Asian countries started to grow their manufacturing.

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? 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.

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. 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 the modest. 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 could teach us about how poor countries become rich after the break. This week on chart wave, you are what you eat, may not be afraid you associate with your mental health. But one in three people have insulin resistance in our country. And if you have insulin resistance, you are double the likelihood of developing major depression. We explore the link between your body and your brain.

Listen on chart wave, the science podcast from NPR.

“Okay, so you're driving to work or you're on a walk or you're at the gym or whatever, and you just need to clear your head.”

That's the perfect time to hit the play button on NPR's all songs considered. It's not the news, it's not work or whatever else is weighing you down. It's just a good time with good friends and great tunes. Listen to all songs considered every Tuesday in the NPR music podcast. Class, I know we've been around the world and then some, but please, no napping today.

The summer school motto is "A Wake, Alert, and Inthusiastic." We've talked about the South Korean model for development. I can create export those ideas, those skills that know how to other countries.

Our first case study says, "Yes, you can teach some of the 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.

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?”

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 sort of process as being almost a universal one that countries have to go through in order to develop. Okay.

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 House Zoe Chase discovered that the know-how to make that shirt, our shirt, came from South Korea. And there need to export their skills to a new place. This story begins in the early '70s.

Bangladesh was one of the poorest places on Earth.

It was bad, and it sparked the first live-aid style benefit concert ever.

“That's George Harrison, one of the Beatles, now inside Bangladesh.”

There was this other guy working on a plan to help Abdul Majid Chaudry. Chaudry was a businessman. He and a couple of his friends were looking around for ways to help their country's desperate economy. We need employment, we need dollar, we ask ourselves what the hell we want. Back then, there was hardly any industry there.

The country's main export was this plant, jute. The main ingredient in burlap sacks. Chaudry saw an opportunity making clothes to sell to the world, relatively low cost, relatively low skill. Only one problem. I did not know how many buttons I had in my shirt, but we did not know.

I mean, that is the thing. There was a place that did know exactly the country of Korea. Chaudry saw Korea as a model for Bangladesh. Also devastated by a war and written off, but its economy had rebounded in part because they had learned to make clothes and sell them to the world.

So, Chaudry went to South Korea and toured a massive garment factory there. And he saw the jobs he had been looking for. 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. Chaudry set up a meeting with the head of the factory. The CEO of the company Dai Wu, the meeting was scheduled for 45 minutes. It went over. You will not believe it.

I started the meeting after lunch. It was about four o'clock and I finished at two o'clock in the morning. Chaudry emerged in the dead of night with a deal. Korea would help set up the first export-oriented garment factory in Bangladesh. Chaudry had help convincing the Dai Wu Chairman to invest in Bangladesh help from an unlikely source.

Richard Nixon. And so what we're fighting for is for the protection of our textiles and our textiles markets. But let's do this. 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.”

You know, textiles are produced all over the United States of America. And we have the problem of imports, imports from abroad. So Nixon helped create this massive piece of trade policy in 1974. The multi-fiber arrangement sounds boring. But you could say it reshape 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. Chaudry had made his trip to the Dai Wu 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 Chaudry and the Dai Wu CEO worked out in the late hours of their meeting was for Chaudry to come back to Korea with a whole bunch of Bangladesh's. The Koreans would train them for six months. And then they'd all go back to Bangladesh together and open a factory.

Eventually, 128 Bangladesh's fly off to Korea.

A country most of them had certainly never seen.

And the culture clash was instant. Muhammad Narudin was on that trip. The problem we had, this stinky foot, kimchi. We could not eat them. Some girls were vomiting.

They could not exist. Did they really, they threw up? Yeah. The Bangladesh is weirded out the Koreans too, I discovered. (speaking in foreign language)

Yeah, yeah. I reached Kimonhee. He was the Korean trainer at Dai Wu in charge of the collar and cuff section. Korea was still pretty isolated back then.

Kimonhee had never met someone from that part of the world.

(speaking in foreign language) When they approached me to shake hands, their hands smell. I mean, they had this smell on their hand. That I was not used to. Just generally, when they were around,

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. Neither side had been prepared for this aspect of the training, the smell of each other. But they worked through it. Kimonhee even tried the Bangladesh he food himself at a special event

the Bangladesh he's through for the Koreans. (speaking in foreign language) And what happened was they served some of their food to us and we couldn't eat it.

