A couple of years ago, I spoke to a small group of North Korean refugees who described the topography of their native town. Among other things, they mentioned a handful of upscale restaurants located near the city’s Workers’ Party headquarters. When asked who owns these establishments, the refugees – without any hesitation – explained it was the state which owned and operated these restaurants.
However, just a few minutes later, our conversation took an unexpected turn. They mentioned an expensive mansion, recently built by a well-to-do local woman, and added that this woman owned at least two of the restaurants mentioned above.
This contradiction did not surprise me greatly, but at the time I was taken aback. I pressed further, asking: “but just a little while ago, you said these restaurants are owned by the state, did you not?”
My interlocutors replied that the restaurants are indeed owned by the state, but like nearly all other restaurants in North Korea there is a rich investor (donju) behind the scenes, injecting the eatery with capital and taking some profits for themselves.
My North Korean interlocutors refused to admit that the restaurant was privately owned
The woman in question was such an investor: buying all necessary equipment, hiring and firing workers, managing daily operations, paying salaries, purchasign foodstuff and the like, and, having paid a fixed amount to the state, pocketing the remaining earnings.
In other words, her functions are virtually indistinguishable from what a private owner would do in a capitalist system. But for an unknown reason, my North Korean interlocutors refused to admit that the restaurant was privately owned.
CAPITALIST IN ALL BUT NAME
In due time, I learned that this mystifying reluctance is common among North Koreans of all ages and social strata. To many outsiders, North Korea’s interpretation of private property appears opaque, convoluted, imprecise, and often wrought with serious internal contradictions.
After all, over the past several centuries the West and societies that have successfully emulated it have developed a remarkably precise understanding of what constitutes private property. However, such concepts are suspiciously absent from the minds of North Koreans.
This should not be taken as ignorance, however. North Koreans understand clearly what belongs to whom. They, however, accept that a particular enterprise can have a number of individuals and agencies who are all seen as owners.
Just a few weeks ago, I had a remarkable confirmation of this perspective, in a conversation with a North Korean entrepreneur, who for many years ran a profitable fishing business. He had a vessel (at some periods more than one), reliable suppliers and buyers, and enjoyed a relatively high income.
As is customary in the North Korean fishing business, this business owner purchased his boats from a small local shipyard in cash, then hired a crew and sent them off to sea to catch fish. All boats were registered with a local state-run construction company. Every month, the business owner had to deliver a fixed amount of money to the company.
This amount was small by North Korean business standards, usually comprising 10 or 15 percent of his actual earnings, and the entire scheme, with its fake registration, is standard for the North Korean private fishing business.
In the early 1990s, with the collapse of the old system, North Korea became a country where property relations are remarkably opaque
At first glance, my interlocutor can be described as the owner of a fishing company. However, when asked frankly if this was the case, he himself was not sure. After some hesitation, he said: “I didn’t think about it much, but probably at the end of the day I was just a state-appointed manager and my boats were state-owned property”.
WHO OWNS WHAT?
I wondered how that could be the case when all the assets for the business were purchased by the entrepreneur’s own cash. His relationship with the state was nearly non-existent, since there was virtually no contact or oversight given: the only time the interlocutor engaged with the state in any capacity was when delivering his obligatory monthly payment.
This was not how the North Korea entrepreneur perceived the situation. He emphasized that all the boats were registered as state property – in his case it was a local construction company which technically owned the boats and also provided him with the necessary paperwork and legal cover. This, to me, was inconsequential legal fiction.
But to him, the registration and his monthly contribution to the state’s coffers was reason enough to question whether or not he was actually a private owner of anything.
Indeed, in the early 1990s, with the collapse of the old system, North Korea became a country where property relations are remarkably opaque. The government still maintains that private ownership of a business entity is illegal, but in practice turns a blind eye and even encourages such activity.
Thus, large and medium-sized enterprises have no choice but to register themselves as subsidiaries of government agencies or state-run companies – otherwise, a private coal mine or shoe factory would be unable to operate. We have seen above how this is done with restaurants and fishing operations, but largely similar schemes have been used throughout all sectors of the economy since the 1990s.
The legal owner of these operations is a ghost: he or she either does not exist on paper, but exists as a humble state-appointed manager, often even not the head of the company he or she actually owns.
For North Korean bureaucrats and state company managers, the unofficial private sector acts as a proverbial goose laying golden eggs
SAFER THAN YOU THINK
At first glance, this arrangement suggests that private investors are highly vulnerable. But in practice their position is far more secure. Managers of construction companies know next to nothing about fishing and cannot run such an operation efficiently. It makes perfect economic sense, then, to make a deal with a local, knowledgeable entrepreneur to invest in a new business and let them handle the fishing responsibilities.
Getting rid of this person, while easy, is economically counterproductive: it could spell the collapse of the entire enterprise and the end of a highly-useful monetary contribution the state greatly depends on.
In order words, for North Korean bureaucrats and state company managers, the unofficial private sector acts as a proverbial goose laying golden eggs. This usefulness protects these pseudo-private business owners and insulates them from abuse and mistreatment.
Such a convoluted mechanism for business ownership may become extremely challenging in the long run, but, currently, North Korean business owners and officials continue this symbiotic relationship with high payoffs for both sides.
This situation is best described by the words of a senior Russian diplomat, who privately told me few years ago: “Imagine a Pyongyang restaurant started by an investment of a rich middle-aged woman, now its chief manager, but officially registered as a property of a foreign trade company established the Ministry for the Interior, with a police general getting part of what the woman has to pay monthly, while also sharing some profits with the deputy minister… If so, who owns it? I do not care, since food in these new Pyongyang restaurants is good”.
In the long run, the ill-defined contours of private ownership are likely to generate considerable obstacles. But even if this is the case, who cares about it now, as long as the food in the new Pyongyang restaurants is good?
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Featured Image: CIMG8605 by Comrade Anatolii on 2012-04-22 23:01:11