I would like to introduce you to Mr. X, a successful North Korean businessman. Of course, the vast majority of newspaper readers worldwide assume that in an allegedly “Stalinist country” (like North Korea), businessmen are not supposed to exist. But they do exist, and prosper – largely because North Korea is not a Stalinist country any more.
Mr. X runs a coal mining company. It is a medium-sized company producing coal for the domestic and export market. For all practical purposes he is the owner of this profitable enterprise. Frankly speaking, I do not know how much money he actually takes home every month, but I would suspect that it is measured in many thousands (of U.S. dollars). Since we are talking about the money that Mr. X takes home for his individual consumption, this makes him seriously rich by North Korean standards.
Like all private enterprises of Mr. X’s company’s size, this enterprise does not formally exist, or to be more precise, it exists as a state-owned enterprise, in which Mr. X is merely a CEO. However, this fiction does not fool anybody, including Mr. X’s superiors.
Mr. X’s enterprise is located in the vicinity of Pyongyang and consists of four small-sized coal mines. Formally, it is a subsidiary of a state agency – to be more precise, of the North Korean military.
The number of such enterprises increased dramatically from around 2000, and from that time onward these enterprises functioned as legal fictions that covered for private economic activities
ROOTS OF PRIVATE ENTERPRISE
Starting from the late 1970s, North Korean bureaucratic agencies, regional governments and military units were given the right to establish their own hard currency earning companies. It was never admitted explicitly, but for all practical purposes this meant a break with the old established patterns of state socialism in which the state controlled and managed everything of any practical economic value.
The number of such enterprises increased dramatically from around 2000, and from that time onward these enterprises functioned as legal fictions that covered for private economic activities.
The early 2000s were precisely when Mr. X got involved in such operations. By that time he had already made a very significant amount of money (frankly, the author is not sure how Mr. X did this). So, as a rich businessman, he was hired by an influential military agency to serve in its recently established “foreign currency-earning company.” The branch he was put in charge of was supposed to mine coal for export. This was a time when coal was rapidly becoming the major export North Korea produced, with China being the major importer.
However, Mr. X faced one serious problem: There were no operational coal mines in the possession of the newly established company. So, he was given the right to restart operations at some small abandoned coal mines (that had been abandoned at the height of the famine and economic crisis that overtook the country in the mid-1990s).
The soldiers/workers dispatched are not paid, and as a matter of fact, they are not expected to be paid, since they are doing their national service while working at Mr. X’s mine
His first task was to work out which of these mines was better suited for being reopened. Mr. X knew much about making money, but he knew little about coal extraction, so he had to hire some professional geologists. Apart from normal salary and expenses, the team of geologists was promised a large bonus of 1 million North Korean won (equal, according to the then exchange rate, of somewhere in excess of $1,000), if they managed to find profitable mines. In due time, the bonus was paid to the researchers.
Geologists located four promising-looking abandoned mines. Mr. X invested money into buying old equipment from other abandoned coal mines – this was not difficult because abandoned mines with rusting equipment are not in short supply in North Korea today. Since he worked under the protection of the military, he had no trouble with getting cheap labor: All the unskilled work done in his mines is done by regular conscripts (who are dispatched by the Korean People’s Army).
The soldiers/workers dispatched are not paid, and as a matter of fact, they are not expected to be paid, since they are doing their national service while working at Mr. X’s mine. Reputedly, these countryside lads do not see much reason to complain: They are extremely well-fed, issued with good work uniforms and housing in warm and dry accommodations (far superior to many, if not most military barracks in North Korea). Mr. X even hired a full-time cook and some kitchen staff to provide generous meals to his corvée laborers.
In the grand scheme of things, Mr. X’s enterprise is not that large: each of the four mines has about 20 miners working only one shift daily. Such a schedule is not by choice; the persistent power shortages make round-the-clock operations all but impossible. Mr. X spends some money on oiling the wheels of those above him in the pecking order, but there are limits to how much he can get from the North Korean electricity grid, the capabilities of which have been strained beyond its limits.
Apart from his soldier/workers, Mr. X also has a number of technicians and engineers who are handsomely rewarded. He also has a small number of office personnel whose job is to procure necessary equipment and also arrange the sale of coal.
WHERE THE MONEY GOES
(Legal) issues can usually be solved with a generous kickback and with some intervention from above
Mr. X’s enterprise was created to facilitate exports to China; however, a significant amount of the output is of too low a quality to be sold to China and has to be sold domestically. Hence, Mr. X employs some agents whose job it is to locate potential domestic buyers – factories that are interested in acquiring Mr. X’s coal. These agents are not paid; they are told the minimum price that the coal must sell for, and if they are able to negotiate a higher price they pocket the difference. Agents usually make quite a good income as well – not as good as Mr. X himself, but well above the average North Korean income.
What of Mr. X’s relations with the North Korean military and state? His enterprise is supposed to produce a certain amount of monetary income, and Mr. X duly delivers this sum to the budget of the foreign exchange-earning company. Some of this delivered sum is probably stolen by the people high in the hierarchy, some is spent on paying for the needs of the North Korean military, and some may make its way to the very top of the state. Apart from this, Mr. X has to pay some money to people on whose favor he is reliant for life and limb. There have been a few cases when Mr. X’s enterprise was subject to random inspections. Potentially, such inspections might be risky, since pretty much everything that Mr. X is doing is illegal, according to the letter of the North Korean law. However, such issues can usually be solved with a generous kickback and with some intervention from above. Thus, Mr. X’s enterprise continues its work.
While the size and number of North Korean (de facto) private enterprises are growing, they are increasingly inclined to disguise themselves as state-run enterprises, while sometimes also purchasing the right to conduct foreign trade operations. Mr. X is affluent and successful, but there are literally thousands of North Koreans like him nowadays.
Picture: Jensowagner, Flickr Creative Commons
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