Kim Jong-un's First Decade - A Decade of Market Growth

This is the fourth and final of the supplemental articles for the Kim Jong-un's First Decade in Power series. It details the various infrastructure changes and weapon developments of North Korea's conventional forces over the last decade.

Undated image from the North Korean government (via Naenara.com) of the interior of a marketplace in Pyongyang.

Introduction

Modern markets in North Korea trace their history back to the chaos of the famine of 1994-98 that killed upwards of 1 million people through starvation and related diseases.

As the central government’s ability to feed the people through the Public Distribution System failed (previously a citizen’s primary source of food), people had to make the decision to either abide by state ideology and starve or they could take matters into their own hands.

Since the vast majority of men were either serving in the military or still forced to report to derelict state factories for “work”, women took the lead and created the foundations of today’s market system that has spawned an entirely new generation, the jangmadang generation (those who came of age after the famine and during the period of marketization).

What began as highly illegal activity in the black markets has, twenty-three years after the famine, evolved into a series of legal and quasi-legal markets that has resulted in an entire generation never knowing reliance on state rations and who are unlikely to give up that freedom (and a greater selection of goods) to go back to the old days of the Public Distribution System’s monopoly.

The evolution of markets has weakened the regime’s internal travel restrictions and prompted an interest in entrepreneurship that can be seen in the creation of private transportation companies and a booming housing market, enabling the development of a middle class for the first time in North Korea’s history.

The regime has grappled with this loss of control through cracking down on market activity and, at times, trying to bring it under central authority by giving it a level of legitimacy (particularly in Kim Jong-un’s first several years as leader). But while Pyongyang is still trying to adapt to the reality that markets are likely here to stay, the wheels of commerce have not stood still. Today there are at least 477 markets throughout the country providing everything from rice and corn to home goods, foreign entertainment, and medicine.

Although there has been considerable research into early market development and its impact on people’s lives, I want to take this opportunity to show the growth arc of markets over the last decade and to reiterate that, absent the recent effects of COVID-19, market activity has not stalled or reached a saturation point but remains a dynamic economic force both because of and in spite of the regime.

 

A quick note: I have tried to tailor this report to focus on the markets and on how economic policies have affected them. More details and a broader view on economic policy under Kim Jong-un will be the focus of an upcoming regular article of the series.

 

Early Policies under Kim Jong-un

Perhaps due to his preoccupation with consolidating power or perhaps because he realized the state still couldn’t be the sole provider of people’s needs as in the days of Kim Il-sung, Kim Jong-un initially took a wait-and-see approach to the markets with the occasional foray into reform.

Exactly how open he was to reform is up for debate, but there is clear evidence that he was not only willing to continue the tacit approval of the growing market economy as his father had been forced to in the wake of the famine, but he was also willing to become the first North Korean ruler to implement market-oriented reforms (at least for a time) that positively affected the average person.

The government has tried to integrate the market economy into the centralized command economy by allowing the markets to exist while taxing them and regulating the kinds of goods that are allowed to be sold. As Prof. Andrei Lankov summarized in his 2016 report The Resurgence of a Market Economy in North Korea, “The government’s approach to the private sector has been mixed. It generally accepts private enterprise as a necessary evil, but for political reasons, it is not prepared to legalize it completely. Kim Jong-un’s government is more tolerant of private enterprise than its predecessors.” However, “the outright legalization of the private sector appears unlikely.”

Kim has also sought to compete with the markets by modernizing an ever-growing number of state-owned department stores. While these stores are not part of the ground-up marketization that has spawned hundreds of trading locations across the country, they have helped to fill a need for those who have managed to make it into the monied-class through private economic activity, particularly in Pyongyang.

With this mix of private and state options that currently exist, those with enough disposable cash can have access to bulk rice and illegal South Korean TV shows via the trading stalls and can then go purchase $1,000 designer handbags in department stores – with the added bonus of not risking getting arrested as the store's products are fully sanctioned.

But legitimizing the markets themselves was only one part of the economic puzzle that has led to a relatively robust market economy.

Chart showing the relative stability of the black market value of the North Korean won prior to the COVID-19 trade restrictions. Image source: DailyNK/Bloomberg.

The government has also taken a lax approach to the black market exchange rate of the won. Officially, 100 won is roughly equal to $1 USD, but in the markets, it’s well over 5,000:1.

Instead of instituting more disastrous currency reforms as it did in 2009, it has allowed the black market rate to serve as the won’s true indicator of value while being more aggressive in regulating the use of foreign currency. So, people have been able to save and invest using the North Korean won and those savings have not been at risk of arbitrary confiscation or a dramatic devaluation at the hands of the central bank in years.

This sense of stability has further strengthened the marketization process up and down the entire system.

In 2012, in one of Kim’s first major economic changes, he allowed farmers to keep their surplus produce to sell or trade and to keep any profits. Prior to the famine, selling food from state-controlled farms was highly regulated. Now, farmers would have incentives to keep working on government farms (instead of leaving to tend to their own illegal plots). Under this plan, improving agricultural output to alleviate food shortages was the state’s goal. However, it had the secondary effect of filling the markets with more and more foodstuffs and enabled farmers who’d otherwise be forced to rely on less than $15 a month in wages to earn enough money to live and not merely subsist.

Initially, it was projected that (so long as they met state quotas) most farmers would end up being able to sell 30-50% of their harvest in the markets. Enabling food to be sold and distributed locally is also highly beneficial during times of food scarcity as it improves the efficiency of distribution and ensures supplies still exist even as prices rise.

With the addition of new initiatives by the regime to dramatically increase the allowed size of ‘kitchen gardens’ from 100 sq. m. to 3,000 sq. m., by 2015, data from the UN Food and Agriculture Organization and anecdotal reports from within the country seemed to show that these early reforms by Kim Jong-un were bearing fruit.

