When most people think of North Korea, they likely think of vast Stalinist combines pumping out steel and heavy machine tools, and collective farms that produce grain under the watchful control of the state. They do not think of merchants, markets, and workers in private firms making a steady income from doing an honest day’s work.
This will not come as news to many a North Korea watcher, but it bears repeating: much of the country’s economy is now marketized. So what does that mean in the case of the fishing industry – recently targeted for the first time by United Nations Security Council (UNSC) resolution 2371?
FROM STATE TO PRIVATE
North Korea still has a sizable fleet of state-owned fishing trawlers, refrigeration and logistics ships, and workers in their state-run cooperatives. At least for much of the last 20 years, however, these operations have been operating well below their real capacity. State fishing firms were inefficiently organized, overmanned, and since the famine of the 1990s, have often not had the necessary diesel to go out to sea.
North Korea’s fishing sector was, like its heavy industry, organized around the principle of scale: bigger is better, larger ships and more crew equals more production at lower marginal cost. The problem was, of course, that this was not actually true, and like the Soviet fishing fleet, it was inefficient, expensive and required a huge amount of oil to run.
Like in other countries of the socialist bloc, in the 1990s, market incentives led to downsizing and downscaling in North Korea’s fishing sector. The state’s firms lay idle without diesel.
North Korea’s market economy and the emergent entrepreneurial class had already spotted an opportunity. From the late 1980s, intrepid young men began to dive (literally) for oysters, shellfish (mollusks), and sea cucumbers in the West Sea. As is the case now, the catch was theirs. They were not working for a state company.
The scheme has remained essentially unchanged. It involves obtaining a license to go out to sea from the local police (for a fee/bribe), finding a place to moor your boat (for a moorage fee/bribe), and sorting out logistical arrangements/equipment (more on that below). The boat is also registered with a local state enterprise/institution for a promise to remit a certain fixed amount (profit sharing/bribe).
North Korea’s fishing sector was, like its heavy industry, organized around the principle of scale
These fees, or ‘bribes’, do help finance the central government to some extent, as they would in any economy. But how much of them ultimately pay for missiles is not something we can deduce from interview testimony.
What is quite clear is that graft is endemic throughout the industry, and promotes regime cohesion. But it is a cost of business, and this business represents the livelihood of tens of thousands of people (a conservative estimate).
The registration scheme might sound familiar to readers interested in the North Korean economy, and registering businesses with local companies in order to create a pseudo-state enterprise is standard practice in much of the DPRK. The practice originates from some time in the 1980s, with one researcher (Yun In-ju) citing refugee testimony that indicates it was legalized in the late 1980s on Kim Il Sung’s instruction.
Regardless of when they began, we should be clear about what these entities are, and how they work.
At least some of North Korea’s fishing fleet is private, run by entrepreneurs and manned by men in their 20s and 30s who make money from selling their catch for their families and for their own survival. Refugees I have interviewed indicate that most of North Korea’s fishing fleet in the northeast and southwest has been private since the 1990s.
The fleet is private in the sense that much of the money it generates ends up in private hands. It is also private in the sense that actual control of the boats, the catch, and day-to-day operations are handled by business people and by the crews that work with them. These people are innocent, and should not be sanctioned for what their government does with missiles and bombs.
In the 1990s, market incentives led to downsizing and downscaling in North Korea’s fishing sector
THE NET BENEFITS
Among one of many booming parts of the North Korean private sector, North Korea has a thriving net industry. From talks with people familiar with the business, there are thriving little clusters of a cottage industry that produce nets and other equipment for North Korea’s fishing sector.
Some of the materials are imported, but North Koreans have their own standards for the proportions of nets that have evolved over time, and the North Korean net industry works in cooperation with fishermen and women to meet current demand. The industry is run out of people’s houses, with entire families sometimes involved in producing custom-made nets to order.
Running a net workshop in your home is actually legal in North Korea. It is one of the few kinds of industry that is because it constitutes ‘household production’ under North Korean law, and is thus not considered to be ‘private’ (capitalist) enterprise because there is no wage labor involved.
Other equipment, like wetsuits, engines, diving equipment and breathing apparatuses, are mainly imported (often smuggled) from overseas, largely from China. There is a developed import-based market for these, which has grown over the past 30 years since operations began. North Korean companies could probably produce much more of this equipment in-house, and they may be moving in that direction.
Among one of many booming parts of the North Korean private sector, North Korea has a thriving net industry
One of the major issues, however, is the start-up costs involved in the actual industrial production of electrical and mechanical equipment, hence the need for continued importation. Importing involves a mix of smuggling and legally sanctioned trade with China. But more on that below.
Smaller wooden boats have been produced in the country on a private basis (see above) for decades. There appears to be, though I am not certain, a growing preference for metal boats, some of which are likely imported, but much of the private fishing fleet has been made in-country by skilled craftsmen and women for the last three decades.
Other logistics related services like processing, haulage, and warehousing are handled by merchants (who often buy the catch at the wharf itself), the families of fisherman (their wives, for instance), or by other dedicated businesses. Clearly, some state trade companies have haulage and warehousing operations. But more on the state trade infrastructure below.
THE CENTER CANNOT HOLD
While wholesale markets are mainly private, North Korea’s foreign trade infrastructure is still state-controlled, and has been studied in great depth by the UN panel of experts. It has been well researched by South Korean scholars (I especially recommend the work of Jung Eun-lee), it is well known to be a regime cash cow. But just like everything else in the North Korean economy, it is a bit more complex than it may at first appear.
North Korea’s foreign trade infrastructure is controlled by trade companies run from Pyongyang as parts of major government ministries, the police, military and the party. They have the sole right to export using official export licenses. However, the insides of these operations are far more complex (and often privatized) than they may appear on paper.
Party/state officials as state-owned enterprises most likely run the central offices. But branches underneath are often run by branch managers who invest their own money and skills to make profits out of trade. They have profit-sharing arrangements with the center, and the state makes a substantial amount of money from such operations. But even here, private capital is involved, and markets are present. These operations are not simply state monoliths.
There is also smuggling, and we have no idea of the scale, but it is probably a substantial part of exports. With the proximity of major fishing cities like Chongjin to the border, it is also practical, and a sophisticated network of wholesale markets and haulage companies makes it even easier.
However, even state-owned trade companies work with private wholesale traders to trade with the outside world. They are very much interwoven into the fabric of North Korea’s market economy, and disentangling them is basically impossible: market forces and the state work together to make money. Hit one and you hit the other.
Fish is a major North Korean export, and exporting is essential to the industry’s survival. If shellfish, trout, Pollack and much other sea life did not generate yuan, many North Korean households would have to find something else that does in order for their economy to survive.
Market forces and the state work together to make money
A UN diplomat cited in Reuters recently said that North Korea is projected to earn nearly USD$300 million from seafood and fish this year. It is unlikely that China will be willing to enforce sanctions that could seriously damage the livelihoods of thousands who depend on the trade.
The coast guard and customs officials will probably be briefed on how to handle the trade in a way that ensures it continues in one form or another, perhaps utilizing smuggling networks for more of the trade.
If however, the trade were to be effectively sanctioned, that would be a disaster for the tens (perhaps hundreds) of thousands of people who rely on the industry for their livelihoods. For their sake, it would be better if these sanctions are never seriously enforced.
Edited by Oliver Hotham
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Featured Image: HAMHUNG BEACH AT SUNDOWN DPRK NORTH KOREA OCT 2012 by calflier001 on 2012-10-25 09:17:30