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.
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. –
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
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 10th
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.
~ ~ ~ ~
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.
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