 

Another major part to why markets continued to thrive has been the end of the Songun (military-first) policy. Instituted by Kim Jong-il to give the military a greater role over economic planning and the prioritization of resources when the regime saw itself under extreme external threat, the policy created massive distortions in the economy and diverted needed investment away from light industry and agriculture.

Kim Jong-un has worked to dismantle Songun in favor of his Byungjin Line or “parallel development” that seeks to pursue nuclear weapons without neglecting the domestic economy. A refocused approach to bolstering light industry and improving the quality of consumer goods has led to some improvements in the quality and diversity of available goods while also seeing factories in various sectors modernized.

 

Market Growth

In 2018 the Center for Strategic and International Security released a report on North Korea’s markets. Their reporting revealed that there were at least 436 officially sanctioned markets in the country and that the government received $58.6 million each year from stall rental fees and taxes.

Additional CSIS reports showed that a substantial portion of citizens earn at least 75% of their income from market activities. This finding fits well within what others have reported including New Focus International and defector testimony.

Based on the AccessDPRK Mapping Project (2021), this supplemental report provides an update on the number of markets in the country.

There are at least 477 markets in North Korea with 20 being identified as informal street markets and 457 being official markets. Of the official markets, some are still open-air sites with no permanent buildings. Because of this, it can be difficult to ascertain changes to the level of activity occurring there. So, I will only be focusing on the 441 markets that have permanent vendor stalls, as their construction and removal can be tracked across time, providing better direct evidence for the health of the economy in each city.

– A note on methodology, formal markets tend to have a defined boundary wall. Within that boundary can exist vendor stalls plus open ground for overflow capacity. Often, they include both. In cases where a substantial portion of the market is just open space, I have only included the areas occupied by stalls as the market’s “area”, as those stalls are responsible for most of the everyday economic activity that occurs and are the only thing that can be routinely measured. –

This chart shows the total area of the new markets constructed each year.

Since 2011, I have noted thirty-nine newly constructed markets. Of those with precise construction dates (there’s occasionally gaps in Google Earth imagery) two were built in 2011, four in 2012, three in 2013, five in 2014, four in 2016, three in 2017, five in 2018, six in 2019, three in 2020, and one is known to have been constructed in 2021. As this shows, there has been no real decline in the growth rate of markets over the course of the decade until the onset of the COVID-19 pandemic.

In 2011, 2,650 sq. m. worth of new markets was constructed and by 2019 that had grown to 23,260 sq. m. of additional market space. But that dropped precipitously following COVID-19 with only 7,450 sq. m. of space added in 2020 and just 630 sq. m. verified in 2021.

A further 114 markets have also grown in size since 2011. In total, there is 1,502,270 sq. m. (16,170,299 sq. ft.) worth of vendor stalls within the 441 market sites reviewed. That’s a net increase of 236,320 sq. m. (2,543,727 sq. ft.) since 2011. There are also tens of thousands of square meters in various overflow spaces outside of the main market buildings, but as these spaces aren’t always clearly delineated and often spill out into the streets or surrounding fields, trying to measure them can become somewhat arbitrary.

The largest single market in the country by area is the Sariwon market located in Kuchon-3 district (38.501407° 125.778737°). With at least 29,000 sq. m. of space, it’s over 8,000 sq. m. larger than the next largest market in North Korea. The market was constructed in a former stadium and includes a large central building surrounded by dozens of smaller structures that hold vendor stalls and other facilities.

Some other market-related stats are:

• The newest market is in Hamhung. Constructed between 2020-2021, this small market (39.953089° 127.560062°) provides facilities to the growing districts around the Chemical Materials Institute and Tonghungsan Machine Plant.
• There are 26 markets greater than 10,000 sq. m. in size.
• There are 95 markets with less than 1,000 sq. m. worth of vendor stalls.
• The smallest market (as best as I can determine using Google Earth measurements) is in the town of Hwaam (40.675307° 126.451652°) and only has ~130 sq. m. of active space. It does have some overflow area, but currently, there is just a small cluster of permanent structures.
• Although it wasn’t until 2002 that the government allowed officially sanctioned markets to operate, based on the available Google Earth imagery, at least 56 market sites with permanently constructed buildings had already been in existence prior to 2002. These include markets in Anbyon, Sinpo, Wonsan, and at least eleven in Pyongyang. These are, of course, in addition to the many open-air street markets that also existed at the time that were later converted to permanent sites.
• Based on a 2014-16 survey, there are over 600,000 individual vendor stalls within official markets. Today, that figure is likely closer to 750,000 as substantially more markets have been identified and others have grown.

 

Different approaches to the measurement of market sizes and the addition of new markets constructed since the 2018 CSIS market report makes directly estimating government revenue from that report difficult. However, using their published estimates for government revenue from each market, the range of annual revenue each square meter of market space brings in is between $26.56 and $36.05. Applying those figures to the current amount of active stall space as measured in this supplemental report, the central government receives between $39.7 million and $54 million in revenue. If one were to include open-air markets (which are variable in size) or include the overflow spaces as part of the revenue-making area, as of 2021, the government brings in over $60 million each year.

Later Changes and the Effect of COVID

Street vendors selling produce near the highway running from Nampo to Kaesong. Image source: Uwe Brodrecht, Oct. 13, 2015, via Commons (CC 2.0). Image has been cropped.

 Although Kim has been incredibly open about economic and food troubles compared to his father, he still has an obligation to strengthen the state, stamp out threats to the regime, and manage the expectations of the people. Those threats include private markets and even a rising standard of living.

