In the last five to seven years, a consensus has emerged among students of North Korea. Pretty much all now agree that since the mid-1990s, North Korea has undergone a dramatic economic and social transformation. The North Korean government remains remarkably reluctant to admit it, but the transformation has been characterized as the “grassroots” or “spontaneous” marketization of the country.
Beyond the consensus, there continue to exist points of debate. For instance, it remains unclear how large the private economy actually is. Attempts to estimate its size have resulted in figures between 30 percent and 50 percent of North Korean GDP as of 2015. However, such estimates should be taken with a grain of salt, because the relevant statistics are either closely guarded state secrets in North Korea, or do not exist.
Another area of argument surrounds the role and attitude of the state in this transformation. Some people believe that the government has been often supportive of marketization, while others (obviously a majority) tend to think that the government took a rather passive position and merely accepted changes it could neither reverse nor control. These controversies will only be laid to rest when scholars get their hands on North Korean government documents, and this is unlikely to happen any time soon.
We can still, however, chart a rough line of how the North Korean government reacted to marketization. Indeed, there are four distinct periods of North Korean government policy: 1990-2002, 2002-2004, 2005-2009 and from 2010. These periods are easy to define, since changes in the official attitude were abrupt and dramatic, even though the relevant documents have seldom been made public.
1990-2002: GRUDGING TOLERATION
… government officials and police had every technical reason to arrest a majority of market vendors at any time
From the reemergence of the North Korean market in the early 1990s and until summer 2002, the government policy can best be described as tolerance and, occasionally, tacit acceptance. When the North Koreans started to go to the market in the early 1990s, most things they did at the marketplace were technically illegal. In particular, the private sale of grain was explicitly banned in 1957, and this ban has yet to be lifted at the time of writing. Therefore, government officials and police had every technical reason to arrest a majority of market vendors at any time.
Indeed, reports indicate that from time to time, local authorities in various areas did initiate crackdowns against the markets. At least in some cities, markets were even closed for weeks at a stretch, and police occasionally succeeded in driving vendors out of the city streets. However, such successes were short-lived. Once the market stopped functioning, the food situation rapidly deteriorated, leaving the local authorities with little choice but to backtrack and return to their position of passive tolerance.
It remains to be seen to what extent the central government was initially aware of the ongoing changes. The North Korean bureaucracy is designed in such a way that it deters local officials from providing their superiors with news that the latter does not want to hear. Thus, it is quite possible that Kim Jong Il and his entourage underestimated the scale of marketization, though they certainly knew something was happening and decided to do nothing. It is remarkable that crackdowns were initiated and carried out only at a local level before 2002. In general, the central government did all it could to pretend that markets did not exist. The North Korean media maintained, and continues to maintain, a silence about the economic and social changes that have occurred in the country over the last 25 years. The most avid reader of the Rodong Sinmun and other North Korean publications would hardly get even a hint that the average North Koreans nowadays buys most of their food from the market.
2002-2004: REFORMS, HALF-BAKED AND ABORTED
The second period lasted from 2002 to 2005 (or, perhaps late 2004). The government made a dramatic about-face in summer 2002, on July 1, when a set of policies officially known as the “Economic Management Improvement Measures of 1st July” were unveiled. The North Korean government did not use the ideologically contaminated word “reform,” but that is basically what these measures amounted to.
Having said that, they were less radical than they initially appeared. Technically, the “Measures of 1st July” lifted bans on various kinds of private trade, and legalized some forms of market activity. However, upon closer inspection it became clear that most of these activities, while technically illegal, had been widespread for some time, so the state merely legalized widespread practices it knew it could not control. Subsequent introduction of “General Markets” in 2003 and the legalization of the sale of industrial produce, including garments and consumer electronics, also merely reflected the state’s recognition of its lack of ability to control markets. Tellingly, most of the vendors did not even notice the change of policy.
The state gave managers in state industries a measure of autonomy over their personnel
Having said that, there were some elements of the “Measures of 1st July” which were more radical. The state gave managers in state industries a measure of autonomy over their personnel: The managers could pay higher salaries to efficient workers, for example.
It was the Sinuiju Special Economic Zone (SEZ) that was the most spectacular part of this reform, however. The SEZ was to be granted privileges similar to those enjoyed by Hong Kong: a quasi-state, with its own banking system, legal system and border controls. To show they meant business, the North Koreans even invited Yang Bin, a Chinese real estate tycoon to run the SEZ, instead of a North Korean official.
The reforms proved to be short-lived, however. Industrial managers soon lost their autonomy, while the SEZ in Sinuiju unraveled in just a few months, after Yang Bin was arrested by the Chinese authorities and given a lengthy prison sentence that he is still serving.
2004-2009: THE STATE STRIKES BACK
Another change in policy, heralding the beginning of the third period, occurred in 2005, and meant a rather dramatic about-face: the government moved from cautiously embracing changes to the most strenuous of efforts to crack down on marketization. Such efforts began in earnest in October 2005 when the North Korean government announced that the public distribution system would be completely restarted the following year and that all North Koreans would be henceforth issued food rations. It was also implied that markets, so recently encouraged, would soon become unnecessary.
Thus, from 2005 to 2009, the North Korean government introduced a number of policies clearly aimed at undermining the fast-growing private sector in the economy. First, they banned men from engaging in market trade. Then this ban was then extended to young and middle-aged women. The latter policy was a major blow to the markets because it was women in their 20s and 30s that constituted the majority of vendors at marketplaces. At the same time, the North Korean government began to attempt the enforcement of the ban on sales of grain, while also setting maximum prices for all foodstuffs. There was even an attempt to close down most markets in early 2009, cancelled at the last moment.
These policies did not succeed, however. The local authorities were halfhearted at best in enforcing the measures, and usually gave up quickly. Most of the time, though, central directives were just ignored.
Obviously, local decision-makers understood well that without markets, a grave economic crisis would hit their area. They probably did not mind taking the generous bribes they received for turning a blind eye to illegal activities.
The 2005-2009 reaction against the market culminated in the currency reform of 2009. The reform was designed in such a way as to undermine the power of private business and confiscate a significant part of the private businesses” operational capital. This policy was also a spectacular failure. While many private entrepreneurs did indeed suffer a major blow, the general result was unprecedented chaos and near open outbreak of public discontent. The government was forced to hastily execute another U-turn, essentially reviving the pre-2002 policy of tacit tolerance. To show that they meant business, Kim Jong Il and his advisers even sacrificed some persons from within their milieu: Pak Nam Ki, then responsible for party finance, was made a scapegoat and executed for his alleged role in the currency reform.
2010-?: TOLERATION AGAIN
In the last two years of Kim Jong Il’s life, as well as under his son’s watch, the North Korean government has not touched private business
Thus it was that the fourth stage began in early 2010 and has continued to present. It is not widely understood, but the last five years might have been the best time in which to do business in North Korea for all levels of North Korea’s emergent entrepreneurial class. From humble vegetable vendors at remote village markets to super rich de facto owners of coalmines, things have never been so good.
In the last two years of Kim Jong Il’s life, as well as under his son’s watch, the North Korean government has not touched private business. So far, it has not introduced any regulations that would seriously damage the interests of the emergent North Korean bourgeoisie. On the contrary, if some persistent rumors are to be believed, the local authorities have been advised to actively cooperate with the new rich, using their capital to launch some major projects.
So policy has returned back to square one, after a series of dramatic shifts – never reported in the domestic media. Policy can change at any time, but at present, times are good for the better off in North Korean society – and perhaps for the population in general.
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