North Korea: A Peek Behind the Iron Curtain

By: Mark Wallace at

North Korea is a country you won’t find in a Lonely Planet Guide. The Western media is universally negative on the place, and mostly for good reason. It’s run by a dictator who thinks he’s a god amongst men, arguably insane, definitely cruel and vindictive. Cross him and you could end up being torn apart by starving dogs, blown apart by an RPG, or torched with a flame thrower.

We’ve been following the country, albeit from a safe distance, for the last few years. Our colleague Kevin Virgil of Pathfinder Capital is fascinated by the place.

Kevin has graced these pages many times over the past several years, with posts like: Libya – The Real Story and Why Libya. He’s also co-authored an excellent white paper on investing in Frontier Markets, “Introducing the I-3?, which you can download here.

Kevin attended West Point and was an Army officer for several years. He served with the 82nd Airborne Division and the Ranger Regiment. He’s also served with the US State Department, which afforded him the opportunity to live and work in Russia, Western Europe and Central Africa.

More recently, he was an investment banker in New York and an emerging markets equities trader in London. Those experiences, coupled with a passion for travel to developing countries, have all played a part in his current activities – namely, to find and participate in some of the most exciting investment opportunities available today, now via his own firm, Pathfinder Capital.

We’ll be hearing a lot more from Kevin and his partner Christopher Kyte going forward. They are now partnered with us on our website, which we hope to build into the premier online destination for information on emerging and frontier markets.

Let us know what you think about Kevin’s thoughts on North Korea…


By: Kevin Virgil


Temperatures are rising on the Korean peninsula these days, and not just because of the spring thaw. Once again the saber rattling is growing louder – Western media reports that North Korea is threatening another nuclear test, the American president has just visited Seoul and stirred further tensions. Recent bouts of name-calling do little to ease tensions in the world’s longest-running conflict.


For as long as I’ve been alive, everything I’ve read, seen or heard about North Korea has been intensely negative. We are told that the Kim regime is a kleptocracy, a rogue nuclear state, and dangerously unpredictable. We are led to believe that the regime has willingly starved its people while Kim Jong-Il ordered Michelin-starred sushi from his favorite Tokyo chef, delivered by private jet. We are told that millions of people have withstood subjugation, torture and misery for their entire lives.


Is all of this true? I have no reason to doubt that the general perception of daily life for the average North Korean is painfully accurate. There are too many stories of utter horror and despair to doubt the narrative. However, I have been to many of the world’s conflict zones and found the ground truth to be completely different than what the conventional wisdom wants us to believe.


North Korean PropagandaThe other side of the coin – North Korean propaganda poster.


So, while I’m not going to comment on North Korean internal matters, I can confirm this: Perceptions of the country as an industrial backwater are very quietly – and quickly – becoming outdated. Change is coming to North Korea, and you’re not going to hear anything about it on CNN (as this would most certainly require a reduction in your daily dose of Kardashian updates).


Full disclosure: I have never been to the DPRK. I have read nearly everything I can find on the topic (I recommend Victor Cha’s The Impossible State for a terrific, if slightly biased, history from a member of George W. Bush’s National Security Council). I have several business associates who are actively seeking their fortunes there right now. I have even seen North Korean laborers working in mining and construction projects in Ulaanbaatar (a surreal sight, to be sure). But I have not yet walked that ground, or explored its side streets, and this limits my ability to offer insightful first-hand comments. I am mildly annoyed with myself for not yet making the trip to North Korea, for how else can one possibly begin to understand what has been billed as the world’s strangest place?


I never served in Korea in my military days, but a former roommate did. He was an infantry platoon leader assigned to the Joint Security Area, the tiny little strip of dynamite-laden wasteland that separates North from South. Every terrain feature was plotted for artillery strikes; every road and bridge was wired with significant amounts of high explosive. Imagine living on top of a powder keg for a year and you will begin to understand what a tour in the JSA is like.



The Demilitarized Zone separating North and South Korea – what Bill Clinton called “the most dangerous place on Earth”.


My friend would routinely lead night-time combat patrols in the DMZ. These were jointly staffed with American and ROK (South Korean) troops (this has since been entrusted to the South Koreans, and Americans rarely participate these days). Occasionally they would exchange small-arms fire with a random North Korean patrol that happened to be in the same area. Invariably the South Koreans fired the first shots – they were always looking for a fight. My friend would return to base, work his way through a pack of cigarettes, and eventually would call home to ask his family whether they had seen anything on the local news about escalating tensions in Korea. It was never mentioned, and still never is. Frankly, I am astounded that there hasn’t been a high-intensity war there since 1953.