The desire to control the markets is more than just about the drive for greater economic control from Pyongyang. Markets form a core part of nearly every DPRK citizen’s daily life. They are a source for networking, sharing gossip (including views that could be viewed as treasonous), and are a key source of electronic devices and digital media that further erode the information cordon that has existed for generations.

Market activity has helped to raise people’s expectations of what a decent life is, and if the government can’t assist in raising standards of living, people tend to decide those in charge are expendable. This threat is why Kim Jong-il, at best, engaged in benign neglect of growing market forces within the country but would not have countenanced anything as dangerous as reform, as reform brought with it its own risks to the stability of the regime.

Kim Jong-un, on the other hand, has calculated that he must allow for reforms, though limited, to continue the country’s economic growth as he has staked a good portion of his legitimacy on improving the economic condition of the country, repeatedly calling out failures and promising a final end to food shortages.

This has created an internal contradiction, where reforms must take place for the people to survive but they must also be applied as sparingly as possible if the regime is to maintain its ultimate authority rooted in the systems created by Kimilsungism-Kimjongilism. To address this, new economic initiatives are often kneecapped to limit their spread and others are announced but never followed up on.

Kim “seems to be doing everything [he] can to keep up Stalinist appearances and…probably believes that he cannot abandon socialist rhetoric without risking his legitimacy,” as Peter Ward told 38 North in December 2017.

Market regulations, agricultural and industrial reforms, changes to how banking and the accumulation of savings work, have all been tweaked over time. And some have had limited success in the places where they’ve been tried, but Kim has yet to commit to anything more than shallow reforms.

One group that has taken advantage of ‘reforms on paper’ is corrupt officials. These individuals, many at high levels of government, are an indispensable cog in the way markets currently work in North Korea. Bribes yield permits and licenses, and further bribes shield entrepreneurs from the more serious repercussions that would otherwise result in their activity. These bribes and kickbacks end up becoming a major source of income for thousands of security officials and bureaucrats, creating an undercurrent pushing markets forward and diminishing any momentum that Pyongyang builds to limit those activities.

The problem of corruption has been publicly discussed by Kim Jong-un more than once, and he has recognized the problems to his regime it creates. How to deal with mismanagement and embezzlement without also crushing the market system that corruption has actually assisted in creating is something yet to be resolved.

Occasionally, large-scale crackdowns are conducted and anyone who gets caught up in them will just have to face reality. But more often than not, on a day-to-day basis, most authorities remained happy to turn a blind eye in exchange for bribes and kickbacks so long as the right signals from Pyongyang existed.

 

After ending the Songun policy and ostensibly fulfilling the goals of Byungjin (by developing miniaturized nuclear weapons), by 2018, Kim Jong-un stated that the Party’s focus should be primarily on economic matters once again.

This didn’t necessarily mean making trade easier. It meant growing the economy while reasserting the state’s control. Nonetheless, the evolution of Pyongyang’s approach to markets from illegality to tacit approval, and to the flirtations with quasi market-socialism that finally seemed to be coming into its own. However, in the final nail to the coffin of Kim being a “Swiss-educated reformer”, his authoritarian streak suddenly became much more pronounced at the onset of the COVID-19 pandemic.

COVID-19 was an obvious threat to the country’s survival as North Korea has one of the poorest healthcare systems in the world and relies on international aid to keep illnesses like tuberculosis in check. At the same time, the strict internal travel regulations and the ability of the state to micromanage huge portions of a person’s life meant that North Korea was also uniquely prepared to enforce lockdowns and quarantine measures, both on a per-city level and could even shut off entire provinces from the rest of the country if it wanted.

But the regime didn’t want to only rely on masks or temporary lockdowns, and it offered Kim a prime opportunity to stem the unpleasant tide of outside information and the further erosion of central authority.

In January 2020 it sealed its borders to levels not seen since the days of Kim Il-sung and began to restrict any cross-border trade or communications using the false threat that the surfaces of objects (even dust) were a major carrier of the virus – it’s not.

Kim Jong-un embarked on two tracks in the wake of COVID-19, constructing a border blockade to stop the virus and using the enhanced security measures to go after other ‘threats’ –  growing markets and increasing levels of outside information.

The blockade has meant the de facto suspension of trade with China as movements across the border were prohibited beginning in January 2020. And it has meant physical barriers in the form of miles and miles of double fencing across a large section of the Sino-DPRK border along with hundreds of new guard posts to secure the fence. It has also taken the form of electronic countermeasures to block cell phone signals, track those making calls into China, and to seek out potential defectors.

The combined effects of this blockade have resulted in around an 80% decline in trade, the country’s only lifeline, and there have been fewer defectors making it to South Korea than at any time since the flow of defectors began in the 1990s.

 

The effect on the markets is both commercial and ideological. Basic necessities are now running out and there is a real risk for nationwide food shortages because trade has been so severely restricted. Kim has also cracked down on electronics and media that are so often found in the marketplace in an attempt to shore up the ideological ‘purity’ of the population.

Stories of imprisonment and even executions for possessing foreign media (particularly South Korean content) have spiked since 2019 and the markets have served as a source of this illicit material since their inception.

Small crackdowns have always occurred, typically in the lead-up to holidays and other important events,  but as COVID has provided an additional excuse, Kim has begun larger and larger crackdowns with more severe punishments. DailyNK has provided numerous reports of these actions including one on December 17, 2021 as part of the regime’s attempt to curb capitalistic ‘disorder’ and to improve the people’s ideological fortitude for the 10^th anniversary of Kim Jong-il’s death.

These crackdowns have also been focused on the informal markets that still exist in the streets of many North Korean towns. These are still black markets and aren’t part of officially sanctioned economic activity.

