Reflections on the many dimensions of ‘marketization’ in NK

A unified Korean Peninsula is something we
all dream about. But what do the experts think that process will look like?
It’s time for “Unification Table Talk” where we interview experts in
the field. 

North Korea’s markets are increasingly
expanding and changing the way North Korean people think. Many say that this
expanding marketization could be used as the key for regime change. Recently
there has been an increase in people who use the markets for their livelihood,
which some experts say is actually contributing to stabilizing the Kim Jong Un
regime. This is because the market is providing North Koreans with a way to
survive because the regime can no longer distribute rations. To tell us more, we’re joined today by the head of research at Daily NK, Park In Ho.  

1. There is heightened interest in North
Korea’s markets. However, it looks like there isn’t much clarity on the
subject. Can you explain how markets work in North Korea?

You know, when you ask many North Koreans,
“Where are you going,” the most common reply is “I’m going to
the market.” Markets are common in North Korea, but, from a researcher’s
perspective, it’s hard to explain what the word “market” means for
North Korean society.

In North Korea a market is where people buy
and sell items. There were farmers’ markets ever since the beginning of the
North Korean regime in 1962. Farmers would trade the surpluses from their
vegetable gardens at these markets, and there were even night markets with
street vendors in big cities. In 1990, when the regime stopped distributing
rations, the hungry citizens needed to find a way to buy and sell things to
sustain their livelihoods and thus, people gathered in common areas and markets
were established.

Because there is no officially sanctioned
way to organize the market, North Korea’s Ministry of People’s Security (MPS,
which act as the North’s police force) charge a “stall fee” (i.e. de
facto tax) to vendors and even put numbers on the market stands. International
researchers have started referring to North Korea’s markets as “official
markets” to mark this change.

Actual markets started forming in North
Korea in 2004. After Kim Jong Il came to power, every district in North Korea
formed its own general market. There are stands, a roof, fence, and a
designated entry and exit post, as well as management and even a sign. These
general markets caused a huge shift in North Korean society as more and more
people became interested and invested in them.

2. How would you define
“marketization”?

Marketization is considered the opposite of
government-sanctioned distribution and government-owned property, assets, etc.
The foundations of socialism involve the government providing food and clothes to
the people who are, in turn, expected to follow the government’s rules.
Starting in the 1980s and ’90s, however, the North Korean regime was unable to
distribute rations, so the people had to fend for themselves. Thus, they
started to actively buy and sell things in order to survive.

This slowly became a widespread social
trend, and as more and more items were being bought and sold, the relationships
between sellers and buyers got more and more complex. In the end, the North
Korean people began to understand that they no longer had to rely on the state
to provide for them; they could work hard and provide for themselves. This is
the phenomenon called “marketization”.

3. Markets also existed in the Kim Jong Il
era. How were these markets different than the markets under Kim Jong Un?

Kim Jong Il created the markets, which are
the precursors to today’s general markets. During his regime, Kim Jong Il
allowed general markets to a degree but he was very restrictive. Until he died,
Kim Jong Il always wanted to go back to distributing rations and maintaining
North Korea’s original governmental structure. This is because giving the
people food to eat allowed for easier control and stronger loyalty to the
state. However, Kim Jong Il’s market control policies were ultimately
unsuccessful. So in 2009, late into Kim Jong Il’s regime, when the currency
reform failed and they could not force the Pyongsong Market to close, the
regime decided to leave the markets alone and just keep watch over them
instead.

Kim Jong Un was very busy when he first
came to power. He inspected all of his officials and had to figure out a way to
elevate his prestige internationally, etc. so he didn’t pay much attention to
the markets in the beginning. So, because of this neglect, marketization took
off. The number of stands in general markets increased, more people became
involved, more items were bought and sold, and even more money came into
circulation. That’s why there aren’t many North Koreans who are dissatisfied by
Kim Jong Un because he loosened up regulations on the markets. Now, the markets
are very different from Kim Jong Il’s time. Kim Jong Il tried to limit the
markets to a controllable level, but Kim Jong Un seems to have just continued
to leave the markets alone like Kim Jong Il ultimately did in 2009.