And he brought us to the 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. That part about the international society turns out to be true. Certainly immediately for Korea. After six months of training, Kimonhee flew to Bangladesh to help them set up

the very first export-oriented garment factory there.

Dash garments in Chitagong. That was in 1980 in 30 years a country that had only the material to make burlap sex to sell to the world became one of the biggest clothing makers on earth. Now more than 4,000 factories. For a while, Choudry, another person from the original group who went to Korea, he says,

"You can trace every one back to our trip." Whatever you go, the origin is there. Maybe it is now a fourth or fifth generation that I'd take in one person. He'd take another person and then again, he'd take another person. 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. Kimonhee, in fact, died with the company, stopped making clothes, moved into high end

fabrics and electronics, but he still remembers a little Bengali from those days. I mean, I don't know what you're saying, but I love you. That means I love you. That way you guys said to each other at the end. Yeah, sure, sure.

Yeah, we did. 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. So we chase and peer news.

That story and the Planet Monet t-shirt project first aired in 2013.

And you really should check out the whole Planet Monet 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 do sure back in here, all over Kim, hey, all over. Hi, Robert. It kind of is 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-run 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 so each product. And the one thing these countries have is people. 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 that'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.”

Another wise is not doing that much, that's very productive. 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. 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 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. So they are the flying geese. 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. So if you're looking at a country and the geese aren't coming, you have to do something about that. Yeah, it's something to be worried about. 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 picture 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. Yeah, and 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 a parallel in textile manufacturing.

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? 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 have 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. 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.

This is Tanya Mosley, Kahosta Fresh Air. Don't miss my interview with Coleman Domingo. We talk about Euphoria, filling in for Jimmy Kimmel and doing comedy with comedy masters like Tina Fey. They're like mad scientists. They almost look at the math of it. Find Fresh Air on the NPR app or wherever you listen to podcasts. History is intriguing, but unlike the present, it can feel far off.

On NPR's through line, we bring it back to life and put you in the middle of it. Go inside the stories from then that shape the world we live in now. Find NPR's through line wherever you get your podcasts.

“How will a historically unpopular president navigate a midterm election season that may leave him with a lot less power?”

Stay caught up on the latest news with Trump's term, the podcast where we curate NPR's coverage of President Trump and short episodes focused on a single story. Follow Trump's terms on the NPR app or wherever you get your podcasts. Okay, everyone, stay together as we cross the DMZ, the D militarized zone into the Hermit Kingdom, North Korea, a mere 35 miles from Seoul is a whole different world.

All over 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? One thing is to 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 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, the 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.

We're going to 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 of South Korea, but it has a repressive government in 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 Vanix Smith reported on this in 2017.

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 team.

“So, how on Earth could they afford to get their hands on some of the most expensive coveted technology on the planet?”

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

26 years old? How would you describe yourself to someone who has never seen you?

Six times a kilo. I'm sexy and cute at the same time. This is Jessie. She is from North Korea. She grew up in Hessen, a town on the northern border on this river called the Yalu River. "Hitan is known as the place that is closest to China. When we open the door and go outside, you can basically see China there."

Jessie is in Seoul, South Korea now. I spoke with her over Skype through my translator G. Hayley, who was able to affirm that, "Yes, Jessie is sexy and cute at the same time."

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. "Hitan is a place that is close to the market, and we started selling it. It's so 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. Jessie made 45 North Korean one 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. "Well, it's a cookie, and a hamburger, and 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." 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. I don't know how to say it. My alcohol was really, really popular, because it was very pure, there was no hangover, and so they said it was a huge difference. 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. Thirty 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. Honeycoded poison, and we, the Western general wanted North Korea to swallow the honeycoded poison.

“That's what they, those are the words they use.”

That's what their words, not mine. Wow, that is some serious sort of thing. Yeah, yes. Some Pyongyang poetry. Nicholas Eberset 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. It's got a long way since that.

And now there's a whole class of marketeers and Donju. I gave him, I said, don't you are like North Korean Yappies? The country's leader at 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.

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.