The black markets offer those who can’t afford to pay rental fees the ability to still sell and barter. As the situation within North Korea becomes worse due to the lockdowns, black markets are starting to play an ever-increasing role in people’s lives as the sanctioned markets run out of goods.

As they have been described to DailyNK, “Street merchants are people who get by barely by selling food, water and other goods near railway stations, bus terminals, or markets with a lot of pedestrians…Even among all merchants, they’re the most underprivileged.”

The loss of revenue to these black markets, their inherent threat regarding the spread of outside information and cultural trends, and the fact they’re populated by the more vulnerable population make them an easy target for the regime as the recent crisis grows.

After a few years of expanding freedoms, the experiment with sanctioned market activity seems to be entering a more challenging era. As The Economist stated in July 2019, “state media have called for more central control over investment and jobs in the name of fighting corruption. They also argue for the restoration of state control over the food supply and the revival of the public distribution system.”

Exacerbated by floods, the pandemic has only made the food situation worse, and markets are beginning to run out of products. The situation is so dire that Kim Jong-un himself addressed the matter, calling the food situation “tense” at a meeting of the Workers’ Party, and the United Nations and various NGOs have also been sounding the alarm.

Unfortunately, while the regime could take active steps to alleviate the threat posed by the virus and ease the food shortage, Pyongyang has refused delivery of any COVID vaccines and has expelled every NGO worker in the country, along with almost all foreign diplomatic staff. This makes it impossible for international aid to be distributed. But it also gives Kim the time he needs to finish his anti-reform agenda as the pandemic situation can be described to domestic audiences as just as dangerous as ever, especially in light of new variants.

 

Conclusions

Both common citizens and government officials have used the markets to make fortunes despite of the wide range of government regulations and economic sanctions. Through their informal trade relationships with Chinese partners and the creation of quasi-legal private-public enterprises, North Korea’s economy has been able to not just weather these challenges but has managed to grow (by as much as 4% in 2014).

However, North Korea’s closure of the border with China and Russia and the subsequent halt in trade due to COVID-19 has placed great pressure on the markets and their ability to get goods to the people. Inside sources have long been reporting on shortages of daily necessities like toothpaste and international organizations are anticipating massive food shortages should the border blockade continue much longer. But one thing is certain, after being closed off from the world for over a year, the markets and consumers are ready to reengage in the ground-level capitalism that has sustained the population for a generation…if given the chance.

Under a more liberal approach to economics in the first few years of Kim Jong-un’s rule, the markets continued to grow and standards of living improved as well. But as Kim rediscovers central planning and his love for authoritarianism in the wake of COVID, the condition the market system will emerge after the country reopens is in doubt.

However, as upwards of 50% of North Korea’s GDP is generated by private enterprises, if the regime truly wishes to put an end to market activity, it’s going to have a very difficult time putting the genie back in the bottle. I suggest that it is more likely the government will seek to further constrain the markets but will still recognize their indispensable nature in creating a growing North Korean economy.

Many of Kim’s orders recently have had to do with ideological and social correctness, purging impure elements, and stopping the flow of information – particularly among the country’s youth. He seems less concerned with the dollars (or won) being earned so long as they’re not connected to informational feeds that undermine the state and so long as the state receives its share.

Regardless, until international trade can resume, prices will keep rising and shortages will get worse. The North Korean people have shown themselves to be capable of weathering all manner of difficulties, but there always exists a breaking point. Kim is playing a dangerous game by prolonging the pandemic crisis and attacking market activities as even he doesn’t know where that breaking point is.

Over the years, North Korea has slowly reframed its national identity from one of a Marxist state to an ever more ethnonationalist one, centered on the perceived uniqueness of the Korean people. Kim Jong-un has continued this identity shift, stressing that any reforms made are not capitalistic or even based on the reforms taken in other countries, but are expressions of North Korea doing things “in our own way”.

Perhaps, if he can manage to separate the ideology and identity from the realities that are demanded by economic growth, he may be able to guide the country toward being a more prosperous state without losing the highly centralized authority the regime must keep. Then again, reforms never last long in the Hermit Kingdom and his recent actions do not inspire confidence.

Clearly, the misallocation of resources on things like nuclear weapons and missile tests slows economic growth. And the extremely poor state of the country's electrical grid, transportation systems, and healthcare network means North Korea is, in many ways, still trying to fully recover from the downfall of the 1990s, but economic progress could nonetheless be seen in the crowds of people pouring into markets both old and new. Crowds still gather in the midst of the pandemic as people struggle to maintain their livelihoods, but it seems that the regime is in no mood to help. 

 

~ ~ ~ ~

I have scheduled this project to run through to the end of the year, with a new article coming out roughly every 10 days or so. If you would like to support the project and help me with research costs, please consider supporting AccessDPRK on Patreon. Those supporters donating $15 or more each month will be entitled to a final PDF version of all the articles together that will also have additional information included once the series is finished. They will also receive a Google Earth map related to the events in the series, and can get access to the underlying data behind the supplemental reports.
Supporters at other levels will be sent each new article a day before it’s published and will also receive a mention as seen below.

 
I would like to thank my current Patreon supporters: Amanda O., GreatPoppo, Joel Parish, John Pike, Kbechs87, Rinmanah, and Russ Johnson.

--Jacob Bogle, 12/21/2021
AccessDPRK.com
JacobBogle.com
Facebook.com/accessdprk
Twitter.com/JacobBogle

Markets Still Grow Despite Economic Headwinds

Researching North Korea's economic development is always fraught with difficulties. The state offers very little in the way of concrete data, and state media predominantly focuses on single items (like a factory or amusement park being built) and gives exaggerated reports on national trends. At least, until Kim Jong Un came to power. 