4. I’ll ask you a bit more detailed
question. What changed between Kim Jong Un’s initial market policies and Kim
Jong Un’s current market policies, now that the regime is more stable?

First of all, it’s Kim Jong Un’s fourth
year in his reign as the top leader. Compared to when he first came to power in
2012, more and more people are coming out to the markets. Also, more and more
people are buying and selling items made in China and items produced
domestically in North Korea. The important thing to note is that not only are
there buyers and sellers in the market, but there are also now money-lenders,
service cars that carry stock items, and railway safety officials with the MPS.
And then there are also the low to mid-level officials who are turning a blind
eye to all of these activities. Basically, a variety of social relationships
are forming.

5. Markets seem to be quite lively in North
Korea. What kinds of things take place in the markets, aside from buying and
selling?

If I were to sum up the activities of the
markets it would be that they set prices. Prices are formed based on the
buyers’ and sellers’ supply and demand for certain items, and this
price-forming process brings about some secondary phenomena as well.

First, there is information exchange. This
is when people trade information that they know. Second, there are deeper
interpersonal relationships. When the country distributed rations, there was no
deeper relationship than between the citizen and the state. However, that
relationship has fallen apart, and now people are developing personal
relationships with each other. This is because one must form relationships of
trust and competition in order to earn money. Therefore, we can see that social
relationships are becoming more complex. Lastly, the North Korean people’s
values are changing. They’ve realized that relying on the state and insisting
on their political beliefs will not fill their stomachs. Therefore, they are
pursuing a kind of “self-rehabilitation” by intertwining trade,
transactions of all manner, prices, and the general markets.

6. I want to ask you this next question
because you’ve researched these markets extensively. Many North Koreans are
probably listening to this broadcast right now. What do you think they should
sell in order to make the most money? Or what should they do in order to
increase their money -making ability?

“Market economy” is commonly
referred to as capitalism. One of the main facets of capitalism is advertising
products. How an item was made and who made it directly influence how an item
does on the market. In a normal, capitalist country, there are many ads on TV
and in the newspapers about the product and the company selling the product.
However, ads are not possible in North Korea right now. That’s why, to a buyer,
the seller’s credibility is more important than information about the item
itself.

This is because even if you tell someone
that a product is good because it was made in China, they have no way of
knowing what company made it or what the product is even made out of. They only
have the word of the seller that the item they are buying is good. I’d like to
add that business strategies are important, too. Think about whether it’s worth
selling items quickly for small profits and quick returns or selling high
quality items for a higher price and higher profit.

The truth is, there are more markets and
market stalls  since the beginning of the Kim Jong Un regime. Everyone is
doing business in order to make a living, and competition has become fierce.
The products on the market are mainly of Chinese origin, and those made
domestically in North Korea are of similar quality. Therefore, those that can
guess what will sell well, do well.

According to economic theory, the first
principle for business success is to provide where there is demand. The second
principle is that supply creates demand. In the era before the invention of
computers, there was no demand for computers. Someone invented computers and
then people started to want them and want to buy them. And computer companies
ended up making a lot of money. So next time you’re trying to think of what to
sell, apply this “supply creates demand” principle and maybe sell
products that no one else is selling.

7. We know that market stands are
increasing within markets themselves. What does that mean for North Koreans?

First of all, it means that the North
Korean authorities are either allowing the increase of market stands or turning
a blind eye towards it. Indeed, the North Korean authorities stand to benefit
more as the number of markets stands increase. The benefits are as follows:

First off, there is less pressure on the
state to provide food and clothing rations if the citizens provide for
themselves. Second, they can charge quasi-taxes like “stall fees”.
And third, mid and low-level officials don’t get rations either, so they are
able to use what power and authority they have to make a living off of stall taxes and bribes.

Second, the increase of market stands also
means that competition has gotten fierce. This is because the number of people
wanting to do business has increased. Apart from people succeeding and people
failing, the increasing number of people has had another debilitating factor:
the stall fees and premiums on market stands have increased. Meaning, it has
gotten more difficult for poorer people to acquire a market stand and start a
business. It is very possible that this will create social polarization in
North Korea.