Recent developments indicate that North Korea is very quietly beginning to expand its commercial interests. Some of this is due to internal change, but much larger geopolitical forces are at work. In my opinion, the relationship between Russia and the DPRK – driven largely by Russia’s strong motivation to create new export markets in Asia – is about to become very interesting.


In order to get some perspective, let’s take a look at what’s happening in the DPRK’s neighborhood.


Northeast Asia has been a restive and generally uneasy region since the 1930s. The litany of problems has been unending – Japanese empire and ravages of the Second World War were followed in rapid succession by the Korean civil war, the Cultural Revolution, Sino-Soviet Split, Great Leap Forward, breakup of the Soviet Union, rogue nuclear tests, Senkaku Islands… I could go on, but you get the picture. This is a region where today’s lone superpower arguably has less influence than any other place on earth. One of America’s most bitter enemies (DPRK) borders two of the world’s three most powerful countries (Russia, China) who aren’t exactly on friendly terms these days with the USA in their own right. Just to the east lies the world’s third-largest economy (Japan), a ticking demographic time bomb that nonetheless inspires profound reactions from its Chinese and Korean neighbors whenever politicians find it advantageous to stir up centuries worth of ethnic hatred.


After the 1953 armistice, the Korean peninsula evolved into an uneasy equilibrium between North and South. People of a certain age will remember that until the 1980s, the smart money was actually riding on North Korea to achieve final victory. In the 1970s the South was an agrarian banana republic with very little industry and a series of corrupt regimes that flirted with communism and proved to be a frustrating ally for the United States. On the other hand, North Korea was a darling of its Soviet masters. Kim il-Sung, the grandfather of the current head of state, fought alongside the Soviets against their Japanese oppressors. By the early 1980s the US government had developed containment scenarios in the increasingly likely event that North Korea absorbed the South.


This all came to a screeching halt in the 1980s when, because of rapprochement and monetary aid from a revitalized South Korea, the Soviet Union suddenly halted all aid to the Kim regime. As a net importer of agricultural products and energy, the DPRK almost immediately descended from relative prosperity to famine. The rest, as they say, is history.


Today’s North Korea is often portrayed as a caricature of a pariah state. Conventional mass media carries the same narrative – the country’s recently deceased leader was a paranoid egomaniac, the country’s only revenue comes from illicit shipments of opium and spent reactor fuel rods, and its people are starving and desperate to be set free. The country remains a backwater with no commercial economy, and no interest in creating one.


All of this fits well with the narrative… but what if the true story were different? In fact, what if much of what we believe to be true, really wasn’t?


What if the North Korean regime has been watching China’s economic miracle for the past 20 years, and quietly begun taking steps to emulate that success (on its own terms)?


What if the Russian government, in response to economic and political tension in Europe, has been pivoting toward Asia even faster than the United States, and sees North Korea as a potential ally worthy of billions of rubles (because dollars are so 2008) of debt forgiveness, aid and investment?


What if the Chinese are investing billions of renminbi (because the dollar may soon disappear from regional trade in Northeast Asia) into infrastructure and mining projects in North Korea?


What if North Korea were one of the most resource-rich areas in Asia, with significant proven reserves of iron ore, coal, gold, graphite and assorted rare earths? And what if steps were very quietly being taken to begin exporting those resources?


What if one of the most geopolitically important ports in Northeast Asia – of nearly incalculable value to landlocked Mongolia, or overdeveloped Northeast China, or frozen Russia – were actually in North Korea?


And potentially most importantly, what if a deal were about to be struck that might unite China, Russia, and the two Koreas in a way that would change the face of global trade overnight?


As stated previously, I haven’t been to North Korea yet but I think it’s nearly time for a trip. I have been paying attention to what’s been happening behind the scenes for some time now. Maybe you should too.


Stay tuned for my next update, when I will answer all of the questions above and throw in a potential investment idea or two.


Sincerely yours,




On Thursday we’ll get a perspective on South Korea from our colleague Miha, who has spent the last couple months in the country. He’ll contrast what he’s seeing on the ground in South Korea, to what Kevin and others have observed on the North. It should be an interesting post, with some great photos.

- Mark


"It’s starting to get serious – China has warned North Korea about starting a war. China told them flat out, ‘Do not fire any missiles at the United States at least until after we get our money. They owe us $16 trillion. Wait until then.’" - Jay Leno


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