While the amount of reliable information is still sparse, Kim Jong Un has broken with tradition and hasn't been afraid to speak openly about the difficulties facing the country. He has even blamed the bureaucracy itself on occasion instead of always chalking up problems to sinister western forces or on a single bad administrator.

Pyongyang Central District Market. Yonhap, 2006.

It is clear that the people's lives have improved since the days of Kim Jong Il but to what extent that trend has carried on into the last few years is murky and appears to be fairly uneven. How much the civilian and military economies have undergone structural changes under Kim Jong Un is likewise murky. However, all one has to do is pull up Google Earth to see billions worth of construction activity over the years, and to examine their missile tests to tell that Kim has certainly surpassed his father in the military sphere. 

Now, before you start accusing me of calling Kim Jong Un a reformer, I'm not. But it is irrefutable that his governing style - while still autocratic - is somewhat different from that of his father's. Many of the obstacles and opportunities facing this generation are also fairly different than the ones facing the famine generation, so, naturally, the economic dynamics are going to change.

Markets for things like handicrafts have always been allowed in North Korea, but markets for selling grain, consumer goods, etc. were forbidden. That all changed during the course of the famine when farmers' markets popped up along roadsides across the country as people picked survival over obeisance to the state. In turn, the government has sought to regulate them (thus giving tacit approval to their operation), and according to the Center for Strategic and International Studies (CSIS), the state earns between $60 and $70 million annually from fees and taxes imposed on the markets as of 2018. Over the past decade or so the number of approved markets has roughly doubled, and as of this year, I have been able to identify 443 of them. 

This implies a fairly robust civilian economy, even if it is faced with numerous obstacles (particularly in 2020 as the result of COVID-19 and after multiple typhoon impacts). Specifically, the service sector, retail, and construction have all been growing drivers of the economy for at least a generation.

How much of this can be attributed to the fact Kim was left an "inheritance", reportedly worth up to $5 billion, that he was able to invest in weapons and economic construction, how much is due to illicit trading activities, and how much may be due to a civilian economy that has become even more market-oriented despite the regime's protestations can't fully be known. Regardless, the results are the same.

To demonstrate that the civilian economy is still growing despite internal and external economic pressures (including sanctions), I want to show some changes that can be seen in 23 markets across the country. (A list of these markets can be found at the end of the article.)

These changes have all taken place from 2015 to 2019 and includes markets in major cities and in more rural areas. The changes are: the building of entirely new markets and the expansions of existing ones.

Since 2015, at least thirteen new markets have been constructed with a combined area of approximately 47,271 square meters (508,820 sq. feet) of new selling space. The largest of the new markets was constructed in Chollima (Kangson) in 2019 and ranks among the largest markets in the country, covering 15,920 sq. m (171,361 sq. ft.).

Google Earth image showing the recently constructed market. An overflow crowd is also visible.

Additionally, since 2015 at least eight other markets have undergone relatively substantial expansions, and two more were converted from open-air markets to being housed in buildings. Between the expansions and added covered floor space, the total additional area equals 18,906 sq. m (203,502 sq. ft.).

The result of these changes is that there has been an increase of 66,177 sq. m (712,323 sq. ft.) worth of market space in just four years.

According to CSIS, the largest market in the country generates the equivalent of $36/sq. m in revenue to the government each year. If we make a simple assumption that these new spaces will generate only $15 per square meter, that still represents nearly an extra $1 million a year going to Kim Jong Un's coffers (solely from fees and taxes at the markets). The regime generates additional revenue through the process of transporting goods, trading permit fees, paying bribes to border guards and officials, etc. 

The fact new markets were also built after 2017, when economic sanctions against North Korea reached their height, tells us that the country's domestic economy and illicit trade is likely more robust than is generally thought. 

This is backed up by Panel of Expert reporting by the United Nations that claims the country could be illegally importing three to eight times the amount of petroleum products it is legally allowed. That also helps explain how the regime has been able to build scores of gas stations in recent years which are estimated to consume the equivalent of the country's entire legal fuel import amount. Other illicit trading involves coal, seafood, and even sand exports.

And while COVID-19 has placed a tremendous strain on the economy, North Korea is still managing to build the largest hydroelectric project in its history, construction of the Pyongyang General Hospital is nearing completion, and the capital has embarked on a housing building boom.

Additional projects like multiple small hydroelectric dams, large collective farms (such as the Jangchong Vegetable Farm), and various construction projects that can be found in most medium and large-sized towns, all point to a country that is not stationary. 

Clearly, the misallocation of resources on things like nuclear weapons and future missile tests places a burden on economic growth. And the extremely poor state of the country's electrical grid, transportation system, and healthcare network means the country is in many ways still trying to fully recover from the downfall of the 1990s, but economic progress can nonetheless be seen.

I would like to thank my current Patreon supporters: Amanda O., Anders O., GreatPoppo, Kbechs87, John Pike, Planefag, Russ Johnson, and Travis Murdock.

--Jacob Bogle, 9/14/2020
AccessDPRK.com
JacobBogle.com
Facebook.com/accessdprk
Twitter.com/JacobBogle

Notes

The 13 newly constructed markets are located in: Chollima (38.931° 125.561°); Jonchon (40.616° 126.459°); Kag'am-dong (39.565° 125.851°); Kangdong-Pangwha (39.161° 126.023°); Kimchaek (40.674° 129.181°); Kumya (39.540° 127.246°); Samjigang (38.412° 125.691°); Nampo A (38.753° 125.396°); Nampo B (38.735° 125.418°); Pyongsan A (38.335° 126.393°); Pyongsan B (38.327° 126.412°); Riwon (40.319° 128.663°); Sariwon (38.509° 125.767°)

The 10 expanded markets are located in: Chollima (38.928° 125.560°); Chongjin (41.790° 129.767°); Chongju (39.696° 125.219°); Hamju (39.855° 127.435°); Kangdong (39.138° 126.094°); Koksan (38.782° 126.669°); Sin'gye (38.500° 126.524°); Songang (37.887° 125.154°); Wolthan (41.413° 127.057°); Wonsan (39.175° 127.378°)

The Marketization of North Korea

North Korea as proof that the drive toward freedom is universal, and that economic freedom creates personal freedom.