8. What does the North Korean regime think
of the increase in market stands? Will they tolerate it?

First of all, neither the North Korean
leadership nor the Workers’ Party ever speak about the general markets’ stalls,
so mid-level officials and low-level officials, like the markets’ managers,
manage and control the general markets at their own discretion. This is
because they have a lot to gain from people who do business at the markets.

The more markets there are, the more they
stand to benefit. From the consumer’s point of view, the more market stands
there are, the more choices the consumer has for where to take their business,
and consumer satisfaction goes up. There are no disadvantages to having more
market stands. And it’s not as though the North Korean authorities have
anything to fear; it’s not as though capitalism is sweeping in through the
markets because general markets are not illegal under the regime. Thus, it’s
more than likely that the authorities will do nothing to stop the increase of
market stands.  

9. The authorities seem to be collecting
quite a bit from stall fees now. Did they always implement this de facto tax?

They started collecting stall fees around
1997~1998. They were once told to organize the sprawling markets around at the
time. As they carried out the order, MPS personnel collected small sums of
100-200 KPW from each stand. This was their monthly pay, and honestly, they
fulfilled a need for peace and security for the markets. The stall fee was made
official in 2004, when general markets were legalized. They assess the quality
of the goods at each stand, to come up with the cost of the fee for each
market stand.

Stands that sell higher quality items, such
as industrial material, and make more of a profit have to pay a higher stall
tax. Whereas stands that sell low profit items such as scarves and side dishes,
have a lower stall fee. The stall fee can be anywhere from 500 to 2000 KPW,
with an average of about 1000 KPW per stand. There are about 372 estimated
general markets in North Korea right now, with a total of about 1 to 1.2
million market stands. Therefore, we can estimate that North Korean authorities
earn about 100,000 tons of rice through these stall fees every year.

10. I have a question about currency. Do
people use North Korean money when buying and selling items?

North Korean currency holds no value
because North Korean currency cannot catch up to the actual cost of living in
North Korea. Right now the price of 1 kg of rice is about 6000 KPW. The highest
currency note in North Korea is 5000 KPW, meaning you can’t even buy 1 kg of
rice with North Korea’s highest currency note. This is incredibly inconvenient.
Meanwhile, because of China’s increased aid, there is a lot of yuan in
circulation in North Korea, so many merchants and consumers use yuan in their
transactions. In fact, if merchants say that something is “25 won”,
they don’t mean 25 North Korean won, but actually 25 yuan. Many people use
American dollars as well. However, there are more 100-dollar bills in
circulation than small bills such as 50, 10, 5, and 1-dollar bills, so people
only use American dollars for big transactions. Yuan is the general currency of
choice at the North Korean markets.

11. My last question is a comprehensive
one: Is North Korea’s marketization bad for the regime, or will it eventually
aid in its economic reconstruction?

In the short term, the North Korean
authorities, the Workers’ party, the North Korean people, and the general
markets themselves are all benefiting from the effects of marketization. The
North Korean people’s incomes are increasing, and so their quality of life is
getting better. There was a fear during the Kim Jong Il era that marketization
would lead to capitalism and the people would not obey the state, but in the
ten years since general markets were legalized, those fears have not come to
fruition. In fact, the state itself has been freed from the burden of providing
for its citizens.   

Mid to low-level officials accept bribes
and implement government regulations, which allow merchants to chase after
profit, meaning that all parties, whether it be the state officials or the
citizens, stand to benefit in the short-term. However, there is the question of
how long this will all last. The more money you earn, the more you want to
earn. If the government implements restrictions on how much one can earn, the
people might not stand for it. It’s the same for mid-level officials because
the more people earn, the more they benefit. If the regime is ignorant of the
reality of the markets and tries to implement outdated policies, there may be
cause for unrest and dissent.  

That’s why there are many countries whose
regime change began because of marketization. There is no guarantee that this
won’t happen in North Korea as well, especially because recently the North
Korean leadership hasn’t been up to par. Disaster for the regime
could be just around the corner.
 

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