The North Korean government has implicitly revealed that they believe they can take a little bit more of that honey-coded poison than would have been tolerated in the past, and that's getting economic results. 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. For the last several years, I've been involved with a nonprofit called Jocelyn Exchange, that trains North Koreans in entrepreneurship and economic policy. 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-- Oh, heavens. Heaven's no. We're not spreading capitalism by any means. We are just introducing management techniques so that they can develop their economy more efficiently.

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 who started up ideas. The government even let chosen 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.

“What do you want to see in Singapore, I asked? What are you curious about?”

He's like an ATM. Never seen one. I've heard about him. Show me an ATM.

I was like, all right. Let's go. Were they like taking photos of the ATM? Took photos of everything. 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's 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 internet. And even in Amazon type company called Menmelsong, where you order online anything from noodles to two by fours

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 Pianyang. I did notice that the barista at the coffee shop were starting to give

a little freebies making these tiny decisions on their own that generally North Korean and white staff just do not do. So I'd like to think that we contributed to a slight change in mindset there. There was also more money coming in from other countries from overseas businesses. Political economist Nicholas Eberset says all of that money was going straight to one place.

Nuclear weapons. Who has to assume that the really rapid increase in the tempo of the testing

“has something to do with getting more funds to do it?”

The economic prosperity, the don't you 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. Jessie, our North Korean entrepreneur, Kim Boot Lager, 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. And then Go-Nam. And what we would get in return is sausages, and we would get soaps.

And there's something called Tsakkarengi.

“That is an artificial sweetener that North Koreans like to use in desserts.”

This was one of Jessie's biggest sellers. Her business was booming, she was making more money, and people close to her started to notice. It took me before you got bored. My uncle realized that I was doing all this business,

and he didn't approve of it at all. And he reported me, so I felt like everything vanished, and everything just evaporated in a snap of a moment. And basically what I had was almost all gone. Years and years of work just went up and smoke.

And Jessie says she was actually lucky, she wasn't sent to prison. Jessie 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 Jessie's money, everything she owned, was taken by the government.

Then again, the government had always owned it all anyway.

Political economist Nicholas Everstedt says, "People like Jessie 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. But it came of course at a huge price for the North Korean people.

That was Stacy Vanix Smith from a planet money episode in 2017. Our main character Jessie 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 dollars 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.

Is that influenced or you follow giving you the right advice?

Let's actually take attention to our social media feeds. This week on its been a minute, culture, critic, and host of the new podcast Feedback. Iron Madison III takes our hand and shows us the way. Watch the full it's been a minute episode on YouTube, or listen in the MPR app, or wherever you get your podcasts.

Okay students, we are leaving North Korea, so you can get back on the internet again, check your socials. And let's bring back in Oliver Kim, development expert, to talk about the lessons from the North. Hey Oliver, great to be here, Robert. 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?”

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, I 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.

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 routed out by her uncle, she had no recourse. There's no court system, there's no ownership of what she had. 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 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 our route to prosperity. In North Korea, the state has taken a much different tack.

“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. Yeah, there's clearly no shortage of entrepreneurial talent. One could imagine that, you know, 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, you know, 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 the sort of Marxist Leninist DNA. But once they shed the communist part, that's when they start to grow very quickly. And of course, there is the prospect of the two careers eventually reunifying.

Could that ever work? 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 like 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. It would be the biggest economic news of my lifetime. I hope I can be there. All over 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? 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 policy. So supporting firms with subsidies, supporting them with potentially with protectionist hair faireers. 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. 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.

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. 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 Korean Taiwan and eventually to mainland China.

Oliver Kim is an economist at co-efficient giving a philanthropy that supports economic growth in developing countries.

Thanks, Oliver. Thanks so much for having me. This is a lot of fun. If you want more examples of how trade barriers can have unexpected consequences, like we heard in that story from Megaladesh, and I recommend our new book, plan it 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 takes.

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 Schools produced by Sophia Policeacar and Skylar Splenson. It's edited by Alex Goldmark and fact checked by Charlotte Isadora. This shows engineered by On Lee Wong.

I'm Robert Smith. 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. [Music]

This is your final boarding call for our last stop on our planet money summer school world tour. Our final destination as promised, answer to go. 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. This is Terry Gross. I just interviewed Jason Siegel about playing a therapist on a series shrinking his own therapy and his Muppets movie. I love how you call me the human star of the Muppets. It gives me such joy.

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