Introduction
Libertarians love all kinds of freedom, and we’re basically obsessed with economics. We understand that economic liberty means a person is free to do what they want with their property, their capital, and their ideas. Anytime a new Uber or Airbnb comes along, we hold them up as exemplars of what innovation – and the liberty to utilize it – can accomplish. We also, rightly, become incensed whenever government tries to limit competition and squash innovation for the benefit of one group over another.

When discussing freedom and free markets, socialism and communism are often used as examples of how state control ultimately leads to failure. But no nation in modern history is quite like North Korea. Not only is North Korea among the last Stalinist states, it will also become the longest-lived communist regime on Sept. 9, 2018 when it will celebrate its 70th anniversary (beating the Soviet Union by one year).

North Korea is unique in many ways and has surpassed basically every other totalitarian system in its breadth of control. This is why looking at what the people of North Korea themselves have done regarding market activity and the spontaneous drive for freedom makes North Korea, in my view, the best example of why liberty works and offers the most chances for happiness and well-being for all people.

As the saying goes, “it’s the economy, stupid!” Well, it really, really is. The ability to engage in economics is everything and affects every part of life.

Historical context
Korea had been a unified feudal kingdom for a thousand years prior to 1910, when Japan annexed Korea. Fast forward to the end of World War II, and the Allies have to figure out what to do with all of the places Japan had occupied.

America and the Soviet Union came up with a very hasty and poorly thought out plan in 1945 to divide Korea into two areas along the 38th Parallel. The North would be under Soviet control and the South would be under American control. The plan called for an election in the future so that Korea could be reunified – either along communist or democratic lines. That election didn’t happen.
Not wanting to wait any longer for reunification, North Korea invaded the South in 1950. The Korean War ensued, devastated the country, and killed millions of people. The war ended with an armistice in 1953. North Korea’s attempt to reunite the country under a single system once more has led to these 64 years of division. That division has been so great that even the Korean language has rapidly developed into two very distinct dialects.

It goes without saying, that since northern Korea was controlled by the Soviets, they developed a communist, top-down controlled economic system. Due to the period of Japanese occupation, northern Korea was actually the industrial center of the peninsula, while the southern half was the bread basket. And despite the utter devastation of Korea during the Korean War, North Korea (under Kim Il Sung and with Soviet help) managed to rapidly rebuild their country. North Korea managed to be economically, technologically, and militarily more advanced than the capitalist south all the way into the 1960s.

--- At this point, I feel it’s important to describe just what is meant by a top-down command economy in terms of North Korea. This doesn’t mean the leadership says, ‘we need to focus on infrastructure’ and a spending bill gets passed. It means every aspect of the economy is controlled by the Korean Workers Party, which is itself controlled by smaller organizations that all directly answer to Kim Jong Un. If a new factory needs to be built, or if there’s a shortage of farmers, even things like entertainment and the arts – it only happens once the government says it needs to happen. There is no room for the spontaneous order that makes capitalist systems so adaptive. ---

Division of the economy
The economy can roughly be divided into 3-4 sectors: the official economy, the parallel military economy, and a mix of grey and black markets. And you can further divide the economy into two eras, the pre-famine and post-famine eras.

The famine of 1994-98, to me, stands out as the breaking point. Prior to the famine, everyone received food rations via the Public Distribution System. Everybody received a certain amount of grains and fats on a regular basis (although the amounts and exact products varied according to how important the government thought you were). That system began to slowly erode through the 1970s and into the 1980s, and by the 1990s most people were receiving only a fraction of what they usually got. And instead of getting them once a month, three or four months might go by in between. People would forage for wild foods and engage in very limited market activity (which was generally illegal). But, widespread starvation wasn’t yet happening and the Distribution System was still partially functional.

North Korea had played the Soviet Union and China off each other for decades whenever the two big communist states would have sour relations. This meant North Korea received very cheap fuel, fertilizer, and food subsidies – and consequently lacked the incentive to improve their own agricultural and industrial sectors. It also meant they were incredibly dependent upon those subsidies. Once the Soviet Union collapsed and the Eastern Bloc moved toward integration with the open world economy, North Korea lost its most important patron. China still provided some “friendship aid”, but it wasn’t enough to make up the difference.

--- To help you understand the odd system in North Korea, I need to explain the official political ideology of the country. North Korea began distancing itself from being an official communist or Marxist-Leninist state in the 1970s. They replaced it with something called Juche, which basically means “self-reliance”. It means the country should be self-reliant and that each person is a “master of his own fate”. Of course that push to be self-reliant was happening when North Korea was entirely reliant on outside sources of aid to feed its people. And despite the positively sounding idea of each person being the maters of their own fate, they are only the masters of their fate within the guidance of the Korean Worker’s Party. Your sole purpose for existence extends to fulfilling the quote, unquote “revolution”. The only thoughts and behaviors allowed are those that follow the government. ---

Famine and collapse
At the end of the Cold War, the government began running out of food and fuel reserves. A series of floods then hit the region which compounded problems associated with the very poor soil management system in the North, which then led to the destruction of millions of acres of food and severely damaged their irrigation systems. Without adequate fertilizer and the fields being covered in mud, famine soon began to take hold; hitting the northern regions of the country the hardest.
The famine resulted in 1 million deaths, or almost 5% of the population. It also sank their economy. In order to survive, people started taking matters into their own hands.

This is where that fundamental drive to survive meets with economics and the reclamation of one’s own agency. Ironically, it turned Juche away from meaning total obedience to and reliance on the state into a growing reliance on one’s own efforts. As we will see, it’s also a testament to the power of women to change the lives of countless people.

Under the official system, every man not serving in the military had to work at one of countless state-controlled jobs. Be it at a factory, as a teacher, a farmer, in coal mines, etc. Even when the electricity failed, imports stopped, and the factories were neglected to the point of complete inoperability, all good socialist men reported to work to stand around all day under the ever-watchful eyes of the country’s surveillance system. Despite not producing anything in their factories, they were still paid the appropriate state wages – which amounted to just a few dollars a month.
This money was never meant to be the primary way people got their food, medicine, or other necessities, but with the Public Distribution System now totally collapsed and the currency tanked in value, a month’s wages may be all that a family received, and it might not be enough to purchase just a few days’ worth of food.

Black markets and Korean women
Despite the full equality granted to women by the North Korean constitution, North Korea has married communist philosophies with traditional Confucian ones. This means that while women can vote, join the military, and serve in public office, most are still stuck at home or on collective farms with no real ability to step outside the more traditional roles of women.
But with the famine and the failure of the state to provide, and with the men-folk away at work – not doing anything and not earning anything – it was up to wives and mothers to become the true breadwinners, lest their family starve.

Black-markets have existed in a limited sense throughout North Korean history and women have always been allowed to sell things like handicrafts. But selling anything like food, consumer goods, or raw materials was strictly forbidden and could easily result in the seller being sent to prison. What began as trading small amounts of wild herbs or what little food could be grown on the tiny plots of land your house sat on, gradually grew into large informal marketplaces where you could find lots of items.

People started leaving the unproductive collective farms in favor of tending illegal farms high up in the hills. Women not only traded with their neighbors but also began to branch out throughout their city and eventually around the country. Defections also rose significantly in the years following the famine along with the growth of these markets.

At one point, women made up over 70% of defections. One reason for this is because nearly all men have to serve long terms in the military, and so couldn't easily get away. And the other is that those men who aren’t in the military have to maintain a job. This means a woman missing for a day or two can be overlooked. By the time people start noticing, she’s long gone. Men on the other hand are kept under a much more watchful eye.

Travelling outside of your town requires government permission, and that meant bribes had to be paid. The result is that now you have people being able to travel to different parts of the country, and low-level officials turning a blind eye because they were getting more income from bribes than they were getting from the government that was supposed to supply for the needs of everyone.  Naturally, men started getting tired of seeing their wives out preform them, so they started paying bribes to the factory managers in order not to show up for “work” so they, too, could earn money. The array of goods floating around on the black market exploded. Workers would even dismantle their factories and machines to sell parts and as scrap metal (often to China), and the managers would over look this since they were making enough money to pay off their own supervisors, and so on.

The explosion of market activity can readily be seen using satellite imagery. In the early-to-mid 2000s, there were around 100 markets in North Korea, often on the outskirts of town or would pop up on occasion for a day or two before disappearing.  Today, there are over 400 markets. Market activity became so widespread that the government had to allow them. Instead of being shady places in back alleys, they’re now in the middle of town and housed in permanent facilities. Of course, the government charges fees, and there are still some rules, but on the whole, the market is where most people go to meet their daily needs. These markets can be relatively small, with just a few stalls, or extremely large, covering an area greater than 67,000 sq. ft. like some in Pyongyang.

This map shows nearly 400 identifiable markets in North Korea. Information is based on the 2017 release of the AccessDPRK Mapping Project.

The fact the government allows markets to exist in the open and that so many people take advantage of having them, shows the power of people. North Koreans who were determined not to die of neglect created a system based on capitalism – even if they didn’t really know the terms or know that what they were doing was capitalism. Faced with a choice between regime survival or the loss of all control, the government finally relented.

Grey markets
As with every country that experiences dramatic changes, be they the result of a famine, or hyperinflation, or any other examples in history, people changing their behaviors to maximize survival – even if it means ignoring government rules – extends to all levels of a society.
As I mentioned earlier, North Korea’s economy can be divided into a few sectors. Prior to the famine there were only two: the government economy and the military economy. Post famine, the growth of unsanctioned market activity had grown to be a serious competitor with the official economies of state. So much so, that the military and bureaucracies began taking part. After all, no amount of propaganda or loyalty to an abstract ideology will prevent people from seeking out a living when their lives are hanging in the balance. The benefits of engaging in marketplace activity became clear for all to see.

One main difference between black markets and grey markets is that a grey market is an otherwise unapproved economic activity that is done under the color of official sanction. At the same time the markets began to take off, the government began to demand that all the different agencies, departments, and military units come up with ways to pay and feed their own members, as well as earn hard currency for the regime. This was a tacit acknowledgment by the Kims that the government couldn’t fulfill its basic obligations and that they would allow limited trading activities so long as they didn’t cause an overall disruption or threaten the power of the Kim family and the Party. With that change in policy, public-private partnerships began to spring up everywhere.

One major area where this is true is in mining. A group of citizens who has access to unskilled labor will go to the appropriate local official in charge of mining. They will pay the official a large bribe and he will issue them the needed permits in return for future kickbacks. If they have enough money, he will even help them access necessary equipment. Government scientists, like geologists, are also highly sought after for the purpose of locating mining sites. The government agency can now count on receiving regular amounts of currency (which they were required to raise anyway) and the low-level people can earn far more money selling the mined material than they would engaging in more legitimate work – while also having the backing of those officials in the event security agencies start asking questions.

One of the few areas that is strictly off-limits to this, however, is gold mining. If you are caught illegally mining gold, you are accused of stealing from Kim Jong Un himself. Selling gold was one of the reasons Kim’s uncle, Jang Song-thaek, got in trouble and led to his executed in 2013. But there are plenty of other valuable minerals to be mined, coal in particular. The number of small coal mines scattered across the country is immense.  And you can see their numbers rise via satellite as time goes on. This isn’t to say life is easy, especially for the average unskilled worker. Concepts like workplace safety are unheard-of and terrible accidents are common. But the otherwise ever-present specter of malnutrition and living a life wholly dependent on government has greatly diminished.

This mix of markets has created a burgeoning new middle class. While they would be considered poor to Western standards, this cohort has ready access to food, consumer goods, better housing, and can occasionally use their relative wealth to buy their way into the higher ranks of the government’s classification system. This system, called Songbun, stratifies people into three main categories with 50 or so smaller sub-divisions. Moving up levels means your life and your family’s lives will be better off and have greater opportunities, but it used to be incredibly difficult to do. But now, flush with cash, this middle class can change the destinies of their children for the better.

Public-private arrangements have been so successful that they have fueled an enormous construction boom. The skyline of Pyongyang would be unrecognizable to someone living even 15 years ago, and major cities around the country have benefited as well. Many in North Korea’s million-man army are used as laborers in these projects. While that isn’t anything new for North Korea, now specialist military carpenters and other skilled soldiers are paid a premium by the newly rich for their skills at constructing quality buildings and even creating home fixtures.


Marketization and culture
All of this more general economic activity has helped open the door to things that aren’t strictly a matter of finance or infrastructure. Personal freedoms, too, have begun to expand. Cell phones, now numbering over three million, not only facilitate trade, but have obviously had an impact on the personal lives of those who own them.

Prior to marketization and the ability for people to even have a cell phone, communication between average people was generally limited to speaking in person and writing letters. Few people even have landline phones as they require a substantial government approval process. Relationship opportunities were thus limited as well. Even today something we’d consider very trivial, like holding hands in public, is frowned upon. Dating, as we know it in the West, simply doesn’t exist and North Koreans remain painfully naïve when it comes to sex. Picking a wife or husband usually involved having the marriage arranged by family, or simply picking a mate based on their good songbun.

Now, however, armed with cell phones and disposable income, a small degree of liberality has set in. Young lovers can now find rooms to rent by the hour – usually in the home of a grandmother who is eager to earn a little extra money. She will often go for a walk or visit the local marketplace for a bit, while the young couple gets to know one another. Even more scandalous activities like prostitution, which was seen as part of the moral depravity of capitalist societies, is now exercised in public. There are even reports of police actually helping protect the women.

On less dramatic topics, the availability of consumer goods like electronics, and the willingness to break the law to watch pirated South Korean TV shows and American movies, has begun to create a population that expects to live a better life; one that includes leisure. Even though the national priority of leisure may seem to belong at the bottom of the list, considering malnutrition is still generally widespread and that thousands continue to languish behind the electrified fences of concentration camps, the government has taken to importing countless electronic items from China. North Korea is even producing their own cloned versions of iPads, Mac Computers, and the Windows Operating System. The government has also begun to build amusement parks and arcades.

Going back to the construction boom, a sort of semi-legitimate housing market has emerged as well. Private ownership of property isn’t possible in North Korea, but people are issued “residency certificates” that, for all practical purposes, are treated the same way a deed would be treated elsewhere. So, when someone makes enough money and they want to move, they simply sell the residency certificate and acquire a new one for their new home. This further weakens the state's control over the lives of the people.

In conclusion
Even in the most oppressive country on earth, where people literally don’t understand that there are different kinds of love (for true love is reserved only for the Kim family), or that using your talents and ingenuity to deal fairly with your fellow man is the basis of capitalism – despite these things, the human spirit endures. The desire for individuality and for forging your way is engrained in our very make-up, and no system of government or amount of repression can fully drive out the essence of liberty.

The determination of the people to live their own lives spurred on the marketization of the country. That, in turn, provided enough pressure to “encourage” the government to accept the markets, the slightly freer movement of people within the country, and provided the incentive needed to modernize and upgrade certain areas of the infrastructure (which had previously been kept limited and served as a means of defending against an invading army).

For those of us in the United States (and the rest of the world), it isn’t simply enough that we fight to be allowed to rent a room to a stranger or to be allowed to buy and sell online with a level of privacy. As North Korea shows, creating and forcing economic freedom from the bottom up forces governments to change and provides the environment needed for greater personal freedoms. However, the inverse is also true. When government seeks to limit either personal or economic freedom, it begins to impinge on the other liberties we have.

Things like privacy rights helps ensure a confident consumer; be they a consumer of Walmart or a consumer of government services. The protection of free speech enables concepts like Wikipedia to turn into a reality that can actually challenge authoritarian systems around the world. Defending free association and ending access barriers to technologies that were once inaccessible to the private sector, like the exploration of space, makes things like Google Earth and reusable space craft a reality. The benefits are endless.

If the people of North Korea can crack the heavy veil of 70 years of oppression and servitude, we can, and we must, do all that’s possible to prevent the erosion of the liberties we have enjoyed for over two centuries.

(This was originally presented to the Rutherford County Libertarian Party on Sept. 5, 2017.)

--Jacob Bogle, 9/3/2018
JacobBogle.com
Twitter.com/JacobBogle
Facebook.com/JacobBogle